hong kong insurance supervision framework · market development - i. belt and road initiative (bri)...

Hong Kong insurance supervision framework

Mr. Tony Chan Associate Director Insurance Authority of Hong Kong

29 March 2019

Table of Contents

• Establishment of the Insurance Authority (IA)

• Market Overview

• Market development Belt and Road Initiative

Greater Bay Area

Insurance Linked Securities

• Public education

• Insurtech

• Group-wide supervision

• Enhancement of market conduct

• Direct licensing regime of insurance intermediaries

• International cooperation

2

Establishment of Insurance Authority (IA)

Establishment of IA

4

• Insurance regulator independent of the government and the industry • Took over statutory functions from the former Office of the

Commissioner of Insurance to regulate insurance companies in Jun 2017 • Will start direct licensing for insurance intermediaries by Q3 2019

Regulate insurers and insurance intermediaries

Conduct studies, propose law

reforms

Promote proper conduct and

practices

Facilitate market development,

promote global competitiveness

Promote public education

Assist Financial Secretary to

maintain financial stability

Apart from the inherited prudential approach, the IA is also statutorily charged with clear responsibility

• Facilitate market development

• Promote public education

• Ensure market stability

5

Establishment of IA (Cont’d)

Market overview

7

Market overview Long Term Business – In-force premium

Include Mainland China Visitors: CAGR = 11.2% (7.9% in real term) Exclude Mainland China Visitors: CAGR = 7.2% (4.0% in real term)

* Based on provisional figures

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

-200.0

-100.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual NominalGrowth Rate

Premiums(HKD billion)

Hong Kong Long Term Business - In-force Premium* (2009 - 2018)

Include Mainland China Visitors Exclude Mainland China Visitors

Annual nominal growth rate (RHS)(Include Mainland China Visitors)

Annual nominal growth rate (RHS)(Exclude Mainland China Visitors)

8

Market overview Long Term Business – New business

Include Mainland China Visitors: CAGR = 10.3% (7.1% in real term) Exclude Mainland China Visitors: CAGR = 7.2% (4.0% in real term)

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual NominalGrowth Rate

Premiums(HKD billion)

Hong Kong Long Term Business - New Business Premium* (2009 - 2018)

Include Mainland China Visitors Exclude Mainland China Visitors

Annual nominal growth rate (RHS)(Include Mainland China Visitors)

Annual nominal growth rate (RHS)(Exclude Mainland China Visitors)

* Based on provisional figures

9

Market overview General Business – Trend of growth

* Based on provisional figures

CAGR = 6.1% (3.0% in real term)

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

AnnualGrowth Rate

Premiums(HKD billion)

Hong Kong General Business - Gross Premium (2009 - 2018*)

Gross Premium Annual nominal growth rate (RHS) Annual real growth rate (RHS)

10

Market overview General Business – Detailed breakdown

41%

16%

11%

11%

9%

5%5%

2%0.2%

Breakdown by Class of Business in 2018*

Accident and Health

General Liability - Employees'Compensation

Property Damage

Motor Vehicle, Damage & Liability

General Liability - Others

Pecuniary Loss

Ships, Damage & Liability

Goods in Transit

Aircraft, Damage & Liability

* Based on provisional figures

11

Market overview General Business – Detailed breakdown

* Based on provisional figures

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Accident andHealth

GeneralLiability -

Employees'Compensation

PropertyDamage

MotorVehicle,

Damage &Liability

GeneralLiability -

Others

PecuniaryLoss

Ships,Damage &

Liability

Goods inTransit

Aircraft,Damage &

Liability

2009

2018*

Personal Accident and Health business was the

outperformer

12

Market overview General Business – Underwriting performance

* Based on provisional figures

60.0%

70.0%

80.0%

90.0%

100.0%

110.0%

120.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Combined ratio

Combined ratio (%)Accident and Health Property Damage

Motor Vehicle, Damage & Liability General liability - Employees' Compensation

General liability - Others Overall Industry

The charts and numbers tell……

• Long-term business experienced favorable growth but highly sensitive to Mainland visitors and showing structural imbalance;

• Emerging risks posed by demographic changes and longevity not well addressed;

• Top ranking in insurance penetration and density, but protection gap (mortality) still exists; and

• General business remains stagnant and increasingly domestically-focused.

13

What’s the message from the market?

All driven by IA’s statutory functions:

• Facilitate market development

• Promote public education

• Ensure market stability

14

How to react on these messages?

15

For General business, these initiatives may help to facilitate market development by

Enlarging offshore business, focus should be put on,

i. Belt and Road Initiative

ii. Greater Bay Area

iii. Insurance Linked Securities

16

Market development - i. Belt and Road Initiative (BRI)

Belt and Road Initiative

- New business prospects

- Project owners exposed to a multitude of specialty risks

- Estimated to generate commercial insurance premiums of US$28 bn by 2030

Risk management

- Complex projects and unique risk landscape

- Strong technical expertise and risk management skills required

- Prevent, manage, mitigate or transfer risks

Hong Kong as a global risk management centre and a regional insurance hub - One of the world’s most vibrant

insurance centres

- International financial centre and premier offshore RMB business centre

- Business friendly environment

- Strategic geographic location

- World class professional services

Hong Kong’s risk management role under BRI

Source: Swiss Re Economic Research & Consulting estimates

17

Corporates and project

owners

Insurers, reinsurers and

captives

Professional service

providers

Trade / industry

associations

Investment promotion agencies

Insurance intermediaries

Investors and

financiers

Forging alliances & facilitating networking

Exchanging intelligence

on risk management & insurance

Belt and Road Insurance Exchange Facilitation (BRIEF)

Market development - i. Belt and Road Initiative (BRI) (Cont’d)

18

Market development - ii. Greater Bay Area (GBA)

Population: 69 millions GDP: US$1.5 trillion

(12% of the country’s GDP)

*Core City

*

*

* *

19

Deepen Cooperation

Promote coordinated

economic development

Leverage the complementary

advantages

Develop an international first-class bay area for living, working and

travelling

Outline Development Plan for the GBA

Market development - ii. Greater Bay Area (GBA) (Cont’d)

20

Opportunities to Hong Kong Insurance Industry

• Strong demand for wealth management and medical

and life insurance products • Enormous opportunities to develop the Mainland

insurance market with high-end and high value-added insurance services

• Build a talent pool for the insurance industry

Market development - ii. Greater Bay Area (GBA) (Cont’d)

21

Outline Development

Plan

RMB reinsurance

business

Innovative insurance products

Facilitation services

Setting up operations

in GBA

Cross-boundary

transactions of insurance

products

Initiatives for the Insurance Industry

• The IA shall follow the

guiding directions in the Outline Development Plan and proactively take forward work relating to the development of the Greater Bay Area

Market development - ii. Greater Bay Area (GBA) (Cont’d)

22

What is ILS? • Financial instruments whose values depends on insurance

loss events • Transactions where insurance risks are transformed into

capital market products Objectives

• Provide an alternative risk management tool • Raise the insurance capacity • Attract alternative capital • Provide addition investment options for investors to

diversify the investment risk

Market development - iii. Insurance Linked Securities (ILS)

Purpose:

• Mortality Protection Gap study aiming to address the inadequate insurance protection against Mortality risk

Action:

• Promote public education on the underserved segment: both product type and customer groups

23

Research Study – Drive for policy initiatives

24

• Protection Gap : Protection needs minus resources available • Objectives:

• Raise public awareness of Mortality Protection Gap • Suggest feasible and cost effective solution to close the gap • Promote the needs of regular review on insurance portfolio

• Key findings:

Average size of

Protection Gap

HKD 1,670,000

(USD 214,000)

*per economically active adult

Average size of

Protection Gap

5.4 times

of average annual

income * per economically active adult

Size of overall

Protection Gap

HKD 6 trillion

(USD 770 billion)

Mortality Protection Gap Study 2018

25

Public education

i. Collaboration with Investor and Financial Education Council (IFEC) Examples: • “Tips on Buying Insurance” Leaflet • Insurance Education Seminar • Intensive education campaign to enhance public

understanding of deferred annuity products

26

Public education

ii. Ride on the strategy of virtual insurers

• Insurtech stimulates innovation, enhances value proposition, improves customer experience and broadens financial inclusiveness

• IA authorized the first virtual insurer under Fast Track

Embrace the technology advancement

28

Insurtech

Having a positive Eco-

system development of Fintech in a broader sense

Making use of RegTech

Creating a positive

disruption on Insurtech

application

Our Vision

29

Insurtech (Cont’d)

Engage with the young and tech-savvy

An excellent medium for public education

Serve as a growth engine

Narrow the protection gap

Market Development / Public Education

30

Insurtech (Cont’d)

Insurtech Sandbox

• A platform for authorized insurers to run pilot trials of innovative Insurtech applications

• Most of our sandbox cases relate to the application of Insurtech at Point of Sale

Fast Track

• A dedicated queue to handle new authorization applications proposing to use only digital distribution channels

• IA authorized the first virtual insurer under Fast Track in Dec 2018

IA launched two pilot initiatives in September 2017:

31

Insurtech (Cont’d)

Insurance Fraud Prevention Claims Database (IFPCD)

• Utilize AI technology

• Able to help detect different types of insurance fraud (particularly those involving multiple claims and syndicates)

• Phase 1: motor, medical and personal accident insurance

• Continue to develop the IFPCD to include life and travel insurance in Phases 2 and 3

Motor Insurance DLT-based Authentication System (MIDAS)

• Blockchain application to help authenticate motor insurance cover notes / policies

• Specific QR codes are generated for the use of car owners and the Transport Department

• Help eliminate the malpractice of fake motor cover note to protect public interest

Insurtech initiatives by the industry

32

InsurTech (Cont’d)

To promote good practices and tighten internal controls for managing cyber threats confronting insurers

To strike a sensible and pragmatic balance between protection of policy holders and facilitating innovation

To step up liaison with other financial regulators

Way Forward

Additional supervisory role

34

• IA is the group supervisor of 2 insurance groups and group supervisor-elect for another insurance group

• Constitute around 40% of market share (by new business or inforce business premium)

• IA proposed legislative amendments to provide explicit powers of IA on insurance groups. Legislation is now under development.

Group-wide supervision

Stepping up regulatory oversight: i. Enhancement of market conduct ii. Direct licensing regime of insurance

intermediaries

36

• IA is stepping up efforts in inspective and investigation activities

• A new dedicated division was formed in IA focusing on conduct risks for both insurers’ and intermediaries’ conduct

• Insurers’ conduct Additional guideline were issued under the principle of fair

treatment of customers for insurers Guideline on medical insurance business under industry

consultation

Enhancement of market conduct

37

Set out licensing, F&P and conduct

requirements

Process licence applications and update Register of licensees

Monitor Continuing

Professional Development

(CPD) Compliance

Conduct inspection to

ensure compliance

Promote proper

standards of conduct

Handle complaints and

identify key conduct risks

Conduct investigation

Impose disciplinary

actions

Direct licensing regime of insurance intermediaries (Cont’d)

Our international ties

39

International cooperation

International Association of Insurance Supervisors (IAIS) • IA enhanced its participation in the IAIS by recently joining the

Executive Committee, in addition to existing memberships in various IAIS committee and working groups.

Executive Committee

Capital, Solvency & Field Testing Working Group

Implementation and Assessment

Committee

Insurance Groups Working Group

Standards Assessment

Working Group

Market Conduct Working Group

Signatories Working Group

Financial Crime Task Force

40

International cooperation (Cont’d)

• One of the IAIS’ goals is to increase the focus on a range of

emerging issues that are impacting insurance.

• IA supports market development that synchronizes with the goals

of IAIS

Close the

Protection Gap Insurtech Cyber Security

Risk Climate Risk Financial

Inclusion

01 02 03 04 05

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International cooperation (Cont’d)

Organize workshops on new regulatory and

accounting standards, emerging risks and other

contemporary issues

AFIR survey template on Capacity Building &

contact list template of supervisors of regionally

active insurance groups

AFIR Meetings

• Jun 2018 - IA hosted the 13th AFIR meeting

• Dec 2018 – IA hosted a workshop on IFRS 17

• May 2019 - The 14th AFIR annual meeting will

take place in Macau

Asian Forum of Insurance Regulators (AFIR) • As Chairman of the AFIR , IA is committed to forging greater

solidarity and closer dialogue among Asian insurance regulators and to supporting the goals of IAIS.

Capacity Building

Information Exchange

THANK YOU!

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