hong kong insurance supervision framework · market development - i. belt and road initiative (bri)...
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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
41
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!
42