A proposed compensation scheme that seeks to protect policyholders from insurer collapse has been supported by Hong Kong lawmakers in Legislative Council discussions that took place earlier this week. If passed, the scheme will give life and general insurance policies the same protection that third-party liability motor or work-related injuries insurance have in Hong Kong.
Under this proposed scheme, policyholders can pay a levy of up to .07% of the premium they pay for each policy to build two funds: one for life insurance, the other for general insurance. In the event that the Insurance Authority (IA) officially declares a collapse for any of the more than 150 insurers operating in Hong Kong, covered policyholders can claim for compensation.
Three coverage options were presented, according to a report from the SCMP: HK$1 million, HK$2 million, or HK$4 million per policy. A bigger payout cap would mean a longer period to pool the compensation, with the expected range building up between six and 14 years.
Hong Kong lawmaker Robert Lee Wai-wang, who represents the financial services sector, said that the state already has compensation funds to protect depositors from the collapse of a bank, while the securities sector also has it to pay investors in the collapse of a broker. This new scheme represents the next logical step.
“It will be ideal for the insurance sector to also have a compensation arrangement to protect the policyholders in case of the collapse of an insurer,” he said.
While it has garnered praise from lawmakers, several of them also expressed worry that the proposal only covers individual policyholders, leaving out small- and medium-sized enterprises (SMEs). Responding to this, permanent secretary for the financial services and treasury Salina Yan Mei-mei said that coverage for these businesses will come after the scheme becomes more developed.
“It will be too technical to cover the SMEs so the scheme would not cover them in the initial stage. However, the protection scheme will be expanded to cover the SMEs at a later stage when the scheme will be more mature,” Yan said.
Although not a recurring theme, Hong Kong has seen insurance firms collapse in the past. The report said that in the last 30 years, three general insurance companies in the region have collapsed. None of the life insurers, meanwhile, suffered the same events.
In direct correlation to the region’s rising insurance trend, the Hong Kong Stock Exchange (HKEx) announced its first-ever listed catastrophe bond from the World Bank, worth US$350 million.
What are your thoughts on this story? Please feel free to share your comments below.
