The Hong Kong government is working to introduce protection for insurance policyholders in case their insurer unexpectedly goes under.
According to officials, the legislative procedure to create the long-anticipated safety net worth HK$1 million (US$130,000) for each insurance policy is already underway.
However, several lawmakers raised questions as to whether the proposal would be able to protect the over 10 million insurance policyholders in Hong Kong, reported the South China Morning Post.
Joan Hung, principal assistant secretary for financial services and the treasury, said that the proposal, known as the Policy Holder’s Protection Scheme Bill, will be submitted to the legislature for discussion in the 2018-2019 legislative session.
If the bill is approved, all insurers operating in Hong Kong will contribute 0.07% of their premium income to establish two compensation funds. One fund, which will be for the life insurance sector, will be worth HK$1.2 billion, while the other will be for general insurance and will be worth HK$75 million. The funds will be formed over a 15-year period, and if they are used up by a huge claim, the levy will be raised to 1%.
The maximum coverage will be worth HK$1 million per life or general insurance policy, and individuals and small/medium enterprises are eligible if their insurer goes under.
“Although Hong Kong has a very robust regulatory system, and there have only been a handful of insolvencies involving small non-life insurers in the past two decades, the 2008 international financial crisis highlighted the need for a more comprehensive compensation fund, for protecting policyholders with a view to strengthening their confidence in the insurance market,” Eddie Cheung, deputy secretary for financial services and the treasury, was quoted as saying by SCMP.
“It would be important to have the safety net to cover SMEs, as many small restaurants and other smaller companies will have problems if they cannot get insurance in case their insurance company collapses,” Cheung added.
While several lawmakers questioned the adequacy of the bill, Cheung said that the program matches international standards. The maximum levy of 1% is in line with Singapore, but is lower than Canada (1.5%) and the US (2%).
