Chapter 1: RISK AND INSURANCE PDF p.9

1.1 CONCEPT OF RISK PDF p.9

1.1.1 Meaning of Risk

There have been many attempts to define ‘risk’. Probably, to most of us, ‘risk’ contains a suggestion of loss or danger. We may therefore define it as ‘uncertainty concerning a potential loss’, a situation in which we are not sure whether there will be loss of a certain kind, or how much will be lost.

It is this uncertainty and the undesirable element found with risk that underlie the wish and need for insurance.

The potential loss that risk presents may be:

(a) financial: i.e. measurable in monetary terms (e.g. loss of a camera by theft);

(b) physical: death or personal injury (often having financial consequences for the individual or his family); or

(c) emotional: feelings of grief and sorrow.

Only the first two types of risks are likely to be (commercially) insurable risks. Also, from a wider perspective, not every risk will be seen in the negative form we have just outlined (see 1.1.2a below).

Note: Without trying to complicate matters, we should also be aware that insurance practitioners may use the word ‘risk’ with other meanings, including:

1 the property or person at risk that they are insuring or considering insuring; and

2 the peril (i.e. cause of loss) insured against (so, some policies may insure on an ‘all risks’ basis, meaning that any loss due to any cause is covered, except where the cause is excluded from cover).

1.1.2 Classification of Risk

To simplify a complex subject, we may classify risk under two broad headings (each having two categories) according to:

(a) its potential financial results; and

(b) its cause and effect.

1.1.2a Financial Results

Risks may be considered as being either Pure or Speculative:

(i) Pure Risks offer the potential of loss only (no gain), or, at best, no change. Such risks include fire, accident and other undesirable happenings.

(ii)Speculative Risks offer the potential of gain or loss. Such risks include gambling, business ventures and entrepreneurial activities.

The majority of the risks which are insured by commercial insurers are pure risks, and speculative risks are not normally insurable. The reason for this is that speculative risks are engaged in voluntarily for gain, and, if they were insured, the insured would have little incentive to strive to achieve that gain.

1.1.2b Cause and Effect

Risks may also be considered as being either Particular or Fundamental:

(i) Particular Risks: They haverelatively limited consequences, and affect an individual or a fairly small number of people. The consequences may be serious, even fatal, for those involved, but are comparatively localised. Such risks include motor accidents, personal injuries and the like.

(ii) Fundamental Risks: Their causes are outside the control of any one individual or even a group of individual, and their outcome affects large numbers of people. Such risks include famine, war, terrorist attack, widespread flood and other disasters which are problems for society or mankind rather than just the ‘particular’ individuals involved.

The majority of the risks which are insured by commercial insurers are particular risks. Fundamental risks are not normally insurable because it is considered financially infeasible for insurers to handle them commercially.

1.1.3 Risk Management

‘Risk management’ is a term which is used with different meanings:

(a) in the world of banking and other financial services outside insurance, it is probably used with reference to investment and other speculative risks (see 1.1.2a above);

(b) insurance companies will probably use the term only in relation to pure risks, but they may well restrict it even further to insured risks only.

Thus, when insurers talk about ‘risk management’, they could well be referring to ways and means of reducing or improving the insured loss potential of the ‘risks’ they are insuring, or being invited to insure;

(c) as a separate field of knowledge and research, risk management may be said to be that branch of management which seeks to:

(i) identify;

(ii) quantify; and

(iii)deal with risks (whether pure or speculative) that threaten an organisation. Tools or measures of risk handling include:

- risk avoidance: elimination of the chance of loss of a certain kind by not exposing oneself to the peril (e.g. abandoning a nuclear power project so as to eliminate the risk of nuclear accidents);

- loss prevention: the lowering of the frequency of identified possible losses (e.g. activities promoting industrial safety);

- loss reduction: the lowering of the severity of identified possible losses (e.g. automatic sprinkler system);

- risk transfer : shifting a certain risk of loss from one party to another (e.g. purchase of insurance and contractual terms shifting the financial loss of pure risk).

;

- risk financing: no matter how effective the loss control measures an organisation takes, there will remain some risk of the organisation being adversely affected by future loss occurrences.

A risk financing programme is to minimise the impact of such losses on the organisation. It uses tools like: insurance, risk transfer other than insurance, self-insurance, etc. (Whilst insurance is closely connected with risk management, it is only one of the tools of risk management.)

To illustrate (i) - (iii) above, suppose a supermarket finds that it is losing goods from its shelves. It identifies its possible causes by observation, which could be theft by customers, theft by staff, etc. It quantifies the loss from frequent stocktaking compared with cash receipts (making allowance for staff errors).

It may deal with the risk, for example, by installing closed circuit TV, or (if market conditions allow) by raising prices generally to offset such losses, or by setting up a self-insurance fund for them.

1.2 FUNCTIONS AND BENEFITS OF INSURANCE PDF p.12

Insurance has many functions and benefits, some of which we may describe as primary and others as ancillary or secondary, as follows:

(a) Primary functions/benefits: Insurance is essentially a risk transfer mechanism, removing, for a premium, the potential financial loss from the individual and placing it upon the insurer.

The primary benefit is seen in the financial compensation made available to insured victims of the various insured events. On the commercial side, this enables businesses to survive major fires, liabilities, etc. From a personal point of view, the money is of great help in times of tragedy (life insurance) or other times of need.

(b) Ancillary functions/benefits: Insurance contributes to society directly or indirectly in many different ways. These will include:

(i) employment: the insurance industry is a significant factor in the local workforce;

(ii) financial services: since the relative decline in manufacturing in Hong Kong, financial services have assumed a much greater role in the local economy, insurance being a major element in the financial services sector;

(iii) loss prevention and loss reduction (collectively referred to as ‘loss control’): the practice of insurance includes various surveys and inspections related to risk management (see 1.1.3(b) above).

These are followed by requirements (conditions for acceptance of risk) and/or recommendations to improve the ‘risk’. As a consequence, we may say that there are fewer fires, accidents and other unwanted happenings;

(iv) savings/investments: life insurance, particularly, offers a convenient and effective way of providing for the future. With the introduction of the Mandatory Provident Fund Schemes in 2000, the value of insurance products in providing for the welfare of people in old age or family tragedy is very evident;

(v) economic growth/development: it will be obvious that few people would venture their capital on costly projects without the protection of insurance (in most cases, bank financing will just not be available without insurance cover).

Thus, developments of every kind, from erection of bridges to building construction and a host of other projects, are encouraged and made possible partly because insurance is available.

Representative Examination Questions

The examination will consist of 75 multiple-choice questions. The majority of the questions will be very straightforward, involving a simple choice from four alternatives.

These we may call Type ‘A’ Questions. A selection of the questions (probably between 10% and 15%) will be slightly more complex, but again involving a choice between four alternatives.

These we may call Type ‘B’ Questions. Examples of each are shown below.

Type ‘A’ Questions

1 Risk may be described as the uncertainty concerning a potential loss. That potential loss may be:

(a) physical; ..... (b) financial; ..... (c) emotional; ..... (d) all of the above. .....

[Answer may be found in 1.1.1]

2 A risk which offers the prospect of loss only, with no chance of gain, may be described as a:

(a) pure risk; ..... (b) particular risk; ..... (c) speculative risk; ..... (d) fundamental risk. .....

[Answer may be found in 1.1.2a]

Type ‘B’ Questions

3 Which of the following statements concerning risk are true?

(i) All risks are commercially insurable. (ii) Not all risks are commercially insurable. (iii) The only remedy for any kind of risk is insurance. (iv) Insurers may mean a number of things when talking about ‘risk’.

(a) (i) and (iii) only; ..... (b) (ii) and (iv) only; ..... (c) (i) and (iv) only; ..... (d) (i), (iii) and (iv) only. .....

[Answer may be found in 1.1-1.1.1]

4 Which of the following may be considered as being among the secondary or subsidiary benefits of insurance to Hong Kong?

(i) means of savings (ii) source of employment (iii) encouragement of economic development (iv) reduction in number of accidents/losses

(a) (i) and (ii) only; ..... (b) (i), (ii) and (iii) only; ..... (c) (iii) and (iv) only; ..... (d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 1.2(b)]

Note: The answers to the above questions are for you to discover. This should be easy, from a quick reference to the relevant part of the Notes.

If still required, however, you can find the answers at the end of the Study Notes.

Chapter 2: LEGAL PRINCIPLES PDF p.15

This and the next Chapter will concern principles of law, but the Notes will not provide a comprehensive survey of some very complex issues.

The purpose of the Notes, as with the overall study, is to give an insight into the important aspects of an insurance intermediary's professional activities.

2.1 THE LAW OF CONTRACT PDF p.15

This is an area of law which affects every one of us, whether in our personal or business lives. As we shall see, contract is an essential element in civilised societies, therefore it is important to have some appreciation of this important subject.

2.1.1 Definition

The simplest definition for ‘contract’ is probably: a legally enforceable agreement. There are a large variety of agreements, but not all are intended to have legal consequences.

A social arrangement between two persons, such as a lunch appointment for example, is an agreement, but where either of them unilaterally cancels the appointment, there is no suggestion that the disappointed party should be able to take legal action against the other party, because the agreement is not legally recognised as valid.

Contracts comprise promises or undertakings, usually given in exchange for a promise or undertaking from the other side. In legal terminology, contracts are something intangible. Therefore, an insurance policy in itself is not a contract;

instead it is the most commonly used evidence of an insurance contract. An insured who has been affected by a fire will not expect the insurer to deny his insurance claim on the grounds that the insurance contract no longer exists after the insurance policy has been destroyed in the fire.

Contracts may concern relatively trivial (such as buying a newspaper or taking a tram ride) or very important matters (such as a major building project or employment).

In any event, the contracting parties expect promises to be honoured, and can demand compensation or enforced performance if they are not honoured.

2.1.2 Types of Contracts

For our purposes, we may consider that there are two major types of contract, as follows:

(a) Simple contracts: Although these are described as ‘simple’, this does not mean that they only deal with uncomplicated matters and are easy to understand. Rather, it means that they are simple or easy to form.

A simple contract is one created verbally, or by writing not under seal. It can also be inferred from conduct. In short, the validity of simple contracts does not depend on special formalities.

[An example of a contract inferred from conduct is where someone picks up a newspaper from a street vendor and where their body language clearly indicates a purchase. Technically, a contract is formed between the seller and buyer, with the acts of handing over and accepting the money for the newspaper:

no words or writing are needed.]

In fact, the great majority of insurance contracts are ‘simple’ contracts. Technically, insurance contracts, to be valid, do not have to be evidenced in writing; but in practice, they almost always are. Nevertheless, as we shall see later, insurance contracts of a certain type are legally required to be evidenced by insurance policies.

(b) Contracts by deeds: A deed is a written instrument signed, sealed and delivered. (Delivery is no longer required to be physical delivery; an intention to be unconditionally bound by the deed suffices.) It must be used with certain transactions such as a transfer of land. Besides, suretyship is always issued in the form of a deed;

otherwise, when a claim arises, the obligee may possibly face a defence put up by the surety that he has not the right to sue because he has provided no consideration (see 2.1.3 (c) below for the doctrine of consideration).

2.1.3 Elements or Essentials of a Contract

For the purposes of this section, we shall be talking only of simple contracts (see 2.1.2(a) above), since these constitute the great majority of contracts that are met in insurance transactions.

To be a valid contract, an agreement must meet certain criteria called ‘elements of contract’ in the course of its formation. Should any of these elements be absent, the proposed contract either does not exist or is defective in another sense. There are three types of defective contracts, as follows:

1 Void (or invalid) contracts: This means that the proposed contract does not exist in law; it is entirely without legal effect. In the context of insurance, the implication is that generally all premiums which have already been paid under a void contract (or invalid agreement) are returnable;

so are claims paid.

2 Voidable contracts: A voidable contract is one that is apparently of legal effect and that remains to be legally effective unless and until an aggrieved party to the contract treats it as void as from contract conclusion within a reasonable time after acquiring knowledge of the availability of such a right of election.

In insurance, it could arise, for instance, with a breach of some types of policy provision, or the discovery that important information was omitted or wrongly given at the proposal stage (see 3.2 below);

3 Unenforceable contracts: This means what it says, an unenforceable contract cannot be enforced (or sued on) in a court of law. However, this is not because it is void, but because some required action has not been taken (e.

g. stamp duty not paid on a lease of land, marine insurance policy not issued, etc.). This defect can be remedied by carrying out the required action, so that the contract becomes enforceable (e.

g. by issuing a marine policy even after a loss has realised).

Turning to the elements of contract themselves, legal textbooks are not always agreed just exactly how many elements should be found with any one valid contract, but we shall consider six criteria here, as follows (remembering that we need not go into great detail):

(a) Offer: if no offer is made, obviously there can be no agreement between the two or more parties. In insurance, the offeror may be the intending insured (perhaps by completing and submitting to the insurer a proposal form (or application form)), or the insurer (perhaps as a counter-offer or in connection with a policy renewal);

all depends on intention as evidenced by facts. Therefore, although it is widely accepted that an act of completing an insurance proposal form is normally an act of offer, it is technically incorrect to say that it is a settled law that completing an insurance proposal form is an act of offer to the insurer.

(b) Acceptance: the proposed contract cannot come into being unless the offer is accepted by the other party (the offeree). All terms of the offer must be accepted before a contract is concluded. If that other party intends to vary the terms of the proposed contract (requiring increased premium or policy restrictions, for example), this, upon its communication, constitutes a counter-offer, which will have the effect of nullifying the original offer.

A counter-offer is subject to acceptance by the original offeror (who becomes the offeree with the counter offer).

(c) Consideration: this is the price (monetary or otherwise) a contracting party pays for the promise the other party (‘promisor’) makes to him.

In the case of a simple contract, consideration must be given by both parties; otherwise it is void. On the other hand, a promise contained in a deed, even if it has been given not for consideration, is enforceable at common law by the promisee. In other words, a unilateral promise not made by a deed is invalid. In insurance, the consideration is:

(i)the promise by the insured to pay premium; and

(ii)the promise by the insurer to pay or compensate as per policy terms.

Note: 1 Where an insured event occurs before the premium promised is paid, the insured will still be entitled to insurance payment in accordance with the terms of the contract and the insurer will have a separate claim against him for the unpaid premium.

However, some policies require actual payment of premium as consideration, which requirement will have the effect of overriding the said legal rule.

2 The insurer's consideration is the promise to pay, etc., rather than the actual payment. In many cases, no claim arises under the policy, but when the insured period ends the insurer is treated as having provided consideration, and therefore there will not be a question of the contract being void for lack of consideration leading to an entitlement to return premiums.

(d) Capacity to contract: it means the legal ability to enter into a contract. With individuals, if they are mentally disordered, or are minors, the contracts they make are generally voidable at their option.

With companies, they must not act in a way that exceeds their legal powers.

(e) Legality: the subject of the agreement must be legal. A contract to kill or to commit any other crimes, for example, is not valid. Likewise, insurance on smuggled goods would also not be legally recognised. However, exceptions do exist.

For instance, the courts may enforce an insurance claim in favour of an insured under an insurance contract that has been held to be illegal simply because of the insurer’s failure to meet the statutory requirement for authorisation to transact the kind of insurance business in question.

(f) Intention to create legal relation: to make a valid contract, each party to it must clearly have the intention that it is to have legal consequences.

This seldom gives rise to any problem with insurance contracts because, unlike social or domestic agreements, commercial agreements are presumed to have been made with an intention to create legal relation.

2.1.4 Privity of Contract

In common law, there is the doctrine of privity of contract, which consists of two general rules. First, a third party is not obliged to perform (and cannot be made liable for failing to perform) the terms of a contract to which he is not a party.

Second, a third party cannot enforce a right under a contract to which he is not a party, even if the contract expressly confers a benefit on the third party.

To this doctrine, the Contracts (Rights of Third Parties) Ordinance (Cap. 623) makes some exceptions.

Cap. 623 provides that a third party to a contract who is expressly identified in the contract by name, as a member of a class or as answering a particular description, may enforce a term of the contract, if the contract expressly provides that he may do so;

or if the term purports to confer a benefit on him unless, on a proper construction of the contract, the term is not intended to be enforceable by him.

This is so even where the third party has given no consideration for the term, or the third party was not in existence when the contract was entered into.

However, the enforcement of the term by him is subject to any express contrary term in the contract – for instance, a contract may expressly exclude the operation of Cap.

623 from the contract.

To strike a balance between protecting a third party’s interests and the freedom of the contracting parties to amend the contract, Cap.

623 prohibits the contracting parties from rescinding or varying the relevant term of the contract, without the third party's consent, beyond a cutoff point, i.

e. when the third party has notified the promisor of his assent to the term (whether the assent and the notice are in writing or otherwise), or when the third party has relied on the term and the promisor is aware of that reliance or can reasonably be expected to have foreseen such reliance.

Nevertheless, an express term prevails over the statutory limitation just said if the express term allows the contract to be varied or rescinded without the third party's consent, and the third party is aware of such express term or the contracting parties have taken reasonable steps to make the third party aware of the term.

2.2 THE LAW OF AGENCY PDF p.19

Before we commence this section, it is very important to realise that the law of agency is much wider than its application to insurance agents (important as that is).

Therefore, in the following paragraphs, do not think only of insurance agents. The comments apply to every kind of agent (a shipping agent, an estate agent, etc.), an explanation of which immediately follows.

(a) An agent in this context is a person who represents a principal. In the insurance industry, the position is made a little complex because an Insurance Intermediary may be described as an Insurance Agent (usually representing the insurer) or as an Insurance Broker (usually representing the insured/proposer), as the case may be. Within the law of agency, they are both agents.

(b) The law of agency is deceptively simple in theory, but sometimes quite complex in practice. Essentially, this whole area of law is governed by the legal principle that ‘he who acts through another is himself performing the act’.

In other words, the principal is bound (for good or ill) by the authorised actions, and sometimes even the unauthorised actions (see 2.2.2 and 2.2.3 below), of his agent.

Thus, when a child (agent) buys something on credit from a grocery store at his mother’s (principal) bidding, a contract of sale is created between the store and the mother so that she becomes liable to pay the price.

(c) The principal who becomes bound by the acts of his agent is exposed to vicarious liability, liability incurred as a result of an act or omission of another.

2.2.1 Definition

Agency is the relationship which exists between a Principal and his Agent. Because it is a relationship, it may arise as a matter of fact rather than as a precise agency appointment.

In legal terms, an agency relationship may be deemed to arise in certain given circumstances.

The law of agency are those rules of law which govern an agency relationship. The law of contract also has to be considered as the agent often arranges an agreement with the third party, or performs it, on behalf of his principal.

There are two contracts to consider:

(a) one between the agent and the principal; and

(b) another quite different one between the principal and the third party.

Note: an agency can exist without an agency contract. For example: a child (gratuitous agent) goes to buy a pack of sugar on behalf of his mother (principal), with authority to bind the mother in so doing, which is not granted under a contract of agency between them (remember that a domestic arrangement generally does not constitute a contract).

2.2.2 How Agency Arises

When we say that an agency relationship exists between two parties, we are, in essence, saying that the agent owes certain duties to the principal and vice versa, and that the agent has some sort of authority to bind the principal in respect of some contract or transaction to be made on the principal’s behalf with another person (third party).

There are a number of ways in which an agency relationship may arise. These we consider below:

(a) By agreement:whether contractual or not; express, or implied from the conduct or situation of the parties.

(b) By ratification:Ratification is the giving of retrospective authority for a given act. That is to say, authority was not possessed at the time of the act, but the principal subsequently confirms the act, effectively backdating approval.

It can be done in writing, verbally, or by conduct.

For example, an insurance agent who is only authorised to canvass household insurance business for an insurer has an opportunity to secure an attractive fire insurance risk and purports to grant the required fire insurance cover to the client.

The proposed insurance contract is technically void for it has been made without authority from the insurer. However, the insurer may subsequently accept the insurance and confirm cover so that the contract becomes valid retrospectively.

2.2.3 Authority of Agents

The issue of authority is related to, but distinct from, the issue of agency relationship. Where a certain act done by A purportedly on behalf of B will be binding on B, A is said to have B’s authority to do it; but that does not necessarily mean that there is an agency relationship, or a full agency relationship, between them, which will, for instance, entitle A to reimbursement by B of expenses incurred on behalf of B.

The various types of authority that an agent may have are considered below:

(a) Actual authority: The authority of an agent may be actual where it results from a manifestation of consent that he should represent or act for the principal, expressly or impliedly made to the agent himself by the principal.

An actual authority can be an express actual authority or an implied actual authority. An express actual authority is an actual authority that is deliberately given, verbally or in writing. By contrast, an implied actual authority arises in a larger variety of circumstances;

put simply, it may arise out of the conduct of the principal, from the course of dealing between the principal and the agent, or the like.

(b) Apparent authority:The authority of an agent may be apparent instead of actual, where it results from a manifestation of consent, made to third parties by the principal.

The notion of apparent authority is essentially confined to the relationship between the principal and a third party, under which the principal may be bound by an unauthorised act of the agent of creating a contract or entering into a transaction on behalf of the principal.

Suppose an underwriting agent has been expressly forbidden by his principal from accepting cargo risks destined for West Africa. In contravention of this prohibition, the agent has on several occasions verbally granted temporary cover to a client for such risks purportedly on behalf of the principal, each time followed by issuance of policies for them by the principal to the client.

Because of such past dealings, future similar acceptance by the agent may be binding on the insurer on the basis of apparent authority to the agent.

(c) Authority of necessity: In urgent circumstances where the property or interests of one person (who may possibly be an existing principal) are in imminent jeopardy and where no opportunity of communicating with that person exists, so that it becomes necessary for another person (who may possibly be an existing agent) to act on behalf of the former, the latter is said to have an authority of necessity so to act and becomes an agent of necessity by so acting even though he has not acquired an express authority to do that.

The implications are that: by exercising such an authority, the agent creates contracts binding and conferring rights on the principal, and becomes entitled to reimbursement and indemnity against his principal in respect of his acts.

Besides, he will have a defence to any action brought against him by the principal in respect of the allegedly unauthorised acts.

For example, when a person is very ill in hospital, a neighbour and friend volunteers and gives help, by assisting with domestic arrangements at his home. This includes payment of the renewal premium for his household insurance. As a result, he will probably be unable to refuse repaying the neighbour for the premium, as the neighbour will almost certainly be considered an agent of necessity.

Secondly, he will probably be unable to declare the insurance void and demand a return of premium from the insurer. Thirdly, it is unlikely that the insurer will be able to deny claims under the policy on the grounds that the policy was renewed without his authority.

(d) Agency by estoppel: Where a person, by words or conduct, represents or allows it to be represented that another person is his agent, he will not be permitted to deny the authority of the agent with respect to anyone (third party) dealing with the agent on the faith of such representation.

Despite the binding effect of the acts of the agent done in such circumstances, this doctrine, agency by estoppel, does not generally create an agency relationship unless, say for example, the unauthorised act of the agent is subsequently ratified. In other words, the operation of this doctrine only concerns the relationship between principal and third party.

Note The doctrine of apparent authority is distinct from the doctrine of estoppel. The first doctrine applies where an agent is allowed to appear to have a greater authority than that actually conferred on him, and the second doctrine applies where the supposed agent is not authorised at all but is allowed to appear as if he was.

2.2.4 Duties Owed by Agent to Principal

These may be summarised as follows:

(a) Obedience: The agent has to follow all lawful instructions of his principal, strictly or as best as is reasonably possible.

(b) Personal performance: The agent is not allowed to delegate his authority and responsibilities to others (subagents) unless he has authority to do so.

(c) Due care and skill: The law does not demand perfection, and an agent is normally only required to display all reasonably expected skills and diligence in performing his duties.

Whilst his principal may be bound by his lack of care, the principal may in turn reclaim from the agent in respect of a loss caused by the lack of care.

(d) Loyalty and good faith: The agent’s obligations of loyalty and good faith are governed by several strict rules of law, the no conflict rule being one of them.

(e) Accountability: The agent has to account for all moneys or other things he receives on behalf of his principal. He also has to keep adequate records relating to the agency activities.

2.2.5 Duties Owed by Principal to Agent

These may be summarised as follows:

(a) Remuneration: The agent is entitled to receive commission or other remuneration (such as bonus) as agreed. The principal has to pay within a reasonable time or any specified time limit, as the case may be.

(b) Expenses, etc.: The principal, subject to any express terms in the agency agreement, has to reimburse the agent for costs and expenses properly and reasonably incurred by the agent on behalf of the principal; e.

g. legal defence expenses paid by a claims settling agent.

(c) Breach of duty: The agent may take action against the principal for the latter’s breach of obligations to him.

2.2.6 Termination of Agency

There are a number of ways in which an agency agreement can be brought to an end. These include:

(a) Mutual Agreement: Generally speaking, all agreements may be terminated by mutual agreement, on terms agreed between the parties.

(b) Revocation: Subject to any contract terms as to notice and/or compensation, either the principal or the agent may revoke (i.e. cancel) the agreement during its currency.

(c) Breach: If either the principal or the agent commits a fundamental breach of contract, the other party may treat the contract as ended (with a possible right of compensation).

For example, an exclusive agent, upon discovering that the principal, in breach of a contract condition, has appointed a second agent before the expiry of the agency agreement, may terminate performance immediately and sue the principal for any loss of the profit expected from performing the agreement during the remainder period.

(d) Death: Because an agency relationship is a personal one, the death of either the principal or the agent will end the agreement.

Should either party be a corporate body (company), its liquidation will have the same effect.

(e) Insanity: If either the principal or the agent becomes insane so that he no longer can perform the agreement, the agreement will automatically come to an end.

(f) Illegality: If it happens that the agency relationship or the performance of the agreement is no longer permitted by law, this will automatically end the agreement.

Suppose a British company (buying agent) has a contract with a company (principal) incorporated and domiciled in another country whereby the buying agent will purchase in the United Kingdom stuffs like wheat,

steel, sulphur and other chemicals on behalf of the principal. On the outbreak of a war between the two countries, this agreement will, in the English law, automatically end for illegality.

(g) Time: If the agreement is for a determined period, it will terminate at the end of such period.

Representative Examination Questions

Type ‘A’ Questions

1 A contract may be defined as:

(a) a legally enforceable agreement; ..... (b) a promise between two or more people; ..... (c) an agreement that is expressed in writing; ..... (d) any agreement between two or more parties. .....

[Answer may be found in 2.1.1]

2 Ratification by a principal of the actions of his agent effectively means that:

(a) the agency agreement is terminated; ..... (b) the agent will not be entitled to any commission; ..... (c) the principal ‘back-dates’ approval of the actions; ..... (d) the principal refuses to accept responsibility for those actions. .....

[Answer may be found in 2.2.2(b)]

Type ‘B’ Questions

3 Which two of the following statements regarding simple contracts are true?

(i) they must never be in writing (ii) they are not issued under seal (iii) they must always be in writing (iv) they may be verbal or in writing

(a) (i) and (ii); ..... (b) (i) and (iii); ..... (c) (ii) and (iii); ..... (d) (ii) and (iv). .....

[Answer may be found in 2.1.2(a)]

4 Which of the following are regarded as essential elements in any valid simple contract?

(i) offer (ii) acceptance (iii) consideration (iv) capacity of the parties to contract

(a) (i) and (ii) only; ..... (b) (i) and (iii) only; ..... (c) (ii) and (iii) only; ..... (d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 2.1.3]

[If still required, the answers may be found at the end of the Study Notes.]

Chapter 3: PRINCIPLES OF INSURANCE PDF p.27

3.1 INSURABLE INTEREST PDF p.27

The word ‘interest’ can have a number of meanings. In the present context, it means a financial relationship to something or someone. There are a number of features to be considered with ‘insurable interest’, as below.

3.1.1 Definition

Insurable interest is a person’s legally recognised relationship to the subject matter of insurance that gives them the right to effect insurance on it.

Since the relationship must be a legal one, a thief in possession of stolen goods does not have the right to insure them.

3.1.2 Importance of Insurable Interest

An insurance agreement is void without insurable interest. The rules relating to return of premiums under such an agreement vary as between the different classes of insurance. These rules are the general rules on illegality of contract and the relevant provisions of the Insurance Ordinance (“IO”) and of the Marine Insurance Ordinance.

3.1.3 Its Essential Criteria

For an insurable interest to exist, the following criteria must be satisfied:

(a) there must be some person (i.e. life, limbs, etc.), property, liability or legal right (e.g. the right to repayment by a debtor) capable of being insured;

(b) that person, etc. must be the subject matter of the insurance (that is to say, claim payment is made contingent on a mishap to such person, etc.);

(c) the proposer must have the legally recognised relationship to the subject matter of insurance, mentioned in 3.1.1 above, so that financial loss may result to him if the insured event happens.

(However, insurable interest is sometimes legally presumed without the need to show financial relationship. For example, any person is regarded as having an insurable interest in the life of their spouse.)

Note: A financial relationship alone is not sufficient to give rise to insurable interest. For instance, a creditor is legally recognised to have insurable interest in the life of his debtor, but is not allowed to insure the debtor’s property despite his financial relationship to it, unless the property has been mortgaged to him.

3.1.4 How It Arises

Insurable interest arises in a variety of circumstances, which may be considered under the following headings:

(a) Insurance of the Person: everyone has an insurable interest in his own life, limbs, etc. One also has an insurable interest in the life of one's spouse. Further, one may insure the life of one's child or ward (in guardianship) who is under 18 years of age, and a policy so effected will not become invalid upon the life insured turning 18.

(b) Insurance of Property (physical things): the most obvious example arises in absolute ownership. Executors, administrators, trustees and mortgagees, who have less than absolute ownership, may respectively insure the estate, the trust property and the mortgaged property.

Bailees (i.e. persons taking possession of goods with the consent of the owners or their agents, but without their intention to transfer ownership) may insure the goods bailed.

(c) Insurance of Liability: everyone facing potential legal liability for their own acts or omissions may effect insurance to cover this risk (sometimes insurance is compulsory), such liability being termed ‘direct liability’ or ‘primary liability’.

Insurance against vicarious liability (see 2.2(c)above) is also possible, where, for example, employers insure against their liability to members of the public arising from negligence, etc. of their employees.

(d) Insurance of Legal Rights: anyone legally in a position of potential loss due to infringement of rights or loss of future income has the right to insure against such a risk.

Examples include landlords insuring against loss of rent following a fire.

Note: Anyone (agent) who has authority from another (principal) to effect insurance on the principal’s behalf will have the same insurable interest to the same extent as the principal.

For instance, a property management company may have obtained authority from the individual owners of a building under its management to purchase fire insurance on the building. There is no question of a fire insurance effected under such authority being void for lack of insurable interest, even if it is the property management company (rather than the property owners) which is designated in the policy as the insured.

3.1.5 When Is It Needed?

(a) With life insurance, insurable interest is only needed at policy inception. Suppose a woman had effected a whole life policy on the life of her husband, who died some years later.

When the woman presented a claim to the insurer, the latter discovered that at the time of the man’s death, they were no longer in the relationship of husband and wife. That means the woman had no insurable interest in the life of the deceased at the time of the death. Nevertheless, this lack of insurable interest will not disqualify her for the death benefit.

(b) However, with marine insurance, insurable interest is only needed at the time of loss.

(c) The above marine insurance rule is probably applicable to other types of indemnity contracts as well.

3.1.6 Assignment

‘Assignment’ generally means the transfer of a right. In insurance, there are broadly two types of assignment: assignment of the insurance contract (or insurance policy) and assignment of the right to insurance moneys (or insurance proceeds).

They are different from each other in the following manner:

(a)Effect of an assignment of the insurance contract: With an effective assignment of a policy (or contract) from the assignor (original policyholder) to the assignee (new policyholder), the interest of the assignor in the contract passes wholly to the assignee to the effect that when an insured event occurs afterwards, the insurer is obliged to pay the assignee for his loss, not that suffered by the assignor, if any.

In the case of life insurance, assignment will never substitute a new life insured.

(b)Effect of an assignment of the right to insurance moneys (sometimes simply referred to as an assignment of policy proceeds): Assignment of policy proceeds will have an effect on both losses that have arisen and those that may arise. An assigned policy remains to cover losses suffered by the assignor, not those by the assignee, although it is now the assignee (instead of the assignor) who has the right to sue the insurer to recover under the policy.

(c)Necessity for insurable interest: With assignment of the insurance contract, both the assignor and the assignee need to have insurable interest in the subject matter of insurance at the time of assignment; otherwise the purported assignment will not be valid. (Taking assignment of motor policy as an illustration, the requirement of insurable interest will be satisfied by having the motor policy assigned to the purchaser contemporaneously with the transfer of property in the insured car.) However, with assignment of the right to insurance moneys, no insurable interest is needed on the part of the assignee, so that it may actually take effect as a gift to the assignee.

(d)Necessity for insurer’s consent: An assignment of the right to insurance moneys requires no consent from the insurer, irrespective of the nature of the insurance contract concerned. But the position is not that simple with assignment of the insurance contract.

Different types of insurance are subject to different legal rules as to whether a purported assignment of the insurance contract will have to be agreed to, by the insurer.

The matter is further complicated by the fact that very often non-marine policies include provisions that override these legal rules.

Fortunately, it is sufficient for you simply to know that, in practice, unlike all other types of policies, life policies and marine cargo policies are assignable without the insurers’ consent.

(e)Assignment of benefits as opposed to obligations: Assignment does not have the effect of transferring the assignor’s obligations under the insurance contract to the assignee. Such a transfer requires the insurer’s consent.

Note: 1 It is sometimes misunderstood that any policy provision that claim payments have to be made to a designated person other than the insured is an assignment of the right to insurance moneys.

In fact, the courts may construe such a provision as a mere instruction to pay, which will at most give the designated payee an expectation to be paid, rather than the right to sue the insurer, which right remains in the hands of the insured.

2Statutory assignment, the best known form of assignment, is subject to the requirements of section 9 of the Law Amendment and Reform (Consolidation) Ordinance.

3.2 UTMOST GOOD FAITH PDF p.30

3.2.1 Ordinary Good Faith

At common law, most types of contracts are subject to the principle of good faith, meaning that the parties have to behave with honesty and such information as they supply must be substantially true. However, it is not their responsibility to ensure that the other party obtains all vital information which may affect his decision to enter into the contract, or may affect the terms on which he would enter into the contract.

For example, if only after you have boarded a double-decker and paid the fare do you find that no seats on it are vacant, you will have no grounds for complaint.

In technical terms, you are not entitled, in such circumstances, to avoid your contract with the bus company for its failure to voluntarily disclose to you the fact that all the seats have been taken on the bus.

3.2.2 Utmost Good Faith

Insurance is subject to a more stringent common law principle of good faith, often called the principle of utmost good faith. It means that each party is under a duty to reveal all vital information (called material facts) to the other party, whether or not that other party asks for it.

For example, a proposer of fire insurance is obliged to reveal the relevant loss record to the insurer, even where there is not a question on this on the application form.

Note: 1 Insurers sometimes extend the common law duty of utmost good faith by requiring the proposer to declare (or warrant) that all information supplied, whether relating to ‘material’ matters or not, is totally (not simply substantially) true. For example, where a proposer for medical insurance enters ‘30’ as his current age on the proposal form when he is aged 31, this is a technical breach of the above kind of warranty, if any, although this inaccuracy is unlikely to be material in the eyes of the common law principle of utmost good faith as applied to medical insurance.

2 On the other hand, a policy provision may state that an innocent or negligent (as opposed to ‘fraudulent’) breach of the duty will be waived (excused).

3.2.3 Material Fact

(a) Statutory Definition: ‘Every circumstance which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will accept the risk’.

From this definition, it can be seen that there are three categories of material facts, by reference to the kinds of decisions likely to be affected by their disclosure. The first one only concerns the decision to accept or to reject a proposed risk (e.

g. the fact that a proposed life insured has an inoperable malignant brain tumour.) The second only concerns the setting of premium (e.

g. the fact that the insured person of a proposed personal accident insurance is a salesperson). And the third concerns both (e.g. where a proposed life insured is a diabetic).

You should also note that the law looks at an alleged ‘material fact’ in the eyes of a prudent insurer - not a particular insurer, a particular insured or a reasonable insured.

(b) Facts that need not be disclosed: In the absence of enquiry, certain facts need not be disclosed; they include:

(i) matters of common knowledge (e.g. the explosive character of hydrogen);

(ii) facts already known, or deemed to be known, to the insurer (e.g. the problem of piracy in Somalia);

(iii) facts which diminish the risk. [Example: A proposer for commercial fire insurance did not mention the fact that his premises were protected by an automatic sprinkler system, which fact, if disclosed, would have influenced the determination of the premium.

This omission does not breach utmost good faith, as the fact (although very relevant) actually indicates a lower risk.]

3.2.4 When to Disclose Material Facts

It may be said that utmost good faith involves a duty of disclosure by the proposer/insured. Technically, the insurer is under the same duty, but here we will concentrate on the proposer's duty.

This duty has some features that we should note:

(a) Duration (at common law): Those material facts which do not come to the proposer’s (or his agent’s) knowledge until the insurance contract has been concluded do not have to be disclosed. Suppose a proposal for a one-year medical insurance commencing on 15 January 2011 was accepted on 2 January, and the insured had a routine medical examination on 10 January, which revealed to him on 16 January the contraction of malaria. An important question to ask is:

‘Is the insured legally obliged to disclose such finding to his insurer?’ Applying the legal rule just said, the insured is not obliged to do so, assuming that the terms of insurance are silent on this point.

Of course, the policy will normally contain an exclusion for pre-existing diseases, in which case the insurer may rely on this exclusion rather than a breach of utmost good faith in trying to deny a claim in respect of malaria.

(b) Duration (under policy terms): Some non-life policies require the disclosure of material changes in risk happening during the currency of the contract, such as a change in occupation in the case of a personal accident insurance. At common law, such a change, which could at most represent an increase in risk, need not be notified until renewal.

(c) Renewal: when the policy is being renewed, the duty of utmost good faith revives. (Note: the duty of utmost good faith does not revive when a life policy is approaching its anniversary date.)

(d) Contract alterations: If these are requested during the currency of the policy, the duty of utmost good faith applies in respect of these changes.

Where, for example, the insured of a fire policy is requesting an extension to cover theft, he is immediately obliged to disclose all material facts relating to the theft risk, e.

g. the physical protections of the insured premises and his record of theft losses, if any.

3.2.5 Types of Breach of Utmost Good Faith

A breach of utmost good faith can be in the form of either a misrepresentation (i.e. the giving of false information) or a non-disclosure (i.

e. failure to give material information). Alternatively, it can be classified into a fraudulent breach and a non-fraudulent breach (i.

e. a breach committed either innocently or negligently, rather than fraudulently). Both classifications combined produce a four-fold categorisation as follows:

(a) Fraudulent Misrepresentation: an act of fraudulently giving false material facts to the other party;

(b) Non-fraudulent Misrepresentation: an act of giving false material facts to the other party done either innocently or negligently;

(c) Fraudulent Non-disclosure: a fraudulent omission to give material facts to the other party; or

(d) Non-fraudulent Non-disclosure: an omission to give material facts to the other party done either innocently or negligently.

3.2.6 Remedies for Breach of Utmost Good Faith

If the duty of utmost good faith is breached (any one of the four types mentioned above), the aggrieved party (normally the insurer) may have available certain remedies against the guilty party:

(a) To avoid within a reasonable time the whole contract as from policy inception, with the effect that premiums (and claims) previously paid without knowledge of the breach are generally returnable, unless it was a fraudulent breach on the part of the insured or his agent;

(b) In addition to (a) above, it is in principle possible to sue in tort for damages in the case of fraudulent or negligent misrepresentation;

(c) To waive the breach, alternatively, in which case the contract becomes valid retrospectively.

Note: An insurer aggrieved by a breach of utmost good faith does not have the option to refuse payment of a particular claim, to treat the policy as valid for the remainder of the insurance period, and to retain part of or the whole of the premium paid. This is because rescinding only part of a contract is not an available remedy.

3.3 PROXIMATE CAUSE PDF p.33

3.3.1 Meaning and Importance of the Principle

The proximate cause of a loss is its effective or dominant cause.

Why is it important to find out which of the causes involved in an accident is the proximate cause? A loss might be the combined effect of a number of causes.

For the purposes of insurance claim, one dominant cause must be singled out in each case, because not every cause of loss will be covered.

3.3.2 Types of Peril

In search of the proximate cause of a loss, we often have to analyse how the causes involved have interacted with one another throughout the whole process leading to the loss.

The conclusion of such an analysis depends very much on the identification of the perils (i.e. the causes of the loss) and of their nature. All perils are classified into the following three kinds for the purposes of such an analysis:

(a) Insured peril: It is not common that a policy will cover all possible perils. Those which are covered are known as the ‘insured perils’ of that policy, e.

g. ‘fire’ under a fire policy, and ‘stranding’ under a marine policy.

(b) Excepted (or excluded) peril: This is a peril that would be covered but for its removal from cover by an exclusion, e.g. fire damage caused by war is irrecoverable under a fire policy because war is an excepted peril of the policy.

(c) Uninsured peril: This is a peril that is neither insured nor excluded. A loss caused by an uninsured peril is irrecoverable unless it is an insured peril that has led to the happening of the uninsured peril.

For example, raining and theft are among the uninsured perils of the standard fire policy.

3.3.3 Application of the Principle

The principle of proximate cause applies to all classes of insurance. Its practical applications may be very complex and sometimes controversial.

For our purposes, we should note the following somewhat simplified rules:

(a) There must always be an insured peril involved; otherwise the loss is definitely irrecoverable.

(b) If a single cause is present, the rules are straightforward: if the cause is an insured peril, the loss is covered; if it is an uninsured or excepted peril, it is not.

(c) With more than one peril involved, the position is complex, and different rules of proximate cause are applicable, depending on whether the perils have happened as a chain of events or concurrently, and on some other considerations.

Specific cases should perhaps be a matter of consultation with the insurer and/or lawyers, but the general rules are:

(i) uninsured perils arising directly from insured perils: the loss is covered, e.g. water damage (uninsured peril) proximately caused by an accidental fire (insured peril) in the case of a fire policy;

(ii) insured perils arising directly from uninsured perils: the loss from the insured peril is covered, e.g. fire (insured peril) damage proximately caused by a careless act of the insured himself or of a third party (uninsured peril) in the case of a fire policy.

(iii)the occurrence of an excluded peril is generally fatal to an insurance claim, subject to complicated exceptions.

(d) Other Features of the Principle

(i) Neither the first nor the last cause necessarily constitutes the proximate cause.

(ii) More than one proximate cause may exist. For example, the dishonesty of an employee and the neglect on the part of his supervisor of a key to a company safe may both constitute proximate causes of a theft loss from the safe.

(iii) The proximate cause need not happen on the insured premises. Suppose a flat insured under a household policy is damaged by water as a result of a fire happening upstairs.

The damage is recoverable under the policy, although the insured flat has never been on fire.

(iv) Where the proximate cause of a loss is found not to be an insured peril, it does not necessarily mean that the loss is irrecoverable under the policy.

[Illustration: There are four containers of cargo being carried on board a vessel and insured respectively under four marine cargo policies.

The first policy solely covers the peril of collision, the second fire only, the third explosion only, and the fourth entry of water only.

During the insured voyage, because of the master’s negligence, this vessel collides with another. The collision causes a fire, which then triggers an explosion.

As a result, the vessel springs several leaks and all the cargo is damaged by seawater entering through the leaks. These facts show that the cargo damage was proximately caused by negligence. Bearing in mind that negligence is merely an uninsured rather than insured peril of each of the four cargo policies, an immediate, important question that has to be grappled with is:

‘Is the cargo damage irrecoverable under those policies?’ In search of an answer to this question, we must look at the links between the individual events of the incident.

Negligence, the identified proximate cause, naturally causes a collision, which then naturally causes a fire. The fire naturally leads to an explosion, which then naturally causes an entry of water.

At last, the water damages the cargo. Before us is a chain of events, happening one after another without being interrupted by other events.

With respect to each policy, the water damage is regarded as a result of its sole insured peril, notwithstanding that this peril can be traced backward to an uninsured peril.

Therefore, the only conclusion that we can reach is that each of the policies is liable for the water damage to the cargo it has insured. (Of course, if the proximate cause is found to be an excepted peril, the opposite conclusion will have to be made.)]

3.3.4 Policy Modification of the Principle

It is very common for insurers to adopt policy wording that has the effect of modifying the application of proximate cause rules. Two examples of such practice are given below:

(a)‘Directly or indirectly’: There are a whole number of ways that an insurer can frame his policy wording for the purposes of specifying what he wants to cover or not to cover.

For instance, it may use such wording as ‘loss caused by …’, ‘loss directly caused by …’ and ‘loss proximately caused by …’. Well do they mean different things to you?

Will any of them have the effect of modifying the rules of proximate cause? The answer is that they have been held to mean the same thing. That is to say, whether the term ‘directly’ or ‘proximately’ is adopted or left out, the legal rules to be applied are exactly the same and the same scope of cover is given or excluded, as the case may be. But what if the term ‘indirectly’ is used?

A policy exclusion that says that loss ‘directly or indirectly’ arising from a particular peril (excepted peril) is excluded has been construed by the courts to mean that a loss will not be

recoverable even where the operation of that excepted peril has only been a remotely (as opposed to ‘proximately’) contributory factor.

Read the following decided court case for illustrations:

An army officer was insured under a personal accident policy, which excluded claims ‘directly or indirectly caused by war’. During wartime, the insured was on duty supervising the guarding of a railway station.

Walking along the track in the darkness, he was struck by a train and killed. It was held that although the war was merely an ‘indirect’ cause of the death, the policy wording meant that the insurer was not liable.

(b)‘Loss proximately caused by delay, even though the delay be caused by a risk insured against’ (an exclusion wording quoted from a marine cargo insurance clause most commonly used): Suppose an insured shipment of calendar for the year 2011, expected to arrive on 1 December 2010, does not arrive until 15 February 2011 because of a collision (insured peril) involving the carrying vessel during the insured voyage. By relying on the exclusion, the insurer can deny a ‘loss of market’ claim from the insured even though the loss is due to an insured peril.

Note: Remember that the principle of proximate cause is sometimes very complicated. There have been many interesting, sometimes surprising court cases which have decided its application.

In particular, not too rarely are inconsistent or opposing judicial decisions seen in factually similar cases which are made on the basis of the same rule(s) of proximate cause, perhaps because the judgments of the judges vary from one case to another on how the facts of a case relate to one another.

Therefore, please do not assume that knowledge of the above brief notes will make you an expert in this area.

3.4 INDEMNITY PDF p.36

3.4.1 Definition

Indemnity means an exact financial compensation for an insured loss, no more no less.

3.4.2 Implications

Indemnity cannot apply to all types of insurance. Some types of insurance deal with ‘losses’ that cannot be measured precisely in financial terms.

Specifically, we refer to Life Insurance and Personal Accident Insurance. Both are dealing with death of or injury to human beings, and there is no way that the loss of a finger, say for instance, can be measured precisely in money terms.

Thus, indemnity cannot normally apply to these classes of business. (Note: medical expenses insurance, which is often included in personal accident and travel insurance policies, is indemnity insurance unless otherwise specified in the policies.)

Other types of insurance are subject to the principle of indemnity.

Note: It is sometimes said that life and personal accident insurances involve benefit policies rather than policies of indemnity.

Since indemnity cannot normally apply, the policy can only provide a benefit in the amount specified in the policy for death or for the type of injury concerned.

3.4.3 Link with Insurable Interest

We studied insurable interest in 3.1. That represents the financial ‘interest’ in the subject matter, which is exactly what should be payable in a total loss situation, if the policyholder is to be completely compensated. However, life and personal accident insurances may generally be regarded as involving an unlimited insurable interest, and therefore indemnity cannot apply to them.

3.4.4 How Indemnity is Provided

It is common for property insurance policies to specify that the insurer may settle a loss by any one of four methods named and described below.

However, both marine and non-property policies are silent on this issue so that the insurer is obliged to settle a valid claim by payment of cash.

(a) Cash payment (to the insured): This is the most convenient method, at least to the insurer.

(b) Repair: Payment to a repairer is the norm, for example, with motor partial loss claims.

(c) Replacement: With new items, or articles that suffer little or no depreciation, giving the insured a replacement item may be a very suitable method, especially if the insurer can obtain a discount from a supplier.

(d) Reinstatement: This is a word that has a number of meanings in insurance. As a method of providing an indemnity, it means the restoration of the insured property to the condition it was in immediately before its destruction or damage.

Note: You are absolutely correct if you understand that the term ‘reinstatement’ overlaps in meaning with ‘repair’ and with ‘replacement’.

3.4.5 Salvage

When measuring the exact amount of loss (which indemnity is), it has to be borne in mind with certain property damage that there will sometimes be something left of the damaged subject matter of insurance (fire-damaged stock, the wreck of a vehicle, etc.).

These remains are termed ‘salvage’. If the remains have any financial value, this value has to be taken into account when providing an indemnity.

For example:

(a) The value of the salvage is deducted from the amount otherwise payable to the insured (who then keeps the salvage); or

(b) The insurer pays in full and disposes of the salvage for its own account.

Note: The term ‘salvage’ in maritime law has a very different meaning, where it usually refers to acts or activities undertaken to save a vessel or other maritime property from perils of the sea, pirates or enemies, for which a sum of money called ‘salvage award’ (or just ‘salvage’) is payable by the property owners to the salvor provided that the operation has been successful.

The term is sometimes also used to describe property which has been salved.

3.4.6 Abandonment

This is a term mostly found in marine insurance, where it refers to the act of surrendering the subject matter insured to the insurers in return for a total loss payment in certain circumstances.

This is quite standard in marine practice, but in other classes of property insurance, policies usually specifically exclude abandonment.

The important thing to be remembered with abandonment is that the subject matter insured (or what is left of it) is completely handed over to the insurer, who may therefore benefit from its residual value. (This will be important with Subrogation;

see 3.6 below).

3.4.7 Policy Provisions Preventing Indemnity

While policies in some classes of business promise to indemnify the insured, this has to be done subject to the express terms of the policy, if any.

Some of these terms mean that something less than indemnity is payable. For example:

(a) Average: Most types of non-marine property insurance are expressly subject to average. This means that the insurer expects the insured property to be insured for its full value. If it is not, in the event of a loss the amount payable will be reduced in proportion to the under-insurance. For example, if the actual value of the affected property at the time of a loss was $4 million and it was only insured for $1 million, we may say that the property was at the time of the loss only 25% insured. Therefore, by the application of average, only 25% of the loss is payable.

In view of this penalty for under-insurance, it is very important for insurance intermediaries to do their best to ensure that their clients will arrange full value insurance.

Note: In marine insurance, ‘average’has a totally different meaning. Here it means partial loss, a loss other than total loss. Average in marine insurance is complex and beyond the needs of this present study.

(b) Policy excess/deductible: An excess or deductible is a policy provision whereby the insured is not covered for losses up to the specified amount, which is always deducted from each claim.

Suppose a motor policy is comprehensive, with a $4,000 excess for damage to the insured vehicle. If an accident occurs and the repair bill for the car

amounts to $14,000, the insurer is only liable for $10,000. On the other hand, with a minor accident and repairs costing $3,000, the insurer would have no liability at all.

(c) Policy franchise: Seldom seen today (except for time franchise – see example below), it is similar to an excess in that it eliminates small claims.

On the other hand, it is different from an excess in that if the loss exceeds or reaches the franchise – depending on the wording used - the loss is payable in full.

Like an excess, a franchise can be expressed as a percentage, an amount of loss, or a time period.

Suppose a ship which is insured for $5,000,000 subject to a 5% franchise sustains insured damage. If repairs cost only $100,000 (2%), nothing is payable by the insurer.

But if repairs cost $1,000,000 (20%), the loss is payable in full.

Example of time franchise: A particular hospitalisation policy contains a 2- day franchise provision; in other words, there is a waiting period of two days.

If the insured person stays in hospital for one day, no expenses are reimbursable. But if he has to stay for 5 days, the policy pays the medical expenses incurred during the whole of that 5-day period.

(d) Policy limits: As the sum insured is the insurer's maximum liability, any loss exceeding that limit will not be fully indemnified. Other types of limits may also exist within the policy terms; examples include:

(i) Single Article Limit: It is a limit commonly found in a household contents policy. Where such a policy covers property described in broad terms like ‘contents’ for a stated amount, there is no way the insurer can tell whether the insured contents will not, at the time of loss, be found to include an article which is so valuable that its value already accounts for, say, 90% of the sum insured for the whole of the contents.

This is a situation the insurer will not want to see, partly because of the theft risk it represents. In fact, the insured could have declared the value of this item of contents to the insurer, requiring that it be separately subject to a sum insured representing its value. The benefit of this approach is that the insurer will be liable for an insured loss of this item of property up to its own sum insured. On the other hand, in the event that an insured has not made such an article the subject of a separate sum insured, the insurer will have to restrict the amount payable for a loss of this item to a limit specified in the policy, called the ‘single article limit’.

(ii) Section Limit: A policy may contain two or more sections, which take effect in relation to different subject matter of insurance (as in the case of a travel insurance policy, which normally covers property damage, legal liability and others), different insured perils, etc. Each of these sections is usually made subject to its own limit of liability, which operates similarly to a sum insured.

3.4.8 Policy Provisions Providing More Than Indemnity

Indemnity is very logical and technically easy to defend. However, in practice, most policyholders are ignorant of this and are confused and offended when insurers ‘reduce’ their claims, by deducting depreciation, wear and tear, etc. As a marketing or public relations exercise, insurers sometimes offer or agree to grant property insurance which may be said to give a commercial rather than a strict indemnity.

Some examples are as follows:

(a) Reinstatement insurance (or insurance on a reinstatement basis): This is one of the several uses of the term ‘reinstatement’ (see 3.4.4(d) above) and is often found with fire and commercial ‘all risks’ insurances.

The meaning is that where reinstatement takes place after a loss, no deductions are made from claim payments in respect of wear and tear, depreciation, etc.

(b) ‘New for Old’ cover: Again, this means that no deductions are made in respect of wear and tear, deprecation, etc. This term is more generally used with household and marine hull policies.

(c) Agreed value policies (or valued policies): Such policies may be used for articles of high value, where depreciation is unlikely to be a factor (e.

g. works of art, jewellery, etc.) or where property valuation contains a rather subjective element. The sum insured is fixed on the basis of an expert's valuation, and agreed between the insured and the insurer as representing the value at risk of the property throughout the currency of the policy.

In non-marine insurance, a valued policy undertakes to pay this sum in the event of a total loss, without regard to the actual value at the time of loss, whereas in the event of a partial loss, the actual amount of loss would instead be payable without regard to the agreed value.

(d) Marine policies: Almost without exception, marine hull and marine cargo policies are written on a valued basis, and the agreed value will be taken as the actual value at the time of loss for the purposes of both partial and total loss claims.

3.4.9 The Practical Problems with Indemnity

Indemnity, as mentioned above, is extremely logical. What makes more sense than to say that a person should only recover what he has lost?

He should not profit from a loss! However, most people feel that they should receive the amount they have insured for, with a total loss.

Moreover, the fact or amount of depreciation is an area where you, or the claims handler, may definitely expect problems with the claimant.

When claims are being made, a lot of claimants will say that their property has not depreciated at all, or only marginally!

3.5 CONTRIBUTION PDF p.41

3.5.1 Equitable Doctrine of Contribution

This is a claims-related doctrine of equity which applies as between insurers in the event of a double insurance, a situation where two or more policies have been effected by or on behalf of the insured on the same interest or any part thereof, and the aggregate of the sums insured exceeds the indemnity legally allowed.

[Example: Suppose a husband and wife each insure their home and contents, each thinking that the other will forget to do it. If a fire occurs and $200,000 damage is sustained, they will not receive $400,000 compensation.

The respective insurers will share the $200,000 loss.]

Subject to any policy provisions, any one insurer is bound to pay to the insured the full amount for which he would be liable had other policies not existed. After making an indemnity in this manner, the insurer is entitled to call upon other insurers similarly (but not necessarily equally) liable to the same insured to share (or to contribute to) the cost of the payment.

3.5.2 Rateable Proportions

Where contribution applies, the ultimate proportion of the insured’s loss that any one particular insurer is responsible for is called the ‘rateable proportion’ of that insurer.

It is not difficult to understand that the sum of all the insurers’ rateable proportions equals one, that is to say, 100% of the insured’s loss.

A few methods are available for calculating rateable proportions. But as an insurance intermediary, it is not essential that you should know them well, bearing in mind that how much your clients will ultimately get paid for a loss will not depend on the basis of contribution to be employed.

3.5.3 How Arising

The criteria (or essentials) that need to be satisfied before contribution applies are:

(a) the respective policies must each be providing an indemnity (rather than benefit) to the loss in question (this is the reason why it is said that contribution is a corollary (i.

e. a natural consequence of an established principle) of indemnity);

(b) they must each cover the interest (which term does not mean property, liability, etc.)affected (see counter-example below);

(c) they must each cover the peril (cause of loss) that has given rise to the loss;

(d) they must each cover the subject matter of insurance (property, liability, etc.) that has been affected; and

(e) each policy must be liable to the loss (i.e. not be subject to a policy exclusion or limitation preventing contribution).

[Counter-example of criterion (b): A merchant has some stock-in-trade kept in a public warehouse, and insured under a fire policy.

Separately and at the same time, the warehouse operator buys fire insurance on the same property. When a fire occurs damaging the stock-in-trade, both the merchant and the warehouse operator claim under their own policies for the same damage. Immediately two basic questions come to mind. First, is the warehouse operator, not being an owner of the damaged property, entitled to claim under his own fire policy?

Second, if both policyholders are entitled to claim, will there be contribution between the insurers? The answer to the first question is: the warehouse operator, being a bailee of the stock-in-trade, has insurable interest in it at the time of loss, and is thus entitled to claim under his own policy.

Turning to the merchant, you probably will not conclude or argue that he cannot expect to be indemnified. Now we have to wrestle with the second question.

The answer to this question hinges on that to the question of whether the two policies cover the same interest (criterion (b)). For whose benefit has the merchant bought his fire insurance?

And what about the warehouse operator? In fact, each of them has bought insurance for their own benefit. In other words, the first mentioned policy covers the merchant’s ‘interest as owner’, and the second one covers the warehouse operator’s ‘interest as bailee’.

Is it apparent to you now that the two policies cover different interests, so that contribution will not apply as between them?

At this point, we have completely resolved the issue of contribution arising in the case. But there remains an issue of the cogency of indemnifying for the same loss with twice its amount.

Now it is time for another principle of insurance – subrogation (see 3.6 below) – to play its part. The insurer of the merchant, upon indemnification, is entitled to claim, for his own benefit albeit in the name of the merchant, against the warehouse operator (bailee) for the indemnity provided by the other insurer.]

3.5.4 How Applicable

Contribution will only apply if indemnity applies. Thus, if a person dies whilst insured by two or more separate life insurance policies, each has to pay in full, because life insurance is generally not subject to indemnity.

3.5.5 How Amended by Policy Conditions

The position between insurers as governed by the equitable doctrine of contribution is of little or no concern to the insured, unless that has been modified by one of the following policy provisions:

(a) Rateable Proportion Clause (or Contribution Condition), restricting the insurer’s liability to its rateable share of the loss.

The effect is that, where there is double insurance and each of the relevant policies contains such a clause, the insured could no longer claim all of his loss from one insurer alone.

[Example: Using the example in 3.5.1 again, the standard fire policy contains a clause restricting its contribution to its ‘rateable share’ in the

event of double insurance. In the given circumstances, if Insurer A is approached first and his rateable share is, say, $50,000 (25%), he cannot be made to pay the full loss.

He is liable only for $50,000 and the insured must himself go to Insurer B for B’s rateable share ($150,000 or 75%).]

(b) Non-contribution Clause, to the effect that it is the other policies that will have to pay the loss.

[Example: Household policies on contents may exclude items ‘more specifically insured’. If a camera is separately insured under an ‘All Risks’ policy, that policy may be regarded as more specific than the household policy, so that the latter policy, if it contains such a clause, will not be liable for a, say, theft loss of the camera from the insured premises.]

(c) Partial Contribution Condition

[Example: The so-called ‘Marine Clause’ in the standard fire policy provides that in the event of potential contribution between a marine policy and the fire policy, the fire policy will not share the loss, except for that part of the loss which is above the marine compensation.

(This may happen where, for example, some cargo, while being left in a container depot awaiting the carrying vessel, catches fire. The usual marine policy will cover the damage so caused. It is also possible that there is in place a fire policy whose cover has been extended to cover a fire occurring in such circumstances.)]

3.6 SUBROGATION PDF p.43

3.6.1 Definition

Subrogation is the exercise, for one’s own benefit, of rights or remedies possessed by another against third parties. As a corollary (i.

e. a natural consequence of an established principle) of indemnity, subrogation allows proceeds of claim against third party be passed to insurers, to the extent of their insurance payments.

At common law, an insurer’s subrogation action must be conducted in the name of the insured.

Suppose, for example, that a car, covered by a comprehensive motor policy, is damaged by the negligence of a building contractor. The motor insurer has to pay for the insured damage to the car.

As against the negligent contractor, the insured’s right of recovery will not be affected by the insurance claim payment. However, the motor insurer may, after indemnifying the insured, take over such right from the insured and sue the contractor for the damage in the name of the insured.

From this, it will easily be seen how subrogation seeks to protect the parent principle of indemnity, by ensuring that the insured does not get paid twice for the same loss.

3.6.2 How Arising

Subrogation rights arise in several manners as follows:

(a) In tort: This usually arises where a third party negligently causes a loss indemnifiable by a policy. For example, a fire insurer, after paying a fire loss, discovers that the fire was caused by a negligent act of a neighbour of the insured. It sues the neighbour in the name of the insured for damages recognised by the law of tort.

(b) In contract: This arises where the insured (perhaps a landlord) has a contractual right (perhaps under a tenancy agreement) against another person (perhaps a tenant) for an insured loss.

After indemnifying the insured for the loss, the insurer may exercise such right against that other person in the name of the insured.

(c) Under statute: If a person is injured at work, his employer, if any, will have to pay an employee compensation benefit to him in accordance with the provisions of the Employees' Compensation (“EC”) Ordinance. The Ordinance will then grant subrogation rights to the indemnifying employer against another person who is liable to the employee for the injury.

In turn, the employer has to pass these rights to the EC insurer who has paid the employee compensation benefit for or on behalf of the employer.

(d) In salvage: This we have already considered (see 3.4.5 above). The insurer may be said to have subrogation rights in what is left of the subject matter of insurance (salvage), arising under the circumstances already discussed.

3.6.3 How Applicable

As with contribution, subrogation can only apply if indemnity applies. Thus, if the life insured of a life policy is killed by the negligence of a motorist, the paying life insurer will not acquire subrogation rights, as this payment is not an indemnity.

3.6.4 Other Considerations

There are other features to note:

(a) In the common law, subrogation rights are only acquired after an indemnity has been provided. Non-marine policies usually remove such restriction by stipulating that the insurer is entitled to such rights even before indemnification.

(b) Some considerations arise in respect of proceeds of subrogation:

(i) The insurer cannot recover more under subrogation than he has paid as an indemnity. By way of example, suppose there is an insured loss of an antique. The insurer pays, and sometime later when the antique is found, its value is much higher.

The insurer can only keep an amount equal to what he has paid and any balance belongs to the insured.

(ii) The above saying is not true in the event of subrogation arising after abandonment of the property to the insurer (see 3.4.6 above).

There, all rights in the property belong to the insurer, of course including the right to ‘make a profit’!

(iii) Sharing of Subrogation Proceeds

Where the insurer has only provided a less-than indemnity on the basis of certain policy limitations, the insured may possibly be entitled to part of – sometimes even the whole of - the subrogation proceeds, depending on what limitations have been applied in the process of claims adjustments.

The following are illustrations of several manners in which the sharing of subrogation proceeds between the insured and the insurer can be done:

(1) Excess: Suppose the insured is responsible for a loss (excess) of $10,000 before his liability insurer pays $40,000, and $20,000 is subsequently recovered from a negligent third party.

The whole of $20,000 will belong to the insurer. However, if the subrogation recovery is $45,000 instead, the insured will be entitled to $5,000 and the insurer $40,000.

(2) Limit of Liability: Suppose an insured contractor has incurred liability to a road user in the amount of $1.5 million, of which the insured has to pay $0.5 million out of his own pocket because his policy is subject to a limit of liability of $1 million.

Any recovery from a joint tortfeasor will belong to the insured, except where it amounts to more than $0.5 million in which case that part over and above the $0.5 million threshold will belong to the insurer up to the amount of insurance payment.

(3) Average: Suppose a fire insurer has paid 80% of a loss where there is a 20% underinsurance. The insured is entitled to 20% of subrogation proceeds as if he was a co-insurer for 20% of the risk.

Representative Examination Questions

Type ‘A’ Questions

1 Insurable interest may be described as:

(a) possession of certain goods; ..... (b) the amount always payable for insurance claims; ..... (c) a legally recognised relationship to the subject matter; ..... (d) the interest payments due if the insurance premium is paid late. .....

[Answer may be found in 3.1.1]

2 For marine insurance, insurable interest is required:

(a) certainly at the time of loss; ..... (b) only when the policy is first arranged; ..... (c) only at the time the first premium is paid; ..... (d) only if this is specifically mentioned in the policy. .....

[Answer may be found in 3.1.5]

Type ‘B’ Questions

3 Which of the following are the types of breach of utmost good faith?

(i) Fraudulent non-disclosure (ii) Non-fraudulent non-disclosure (iii) Non-fraudulent misrepresentation (iv) Fraudulent misrepresentation

(a) (i) and (ii) only; ..... (b) (i) and (iii) only; ..... (c) (ii), (iii) and (iv) only; ..... (d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 3.2.5]

4 Which three of the following insurance policy provisions could mean that something more than indemnity is payable with claims?

(i) ‘New for Old’ cover (ii) Agreed value policies (iii) Reinstatement insurance (iv) The condition of average

(a) (i), (ii) and (iii); ..... (b) (i), (ii) and (iv); ..... (c) (i), (iii) and (iv); ..... (d) (ii), (iii) and (iv). .....

[Answer may be found in 3.4.8]

[If still required, the answers may be found at the end of the Study Notes.]

Chapter 4: CORE FUNCTIONS OF AN INSURANCE COMPANY PDF p.48

Whilst an insurance intermediary is unlikely to have close contact with the internal organisation of insurance companies, it is good to understand something of their infrastructure and to be aware of the various departments and personnel behind the marketing process.

These, in outline, are considered below. Please remember, however, that there is no single system for insurance companies to follow, and therefore the suggested structure must be seen as representative only.

4.1 PRODUCT DEVELOPMENT PDF p.48

Someone once said, ‘Insurance is not something that is bought, it is something that has to be sold’. We shall recall this when discussing marketing and promotion (4.3 below), but to the extent that it is true the whole exercise depends upon having something to sell.

That something may be described as an insurance product.

Some types of insurance, of course, are compulsory (e.g. third party motor and employees’ compensation), but even with these classes the precise policy wording is not decreed by statute. Therefore there is scope for flexibility in presentation (whilst the requirements of Ordinances must be respected).

With other classes of insurance business, Hong Kong is an open and very competitive business environment. Insurers must therefore be efficient and dynamic in preparing the products they ‘sell’.

As an abbreviated summary, the Product Development department/section of an insurer will be much occupied with:

(a) Individual product development: this is a never-ending process. With competitors eager to learn and copy, it has been said that the unchallenged ‘lifespan’ of a totally new product is very short, perhaps a matter of only a few weeks or months.

After that time, the product has been copied, adapted and frequently undersold.

(b) Product portfolio development: increasingly, producing a ‘package’ of cover, especially for larger clients, has become sensible, even vital, in order to retain a competitive edge.

(c) Product research: we may think of this in three areas:

(i) our own products: nothing is perfect beyond improvement.

(ii) competitors' products: we do not, and cannot, live in a vacuum. It is essential to know what is happening in our market and ‘what we are up against’.

Besides, they will have no hesitation in ‘borrowing’ from us!

(iii) market trend: the needs of the general public.

4.2 CUSTOMER SERVICING PDF p.49

Sometimes described as Client Servicing, this section has a number of functions, and with a particular insurer some of these may be carried out by other departments (such as Accounts, Claims etc.).

The general scope of its responsibilities is indicated by its name. It is to provide a service to existing and potential customers/clients, and the duties probably include:

(a) Correspondence: enquiries of every imaginable kind are likely to be received, asking for guidance and information. Sometimes, the enquiries will be totally unrelated to the company's business; therefore a degree of perception and tact will be required. It is quite sure that the response a company gives to enquiries is very important.

(b) Public relations: the more formal aspects of this could be within the province of the marketing people, but the way clients are dealt with profoundly influences a company's standing in the eyes of the public.

(c) Documentation: requests for duplicate policies, amendments to existing policies, copies of motor insurance certificates, etc. will probably receive at least their initial attention in this department.

(d) Complaints: an area that must be seen to be handled fairly and promptly. This may require considerable liaison with other colleagues/departments.

It must also be remembered that complaints may reach high levels of company management and receive media and even the insurance regulator’s attention.

4.3 MARKETING AND PROMOTION PDF p.49

Remembering the quotation in 4.1, this is a very important area for the insurer. The particular areas of responsibility include:

(a) Public Relations: as explained, this may overlap to some extent with Customer Services, but the image of the company and its perceived standing in the eyes of the public is of great significance. This wide-ranging activity will include:

(i) the co-ordination of all external communications;

(ii) the co-ordination of media enquiries and interviews;

(iii) press conferences, to announce or explain things, as necessary;

(iv) preparing press releases and copy for trade and other journals.

(b) Promotions: organising and co-ordinating their preparation and conduct.

(c) Advertising: closely interconnected with the above, this enormously important area includes:

(i) selection of external agencies (if used);

(ii) the extent to which TV or other media are to be involved;

(iii) co-ordination of advertising campaigns;

(iv) expenditure analysis and control.

Note: Advertising is an area which could involve massive expenditure. Great care must therefore be taken in its management and control.

As one famous businessman said ‘Half the money I spend on advertising is wasted. Unfortunately, I do not know which half!’

(d) Sponsorship: insurers are frequently asked to sponsor industry or educational projects. Also, this is of course an important aspect of advertising, involving much time and probably a considerable budget.

(e) Market research: obviously, continuous monitoring of one's present and potential market is a vital element for a marketing department.

This will seek to establish existing and perceived needs and demands in respect of insurance products.

4.4 INSURANCE SALES PDF p.50

Very closely connected with marketing, there may be considerable overlap of activity, if separate sections exist. The name, however, indicates the functions, which specifically will include:

(a) Product liaison: it is vital that the closest co-operation exists between Product Development, Marketing and Sales, for obvious reasons.

Poor communication between colleagues in this area could have disastrous results.

(b) Sales enhancement programmes: again requiring co-operation with other colleagues, e.g. Training and Marketing.

(c) Monitoring: it is important to keep abreast of results and trends. Again, much teamwork with colleagues is required.

4.5 UNDERWRITING PDF p.50

This may be defined as the selection of risks to be insured and the determination of the terms under which the insurance is given.

With non-life insurance, it also involves a continuing process of monitoring results and individual risks, to see whether renewals should be offered, and on what terms.

Special features to note are:

(a) Life insurance: for individual life policies, underwriting is a once only exercise, since the policy cannot be cancelled by the insurer and changes are only possible with the insured's consent.

Because of its crucial importance, life insurance underwriting is often centralised.

(b) General insurance: here the range of different cover is very wide and mistakes in underwriting are not permanent, in the sense that policies will come up for renewal and their terms be reviewed, and can even be cancelled if necessary.

Therefore much less centralised underwriting is still affordable.

(c) Guidelines: whilst underwriting is at a ‘one to one’ level, there is obviously a need for the preparation of underwriting manuals, rating guides and similar guidelines for staff. These involve considerable research and development, again with much attention to trends and results.

(d) Target risks: curiously, this term could mean highly desirable types of business (in Life Insurance) or highly undesirable types of business (in General Insurance).

In the former, of course, this is business the insurance intermediaries should be encouraged to seek diligently. In the latter, the term could mean large, hazardous risks, e.

g. petrochemical plants.

Each insurer will have its own ideas about what constitutes desirable or undesirable risks. Typically, however, in life insurance, healthy young professionals are likely to be desirable contacts.

In theft insurance, jewellery stores in Central Hong Kong may not be favoured.

(e) Stop-lists: sometimes given other names, a ‘stop-list’ indicates those types of business that should not be encouraged, or should be rejected if offered. Some examples may readily come to mind, with different types of insurance, although not every insurer will have the same opinions on this subject.

Nevertheless, compiling such lists involves considerable underwriting expertise, especially bearing in mind the sensitivity over discrimination of every kind (see 7.3 below).

4.6 POLICY ADMINISTRATION PDF p.51

This is another departmental description that may involve overlap with other sections or departments mentioned above or below. The general areas of concern here may be:

(a) General or Life insurance? : this is a most important question, since the policy document with each has a very different significance. With general insurance, technically there need not be a policy (although there almost invariably is) and it is seldom necessary to produce the original policy document when making a claim.

With life insurance, however, the contract is non-cancellable by the insurer, and the policy documents are required to be produced at the time of a claim.

(b) Life insurance policies: as mentioned above, these must be produced when a claim is made. A mistake in a life policy is potentially much more serious than with General Business, especially since the policy may be assigned to another person and/or used as collateral with a loan and any assignees are expected to be relying on the veracity of the policy.

(c) New business procedures: especially with Life business (as noted) the process of verification and checking, both for factual accuracy and errors in document preparation, is very important.

With any class of business, it is important that the policy should be prepared and issued as efficiently and as impressively as possible, for reasons that are obvious.

(d) Other procedures: this topic embraces such matters as error handling, policy correction, endorsement preparation and renewal procedures.

With life insurance, once more, the great importance of the actual payment of the first premium must be considered. In other classes, the contract may commence without the receipt of a premium (often a non-marine policy requires that the insured ‘has paid or agreed to pay the premium’).

With life insurance, the usual practice is that the existence of the contract depends upon the first premium being received.

4.7 CLAIMS PDF p.52

Once more, there are significant differences between Life and General Business claims. Specifically, the implications include:

(a) Life insurance claims: obviously, there will only be one death claim. It is quite essential for the claims handler to check each claim with the utmost care, as all sorts of considerations are involved, such as:

(i) possible disputes or complications, for instance, problems may arise when the primary beneficiary cannot be traced, or more than one person lodges a claim as alleged assignees;

(ii) possible outstanding policy loans;

(iii) possible assignment, so that the claimant is not the original policyholder;

(iv) uncertainties over actual death or the identity of the deceased;

(v) dividend/bonus considerations with participating/with-profits policies.

For similar reasons to those pertaining to underwriting (see 4.5 above), life insurance claims handling is frequently centralised.

(b) General insurance claims: the range of different types of claims is much wider than with life insurance. Also, it is quite possible that the amounts involved are enormous.

Therefore, equal care should be taken in verification, although most claims being relatively small, the work is much more likely to be decentralised, sometimes with fairly junior staff having some degree of authority in claim settlement.

[Example: Claims may be relatively trivial, such as the loss of a camera, or exceedingly complex, such as a major explosion at a large power station.]

(c) Common features: there are two areas that must be the subject of attention in all insurance claims. These are:

(i) Liability: is the insurer liable under the policy? When dealing with liability insurance, it must also be ascertained whether the insured is liable at law to the third party claimant.

(ii) Quantum: how much is payable with the claim? With life insurance, it is usually pre-determined, but with other classes of business, this could involve complex and sometimes bitter discussion.

(d) Significance: it has been said that an insurer stands or falls on the way it deals with its claims. There is truth in the remark and the insurance intermediary will want to know and feel confidence in the support he looks for in this area.

4.8 REINSURANCE PDF p.53

This is not an area where the insurance intermediary is likely to have a close association, but he should be aware that reinsurance is very important to the insurer.

The aftermath of the September 11 terrorist attack is a testimony to this saying.

(a) Definition: insurance used to transfer all or part of the risk assumed by an insurer under one or more insurance contracts to another insurer, who may be referred to as a reinsurer in relation to such a transaction.

(b) Reasons: The major reason for buying reinsurance is security. It is very likely that an individual insurance claim is payable from the assets of the insurer, but it may be very inconvenient (and even costly) to produce large amounts of cash at short notice, since assets will mostly be in investments.

A reinsurance contract may be so arranged as to entitle the reinsured to an immediate claim payment by the reinsurer in the event of a valid direct claim (i.

e. a claim from the original insured) exceeding a pre-determined figure, even before the reinsured has actually paid the direct claim.

Another important reason for reinsurance is to increase an insurer’s ‘underwriting capacity’, which means the ability to accept proposed business with in mind all risk management considerations.

Having reinsurance means that some risks may be accepted which might otherwise have to be declined in part or total.

(c) Methods: This does not concern insurance intermediaries, unless they handle reinsurance matters on behalf of insurers or reinsurers.

(d) Effects for the Insured: Reinsurance has no direct effect for the policyholder. He is not entitled to know, and probably has no need to know, that his insurance is being reinsured. That is a matter entirely between the insurer and the reinsurer(s).

The insurer is always directly liable to the policyholder for the full amount payable under the contract irrespective of the financial condition of its reinsurers.

Reinsurance, however, does give an added security that the insurer will be able to pay!

4.9 ACTUARIAL SUPPORT PDF p.54

An actuary may be thought of as a highly skilled mathematician. His particular expertise is not only in the collation and presentation of numerical information, but also in projecting and predicting future trends, based on available data and assumptions.

It will immediately be understood, therefore, that such an expert has a very important role to play in insurance. Some specific observations:

(a) Life insurance: more than any other class of business, life insurance depends upon mathematical calculations (although they are very important to all classes).

It is essential for the life insurer to know mathematical facts about mortality (death statistics) and projected interest earnings, for example.

Note: 1 The IO requires all insurers who carry on long term business to appoint a qualified actuary, acceptable to the Insurance Authority.

2 This Ordinance also requires long term insurers to carry out a valuation of all assets and liabilities at least once a year. This is perhaps the most important function of the actuary.

(b) General insurance: Their expertise, especially with long-tail business (insurance where claims arise and develop over a long period of time until, say, 5 years or even more after policy expiry, e.

g. liability classes), is extremely valuable. This is particularly true when having to calculate outstanding claims reserves required. The Insurance Authority requires motor and employees’ compensation insurers to annually conduct actuarial review of their reserves relating to such statutory classes of business.

Note: A corresponding term, ‘short-tail business’, refers to business where claims are mostly settled within a relatively short space of time after arising, e.

g. motor (own-damage) and fire insurance.

(c) Generally: the application of an actuary's skills is very obvious in such areas as premium rating, the calculation of reserves and the valuation of liabilities.

4.10 ACCOUNTING AND INVESTMENT PDF p.54

The Accountant is another official with a vital role to play in the running of any business enterprise, and particularly that of an insurer.

The functions of this department are fairly obvious, but for completeness we note:

(a) Record keeping: financial records must be accurate and reliable.

(b) Collections: ensuring that money receivable by the insurer is in fact paid clearly affects the very existence of the company. A satisfactory system for collecting, monitoring and reminding the company debtors is thus of high priority.

(c) Payments: ensuring that bills and debts are paid promptly and efficiently (and correctly) entails much routine but important work.

(d) Investment: if there is not a separate investment department, the care and placement of company assets may be the responsibility of the Accountant.

It goes without saying that this is extremely important, from the perspectives of security, relative return (or yield) and liquidity (having sufficient cash-flow to meet known and anticipated monetary demands).

4.11 TRAINING AND DEVELOPMENT PDF p.55

Sometimes unappreciated by line managers, ever conscious of targets and deadlines, the Training and Development department within a company is very important.

Some observations to note:

(a) Staff and Agents: Training is essential for both in-house personnel and field staff. The educational and training needs of both must not be overlooked.

(b) Relevance: Training is not an optional extra, nor is it independent. It is part of the overall team that constitutes the insurer, and its activities must not be self-fulfilling, but relevant and effective to the continuance and enhancement of the company.

(c) Training: This may be seen as preparation for the actual job in hand, or the job in prospect. As such, it will involve courses, seminars and self-preparation arranged or encouraged by staff training personnel.

(d) Education: This may be seen as involving the quest for wider learning and professional or related qualifications. Preparations, etc. for this may be encouraged rather than provided, but having qualified staff (and insurance agents) is of great importance.

(e) In-house or external: Whether instruction is provided by its own staff, or arranged on behalf of staff with outside providers, this will be an important concern of company trainers.

(f) Resources and records: Facilities for training (library and other aids) as well as up to date records of individual training progress will clearly assist the efficient running of this section.

4.12 KEY PERSONS IN CONTROL FUNCTIONS PDF p.55

An insurer may appoint ‘key persons in control functions’ as part of its corporate governance framework. The key persons in control functions of an insurer refers to those individuals who are solely or jointly responsible for the performance of one or more of the control functions of the insurer – inclusive of actuarial, financial control, internal audit, compliance, risk management and intermediary management.

These control functions form a part of an effective system of risk management and internal controls for an insurer and key persons in control functions have a vital role to play in an insurer’s corporate governance structure. Before appointing any key person in control functions, an insurer must obtain approval from the Insurance Authority for the appointment.

The Insurance Authority will only approve the appointment if the proposed key person is considered fit and proper.

Insurance intermediaries will likely have interaction with the key person in control function for the control function of intermediary management in an insurer.

The control function for intermediary management is responsible for:

(a) administering the insurance agents appointed by the insurer;

(b) monitoring the compliance with the IO by the insurance agents appointed by the insurer; and

(c) ensuring that the arrangements by the insurance intermediaries for the insurance business referred to the insurer comply with the IO and the guidelines and codes issued by the Insurance Authority

Representative Examination Questions

Type ‘A’ Questions

1 Product development for an insurer is:

(a) a never-ending process; ..... (b) not necessary for a large insurer; ..... (c) not necessary with compulsory classes of business; ..... (d) no longer necessary once policy wording has been decided. .....

[Answer may be found in 4.1]

2 Underwriting, in the context of an insurance company's operations, means:

(a) sales activities; ..... (b) being responsible for any unsold shares; ..... (c) the assessment of risks for insurance purposes; ..... (d) the actual signing of policy and other contract documents. .....

[Answer may be found in 4.5]

Type ‘B’ Questions

3 Which of the following may have significance with life insurance claims?

(i) Outstanding policy loans (ii) Complications with beneficiaries (iii) Possible assignment of the policy to a third party (iv) Uncertainty over the death or identity of the deceased

(a) (i) and (ii) only; ..... (b) (ii) and (iii) only; ..... (c) (i), (iii) and (iv) only; ..... (d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 4.7(a)]

4 Which two of the following are not likely to be the responsibility of the Accounts department in an insurance company?

(i) Payment of outstanding bills (ii) Collection of unpaid premiums (iii) Determining whether a risk is insurable (iv) Arranging the launch of a new policy product

(a) (i) and (ii); ..... (b) (i) and (iii); ..... (c) (ii) and (iii); ..... (d) (iii) and (iv). .....

[Answer may be found in 4.10]

[If still required, the answers may be found at the end of the Study Notes.]

Chapter 5: STRUCTURE OF HONG KONG INSURANCE INDUSTRY PDF p.59

5.1 TYPES OF INSURANCE BUSINESS PDF p.59

Insurance is classified in different cross-cutting ways for different purposes. Without trying to give an exhaustive review, we may consider the topic under three headings:

(a) Statutory: for the purposes of the insurance regulator’s authorisation and supervision.

(b) Practical: for the purposes of internal company organisation.

(c) Academic: for the purposes of professional study and training.

5.1.1 Statutory Classification of Insurance

This is found in Schedule 1 of the Insurance Ordinance (“IO”), which specifies the various classes of business. The IO divides insurance into Long Term Business and General Business, with a number of sub-divisions, as follows:

(a) Long Term Business (predominantly Life Insurance): this is divided into nine categories, with a designated letter per class, i.

e.

A Life and annuity - life insurance and annuity, excluding class C below insurance contracts providing B Marriage and birth - benefits payable on marriage or on the birth of a child C Linked long term - unit-linked life insurance and unit-linked annuity D Permanent health - essentially long term policies providing benefits for incapacity from accident or for ill-health (the policy is not normally cancellable by the insurer) E Tontines - A tontine is an unusual contract on a group of persons, the accumulated contributions payable to the last survivor(s) at the end of a defined period.

F Capital redemption - a contract to provide a capital sum at the end of a term in order to replace one’s capital because, e.g. debentures will become repayable; not related to human life G Retirement scheme - group retirement scheme contracts providing for a management category I guaranteed capital or return H Retirement scheme - group retirement scheme contracts not providing for a management category II guaranteed capital or return I Retirement scheme - group contracts providing insurance benefits under management category III retirement schemes, but excluding classes G and H above

Note: It will be appreciated that not all the above will have equal significance in the day to day business of the Hong Kong insurance market.

For instance, only a handful of companies are currently authorised to write class B, E or F business.

(b) General Business: this is divided into 17 categories, with a designated number per class, i.e.

1 Accident - this is more usually referred to by insurance practitioners as Personal Accident (and Sickness), providing benefits or indemnity in the event of accident or sickness

2 Sickness - policies providing benefits or indemnity for loss due to sickness or infirmity, but excluding class D above

3 Land vehicles - property insurance on vehicles used on land, including motor vehicles but excluding railway vehicles) 4 Railway rolling - property insurance on such vehicles stock 5 Aircraft - property insurance on aircraft 6 Ships - property insurance on ships 7 Goods in transit - property insurance on goods in transit, including marine cargo

8 Fire and natural - property insurance covering fire and forces some other perils (e.g. storm and explosion) 9 Damage to - property insurance exclusive of classes property 3-8 above Motor vehicle third party Motor insurance (including 10 - liability compulsory motor insurance) 11 Aircraft liability - covering liabilities for property damage or personal injury/death arising out of the use of aircraft 12 Liability for ships - covering marine liabilities for property damage or personal injury/death 13 General liability - liability insurance exclusive of classes 10-12 above;

employees’ compensation insurance is included here covering loss to creditors from debtors’ 14 Credit - failure to pay debts 15 Suretyship - contracts of guarantee, including fidelity guarantee, performance bonds 16 Miscellaneous - any other classes of business (business financial loss interruption, loss of use, etc.) 17 Legal expenses - insurance to pay legal costs, with the insured as defendant or as claimant)

Note: Few, if any, local insurers are likely to use the above classification in their internal organisation, but authorisation to transact business will be granted in respect of the classes indicated.

5.1.2 Practical Classification of Insurance

For internal management and operational purposes, each insurer is free to classify his business as he sees fit. The following are typical examples of classifications used by insurers in Hong Kong:

(a) Departmental (Class of Business)

There is no single pattern under this form of classification, but there are two main approaches:

(i) U.K. (European) Style: where traditionally the major classes were Life, Marine, Fire and Accident (‘Accident’ effectively meant anything else, such as personal accident, liability, motor, etc.).

(ii) U.S. Style: where there is a very clear distinction between Life (including annuity, medical expense and disability) and Non-Life business, the latter frequently being sub-divided into Fire, Marine, Bonding and Casualty (i.

e. automobile, liability, theft, workers’ compensation, etc.).

(b) Source of Business

Under this system, for control and management purposes, business is sub- divided according to how it was obtained, i.e.

(i) from insurance agents;

(ii) from insurance brokers;

(iii) direct from the public, no insurance intermediary being involved.

(c) Type of Client

Under this system, for control and management purposes, business is sub- divided according to whether it covers:

(i) individuals - Personal or Consumer Insurance; or

(ii) firms and organisations - Business or Commercial Insurance.

5.1.3 Academic Classification of Insurance

For academic and professional examination purposes (especially with the U.K. and Commonwealth countries), insurance is frequently sub-divided on a Subject Matter of Insurance or Functional basis, as follows:

(a) Insurance of the person (which is not equivalent to ‘personal insurance’), i.e. human beings being the subject matter of insurance (life, health and personal accident insurances, etc.);

(b) Insurance of property,i.e. covering tangible objects against loss or damage (fire, motor damage, marine cargo, etc.);

(c) Insurance of liability, i.e. covering legal liability for death, injury or property damage to others (employees’ compensation, public liability, etc.);

(d) Insurance of pecuniary interests: It relates to any financial interest to be insured not covered by (a) - (c) above, including business interruption, credit and rent insurances.

Note: It must not be thought that the academic classification is only of use in studying for examinations. Thinking about insurance according to the function it performs (person, property, liability etc.) is a useful check-list when trying to help a client decide what insurances he should have.

5.1.4 Reinsurance

Reinsurers insure the insurers. This is absolutely normal, indeed essential to the well-being of the insurance industry (see 6.1.1e below).

Reinsurance is usually a normal activity of insurers. It can be:

(a) Outwards reinsurance: where the insurer insures again with other insurers/reinsurers; or

(b) Inwards reinsurance: where the insurer acts as a reinsurer, covering risks already insured by other insurers/reinsurers.

(Those insurers who confine their business to reinsurance are sometimes called ‘Professional Reinsurers’.)

5.2 SIZE OF INDUSTRY PDF p.63

As insurance is a dynamic element in the financial services industry of Hong Kong, statistics are always likely to be somewhat out of date. Nevertheless, we may usefully consider this topic under four headings (source of figures:

the Insurance Authority, unless otherwise stated):

(a) number of authorized insurers (including those which are professional reinsurers);

(b) number of registered or licensed insurance intermediaries;

(c) number of persons employed in the industry;

(d) premium volume.

5.2.1 Authorized Insurers

As at 24 August 2021, there were totals as follows:

(a) ‘Pure’ Long Term Business (see 5.1.1 (a) above): ‘pure’ in this context means ‘only’ or ‘exclusively’ (specialising) in this class.

A total of 54 pure long term insurers were authorised, comprising 26 Hong Kong incorporated companies and 28 others (including 1 from the Mainland of China).

(b) ‘Pure’ General Business (see 5.1.1 (b)above): 91 pure general insurers were authorized, comprising 60 Hong Kong incorporated companies and 31 others (including 1 from the Mainland of China).

(c) ‘Composite’: the term implies carrying on both Long Term and General Business. 19 insurers were so authorised, comprising 10 Hong Kong incorporated companies and 9 others (none from the Mainland of China).

5.2.2 Licensed Insurance Intermediaries

As at 30 June 2021, there were 2,248 licensed insurance agencies, 89,345 licensed individual insurance agents and 26,338 licensed technical representatives (agent).

In addition, there were 818 licensed insurance broker companies and 11,381 licensed technical representatives (broker) on the same date.

5.2.3 Persons Employed

The quadrennial Manpower Survey on the Insurance Industry in Hong Kong (commissioned by the Vocational Training Council) conducted in 2021.

This survey concluded that the industry on 2 January 2021 had a workforce of 102,288 people. 76% of this workforce were mainly connected with Life Insurance (84% of these being insurance agents or technical representatives of insurance agents) and 24% mainly with General Insurance.

5.2.4 Premium Volume

When discussing premiums, many technical considerations arise which are beyond the scope of the present study. We shall therefore confine ourselves to the broad picture. In 2020 (source of data: the Insurance Authority):

(a) the gross premiums for General Insurance Business (comprising Direct Business and Reinsurance Inward Business) amounted to a total of HK$59,869 million, representing 2.21 % of Hong Kong’s Gross Domestic Product;

(b) the premiums for Long Term Business were as follows: HK$458,570 million of Individual Life In-Force Business office premium, HK$4,770.8 million of Group Life In-Force Business office premium, HK$9,439.8 million of contributions for Retirement Scheme In-Force Business transacted by insurers, HK48,670 million of Annuity and Other In-Force Business office premium.

The total premium (HK$521,451 million) represents 19.24% of Hong Kong’s Gross Domestic Product.

5.3 INSURANCE COMPANIES PDF p.64

Some statistical information about insurance companies in Hong Kong has already been considered (see 5.2.1 above). Some other features should be noted as well, as follows (source of figures: the Insurance Authority, unless otherwise stated):

(a) International Basis

As is well-known, Hong Kong is a major international centre for financial services. Of the 165 authorized insurers as at 24 August 2021, 97 were Hong Kong incorporated and 69 incorporated in 21 jurisdictions outside Hong Kong (including 2 incorporated in the Mainland of China).

(b) Market Analysis

Below are statistics on the market shares of the top insurers by major classes of business in the year 2020:

(i) General Business: by gross premium, the aggregate percentage market share of the top ten insurers in relation to General Business (comprising Direct Business and Reinsurance Inward Business) is 42 % and in relation to each of the major classes is 55% for Accident and Health, 47% for Motor Vehicle, 30% for Property Damage, and 38% for General Liability (comprising Statutory Business and Other Business).

No one insurer had a market share of more than 25% in any one of these classes.

(ii) Long Term Business: here the analysis reveals a different picture, with the top ten insurers accounting for 85.6% of the 2020 market, the top five accounting for 64.7% and the top one 20.6%, all by premium (annual plus single) of Total In-Force Business.

With 110 insurers authorised to write General Business and 73 authorised to write Long Term Business, we may reasonably conclude that General Business is more evenly distributed among authorized insurers than Long Term Business.

(c) Market Co-operation

More will be said on this topic later (see for example 5.5 below), but it is appropriate to mention at this stage that Hong Kong insurers have a central body representing their interests, The Hong Kong Federation of Insurers (“HKFI”).

Since its formation in August 1988, the HKFI has been recognised by the insurance regulator as the representative body of insurers in Hong Kong. According to the HKFI, as at 26 July 2021, it had 86general insurance members and 52life insurance members.

Without doubt, it is a major factor in the structure of the Hong Kong Insurance Industry.

5.4 INSURANCE INTERMEDIARIES PDF p.65

Insurance intermediaries comprise insurance agents and insurance brokers. More detailed comments on their respective roles and legal requirements appear elsewhere in these Notes (see especially 6.2 below), but considering them under the topic of the structure of the Hong Kong Insurance Industry, we should note the following:

(a) Licensing/Registration/Authorization: Before 23 September 2019, insurance 1 intermediaries in Hong Kong were required by the Insurance Ordinance to be formally registered with a self-regulatory organization or authorised directly by the insurance regulator (albeit in reality virtually all intermediaries chose the former route), as the case may be. With effect from 23 September 2019, all insurance intermediaries are instead required to be licensed directly by the Insurance Authority.

(See 6.2.1 below.)

1 On 26 June 2017, the Insurance Companies Ordinance (Cap. 41) was renamed the Insurance Ordinance (Cap. 41).

(b) Qualifications: Before being licensed, an applicant must satisfy certain criteria. These will be considered in detail later (see Chapter 6).

(c) Role: While insurance may be arranged direct with an insurer, i.e. without using an insurance intermediary, this is not the norm especially in Long Term Business.

That said, more and more direct transactions of insurance business are seen in the local market. With complex commercial risks, it is quite normal for an insurance broker to be engaged, in view of the wide experience and independent expertise which they are generally seen to possess.

It is therefore quite clear that insurance intermediaries have, and are very likely to continue to have, an important role in the structure of the Hong Kong insurance industry.

(d) Market Co-operation: More will be said on this topic in 5.5 below, but it would probably be fair to say that the roles of insurance agents and insurance brokers are quite distinct.

All, however, through their market representations and individually, have a common interest in quality service and the integrity of the market.

5.5 MARKET ASSOCIATIONS/INSURANCE TRADE ORGANISATIONS PDF p.66

Some of the major market associations/insurance trade organisations in the Hong Kong insurance market are:

5.5.1 The Hong Kong Federation of Insurers (“HKFI”)

(a) This organisation has already been mentioned (see 5.3(c) above), but the importance of the HKFI on the local insurance scene cannot be overstated. An important objective of the HKFI is to promote and advance the common interests of insurers and reinsurers transacting business in Hong Kong.

(b) According to its Mission Statement, the HKFI exists to promote insurance to the people of Hong Kong and build consumer confidence in the industry by encouraging the highest standards of ethics and professionalism amongst its members.

(c) In the past, the HKFI also ran a self-regulatory organisation (“SRO”) named the ‘Insurance Agents Registration Board’ (“IARB”), which was established in January 1993.

The IARB used to perform the dual role of registering insurance agents and their Responsible Officers and Technical Representatives, and of handling complaints against insurance agents or their Responsible Officers or Technical Representatives, pursuant to the Code of Practice for the Administration of Insurance Agents.

However, the IARB ceased to perform any self-regulatory functions on 23 September 2019 when the Insurance Authority took over the regulation of insurance intermediaries from all three SROs (see 6.2 below).

5.5.2 Professional Bodies of Insurance Brokers

Below are the two most renowned professional bodies of insurance brokers in Hong Kong:

(a) the Hong Kong Confederation of Insurance Brokers (“HKCIB”); and

(b) the Professional Insurance Brokers Association (“PIBA”).

Like the HKFI’s IARB, the HKCIB and PIBA used to perform a self- regulatory function in relation to their members.

That role, however, ended when the new regulatory regime for licensed insurance intermediaries came into effect on 23 September 2019, with both of them continuing to play a vital role in representing their broker members.

Specifically, they engage with the Insurance Authority on a regular basis, assist in making policy recommendations that will affect the local insurance broking industry and make relevant training available to their members.

5.5.3 Industry Organisations to Assist Claimants or Victims

Three such organisations should be noted:

(a) The Insurance Complaints Bureau (“ICB”): this is considered in more detail in 6.1.3 below.

(b) The Motor Insurers' Bureau of Hong Kong (“MIB”): funded by a surcharge on motor insurance premiums, the MIB seeks to provide compensation in respect of the death of or injury to innocent victims of motor vehicle road accidents, where the required compulsory insurance for such situations does not exist or is not effective, or the insurer concerned is in liquidation.

(c) The Employees Compensation Insurer Insolvency Bureau (“ECIIB”): composed of all insurers carrying on the business of employees’ compensation insurance in Hong Kong, the ECIIB runs the Employees Compensation Insurer Insolvency Scheme to assume responsibilities for liabilities under employees’ compensation policies of its member insurers that have become insolvent.

The Scheme is funded by a surcharge on employees’ compensation insurance premiums.

5.5.4 Employees’ Compensation Insurance Residual Scheme Bureau

There have been cases in which employers appeared to have difficulty obtaining EC insurance in respect of employees engaged in certain high risk occupations.

To tackle this problem, an ‘Employees’ Compensation Insurance Residual Scheme’ (“ECIRS”) was set up to act as a market of last resort for these employers.

By a market agreement, all employees’ compensation insurers have to become members of the ECIRS, taking on risks on a collective basis.

The running of this scheme is overseen by a market body called the ‘Employees’ Compensation Insurance Residual Scheme Bureau’, which was formed for the purposes of enabling employers who have found themselves being unable to obtain employees’ compensation insurance to obtain such insurance. - o - o - o -

Representative Examination Questions

Type ‘A’ Questions

1 The Insurance Ordinance in Hong Kong divides insurance business into two broad categories. One is General Business and the other is:

(a) Specific Business; ..... (b) Accident Insurance; ..... (c) Long Tail Business; ..... (d) Long Term Business. .....

[Answer may be found in 5.1.1]

2 The difference between ‘inwards reinsurance’ and ‘outwards reinsurance’ for a given insurance company is that:

(a) inwards reinsurance is with Hong Kong reinsurers; ..... (b) outwards reinsurance is with non-Hong Kong reinsurers; ..... (c) inwards reinsurance is where the company acts as reinsurer; ..... (d) outwards reinsurance is where the company acts as reinsurer. .....

[Answer may be found in 5.1.4]

Type ‘B’ Questions

3 Which two of the following are classes of Long Term Business?

(i) Aircraft liability (ii) Life and Annuity (iii) Permanent Health (iv) Damage to property

(a) (i) and (ii); ..... (b) (ii) and (iii); ..... (c) (ii) and (iv); ..... (d) (iii) and (iv). .....

[Answer may be found in 5.1.1(a)]

4 Which of the following statements are true in the Hong Kong situation, based upon available data?

(i) Relatively few insurers dominate General Business (ii) Relatively few insurers dominate Long Term Business (iii) General Business is shared more evenly among insurers (iv) Long Term Business is shared more evenly among insurers

(a) (i) and (ii) only; ..... (b) (i) and (iii) only; ..... (c) (ii) and (iii) only; ..... (d) (iii) and (iv) only. .....

[Answer may be found in 5.3]

[If still required, the answers may be found at the end of the Study Notes.]

Chapter 6: REGULATORY FRAMEWORK OF INSURANCE INDUSTRY PDF p.70

All civilised societies recognise that a financial service as important as insurance must be subjected to some form of supervision or control.

This is a sensitive area, since on the one hand it is not good for society to ‘strangle’ any kind of worthwhile business activity with excessive controls.

On the other hand, left totally unsupervised, the huge amounts of money involved with insurance have over the centuries proved irresistible to fraudsters and irresponsible people, to the great harm and detriment of the societies affected. Below, we shall examine the various aspects of the Hong Kong insurance industry regulatory framework.

6.1 REGULATION OF INSURANCE COMPANIES IN HONG KONG PDF p.70

The Insurance Companies (Amendment) Ordinance 2015 (the Amendment Ordinance 2015) enacted by the Legislative Council of Hong Kong on 10 July 2015 provides for, among other things, the establishment of a new and independent statutory body officially known as the ‘Insurance Authority’ (“IA”), as the new insurance regulator independent of the Government, to take over the statutory functions of the Office of the Commissioner of Insurance (“OCI”) in regulating the insurance industry of Hong Kong.

The policy objectives of setting up the new IA are to modernise the insurance industry regulatory infrastructure to facilitate the stable development of the industry, provide better protection for policyholders and potential policyholders, align Hong Kong with the international practice that insurance regulators should be financially and operationally independent of the government and industry, and set up a direct regulatory regime for insurance intermediaries to replace the old self-regulatory system administered by three SROs.

6.1.1 Insurance Ordinance (“IO”)

This very important piece of legislation provides the framework for the prudential supervision of the insurance industry of Hong Kong. In fact, it covers not only the supervision and regulation of insurers, but also that of insurance intermediaries.

The IO, formerly entitled the ‘Insurance Companies Ordinance’ (“ICO”), came into effect in 1983. The principal functions of the then IA under the ICO were to ensure that the interests of policyholders and potential policyholders are protected, and to promote the general stability of the insurance industry.

With the relevant provisions of the Amendment Ordinance 2015 coming into operation on 26 June 2017, the ICO was renamed the ‘Insurance Ordinance’ (Cap.

41). The new IA took over the statutory functions of the OCI to regulate the insurance industry of Hong Kong and the OCI was disbanded on the same date. The new regulator is also tasked to (i) regulate the conduct of insurance intermediaries through a licensing regime;

(ii) promote the understanding by policyholders and potential policyholders of insurance products and the insurance industry; (iii) formulate effective regulatory strategies and facilitate the

sustainable market development of the insurance industry, and promote the competitiveness of the insurance industry in the global insurance market; (iv) conduct studies into matters affecting the insurance industry; and (v) assist the Financial Secretary of the Government in maintaining the financial stability of Hong Kong by taking appropriate measures in relation to the insurance industry.

Some of the major provisions of the IO concerning the regulation of insurers are outlined in 6.1.1a-g below.

6.1.1a Authorisation of Insurers

Any ‘person’ (which may, as a legal term, mean a corporation), before they carry on insurance business in or from Hong Kong, must first of all obtain authorisation to do so from the IA.

The IO prescribes certain minimum requirements for authorisation, relating to such matters as:

(a) paid-up capital; (b) solvency margin; (c) directors and controllers; (d) adequate reinsurance arrangement.

In addition, the IA has issued Guidelines which seek to ensure that the applicant insurer is financially sound and otherwise suitable, not only at the time of authorisation but continuing to be so in the future.

6.1.1b Capital Requirement

Minimum paid-up capital required:

(a) HK$10 million: if carrying on only General or only Long Term business, but not any statutory (or compulsory) insurance business;

(b) HK$20 million: if carrying on any statutory (or compulsory) insurance business, either alone or together with any other insurance business;

(c) HK$20 million: if carrying on both General and Long Term business;

(d) HK$2 million (instead of the above figures): if the insurer is a Captive Insurer.

Note: The above figures are merely minimum requirements. Insurers in Hong Kong almost invariably have paid-up capital well in excess of these requirements.

6.1.1c Solvency Margin Requirement

‘Solvency’ may be thought of as the point at which assets are just sufficient to meet liabilities. A margin of solvency is therefore the degree or amount by which assets exceed liabilities.

Insurance companies must have a solvency margin of not less than the ‘relevant amount’ – the minimum amount of solvency margin required of a particular insurer - as a safeguard against the risk that the insurer may not be able to meet its liabilities.

The relevant amount is prescribed as follows:

(a) General Business: calculated on two different bases,

(i) ‘Premium Income’ (the higher the volume of premium income, the larger the relevant amount) and

(ii) ‘Claims Outstanding’ (the higher the amount of claims outstanding, the larger the relevant amount),

whichever produces the higher figure; and subject to a Minimum Amount of HK$10 million (or HK$20 million if carrying on statutory insurance business).

(b) Long Term Business:

Calculated in accordance with the detailed requirements of the Insurance Companies (Margin of Solvency) Regulation, subject to a total of not less than HK$2 million.

(c) Composite Business:

In respect of the Long Term Business, the calculation of the relevant amount follows (b) above. In respect of the General Business, it will be calculated in the usual manner for General Business (see (a) above).

(d) Captive Insurer:

Either the ‘premium income’ basis or the ‘claims outstanding’ basis, whichever produces the higher figure; subject to a minimum of HK$2 million.

6.1.1d ‘Fit and Proper’ Requirement for Controllers, Directors, Key Persons in Control Functions and Appointed Actuaries

Controllers, directors and key persons in control functions of an authorized insurer must be fit and proper to assume such a position.

In addition, prior approval of the IA is required for an authorized insurer’s appointment of such persons. The appointment of an appointed actuary by a long term insurer is also subject to prior approval of the IA as well as the ‘fit and proper’ criteria.

In determining whether a person is a fit and proper person for this purpose, the IA will give due regard to the following matters in addition to any other matter that the IA considers relevant:

(a)education, qualification or experience of the person;

(b) the person’s ability to act competently, honestly and fairly;

(c) reputation, character, reliability and integrity of the person;

(d) the person’s financial status or solvency;

(e) disciplinary action taken by any other authority or regulatory organisation against the person;

(f) if the person is a company in a group of companies, any information in the possession of the IA relating to any other company in the group of companies, or any controller or director of the person or of any company in the group of companies;

and

(g) the state of affairs of any other business which the person carries on or proposes to carry on.

Related but distinct from the concept of ‘fitness and properness’ is that of corporate governance, which term refers to the rules and practices put in place within a corporation for the management and control of its business and affairs.

The IA has issued the Guideline on the Corporate Governance of Authorized Insurers (GL10), which sets out the minimum standard of corporate governance that is expected of authorized insurers.

A high standard of corporate governance established by authorized insurers is considered to be an essential step in instilling the confidence of the insuring public and encouraging more stable and long term development of the Hong Kong insurance market.

GL10 covers all levels of management, and all functions (risk management, underwriting, claims, client servicing, audit, etc.), of an authorized insurer.

6.1.1e Adequate Reinsurance

Reinsurance is an extremely important, in many cases crucial, element in the financial security of an insurer. Its importance is much influenced by various factors, including the financial strength of the insurer, and the type and volume of business.

The IO requires authorized insurers to have adequate reinsurance arrangements in force. It is a vital consideration in the overall financial supervision of an insurer, both with regard to the quantity and the quality (probable ‘collectability’) of the reinsurance effected.

The IA has issued and implemented a guideline on the subject, the ‘Guideline on Reinsurance with Related Companies’ (GL12). GL12 applies only where an authorized insurer reinsures with a ‘related reinsurer’ (meaning one within the same grouping of companies, as defined in section 2(7)(b) and (c) of the IO).

The reason why GL12 is important is that the prudent control that any one insurer should exercise on its reinsurance arrangements may possibly be compromised when the reinsurer is related to it.

This situation, if allowed to be loosely supervised, will put the interests of the insuring public at risk.

GL12 aims to promulgate how reinsurance arrangements with related companies will be considered adequate by the IA in terms of financial security, and how the IA intends to address the supervisory concern if such reinsurance arrangements are not considered adequate.

6.1.1f Other Major Provisions of the IO

Certain other features of the IO which should be noted include:

(a) Maintenance of Assets in Hong Kong: An insurer carrying on General Business must maintain assets in Hong Kong in respect of its liabilities arising from its Hong Kong General Business.

The amount required is to be calculated in accordance with one of two prescribed methods, one of which requires an amount not less than the aggregate of:

(i) 80% of its net liabilities (i.e. after deducting those covered by reinsurance); and

(ii) the relevant amount.

Claims from Hong Kong general insurance policyholders have preference under Hong Kong insolvency law. Such protection is enhanced by the above requirement of the IO to have funds available in Hong Kong.

Note: This requirement does not apply to Captive Insurers and Professional (Specialist) Reinsurers.

(b) Maintenance of separate accounts for different classes of long term business: An insurer must maintain an account for each class of its long term business (see 5.1.1(a)), and assets representing a fund maintained by the insurer in respect of its long term business must be applicable only for the purposes of that part of business to which the fund relates.

(c) Valuation Bases for Assets and Liabilities: Assets and liabilities must be valued for both General and Long Term Business. The way each is calculated is obviously of the greatest importance to the perceived financial position of the insurer concerned.

(i) General Business: Specific regulation governs the valuation of assets and liabilities. However, it does not apply to a Captive Insurer.

(ii) Long Term Business: Again, specific regulation governs the valuation of liabilities, especially concerning such matters as projected interest earnings and expected yield from investments.

(d) Reporting Requirements: The following reporting requirements apply:

(i) Every insurer: Has to submit annually to the IA its financial statements prepared in accordance with the requirements of the IO.

(ii) General Business: These insurers, in addition to the requirement mentioned in (i) above, have to submit annually to the IA an audited General Business Return and audited Statement of Assets and Liabilities relating to its Hong Kong business.

However, Captive Insurers and Professional (Specialist) Reinsurers are not required to submit audited Statements of Assets and Liabilities to the IA.

The ‘Guideline on Actuarial Review of Insurance Liabilities in respect of Employees’ Compensation and Motor Insurance Businesses’ (GL9) issued by the IA requires that insurers (including reinsurers) which carry on employees’ compensation business and/or motor insurance business should annually commission an actuarial review of their reserves set aside for future claims payments in respect of such statutory line(s) of business.

The review should be conducted according to specified criteria. An actuarial report should be prepared and certified by the actuary, and submitted to the IA for review within a prescribed period. It should be noted that GL9 applies to professional reinsurers as well as to direct insurers.

(iii) Long Term Business: In addition to meeting the requirement mentioned in (i) above periodically – normally every 12 months - Long Term insurers have to commission an actuarial investigation into its financial condition in respect of its long term business.

An abstract of the actuarial investigation report together with a certificate made by the appointed actuary have to be submitted to the IA within a prescribed period.

Note: 1 With the enactment of the Electronic Transactions Ordinance, insurers may submit these documents by electronic means.

2 Some people might find it difficult to distinguish between reserves and solvency margin. In simple terms, the solvency margin of an insurer represents the surplus of its assets over its liabilities, a fair indication of that insurer’s capability to meet those liabilities.

On the other hand, claims reserves represent projected or estimated future insurance liabilities. If an insurer’s claims reserves have been set up on the basis of a less than prudent projection or estimation, other things being equal, its net asset value must be an overstated figure.

(e) Transparency: As an enhancement to market transparency, with effect from June 2000, the IO allows the IA to disclose financial and statistical information of individual insurers and Lloyd’s when it is considered in the interests of policyholders or the public to do so.

Note: The IO, however, specifically prohibits the IA from disclosing any information relating to the affairs of individual insurers, except under specified court proceedings.

(f) New regulatory powers under the Amendment Ordinance 2015: For more effective regulation of insurers and better protection of policyholders’ interests, the IA is also vested with express powers to conduct inspection, initiate investigation, and impose disciplinary sanctions on authorized insurers.

The range of disciplinary sanctions which the IA could impose include revocation/suspension of an insurer’s authorisation, prohibition from application for authorisation to carry on a class of insurance business, public/private reprimand and pecuniary penalty.

6.1.1g Powers of Intervention

It is often said that for effective supervision, insurance regulators must not only have ‘eyes’, but must also have ‘teeth’. The statutory provisions therefore outline various actions the regulators may take for protecting the interests of policyholders and potential policyholders.

These actions include:

(a) Limitation of premium income: if, for example, it is deemed that an insurer is growing too fast or may otherwise be facing potential difficulties with the inevitable liabilities that new business might produce.

(b) Restrictions on investments: on the type and/or location of investments.

(c) Restrictions on new business: on the capacity to effect or vary any contracts of insurance or contracts of insurance of a specified description.

(d) Custody of assets by an approved Trustee: for additional security.

(e) Special actuarial investigation: probably when there is cause for concern on a particular insurer’s ability to meet liabilities.

(f) Assumption of control by a Manager appointed by the IA: in serious cases.

(g) Winding up (liquidating) the insurer: in extreme cases; by presenting a petition to the courts.

6.1.2 Code of Conduct for Insurers

This Code was implemented by the Hong Kong Federation of Insurers (HKFI) in May 1999. It applies to insurance effected in Hong Kong by individual (not company) policyholders resident in Hong Kong, insured in their private capacity only.

6.1.2a Objectives

These set out the expected standards of good insurance practice relating to such matters as

(a) underwriting and claims;

(b) product understanding;

(c) customers' rights and obligations under insurance contracts;

(d) customers' rights and interests generally;

(e) the industry's public image as a good corporate citizen.

Sections of the Code relevant to the activities of insurance agents are covered below.

6.1.2b Advising and Selling Practices

This Part of the Code makes specific comment on:

(a) Sales Materials: these should be up to date, accurate, in understandable language and not misleading to the public.

(b) Proposal/Application Forms: these are documents of prime importance to the formation of the contract, being the vehicle through which the intending insured supplies information to the insurer.

As such, the forms should:

(i) be in understandable language, with clear guidance as necessary;

(ii) carefully explain the significance of utmost good faith requirements;

(iii) make matters of material significance the subject of clear questions;

(iv) explain carefully the importance of any associated questionnaires.

(c) Policies: these provide visible evidence of the insurance contract terms. As such, they should be clear and as understandable as possible to the consumer.

Also, any utmost good faith implications regarding material facts to be disclosed at renewal should be carefully explained.

(d) Administration: this covers such matters as confidentiality, service standards, customer enquiries and the fact that customers should not be the loser from inaccuracy on the part of the insurer's employees.

(e) Medical Evidence: confirmation that the Personal Data (Privacy) Ordinance requirements will be observed in this sensitive area.

6.1.2c Claims

Since claims, or their possibility, are at the heart of insurance, clear statements are necessary to establish good practice in this area. These include:

(a) General Handling:should be fair, efficient and speedily.

(b) Denial of Claims: This should not happen

(i) unreasonably, especially with non-disclosure of material facts and particularly where no proposal form was obtained;

(ii) with innocent misrepresentation of material facts (other than with marine or aviation insurance);

(iii) with a breach of warranty committed without fraud, where it has not caused the loss.

(c) Claim Forms: to be issued promptly without charge, and in understandable language.

(d) Other Issues: specific mention is made of other matters such as:

(i) claimants to be kept reasonably informed of claim progress;

(ii) reasonable explanation to be given, if a claim cannot be admitted;

(iii) payment made promptly with valid claims;

(iv) third parties acting for the insurer (adjusters etc.) should always act reasonably and should be professionally qualified.

6.1.2d Management of Insurance Agents

Generally, insurers are to ensure that insurance agents comply with all applicable laws. Specifically, insurers should give attention to the following:

(a) Complaints:proper procedures should be in place to deal with complaints against insurance agents.

(b) Adequate Support:insurers should ensure that insurance agents have adequate support to perform their duties efficiently.

(c) Miscellaneous:insurers must not seek to limit their liability for the actions of their insurance agents and should ensure as far as possible that the insurance agents act fairly and honestly.

6.1.2e Inquiries, Complaints and Disputes

Insurers should handle inquiries in a fair and timely manner, have in place documented internal complaint-handling procedures for resolving complaints by policyholders, and become a member of the Insurance Complaints Bureau (“ICB”) (see 6.1.3 below), which adjudicates insurance claims disputes between insurers and individual policyholders.

6.1.3 Insurance Complaints Bureau (“ICB”)

The ICB was inaugurated on 16 January 2018 to supersede The Insurance Claims Complaints Bureau (“ICCB”) in providing an alternative dispute resolution mechanism to help resolve insurance-related disputes of a monetary nature arising from personal insurance contracts.

Apart from maintaining the ICCB’s service of adjudicating claim-related disputes, the ICB has also launched a new mediation service to handle non-claim related insurance disputes of a monetary nature starting on 16 July 2018.

It is worth noting that the ICB has no jurisdiction over insurance intermediaries’ misconduct.

The ICB continues to have a compulsory membership of all authorized insurers carrying on personal insurance business in Hong Kong. The independence and impartiality of the ICB are partly reflected by the composition of its Board of Directors, of whom four – including the Chairman – come from outside the insurance industry and four from the insurance industry.

6.1.3a Composition and Powers of The Insurance Claims Complaints Panel

(a) Claim-related complaints that are filed with the ICB are adjudicated by the Insurance Claims Complaints Panel (the Complaints Panel), which is led by an independent Chairman appointed by the ICB with the prior consent of the Secretary for Financial Services and the Treasury.

(b) Of the four members on the Complaints Panel, two come from the insurance industry and two from outside.

(c) No fee is charged to the complainant, whether he wins his case or not.

(d) The Complaints Panel can make an award against an insurer up to HK$1,000,000, who has no right of appeal against an award. If the complainant is unsatisfied with the decision of the Complaints Panel, he may, however, seek legal redress.

(e) Further points on the powers of the Complaints Panel: The Articles of Association of the ICB stipulates that the Complaints Panel, in making its ruling, ‘shall have regard to and act in conformity with the terms of the relevant policy, general principles of good insurance practice, any applicable rule of law or judicial authority;

and any codes and guidelines issued from time to time by the Hong Kong Federation of Insurers (HKFI) or the ICB. In respect of the terms of the policy contract, these shall prevail unless they would, in the view of the Complaints Panel, produce a result that is unfair and unreasonable to the complainant’.

The gist of these provisions is that, the Complaints Panel, in making a ruling, is empowered by the ICB Members to look beyond the strict interpretation of policy terms.

As far as good insurance practice is concerned, the Complaints Panel relies heavily on the expected standards set out in The Code of Conduct for Insurers, with particular reference to 'Part III: Claims'.

The first requirement of the section states, ‘Insurers should seek to handle all claims efficiently, speedily and fairly’. As such, as to whether an insurer has acted fairly in the settlement of claims or not is subjected to the scrutiny of the Complaints Panel.

6.1.3b Terms of Reference of the ICB’s Services

Any complaint that the ICB sets out to handle should satisfy the following conditions:

For both claim and non-claim related complaints:

(a) the complaint is of a monetary nature;

(b) the claim amount/monetary value of the complaint does not exceed HK$1,000,000;

(c) the insurer concerned is an ICB member;

(d) the policy concerned is a personal insurance policy;

(e) the complaint is filed by a policyholder/policy beneficiary/ insured person/rightful claimant (e.g. an assignee);

(f) the insurer concerned has made its final decision on the claim/dispute;

(g) the complaint is filed with the ICB within 6 months from the day of notification by the insurer of its final decision;

(h) the complaint does not arise from commercial, industrial or third party insurance;

(i) the complaint is not subject to legal proceedings or arbitration.

For non-claim related complaints alone:

(j) the complaint is not about quality of service or an underwriting decision of an insurer; and

(k) the complaint is not related to investment performance, level of a fee, premium, charge or interest rate unless the dispute concerns an alleged non-disclosure, misrepresentation, incorrect application, negligence, breach of any legal obligation or duty or maladministration on the part of an insurer.

6.1.3c Non-claim Related Mediation Service

Where the parties concerned in a dispute have failed to reach an amicable resolution despite the ICB’s encouragement to do so, they may select a mediator from a list of qualified mediators with relevant experience and qualification that the ICB maintains for mediation service. With a jurisdiction limit of HK$1,000,000, the mediation service is free to complainants.

6.2 REGULATION OF INSURANCE INTERMEDIARIES IN HONG KONG PDF p.82

Taking effect on 23 September 2019, the new regulatory regime for insurance intermediaries, i.e. insurance agents and insurance brokers, superseded the old self- regulatory regime, which operated between 30 June 1995 and 22 September 2019.

The self-regulatory regime, supported by the legislation contained in Part X of the IO (formerly known as the ICO), required each insurance intermediary to be registered with and regulated by one of the three Self-Regulatory Organizations (“SROs”), namely the Insurance Agents Registration Board (“IARB”), the Hong Kong Confederation of Insurance Brokers (“CIB”) and the Professional Insurance Brokers Association (“PIBA”).

The IA subsequent to taking over the functions of the OCI on 26 June 2017 to regulate insurers, took over the regulation of insurance intermediaries from the three SROs on 23 September 2019 through a statutory licensing regime. In other words, as from 23 September 2019, the IA directly licenses and regulates all insurance intermediaries in Hong Kong.

Some details of the requirements of the new regulatory system are set out below, alongside an overview of the now-defunct self-regulatory system with references to the ‘pre-amendment Ordinance’ (meaning the ICO as in force immediately before the commencement date of the new regulatory system) as well as the ‘new Ordinance’ (meaning the IO as in force on the commencement date of the new regulatory system).

6.2.1 Basic Requirements of the Licensing Regime for Regulation of Insurance Intermediaries

Regulated under the now-defunct self-regulatory regime were appointed insurance agents and authorized insurance brokers - defined in the pre-amendment Ordinance - and their responsible officers, Chief Executives and technical representatives - defined in the SROs’ respective codes of practice and the like. The pre-amendment Ordinance prohibited any person from being an appointed insurance agent and an authorized insurance broker at the same time, whether in relation to the same or different clients.

Under the new statutory licensing regime, which superseded the insurance agent/broker registration requirements, a licence granted by the IA is required for carrying on any ‘regulated activity’ in the course of business or employment or for reward, or for holding out to do so, subject to certain exemptions.

It is important to understand that the relevant statutory provision does not distinguish between the carrying on of a regulated activity by an employee of an insurer and by a person

who is not an employee of an insurer. Furthermore, an authorized insurer’s statutory exemption from the licensing requirement does not extend to the insurer’s agents.

It follows that the direct sales staff of an authorized insurer who give advice on the coverage of the insurer’s insurance products to policyholders as representatives of the insurer would need to obtain an individual insurance agent licence.

Each of the following is a regulated activity for the purposes of the licensing requirement:

• negotiating or arranging an insurance contract;

- inviting or inducing, or attempting to invite or induce, a person to enter into an insurance contract;

- inviting or inducing, or attempting to invite or induce, a person to make a ‘material decision’; and

-giving ‘regulated advice’.

A material decision refers to a decision made by the person entering into a contract of insurance, and regulated advice is an opinion given in relation to any of these matters:

• the making of an application or proposal for an insurance contract;

• the issuance, continuance or renewal of an insurance contract;

- the cancellation, termination, surrender or assignment of an insurance contract;

• the exercise of a right under an insurance contract;

• the change in any term or condition of an insurance contract; and

• the making or settlement of an insurance claim.

The IO further provides that actively marketing insurance services to the public from a place outside Hong Kong falls within the scope of holding out to carry on a regulated activity.

Apart from empowering the IA to grant an applicant exemption from the licensing requirements, the IO also grants exemption from the licensing requirements in relation to the giving of regulated advice by the following classes of persons and where applicable, in the circumstances set out below:

-counsels, solicitors, certified public accountants, trust companies, actuaries;

- newspaper, television or radio broadcast, electronic communication to the public;

- the business of loss assessment, the business of settling claimson behalf of an authorized insurer;

-a company giving regulated advice to a ‘specified company’, i.e.a wholly owned subsidiary of the company, the sole shareholding company of the company, ora wholly owned subsidiary of thatsole shareholding company;

- the discharge of only clerical or administrative duties for an authorized insurer or a Licensed Insurance Intermediary;

- an employee of any of the following authorized insurers carrying on a regulated activity in the course of employment: (a) an insurer authorized to carry on in or from Hong Kong reinsurance business only; and (b) a captive insurer;

and

- an employee of an authorized insurer carrying on a regulated activity that only involves: (a) risk assessment; (b) determination of terms and conditions of insurance contracts; or (c) processing of any claim lodged under an insurance contract.

Under the new regime, there are the following five types of licensees:

- Licensed Individual Insurance Agent: an individual who has been granted a licence by the IA to carry on regulated activities in one or more lines of business (see 5.1.1), as an agent of any authorized insurer;

- Licensed Technical Representative (Agent): an individual who has been granted a licence by the IA to carry on regulated activities in one or more lines of business, as an agent of any licensed insurance agency; - - Licensed Technical Representative (Broker):

an individual who has been granted a licence by the IA to carry on regulated activities in one or more lines of business, as an agent of any licensed insurance broker company;

- Licensed Insurance Agency: a sole proprietor, partnership or company who/which has been granted a licence by the IA to carry on regulated activities in one or more lines of business, as an agent of any authorized insurer;

and

- Licensed Insurance Broker Company: a company which has been granted a licence by the IA to carry on the regulated activity of ‘negotiating or arranging an insurance contract’ in one or more lines of business as an agent of any policyholder or potential policyholder and all other types of regulated activities in one or more lines of business.

Apart from the above five terms, the meaning of the following terms for the purposes of the new Ordinance should also be noted:

- Licensed Insurance Agent: a licensed insurance agency, a licensed individual insurance agent or a licensed technical representative (agent);

-Licensed Insurance Broker: a licensed insurance broker company or a licensed technical representative (broker);

- Licensed Insurance Intermediary: a licensed insurance agent or a licensed insurance broker; and

- Regulated Person: a licensed insurance intermediary, a responsible officer of a licensed insurance agency or licensed insurance broker company, or a person concerned in the management of the regulated activities carried on by a licensed insurance agency or licensed insurance broker company.

In relation to ‘responsible officer’ as one type of regulated person, under the new Ordinance, each licensed insurance agency and licensed insurance broker company should have at least one responsible officer, and that all responsible officers should be licensed technical representatives (agent) or licensed technical representatives (broker) as the case may be. Besides, the appointment of a responsible officer requires the IA’s prior approval.

As set out above, there are five types of insurance intermediaries that are required to hold a valid licence issued by the IA under the new licensing regime. In view of the large number of registered insurance intermediaries, the importance of a smooth transition from the old to the new regime to minimize possible disruption to insurance intermediaries’ business and their service to existing policyholders cannot be over-emphasised. For the sake of such a transition, the IO provides transitional arrangements for deemed licensees (i.

e. the existing insurance intermediaries validly registered with any of the SROs immediately before the commencement of the new regime – comprising registered insurance agencies, registered individual insurance agents, authorized insurance brokers, registered technical representatives, registered responsible officers and registered chief executives), so that they are deemed to be licensed by the IA for three years.

The IA will, staggered over a three-year transitional period (beginning on 23 September 2019), invite the deemed licensees to submit applications to the IA for formal licences.

6.2.2 Authorized Insurer’s Relationship with its Agents

Section 68 of the IO imposes vicarious liability on an authorized insurer for the acts of an insurance agent whom it has appointed and who has dealings with a client for the issue of a contract of insurance, or for insurance business relating to the contract.

To be more specific, section 68(1) provides that if the person is appointed by the insurer as an agent, the insurer is liable for any act of the person in relation to those dealings, whether or not the act is within the scope of the person’s authority.

If not for the above provisions, a dispute between an insured and an insurer as to for whom a licensed insurance intermediary has acted at the material time would have to be adjudicated on the basis of the relevant common law rule. In common law, the nub of this issue is best represented by this question:

‘For whom at the material time was the insurance intermediary acting in respect of the act which is alleged to have given rise to a contract or transaction between the insured and the insurer?’ The courts would resolve this question on the particular facts of the case and might possibly hold that the insurance intermediary was in fact an agent of the insured for the act in question, even if he was at and about the material time running a business of insurance agency as opposed to insurance broking. In other words, this is a question of fact, rather than a question of law.

Contemplating the possibility of a person being appointed by more than one authorized insurer as an agent, giving rise to complicated issues of vicarious liability, other sub-sections of section 68 stipulate that:

- Where there is more than one appointing authorized insurer, those dealings relate to a particular line of business and only one insurer’s appointment covers that line of business (the ‘empowering insurer’), it is the empowering insurer who is liable.

- Where the appointments by more than one authorized insurer cover a particular line of business, those dealings relate to that line of business, and an act of the person is within the scope of his authority from one of those insurers (the ‘empowering insurer’), it is the empowering insurer who is liable.

- Where the appointments by more than one authorized insurer cover a particular line of business, those dealings relate to that line of business, and an act of the person is within the scope of his authority from two or more of those insurers (the ‘empowering insurers’), the empowering insurers are jointly and severally liable. - - Where the appointments by more than one authorized insurer cover a particular line of business, those dealings relate to that line of business, and an act of the person is not within the scope of his authority from any of those insurers, all those insurers are jointly and severally liable.

Nevertheless, an authorized insurer is not liable under section 68 for the act of the person if the following criteria are satisfied (subject to any other relevant factors that the court may take into accountin considering a claim made under section 68):

- The act is not within the scope of the person’s authority in relation to that insurer;

-The person disclosed that fact to the client before the client relied on the act; and

- The clarity and prominence of the disclosure was what a person would reasonably require for deciding whether to enter into any of the dealings covered by section 68.

6.2.3 Multiple Capacities of Licensed Insurance Intermediaries

The new Ordinance imposes the following restrictions in relation to the personnel of licensed insurance agencies, the personnel of licensed insurance broker companies, licensed technical representatives (agent) and licensed technical representatives (broker):

(a) Personnel of Licensed Insurance Agencies: Restrictions apply to the proprietor or partners of any licensed insurance agency, and to the directors or employees of any licensed insurance agency who manage or control any matter relating to a regulated activity of the agency, in that each of these individuals must not also be:

-the proprietor or a partner of another licensed insurance agency;

-a licensed individual insurance agent;

- a licensed technical representative (agent) of another licensed insurance agency;

• a licensed technical representative (broker);

- a director or employee of another licensed insurance agency who manages or controls any matter relating to a regulated activity of that other agency; or

- a director or employee of a licensed insurance broker company who manages or controls any matter relating to a regulated activity of that company.

(b) Personnel of Licensed Insurance Broker Companies: Each of the directors and employees of any licensed insurance broker company who manage or control any matter relating to a regulated activity of the company must not also be:

• the proprietor or a partner of a licensed insurance agency;

• a licensed individual insurance agent;

• a licensed technical representative (agent); or

- a director or employee of a licensed insurance agency who manages or controls any matter relating to a regulated activity of the agency.

(c) Licensed Technical Representatives (Agent): They must neither act beyond the licensed insurance agency’s scope of licensed business, nor be a licensed technical representative (agent) of another licensed insurance agency.

(d) Licensed Technical Representatives (Broker): They must not act beyond the licensed insurance broker company’s scope of licensed business.

6.2.4 Grant of Licence

(a) Conditions for Grant of Licence: The new Ordinance sets out the conditions for the grant of licence by the IA, including ‘fit and proper’ criteria for applicants for insurance intermediary licences.

The ‘fit and proper’ requirement is ongoing and also applies to renewal of licences.

As regards firms (i.e. sole proprietorships, partnerships and companies), all of their controllers, partners and directors (where applicable) must also be fit and proper persons to be associated with the carrying on of regulated activities in the lines of business concerned. For such purposes, the term ‘controller’ is defined:

- in relation to a sole proprietorship, as an individual who ultimately owns or controls the carrying on of regulated activities by the sole proprietorship;

- in relation to a partnership, as an individual who is entitled to or controls, directly or indirectly, not less than 15% of the capital or profits of the partnership; is, directly or indirectly, entitled to exercise or control the exercise of not less than 15% of the voting rights in the partnership;

or exercises ultimate control over the management of the partnership;

- in relation to a company, is a person who owns or controls, directly or indirectly, including through a trust or bearer share holding, not less than 15% of the issued share capital of the company; is, directly or indirectly, entitled to exercise or control the exercise of not less than 15% of the voting rights at general meetings of the company;

or exercises ultimate control over the management of the company.

Below are the major conditions for grant of the different types of licences:

(i) Licensed Insurance Agency

- A sole proprietor, partnership or company may apply for an insurance agency licence;

- The sole proprietor, partners, or company (and its director(s)) must be a fit and proper person(s) to carry on regulated activities in the lines of business concerned;

- The controller, if any, is a fit and proper person to be associated with the carrying on of regulated activities in the lines of business concerned;

- The applicant is appointed as an agent by at least one authorized insurer; and

-The applicant is neither holding an individual insurance agent licence, an insurance broker companylicence, a technical representative (agent)licence or a technical representative (broker)licence, nor applying for such a licence.

(ii) Licensed Individual Insurance Agent

- The individual applicant is a fit and proper person to carry on regulated activities in the lines of business concerned;

-The applicant is appointed as an agent by at least one authorized insurer; and

- The applicant is neither holding an insurance agencylicence, a technical representative (agent)licence or a technical representative (broker)licence, nor applying for such a licence.

(iii) Licensed Technical Representative (Agent)

- The individual applicant is a fit and proper person to carry on regulated activities in the lines of business concerned;

- The applicant is appointed as an agent by a holder of or an applicant for an insurance agency licence; and

- The applicant is neither holding an insurance agencylicence, an individual insurance agentlicence or a technical representative (broker)licence, nor applying for such a licence. - (iv) Licensed Insurance Broker Company

- The company applicant and its director(s) must be fit and proper persons to carry on regulated activities in the lines of business concerned;

- The controller, if any, is a fit and proper person to be associated with the carrying on of regulated activities in the lines of business concerned;

- The applicant is neither holding an insurance agencylicence nor applying for such a licence; and

- The applicant will be able to comply with the IA’s requirements in relation to capital, net asset, professional indemnity insurance, etc.

(v) Licensed Technical Representative (Broker)

- The individual applicant is a fit and proper person to carry on regulated activities in the lines of business concerned;

- The applicant is appointed as an agent by at least one licensed insurance broker company, or by an applicant for an insurance broker company licence; and

- The applicant is neither holding an insurance agencylicence, an individual insurance agentlicence or a technical representative (agent)licence, nor applying for such a licence.

(b) Responsibilities and Approval of Responsible Officer: Each licensed insurance agency and licensed insurance broker company should appoint at least one responsible officerto supervise the carrying on of regulated activities and to ensure proper controls and procedures are in place for the purpose of compliance with the conduct requirements set out in section 90 of the IO.

A responsible officer is responsible for using his best endeavours to ensure that the insurance agency or insurance broker company (as the case may be) has established and maintains proper controls and procedures for securing compliance with section 90 of the IO, which sets out conduct requirements for licensed insurance intermediaries.

Under the new Ordinance, the conditions for the IA’s approval of a Responsible Officer include the following:

- He is a licensed technical representative (agent) or licensed technical representative (broker), or an applicant for a licence to be a licensed technical representative (agent) or licensed technical representative (broker), as the case may be;

He will be fit and proper, whether solely or jointly with other - responsible officers, to discharge responsibilities as a responsible officer; and

-He has sufficient authority, and will be provided with sufficient resources and support, for discharging responsible officers’ responsibilities.

(c) Determination of ‘Fit and Proper’: As said, ‘fit and proper’ criteria are among the conditions for grant of licence, renewal of licence or approval of responsible officers.

In determining whether a person is a fit and proper person for the said purposes, the IA is required by the new Ordinance to have regard to the following matters in addition to any other matter that the IA considers relevant:

• His education or other qualifications or experience;

- Ability to carry on a regulated activity competently, honestly and fairly;

• His reputation, character, reliability and integrity;

• His financial status or solvency;

-Whether any disciplinary action has been taken against the person by the Monetary Authority (“MA”), the Securities and Futures Commission (“SFC”), the Mandatory Provident Fund Schemes Authority (“MPFA”), or any other authority or regulatory organization whether in Hong Kong or elsewhere which performs a function similar to those of the IA;

- If the person is a company in a group of companies, any information the IA possesses that relates to another company in the group, or to a controller or director of the person or of another company in the group;

- The state of affairs of any other business he carries on or proposes to carry on; and

- In relation to grant of insurance agency licence or insurance broker company licence or renewal of such a licence: any information the IA possesses that relates to: - ‧ any other person who is or is to be employed by or associated with the person for the purposes of carrying on regulated activities;

‧ any other person who is or will be acting for the person in relation to the carrying on of regulated activities; or

‧ the question as to whether the person has established effective internal control procedures and risk management systems to ensure its compliance with the IO.

Pursuant to section 133 of the IO, the IA has issued the Guideline on “Fit and Proper” Criteria for Licensed Insurance Intermediaries under the Insurance Ordinance (Cap.

41) (GL23) to outline the criteria and matters that the IA will normally consider in determining whether a person is fit and proper, which became effective on 23 September 2019.

These criteria and matters are not intended to be exhaustive and the IA may take into consideration any other information which it considers relevant in assessing the fitness and properness of a regulated person.

GL23 neither constitutes legal advice nor has the force of law.

The ‘fit and proper’ requirement is ongoing, and applies to any applicant for an insurance intermediary licence of any type or for the renewal of such licence, and to the controller(s), partner(s), director(s) (where applicable) and proposed responsible officer(s) (or current responsible officer(s) in the case of renewal of licence) of an applicant for an insurance agency licence or insurance broker company licence or for the renewal of such licence.

Besides, when deciding whether or not to impose, amend or revoke conditions on a licence or on an approval granted to an individual as a responsible officer under section 64ZG of the IO, the IA will take into account the fitness and properness of the applicants for a licence or renewal of licence, controller(s), partner(s), director(s) and responsible officer(s) (as the case may be).

The ‘fit and proper’ criteria set out in GL23 are divided into Criteria for Individuals and Criteria for Business Entities. Applicable to any individual who is required to be a fit and proper person, the Criteria for Individuals are matters to which the IA will have regard in determining whether an individual is a fit and proper person, with some of the matters differing in detail depending on whether he is an applicant for a licence (or a current licensee as the case may be) or a proposed responsible officer (or a current responsible officer as the case may be).

The Criteria for Business Entities are matters which apply to any business entity – i.e. a sole proprietorship, partnership or company - which is, is applying to be, or is applying for a renewal of a licence to be, a licensed insurance agency or licensed insurance broker company.

GL23 further reminds licensed insurance intermediaries of their duties to comply with the relevant sections of the IO and with any rules, codes and guidelines made or issued under those sections.

Any non-compliance will be taken into account in considering whether the licensed insurance intermediary concerned is a fit and proper person.

Below are the Criteria for Individuals and Criteria for Business Entities separately summarised:

Criteria for Individuals

(i) Education or other qualifications or experience

In considering the education or other qualifications or experience of a person applying to become an individual licensee, or a person who is proposed to be appointed as a responsible officer of a business entity which is, or is applying to be, a licensed insurance agency or a licensed insurance broker company, or applying for a renewal of such licence, the IA will take into account the nature of the functions or duties which the person will perform.

Individual Licensee

The individual applicant is expected to have attained any of the specified education or professional qualifications, and obtained a pass in the relevant paper(s) – depending on the line(s) of business concerned - of the Insurance Intermediaries Qualifying Examination (“the IIQE”).

The following are examples of the specific academic and professional qualifications:

(a) Level 2 or above in 5 subjects in the Hong Kong Diploma of Secondary Education Examination (“HKDSE”), including the following two compulsory subjects:

A. a language subject which may either be Chinese Language or English Language; and B. Mathematics;

(b) Grade E or above in 5 subjects in the Hong Kong Certificate of Education Examination (“HKCEE”), including the following two compulsory subjects:

A. a language subject which may either be Chinese Language or English Language; and B. Mathematics;

(For avoidance of doubt, combined examination results obtained in more than one sitting of the HKDSE and/or HKCEE are acceptable.)

(c) Diploma Yi Jin;

(d) International Baccalaureate Diploma;

(e) a diploma granted by a degree-awarding higher education institution established or registered under an Ordinance of Hong Kong considered acceptable by the IA;

(f) a diploma registered or exempt under the Non-local Higher and Professional Education (Regulation) Ordinance (Cap. 493), where the diploma, subject and institution are considered acceptable by the IA;

(g) an insurance qualification specified by the IA from time to time and published on the IA’s website; or

(h) any other qualification considered by the IA to be equivalent to or higher than any qualification set out in the above paragraph (i) (a) to (g) (For example, a degree awarded by a higher education institution in Hong Kong or elsewhere is generally considered as acceptable.)

A person is exempt from the specified education or professional qualifications in relation to his application for an individual insurance agent licence, a technical representative (agent) licence or a technical representative (broker) licence, if (a) he/she was a ‘specified person’ (see the next paragraph) immediately before 23

September 2019 and regarded as having been granted a licence on that date, orwas a specified person at any time within the two-year period immediately before that date; (b) he/she has not ceased to be engaged in insurance-related work in the insurance industry in Hong Kong for two consecutive years or more;

and (c) he/she submits the application for such licence within the transitional period, i.e.the period of 3 years beginning on that date.

‘Specified person’ is defined in GL23 as:

• an Individual Agent registered with the IARB;

• a Technical Representative registered with the IARB;

• a Responsible Officer registered with the IARB;

- a Technical Representative registered with the CIB or PIBA; or

-a Chief Executive registered with the CIB or PIBA.

Exemption from certain IIQE papers is granted on the basis of the following:

- certain insurance, actuarial and professional qualifications listed in Annex 1 to GL23;

- being in the insurance intermediary business in Hong Kong immediately before 1 January 2000 and holding the Certificate of Proficiency in General Insurance Studies issued by The Hong Kong Federation of Insurers (“HKFI”);

or - - possessing five years’ proven experience in insurance business in Hong Kong within the six-year period immediately before 1 January 2000.

Annex 1, however, provides that an individual’s IIQE results may lapse upon his/her cessation of or non-engagement in insurance practicefor two or more consecutive years, unless he/she is exempt based on the possession of a specified insurance, actuarial, or professional qualification.

Responsible Officer

A proposed responsible officer is expected to have attained a specified education or professional qualification, that is to say: (a) a bachelor degree from a recognized university or tertiary educational institution; or (b) an insurance qualification specified by the IA from time to time and published on the IA’s website;

or (c) any other qualification considered by the IA to be equivalent to or higher than any qualification set out in (a) and (b) above.

A proposed responsible officer of a licensed insurance agency is exempt from the specified education or professional qualifications (see the previous paragraph) if he/she was: (a) a Responsible Officer registered with the IARB at any time before 23 September 2019, or (b) an Individual Agent or Technical Representative registered with the IARB at any time before 23 September 2019 and already possessed a minimum of 15 years’ experience in insurance- related work in the insurance industry in Hong Kong on 23 September 2019.

Similarly, a proposed responsible officer of a licensed insurance broker company is exempt from the specified education or professional qualifications if he/she was: (a)a Chief Executive registered with the CIB or PIBA at any time before 23 September 2019, or (b)a Technical Representative registered with the CIB or PIBA at any time before 23 September 2019 and already possessed a minimum of 15 years’ experience in insurance-related work in the insurance industry in Hong Kong on 23 September 2019.

In addition, a proposed responsible officer is expected to have and possess experience commensurate with the nature and scale of business of the licensed insurance agency or licensed insurance broker company concerned and with the level of responsibilities to be carried out.

(Note: It is generally expected that a responsible officer should possess a minimum of 5 years’ experience in the insurance industry, including at least 2 years of management experience. In assessing the relevance of the proposed responsible officer’s industry and management experience, the IA will consider the role and functions to be undertaken by the person and whether the person’s experience (gained in Hong Kong or elsewhere) will enable him to discharge the responsibilities required of a responsible officer.)

(ii) Ability to carry on a regulated activity competently and fairly

Individual Licensee

The matters relevant to the IA’s assessment of the competence of an applicant include:

- where the individual is assuming responsibilities other than that relating to the carrying on of regulated activities, whether such responsibilities would give rise to a conflict of interest or otherwise impair his ability to carry on a regulated activity competently and fairly;

whether the individual has been found by a court to be mentally - incapacitated, or is detained in a mental hospital, under the Mental Health Ordinance (Cap.

136); and

- whether there is any evidence that the individual may be incompetent or negligent, which is indicated by the individual having been dismissed or requested to resign from any position or office for misconduct, incompetence, negligence or mismanagement.

The IA will consider whether he/she has satisfied the continuing professional development (“CPD”) requirements set out in the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (GL24) issued by the IA.

A failure to comply with the CPD requirements by a licensed insurance intermediary may affect his fitness and properness.

(iii)Reputation, character, reliability, honesty and integrity

Any Individual

The matters relevant to the IA’s assessment of the reputation, character, reliability, honesty and integrity of the individual concerned include whether he/she:

- has failed to comply with or demonstrated unwillingness to comply with any requirements in relation to the carrying on of regulated activities;

- has been found by a court or another competent authority in Hong Kong or elsewhere to have committed fraud, an act of dishonesty or misfeasance;

- has been disqualified by a court in Hong Kong or elsewhere from being a director of a company;

- has been convicted of a criminal offence by any court in Hong Kong or elsewhere or is the subject of unresolved criminal charges in Hong Kong or elsewhere, which are of relevance to fitness and properness;

- has been refused or restricted from the right to carry on any trade, business or profession by any professional, trade or regulatory body in Hong Kong or elsewhere;

- has been censured, disciplined or publicly criticized by any professional, trade or regulatory body in Hong Kong or elsewhere;

- is the subject of an investigation and/or disciplinary action or proceeding conducted by any professional body established under any laws, regulatory authority or law enforcement agency in Hong Kong or elsewhere;

- has been dismissed or requested to resign from any position or office in Hong Kong or elsewhere for misconduct, negligence, incompetence or mismanagement;

-was a controller, director or partner of a business entity, in Hong Kong or elsewhere, which has been compulsorily wound up or has made any compromise or arrangement with its creditors or has ceased trading in circumstances where its creditors did not receive or have not yet received full settlement of their claims, either whilst the individual concerned was a controller, director or partner or within one year after the individual concerned ceased to be such a controller, director or partner;

-has, in connection with the formation or management of a business entity, been adjudged by a court or another competent authority in Hong Kong orelsewhere civilly liable for any fraud, misfeasance or other misconduct by the individual concerned to such a business entity or any members thereof;

or

- has been a controller, director or partner of a business entity in Hong Kong or elsewhere, which,

‧ with the consent or connivance of, or because of the neglect or omission by the individual concerned, has failed to comply with any requirements under any laws, or any rules, regulations, codes or guidelines made or issued under any laws, or any other regulatory requirements;

‧ has been convicted of a criminal offence by any court in Hong Kong or elsewhereor is the subject of unresolved criminal charges in Hong Kong or elsewhere, which offence or charges are of relevance to fitness and properness;

or

‧ has been adjudicated by any court or other competent authority in Hong Kong or elsewhere civilly liable for any fraud, misfeasance or misconduct.

(iv) Financial status or solvency

Any Individual

The matters relevant to the IA’s assessment of the financial status of the individual concerned include whether he/she:

- has entered into a voluntary arrangement with creditors or been adjudicated bankrupt by a court, or is currently subject to bankruptcy proceedings, in Hong Kong or elsewhere; or

- has failed to satisfy any judgment debt under an order of a court in Hong Kong or elsewhere.

(v)Other relevant matters

Individual Licensee

The individual concerned is required to be:

-a Hong Kong permanent resident; or

- a person who holds an appropriate immigration visa or permit which does not restrict that person from carrying on regulated activities in Hong Kong.

Criteria for Business Entities

(i) Ability to carry on a regulated activity competently and fairly

Licensed Insurance Agency Licensed Insurance Broker Company

The IA expects a (proposed) responsible officer of the business entity concerned to:

- possess appropriate qualifications and experience (see the relevant requirements set out in the above section headed ‘Criteria for Individuals’); and

- have sufficient authority for discharging his responsibilities set out in the IO and any rules, regulations, codes and guidelines made or issued under any Ordinances, and be provided with sufficient resources and support for discharging such responsibilities.

(Note: In assessing the sufficiency of authority of the (proposed) responsible officer, the IA will consider the organizational structure, management responsibilities and seniority of the person within the licensed insurance agency or licensed insurance broker company concerned, and the nature and scale ofregulated activities under the (proposed) responsible officer’s supervision.)

In determining whether a business entity, which is, is applying to be, or is applying for a renewal of a licence to be, a licensed company agency or a licensed insurance broker company, is a fit and proper person to carry on regulated activities in a particular line of business, the IA will consider whether the (proposed) responsible officer(s) (as licensed technical representative(s) (agent) or licensed technical representative(s) (broker) as the case may be) are eligible to carry on regulated activities in the relevant line of business.

The business entity concerned should appoint at least one responsible officer to supervise the carrying on of regulated activities and to ensure proper controls and procedures are in place for the purpose of compliance with the requirements under the IO and other applicable regulatory requirements.

Under certain circumstances, the licensed insurance agency or licensed insurance broker company would be expected to appoint more than one responsible officer.

In considering whether there is a sufficient number of responsible officers appointed by the business entity concerned, the IA will take into account, inter alia, the scale of business, nature of insurance services and products, and number of licensed technical representatives (agent) or licensed technical representatives (broker) (as the case may be) of the business entity concerned.

The IA will assess the competence of the business entity which is, is applying to be, or is applying for a renewal of a licence to be a licensed insurance agency or a licensed insurance broker company with regard to the following aspects (where applicable):

- Group companies and business entities carrying on other business:

‧ (if the business entity is a company within a group of companies) any information relating to the group companies and their directors and controllers; and

‧ (if the business entity carries on or proposes to carry on business other than the business of carrying on of regulated activities) the nature and state of affairs of such business.

• Corporate governance:

‧ whether the business entity has an adequate organizational structure with clear lines of responsibilities and authority;

‧ whether the person(s) responsible for supervising the carrying on of regulated activities in the business entity’s (proposed) lines of business possesses an appropriate range of knowledge, skills and experience that allows him to properly carry out his duties;

and

‧ whether there is a feasible business strategy in respect of the proposed line(s) of business which includes information on the insurance products to be marketed, services to be provided, target market clientele and sources of business.

• Internal controls and risk management:

‧ whether the business entity has in placeadequate and effective policies, procedures and controls concerning compliance with all laws, rules, regulations, codes, guidelines and other regulatory requirements relevant to the carrying on of regulated activities in its lines of business;

‧ whether the business entity has identified the key risks and has developed strategies to mitigate such risks;

‧ in the case of a business entity that also carries on or intends to carry on business other than insurance intermediary business, whether there are effective internal controls to ensure the interests of policyholders and potential policyholders will not be prejudiced;

and

‧ whether there are adequate and effective policies, procedures and controls in relation to the recruitment, training and supervision of staff to ensure that the persons who are employed by, or associated with, or act for the business entity in relation to the carrying on of regulated activities are and remain fit and proper and suitably qualified for the (proposed) lines of business.

(ii) Reputation, character, reliability, honesty and integrity

Licensed Insurance Agencies Licensed Insurance Broker Companies

In respect of a business entity which is, or is applying for a licence, or is applying for a renewal of a licence, the matters relevant to the IA’s assessment of the reputation, reliability and integrity of the business entity concerned include the following:

Whether the business entity concerned:

has failed to comply with or demonstrated an unwillingness to - comply with any requirements in relation to the carrying on of regulated activities;

- has been refused or restricted from the right to carry on any trade, business or profession by any professional, trade or regulatory body in Hong Kong or elsewhere;

-has been censured, disciplined or publicly criticized by any professional, trade or regulatory body in Hong Kong or elsewhere;

- is the subject of an investigation and/or disciplinary action or proceeding conducted by anyprofessional body established under any laws, regulatory authority or law enforcement agency in Hong Kong or elsewhere;

- was a controller, director or partner of another business entity, in Hong Kong or elsewhere, which has been compulsorily wound up or has made any compromise or arrangement with its creditors or has ceased trading in circumstances where its creditors did not receive or have not yet received full settlement of their claims, either whilst the business entity concerned was a controller, director or partner or within one year after the business entity concerned ceased to be such a controller, director or partner;

- has been a controller, director or partner of another business entity in Hong Kong or elsewhere, which: ‧ with the consent or connivance of, or because of the neglect or omission by, the business entity concerned, failed to comply with any requirements under any laws, or any rules, regulations, codes or guidelines made or issued under any laws, or any other regulatory requirements;

‧ has been convicted of a criminal offence by any court in Hong Kong or elsewhereor is the subject of unresolved criminal charges in Hong Kong or elsewhere, which are of relevance to fitness and properness; or

‧ has been adjudicated by any court or other competent authority in Hong Kong or elsewhere civilly liable for any fraud, misfeasance or misconduct.

- has a controller, director or partner who fails to meet any of (a) the criteria and matters set out in the section headed ‘Criteria for Individuals’ in respect of ‘Reputation, character, reliability, honesty and integrity’ or ‘Financial status or solvency’, or (b) the criteria and matters set out in the section headed ‘Criteria for Business Entities’ in respect of ‘Reputation, character, reliability, honesty and integrity’ or ‘Financial status or solvency’, as applicable.

(iii) Financial status or solvency

Any Business Entity

In respect of an any business entity, matters relevant to the IA’s assessment of the financial status or solvency of the business entity concerned include the following:

Whether the business entity concerned:

- is subject to receivership, administration, liquidation or other similar proceedings;

- has entered into a scheme of arrangement with its creditors or failed to satisfy any judgment debt under an order of a court in Hong Kong or elsewhere; or

-has sufficient resources at all times for compliance with the financial requirements (e.g. capital, assets and liquidity requirements) applicable to it.

Note: However, for a business entity which is a sole proprietor or a partnership, the sole proprietor or each of the partners (as the case may be) is instead subject to the criteria and matters set out in the section headed ‘Criteria for Individuals’ in respect of ‘Reputation, character, reliability, honesty and integrity’ and ‘Financial status or solvency’.

(iv) Other relevant matters

Licensed Insurance Broker Company

In respect of a company which is, is applying to be, or is applying for a renewal of a licence to be a licensed insurance broker company, the IA must be satisfied that the company concerned is or will be able to comply with the requirements in relation to capital, net assets, professional indemnity insurance, and the keeping of separate client accounts and proper books and accounts as set out in the IO and any rules made under section 129 of the IO.

The IA will normally not allow a person to be appointed as a responsible officer of more than one licensed insurance broker company unless the companies concerned belong to the same group of companies or have common shareholder(s), or there is any other justification acceptable to the IA.

The IA will consider each application on a case-by-case basis.

6.2.5 Other Regulatory Measures

The new Ordinance gives the IA necessary powers for performing its statutory functions.The IA may make rules to, among others, require licensed insurance intermediaries to carry on business in a specified manner, and prescribe the qualifications and experience of, and training for, licensed insurance intermediaries.

The IA may also publish codes or guidelines for giving guidance in relation to a matter relating to any of its functions, or in relation to the operation of a provision of the IO.

Such codes and guidelines are not subsidiary legislation; non-compliance of any of them is not by itself a cause for judicial or other proceedings.

Below are some of the powers the IO gives the IA specifically:

(a) Appointment by a Maximum Number of Authorized Insurers: The IA has made the Insurance (Maximum Number of Authorized Insurers) Rules (“the Rules”) under sections 64I(1) and 129(1) of the IO for compliance by insurance agencies, individual insurance agents and insurers with effect from 23 September 2019.

According to:

Rule 3 - Maximum Number of Authorized Insurers: A person may be appointed as a ‘licensed person’ – a licensed insurance agency or licensed individual insurance agent - in carrying on a regulated activity for a maximum of 4 authorized insurers, of which no more than 2 can be insurers authorized to carry on long term business.

Rule 4 - General Principles: Applicable to the counting of the number of authorized insurers for the purposes of Rule 3, stipulates the following three principles:

- A licensed person is taken to be appointed by 1 insurer authorized to carry on general business if the licensed person is appointed by an authorized insurer as its agent to carry on regulated activities in general business only;

- A licensed person is taken to be appointed by 1 insurer authorized to carry on long term business if the licensed person is appointed by an authorized insurer as its agent to carry on regulated activities in long term business only;

A licensed person is taken to be appointed by 1 insurer authorized - to carry on general business and 1 insurer authorized to carry on long term business, if the licensed person is appointed by an authorized insurer as its agent to carry on regulated activities in both general business and long term business.

Rule 5 - Principles for Appointments by Authorized Insurers in Group of Companies: Applicable to the counting of the number of authorized insurers for the purposes of Rule 3 where a licensed person is appointed as an agent to carry on regulated activities by 2 or more authorized insurers which are in the same group of companies, stipulates the following two principles.

Where all those appointments are limited to either general business - or long term business, but not both, the licensed person is taken to be appointed by 1 insurer authorized to carry on the line of business for which that licensed person is appointed;

and

- Where those appointments are not limited to only general business or only long term business, the licensed person is taken to be appointed by 1 insurer authorized to carry on general business and 1 insurer authorized to carry on long term business.

Rule 6 - Principles for appointments by members of Lloyd’s: It stipulates principles for appointments of licensed persons as agents by Members of Lloyd’s to carry on regulated activities.

(b) Powers of Inspection, Investigation and Imposing Disciplinary Sanctions: The IA may in writing appoint a person as an inspector to conduct inspection for the purposes of ascertaining whether a licensed insurance intermediary is complying with, has complied with, or is likely to be able to comply with, a provision of the IO, a term or condition of a licence granted under the IO, etc. The IA may also direct or appoint its employees or other persons (all referred to as investigators) in writing to investigate a matter of suspected contravention of a provision of the IO, suspected fraud, etc. The inspectors and investigators may require the answers, explanation, etc. given to them by those individuals who are the subjects of their inspection or investigations to be verified by statutory declarations.

If a person fails to comply with a requirement imposed by an inspector or investigator under the relevant provision of the IO, the inspector or investigator may apply to the Court of First Instance for an inquiry into the failure.

The Court may order compliance by the person, and punish the person, and any other person knowingly involved in the failure, as if it had been a contempt of court.

(c) Disciplinary Actions in respect of Regulated Persons: Section 81 of the IO empowers the IA to take any of the actions specified thereunder in respect of any person who belongs to any of the specified classes of persons upon the happening of any of the events specified in relation to the classes of persons to which the person belongs.

Further details are given below:

(i) The grounds for exercising powers under section 81 include the following:

- The person, when being a regulated person, is/was guilty of ‘misconduct’, which is defined to mean:

‧ a contravention of a provision of the IO;

‧ a contravention of a term or condition of a licence granted under the IO;

‧ a contravention of any other condition imposed under a provision of the IO; or

‧ an act or omission relating to the carrying on of any regulated activity which, in the IA’s opinion, is or is likely to be prejudicial to the interests of policyholders or potential policyholders or the public interest.

- The person, being a former or current responsible officer or a person concerned in the management of the regulated activities of a licensed insurance intermediary, is also to be regarded as guilty of misconduct if the insurance agency or insurance broker company concerned (as the case may be) is or was guilty of misconduct as a result of a conduct occurring with the consent or connivance of, or attributable to neglect on the part of, the person;

- - The IA is of the opinion thatthe person is/was not a fit and proper person when being a regulated person, by taking into account, among other matters, the person’s present or past conduct;

- Where the person is a licensed insurance intermediary that is an individual or partnership:

‧ the individual or any of the partners enters into a voluntary arrangement with creditors, or has a bankruptcy order made against the individual or the partner, under the Bankruptcy Ordinance (Cap.

6);

‧ the individual or any of the partners is convicted of an offence in Hong Kong or elsewhere, which in the opinion of the IA impugns the fitness and properness of the person to remain licensed;

‧ the individual or any of the partners has been found by a court to be mentally incapacitated, or is detained in a mental hospital, under the Mental Health Ordinance (Cap.

136), which in the opinion of the IA impugns the fitness and properness of the person to remain licensed.

Where the person is a licensed insurance intermediary that is - a company:

‧ where a receiver or manager of the property or business is appointed;

‧ enters into a scheme of arrangement with its creditors;

‧ goes into liquidation;

‧ the person or any of the directors of the person is convicted of an offence in Hong Kong or elsewhere, which in the opinion of the IA impugns the fitness and properness of the person to remain licensed.

- Where any directors of the person has been found by a court to be mentally incapacitated, or is detained in a mental hospital, under the Mental Health Ordinance (Cap.

136) which in the opinion of the Authority impugns the fitness and properness of the person to remain licensed;

- Where the person is a licensed insurance intermediary that isa sole proprietorship, partnership or company of which any of the controllers of the person is convicted of an offence in Hong Kong or elsewhere, which in the opinion of the IAimpugns the fitness and properness of the person to remain licensed;

and

- IA may exercise any of the powers specified in (ii) below if a responsible officer of a licensed insurance agency or licensed insurance broker company is convicted of an offence in Hong Kong or elsewhere which in the opinion of the IA impugns the fitness and properness of the person to remain as a responsible officer.

(ii) The powers of the IA exercisable under section 81 are as follows, depending on whether the person is a licensed insurance intermediary, responsible officer or regulated person:

- A licensed insurance intermediary: ‧ to revoke or suspend the person’s insurance intermediarylicence for a period determined by the IA;

- Responsible officer: ‧ to revoke or suspend the person’s approval as a responsible office for a period determined by the IA;

- A regulated person: ‧ to prohibit from applying to be licensed or being appointed as a responsible officer for a period determined by the IA;

‧ to reprimand the person, publicly or privately; and

‧ to order the person to pay a pecuniary penalty not exceeding HK$10,000,000 or 3 times the profit gained or loss avoided by the person as a result of the

misconduct, or of the other conduct of the person which leads the IA to form the opinion that the person is/was not a fit and proper person, whichever is the greater.

(d) Guideline on Exercising Power to Impose Pecuniary Penalty in Respect of Regulated Persons under Section 81 the Insurance Ordinance (Cap.

41)(GL22): The power of the IA mentioned in (c)(ii) above to impose pecuniary penalty is exercisable only after the IA has published guidelines, which are not subsidiary legislation, to indicate the way in which it proposes to exercise that power;

and in exercising such power, the IA has had regard to the guidelines so published. Such a guideline was issued by the IA in July 2019 and took effect on 23 September 2019.

GL22 sets out the considerations in exercising the IA’s power to impose a pecuniary penalty, as summarized below:

- The principal purposes of imposing a pecuniary penalty are: ‧ to protect existing and potential policyholders and the public interest;

‧ to promote and encourage proper standards of conduct of regulated persons;

‧ to deter regulated persons who have engaged in misconduct from engaging in further misconduct and to deter other regulated persons from committing misconduct;

‧ to deter regulated persons from doing any acts or omissions to do any act that would render them not fit and proper persons;

‧ to deter licensed insurance agencies and licensed insurance broker companies from engaging a person who is not fit and proper to hold the position of technical representative, responsible officer, director or controller;

‧ to sanction licensed insurance agencies and licensed insurance broker companies which engaged a person who was not fit and proper to hold the position of technical representative, responsible officer, director or controller;

and

‧ to prevent regulated persons guilty of misconduct from benefitting from the misconduct.

- The IA regards a pecuniary penalty as a more severe sanction than a reprimand, and a public reprimand as more severe than a private reprimand.

As a matter of policy, the IA may publicize its decisions to impose - a pecuniary penalty against a regulated person as it thinks fit.

A pecuniary penalty should be effective, proportionate and fair. The - more serious the conduct or the reason for which the regulated person is considered not to be fit and proper, the greater the likelihood that the IA will impose a pecuniary penalty and the amount of the penalty will be higher.

When considering whether to impose a pecuniary penalty and the - amount of the penalty, the IA will consider all the circumstances of the particular case and, subject to the overriding objective of achieving the principal purposes of imposing a pecuniary penalty, take into account all relevant factors.

GL22 sets out various non- exhaustive factors under the following four headings:

‧ the nature, seriousness and impact of the conduct;

‧ the behaviour of the regulated person since the conduct was identified;

‧ the previous disciplinary record and compliance history of the regulated person; and

‧ other relevant factors.

(e) Conduct Requirements for Licensed Insurance Intermediaries and Certain Officers: Sections 90, 91 and 92 of the new Ordinance set out the following conduct requirements for licensed insurance intermediaries, licensed insurance agencies and their responsible officers, and licensed insurance broker companies and their responsible officers, respectively (‘statutory conduct requirements’):

(i) A Licensed Insurance Intermediary (i.e. a licensed insurance agent or a licensed insurance broker) when carrying on a regulated activity:

- must act honestly, fairly, in the best interests of the policyholder or potential policyholder, and with integrity;

-must exercise a level of care, skill and diligence that may reasonably be expected of a prudent person who is carrying on the regulated activity;

- may only advise on matters on which the intermediary is competent to advise;

- must have regard to the particular circumstances of the policyholder or potential policyholder that are necessary for ensuring that the regulated activity is appropriate to him;

-must make the disclosure of information to the policyholder or potential policyholder that is necessary for him to be sufficiently informed for the purpose of making any material decision;

- must use its best endeavours to avoid a conflict between the interests of the intermediary and those of the policyholder or potential policyholder, anddisclose any such conflict to him/her;

-must ensure that the assets of the policyholder or potential policyholder are promptly and properly accounted for; and

- must comply with requirements prescribed by rules made by the IA under the specified sections.

(ii) A Licensed Insurance Agency (or its Responsible Officer) must:

- (Agency) establish and maintain proper controls and procedures for securing compliance with the conduct requirements set out in section 90 by the agency and its licensed technical representatives (agent);

- (Agency) use its best endeavours to secure observance with the said controls and procedures by its licensed technical representatives (agent);

- (Agency) ensure that its responsible officer has sufficient authority for carrying out the prescribed responsibilities set out below;

- (Agency) provide its responsible officer with sufficient resources and support for carrying out the prescribed responsibilities set out below;

- (Responsible officer)use his/her best endeavours to ensure that the agency has established and maintains proper controls and procedures for securing compliance with the conduct requirements set out in section 90 by the agency and its licensed technical representatives (agent);

and

- (Responsible officer) use his/her best endeavours to ensure that the agencyuses its best endeavours to secure observance with the controls and procedures by its licensed technical representatives (agent).

(iii) A Licensed Insurance Broker Company (or its Responsible Officer) must:

-(Company) establish and maintain proper controls and procedures for securing compliance with the conduct requirements set out in section 90 by the company and its licensed technical representatives (broker);

- (Company) use its best endeavours to secure observance with the said controls and procedures by its licensed technical representatives (broker);

- (Company) ensure that its responsible officer has sufficient authority for carrying out the prescribed responsibilities set out below;

- (Company) provide its responsible officer with sufficient resources and support for carrying out the prescribed responsibilities set out below;

- (Responsible officer) use his/her best endeavours to ensure that the company has established and maintains proper controls and procedures for securing compliance with the conduct requirements set out in section 90 by the company and its licensed technical representatives (broker);

and

- (Responsible officer) use his/her best endeavours to ensure that the company uses its best endeavours to secure observance with the said controls and procedures by its licensed technical representatives (broker).

A failure to comply with any of these conduct requirements does not by itself render any person liable to any judicial proceedings.

The IA may make rules requiring licensed insurance intermediaries to comply with the practices and standards, relating to the conduct of the intermediaries in carrying on regulated activities, that are specified in the rules.

(f) Codes of Conduct for Licensed Insurance Intermediaries: Under section 95(1) of the new Ordinance, the IA may publish codes of conduct, which are not subsidiary legislation and do not have the force of law, for giving guidance relating to the practices and standards with which licensed insurance intermediaries are ordinarily expected to comply in carrying on regulated activities.

A failure on the part of a licensed insurance intermediary to comply with a code of conduct does not by itself render the intermediary liable to any judicial or other proceedings.

Nevertheless, such failure may be taken into account in considering, for a provision of the IO, whether the intermediary is a fit and proper person to remain licensed.

Pursuant to section 95(1), the IA published the Code of Conduct for Licensed Insurance Agents (Agents’ Code) and the Code of Conduct for Licensed Insurance Brokers (Brokers’ Code), which became effective on 23 September 2019.

These are summarised below:

(i) Code of Conduct for Licensed Insurance Agents

The aims of the Agents’ Code are threefold:

- Primarily, it promulgates the principles of conduct and related standards and practices with which licensed insurance agents are ordinarily expected to comply in carrying on regulated activities.

These principles, standards and practices serve as the minimum standards of professionalism that licensed insurance agents should meet when carrying on regulated activities.

- Secondly, it supplements the duties and obligations which licensed insurance agents owe their principals (arising from their principal-agent relationship) by providing that they should comply with the requirements set out by their principals regarding their carrying on of regulated activities.

- Thirdly, it aims, in certain instances, to inform and explain the statutory conduct requirements in sections 90 and 91 (and in any rules made by theIA under section 94) of the IO with which licensed insurance agents are required to comply.

The Agents’ Code sets out eight general principles which the IA believes to be the fundamental principles of conduct which licensed insurance agents should adopt and follow when carrying on regulated activities (General Principles).

The Agents’ Code goes on to further explain each General Principle and includes standards and practices relating to each General Principle (the Standards and Practices).

In addition, the Agents’ Code includes a section headed ‘Corporate Governance and Controls and Procedures’, which sets out guidance on the practices and standards for corporate governance, controls and procedures which should be adopted by a licensed insurance agency in relation to the regulated activities carried on by the agency.

The Agents’ Code sets out the fundamental principles of professional conduct which buyers of insurance are entitled to expect in their dealings with licensed insurance agents, reinforcing the bedrock of trust which serves as the foundation for a healthy, competitive and efficient insurance industry.

The Agents’ Code does not have the force of law. A failure by a licensed insurance agent to comply with the Agents’ Code shall not by itself render the agent liable to any judicial or other proceedings.

The IA may, however, take guidance from the Agents’ Code in considering:

- whether there has been an act or omission relating to the carrying on of any regulated activity, which in the IA’s opinion is or is likely to be prejudicial to the interests of policy holders or potential policy holders or the public interest;

-whether a licensed insurance agent is fit and proper to remain licensed;

- whether a licensed insurance agent or responsible officer of a licensed insurance agency has satisfied the statutory 2 conduct requirements; or

- any other matters under the IO to which the Agents’ Code may be relevant.

The IA recognizes that licensed insurance agents differ in scale and complexity of business, that they utilize different channels to communicate and interface with policyholders and potential policyholders and that there may be different ways in which the General Principles, Standards and Practices, corporate governance and controls and procedures may be met or implemented. The IA will therefore take account of the relevant context, facts and impact of any matter in considering whether the provisions of the Agents’ Code have been satisfied and, if not, whether to take any disciplinary action.

Neither the Standards and Practices nor the Corporate Governance, Controls and Procedures in the Agents’ Code are exhaustive.The Agents’ Code reflects a principle-based approach.

A summary of the Agents’ Code’s (including the General Principles (“GP”), Standards and Practices, and Corporate Governance and Controls and Procedures) is set out below:

2 In addition to the conduct requirements applicable to licensed insurance agents and/or their responsible officers as identified in sections 90 and 91 of the IO, these include the standards and practices specified in any rules made by the IA under section 94 of the IO with which licensed insurance agents are required to comply.

General Principle 1 – Honesty and Integrity

A licensed insurance agent should act honestly, ethically and with integrity.

(GP1-related) Standards and Practices:

1.1 Accurate representations and presentation

(a) A licensed insurance agent should not mislead or deceive a client and should ensure that any representation made or information provided to a client about any insurers, insurance intermediaries or insurance products is accurate and not misleadingor deceptive.

(b) A licensed insurance agent should not make inaccurate, misleading or deceptive statements or comparisons to induce a client to enter into an insurance policy or replace an existing insurance policy with another insurance policy.

(c) When advertising, marketing or promoting an insurance product, a licensed insurance agent should only use materials supplied or approved by its appointing insurer or appointing agency (as applicable).

(d) A licensed insurance agency should not use a name (including a registered name, trade name or brand name) that is likely to deceive, mislead or confuse a client.

It should not use a name which may lead the public to believe that it is closely affiliated with an insurer, another insurance intermediary, or a well- known entity unless there is such close affiliation or it has the authority to use the name.

1.2 Compliance

(a) A licensed insurance agent should comply with:

(i) all laws which apply to the agent;

(ii) all rules, regulations, codes and guidelines administered or issued by the IA and applicable to the agent; and

(iii) all requirements of other regulatory authorities which apply to the agent in connection with the regulated activities carried on by the agent.

(b) A licensed insurance agent should cooperate with the IA and all other relevant regulatory authorities on any matters concerning the regulated activities carried on by the agent.

(c) A licensed insurance agent should comply with the duties under contract and at law in relation to the carrying on of regulated activities that it owes to its appointing insurer or appointing agency (as applicable).

These would include, without limitation, the duty owed by a licensed insurance agency or a licensed individual insurance agent to obtain prior consent from its appointing insurer before accepting an appointment by another authorized insurer.

A licensed insurance agent should also comply with the policies, procedures and other applicable requirements of its appointing insurers or appointing agency (as applicable) in relation to the carrying on of regulated activities.

(d) Where a licensed insurance agent is:

(i) wound up or adjudicated bankrupt by a court in Hong Kong or elsewhere;

(ii) convicted of a criminal offence (other than a 3 minor offence) in Hong Kong or elsewhere; or

(iii) disciplined by the Monetary Authority, the Securities and Futures Commission or the Mandatory Provident Fund Schemes Authority,

the agent should, as soon as reasonably practicable, report this to (i) the IA in writing, and (ii) its appointing insurer or appointing agency (as applicable) in a manner specified by the insurer or agency.

3 “Minor offence” means an offence punishable by a fixed penalty under the Fixed Penalty (Traffic Contraventions) Ordinance (Cap. 237), the Fixed Penalty (Criminal Proceedings) Ordinance (Cap.

240), the Fixed Penalty (Public Cleanliness and Obstruction) Ordinance (Cap. 570), the Fixed Penalty (Smoking Offences) Ordinance (Cap.

600) or the Motor Vehicle Idling (Fixed Penalty) Ordinance (Cap. 611), or an offence of similar nature committed in a place outside Hong Kong

1.3 Harassment, Coercion or Undue influence

A licensed insurance agent should not harass, coerce or use undue influence to induce a client to enter into a contract of insurance or to make a material decision.

1.4 Prevention of Bribery

(a) A licensed insurance agent should be familiar with and not contravene, and should ensure that its employees are familiar with and do not contravene, the Prevention of Bribery Ordinance (Cap.

201) (“PBO”) and should follow all relevant guidance issued by the Independent Commission Against Corruption concerning matters in relation to the carrying on of regulated activities by the agent.

(b) Without limitation to 1.4(a) above, the PBO may prohibit a licensed insurance agent from:

(i) soliciting or accepting an advantage from a person as an inducement or reward for taking any action in relation to the affairs or business of his appointing insurer or appointing agency (as applicable), without first obtaining the requisite permission (i.

e. permission which satisfies the requirements set out in section 9(5) of the PBO) from the appointing insurer or appointing agency (as applicable);

(ii) offering an advantage to another person who is an agent (as defined in the PBO) as an inducement or reward for that agent taking any action in connection with the affairs or business of that agent’s principal, without the requisite permission (i.

e. permission which satisfies the requirements set out in section 9(5) of the PBO) from the principal.

General Principle 2 – Acting Fairly and in Client’s Best Interests

A licensed insurance agent should always treat clients fairly and act in their best interests.

(GP2-related) Standards and Practices:

2.1 Acting fairly, impartially and in client’s best interests

(a) A licensed insurance agent, when conducting regulated activities in respect of a client, should:

(i) treat the client fairly; and

(ii) give suitable, impartial and objective advice to the client which takes account of the client’s interests.

(b) A licensed insurance agent should only recommend insurance products which best meet the client’s interests, from the range of insurance products offered by its appointing insurer or appointing agency (as applicable) which the agent is authorized to promote. In this respect, the insurance products which best meet the client’s interests would be those that a reasonable licensed insurance agent would consider suitable for the client based on the client’s circumstances.

2.2 Giving fair and impartial regulated advice in the client’s best interests

(a) A licensed insurance agent should, prior to giving regulated advice:

(i) make such enquiries as are reasonable to obtain information relating to the client, to the extent such information is necessary in order for the agent to provide regulated advice; and

(ii) if it is reasonably apparent that such information is incomplete or inaccurate (e.g. if there are any inconsistencies in the information provided), make reasonable follow-up enquiries to obtain complete and accurate information.

(b) A licensed insurance agent, when giving regulated advice, should:

(i) take into account the information it has obtained from the client including the client’s circumstances, and have a reasonable basis for the advice;

(ii) consider what available insurance products can reasonably meet the client’s circumstances, when making a recommendation on an insurance product, based on the product range offered by its appointing insurer or appointing agency (as appropriate);

and

(iii) provide the client with adequate information in order to assist the client in making an informed decision.

(c) The regulated advice given by a licensed insurance agent to a client should be advice that a reasonable licensed insurance agent would consider suitable for the client based on the information obtained from the client, including the client’s circumstances.

General Principle 3 – Exercising Care, Skill and Diligence

A licensed insurance agent should act with due care, skill and diligence.

(GP3-related) Standards and Practices:

3.1 Meeting the standards expected of a reasonable and prudent licensed insurance agent

(a) A licensed insurance agent should always carry on regulated activities to a reasonable standard of care and skill and with due diligence. The reasonable standard of care, in this respect, is the standard expected of a prudent professional insurance agent carrying on regulated activities.

(b)Where a licensed insurance agent employs or engages another person to provide support to the agent in its carrying on of regulated activities, the agent should ensure the person has the integrity and competence to discharge the duties for which the person is employed or engaged and supervise the person diligently performing such duties.

In so far as the person’s work impacts the regulated activities carried on by the agent, the agent is and remains responsible for such activities.

3.2 Handling of application and claim forms

Where any application, claim or other forms which are required to be completed by a client, are being completed or submitted with the assistance of a licensed insurance agent, the agent:

(a) should inform the client that it is the client’s responsibility to ensure the information provided in the form, or in the document(s) provided in support of the form, is accurate and complete;

(b) should not complete, amend or submit to the insurer concerned any such form without obtaining the client’s agreement and confirming the completeness and accuracy of the contents with the client; and

(c) should not submit any such form to the insurer concerned if the agent knows that the form contains inaccurate information.

3.3 Carrying out client’s instructions

A licensed insurance agent should take reasonable steps to carry out a client’s instructions accurately and promptly, and notify the client as soon as practicable in case of any delay or failure to carry out the instructions.

3.4 Protecting client’s privacy and confidentiality

(a)A licensed insurance agent should treat all information in relation to a client as confidential and should not use or disclose it other than:

(i) for the purposes of carrying on regulated activities for which such information has been provided;

(ii) with the written consent of the client; or

(iii) for the purposes of complying with any laws or regulations which apply to the agent and which require disclosure to be made.

(b) With regard to a client’s personal data collected by a licensed insurance agent in the course of the carrying on of regulated activities, the agent must comply with the Personal Data (Privacy) Ordinance (Cap.

486) and should follow the related guidance

issued by the Privacy Commissioner for Personal Data (Privacy Commissioner) concerning collection, retention, use and security of personal data.

3.5 Record Keeping

(a) A licensed insurance agent should act in accordance with all requirements, policies and procedures of its appointing insurer or appointing agency (as the case may be) relating to the keeping of proper records concerning the regulated activities carried out on behalf of the appointing insurer or appointing agency (as the case may be).

(b) Where in accordance with the record-keeping requirements of a licensed insurance agent’s appointing insurer or appointing agency (as the case may be), such records are to be submitted by the agent to the appointing insurer or appointing agency (as the case may be), the agent should submit such records as soon as reasonably practicable.

3.6 Cooling-off period

If an insurance policy contains a cooling-off period provision, a licensed insurance agent should adhere to the following practices:

(i) before the client’s application for the insurance policy is signed or (in the case of an application without a signature) before the application process for the insurance policy is completed, the agent should inform the client of his right to cancel the insurance policy during the cooling-off period and that the client should notify the insurer concerned during the cooling-off period if he wishes to exercise such right;

and

(ii) if the agent is obliged to deliver the insurance policy to the client, he should deliver it as soon as reasonably practicable (and keep a record of the date of such delivery) so that the client will have sufficient time to review the insurance policy and reflect on his decision to purchase it before the expiry of the cooling-off period.

General Principle 4 – Competence to Advise

A licensed insurance agent should possess appropriate levels of professional knowledge and experience and only carry on regulated activities in respect of which the agent has the required competence.

(GP4-related) Standards and Practices:

4.1 Product knowledge

A licensed individual insurance agent and a licensed technical representative (agent) should have a good understanding of the nature and key features of, and the risks covered by and associated with, the different types of insurance products in respect of which he may carry on regulated activities.

4.2 Being clear about the limits of their knowledge

A licensed individual insurance agent and a licensed technical representative (agent) should not carry on regulated activities on matters in relation to which he lacks the specific skills or knowledge necessary for carrying on the relevant regulated activities.

When in doubt, he should seek guidance from the appropriate personnel in the appointing insurer or the responsible officer or senior management in his appointing agency, as applicable.

General Principle 5 – Disclosure of Information

A licensed insurance agent should provide clients with accurate and adequate information to enable them to make informed decisions.

(GP5-related) Standards and Practices:

5.1 Disclosure in relation to identity and capacity

(a) A licensed insurance agent should provide the following information to its clients:

(i) the name (the registered name as well as the trade name, if any) of the agent;

(ii) the licence number of the agent;

(iii) the type of licence of the agent, i.e. individual insurance agent licence, insurance agency licence or technical representative (agent) licence;

(iv) the name of the appointing insurer or appointing agency (as applicable) of the agent; and

(v) where the agent is a licensed technical representative (agent), the name of the appointing insurer of the technical representative (agent)’s appointing agency.

(b) Where a licensed individual insurance agent or licensed insurance agency acts for more than one appointing insurer, the agent or agency as well as the licensed technical representatives (agent) appointed by the agency should clearly identify to the client which appointing insurer the agent or agency is representing in relation to each particular insurance transaction.

(c) A licensed insurance agent should provide the information in (a) and (b) above before or (if this is not feasible) as soon as reasonably practicable after commencing any regulated activity in relation to the client.

(d) A licensed individual insurance agent or a licensed technical representative (agent) should ensure the following information is correctly shown on his business card (including any digital business card) if a business card is distributed by the agent/technical representative for the purpose of carrying on regulated activities:

(i) the name as shown on his Hong Kong identity card or passport;

(ii) his licence number;

(iii) the type of licence; and

(iv)the name of his appointing insurer or appointing agency (as applicable).

5.2 Disclosure in relation to insurance products

(a) A licensed insurance agent should provide the client concerned with all relevant information on the key features of each insurance product recommended or arranged by the agent.

The information should include:

(i) the name of the insurer concerned;

(ii) the major policy terms and conditions (e.g. coverage, policy period, conditions precedent, exclusions, warranties, and any other clauses which would reasonably be considered to adversely impact the client’s decision to enter into the insurance policy);

(iii) the level of premium and the period for which the premium is payable; and

(iv) the fees and charges (other than premiums) to be paid by the client, if any.

(b) When comparing insurance products, a licensed insurance agent should adequately explain the similarities and differences between the products.

Any comparison made should be accurate and not misleading (see also 1.1(b) above).

5.3 Disclosure in relation to policyholder’s obligations

When a client is making an application for insurance with the assistance of a licensed insurance agent, the agent should explain to the client:

(i) the principle of utmost good faith and remind the client that non-disclosure of material facts or provision of incorrect information to an insurer may result in the insurance policy being invalidated or avoided or claims being repudiated by the insurer;

(ii) the sort of material facts which ought to be disclosed by the client to the insurer; and

(iii) any declaration which needs to be made by the client in respect of the application and give the client the opportunity to review it before the client signs or makes the declaration.

5.4 Disclosure in relation to a client referred by another person

(a)Where a client is referred to a licensed insurance agent by another person (referrer), the agent should, in addition to complying with the policies, procedures or requirements relating to referrals that its appointing insurer or appointing agency (as applicable) has in place and before arranging an insurance policy for the client, inform the client that:

(i) the agent will be responsible for arranging the insurance policy and, for this purpose, the client should only deal directly with the agent (i.

e. the client should not deal with the referrer for arranging the insurance policy);

(ii) the referrer does not represent the agent and should have no involvement in the arrangement of the insurance policy;

(iii) the agent disclaims all liability for any advice in relation to the insurance policy given to the client by the referrer; and

(iv) premium for the insurance policy should be paid directly either to the insurer concerned or, if permitted (see Handling of premiums (8.1) under General Principle 8 – Client Assets), to the agent (but not to the referrer).

(b) 5.4(a) above does not apply where:

(i) the client is referred to a licensed insurance agency by its appointed licensed technical representative (agent); or

(ii) the referral is made to the licensed insurance agent by a licensed insurance broker (acting as agent of the client) for the purpose of arranging an insurance policy for that client with the agent’s appointing insurer.

General Principle 6 – Suitability of Advice

A licensed insurance agent’s regulated advice should be suitable for the client taking into account the client’s circumstances.

(GP6-related) Standards and Practices:

(a) Before giving regulated advice, a licensed insurance agent should carry out an appropriate suitability assessment in relation to the client’s circumstances.

The objective of such suitability assessment is to ensure that a licensed insurance agent obtains sufficient information in relation to the client’s circumstances on which to base its regulated advice to the client.

(b) To achieve the objective of a suitability assessment, a licensed insurance agent should:

(i) take reasonable steps to understand the client’s circumstances;

(ii) consider the available insurance options in view of the client’s circumstances;

(iii) take into account the client’s circumstances when giving regulated advice to the client and have a reasonable basis for such advice; and

(iv) if a client does not provide information for the suitability assessment which is necessary for the licensed insurance agent to achieve the objective in 6.1(a) above, explain that the agent’s regulated advice may not be suitable to address the client’s circumstances unless such information is provided.

(c) The level of suitability assessment should be proportionate and reasonable, taking into account the client’s circumstances and other factors such as the type of insurance product under consideration.

Reference should also be made to the guidelines issued by the IA in relation to life insurance policies which set out specific requirements in relation to suitability assessments for these policies (e.

g. financial needs analysis). For example, for travel

insurance, the suitability assessment may be conducted as part of the application process (where the client’s circumstances would be trip details, ages of the persons travelling, the length of the journey, etc).

(a) The regulated advice given by a licensed insurance agent to a client (e.g. advice in relation to the making of an application or proposal for a contract of insurance) should be advice that a reasonable licensed insurance agent would consider suitable for the client based on the information obtained from the client, including the client’s circumstances.

(b) If, after a licensed insurance agent has carried out a suitability assessment and provided regulated advice, the client insists on making a material decision contrary to the recommendation included in the advice which, in the agent’s opinion, is not suitable for the client’s circumstances, the agent should document and keep a proper record of:

(i) the recommendation made by the agent to the client;

(ii) the reasons given by the client (if any) to the agent for making a decision which does not follow the recommendation;

(iii) the explanation given by the agent to the client for considering the client’s decision to be unsuitable; and

(iv) the fact that the decision is the client’s own decision.

General Principle 7 – Conflicts of Interest

A licensed insurance agent should use the best endeavours to avoid conflicts of interests and when such conflicts cannot be avoided, the agent should manage them with appropriate disclosure to ensure clients are treated fairly at all times.

(GP7-related) Standards and Practices:

7.1 Avoiding potential conflicts of interest and providing transparency through appropriate disclosure of principal-agent relationship

To avoid potential conflicts of interest and to provide transparency on the role and functions of a licensed insurance agent, given that the agent is in the capacity of a representative of its appointing insurer or appointing agency (as applicable), the agent should disclose to the client the facts that:

(i) the agent is appointed by its appointing insurer or appointing agency (as applicable) to promote, advise on or arrange the insurance products offered by the insurer or agency (as applicable); and

(ii) the insurance products the agent can promote, advise on or arrange are limited to the insurance products offered by its appointing insurer or appointing agency (as applicable).

7.2 Disclosure of relevant restrictions arising from the agent’s terms and conditions with its principal

Where a licensed individual insurance agent or licensed insurance agency acts for more than one authorized insurer, but the terms of the relevant agreement with or appointment by any of his or its appointing insurers restricts him or it from promoting, advising on or arranging particular insurance products on behalf of his or its other appointing insurers, the agent or agency (including the licensed technical representatives (agent) appointed by the agency) should disclose that restriction to the client and explain that, in line with the restriction, he or it will only be promoting advising on or arranging the insurance products of that particular appointing insurer.

7.3 Avoid allowing own interests to influence client’s decision

Where a licensed insurance agent has another business or occupation, the agent should avoid any conflict arising between its interests in that other business or occupation and the interests of the client when carrying on regulated activities.

In the event the agent is unable to avoid such conflict, it should disclose the conflict to the client as soon as practicable and, at all times, act fairly in relation to the client, placing the client’s interests ahead of the agent’s interests in that other business or occupation.

General Principle 8 – Client Assets

A licensed insurance agent should have sufficient safeguards in place to protect client assets received by the agent or which are in the agent’s possession.

(GP8-related) Standards and Practices:

8.1 Handling of premiums

(a) A licensed insurance agent should only receive premium payments, where it is within the scope of the agent’s authority granted by its appointing insurer or appointing agency (as applicable).

(b) If a licensed insurance agent is authorized to receive premium payments by its appointing insurer or appointing agency (as applicable), the agent should:

(i) handle the payments and disburse them to the appointing insurer or appointing agency (as applicable) in strict conformity with the requirements, controls and timing set out by its appointing insurer or appointing agency (as applicable);

(ii)safeguard any premiums received and not mix them with the agent’s personal funds; and

(iii) maintain proper records of premiums received in accordance with the requirements and controls stated in (i) above.

(c) A licensed insurance agent should not receive premium payments by way of cash, unless:

(i) it is not reasonably feasible for the agent to accept payments by any other means; and

(ii)the appointing insurer or appointing agency (as applicable) of the agent authorizes the agent to receive cash payments, the payments are within the limits of such authority and handled strictly in accordance with the requirements and controls to which such authority is subject.

Corporate Governance and Controls and Procedures (Section IX of the Agents’ Code)

A licensed insurance agency should have proper controls and procedures in place to ensure that the agency and its licensed technical representatives (agent) meet the General Principles, Standards and Practices set out in the Agents’ Code.

Corporate Governance

A licensed insurance agency should establish and implement an organizational and management structure which includes adequate controls and procedures to ensure the interests of clients are not prejudiced. Such organizational structure should include clear roles and lines of responsibility and accountability of its senior management which underpins the objective of fair treatment ofclients.

The extent and scope of the agency’s governance structure will depend on the nature, size and complexity of the business as well as the medium it uses for solicitation of business and the types of insurance it promotes, advises on or arranges.

Controls and Procedures

The requirements for controls and procedures that a licensed insurance agency is expected to adopt are set out under five headings:

• Compliance;

• Handling of complaints;

• Keeping of records;

• Reporting of incidents to the IA; and

- Accountability of the responsible officer and senior management.

(ii) Code of Conduct for Licensed Insurance Brokers

The aims of the Brokers’ Code are twofold:

-First, it promulgates principles of conduct and related standards and practices with which licensed insurance brokers are ordinarily expected to comply in carrying on regulated activities.

These principles, standards and practices serve as the minimum standards of professionalism that licensed insurance brokers should meet when carrying on regulated activities.

-Second, it aims, in certain instances, to inform and explain the statutory conduct requirements in sections 90 and 92 (and in any rules made by the IA under section 94) of the IO as they apply to licensed insurance brokers.

The Brokers’ Code sets out eight general principles which the IA believes to be the fundamental principles of conduct which licensed insurance brokers should adopt and follow when carrying on regulated activities (the General Principles).

The Brokers’ Code goes on to further explain each General Principle and includes standards and practices relating to each General Principle (the Standards and Practices).

In addition, the Brokers’ Code includes a section headed ‘Corporate Governance and Controls and Procedures’, which sets out guidance on the practices and standards for corporate governance, controls and procedures which should be adopted by a licensed insurance broker company in relation to the regulated activities carried on by the broker company.

The Brokers’ Code sets out the fundamental principles of professional conduct which buyers of insurance are entitled to expect in their dealings with licensed insurance brokers, reinforcing the bedrock of trust which serves as the foundation for a healthy, competitive and efficient insurance industry.

The Brokers’ Code does not have the force of law. A failure by a licensed insurance broker to comply with the Brokers’ Code shall not by itself render the broker liable to any judicial or other proceedings.

The IA may, however, take guidance from the Brokers’ Code in considering whether:

whether there has been an act or omission relating to the - carrying on of any regulated activity which in the IA’s opinion is or is likely to be prejudicial to the interests of

policyholders or potential policyholders or the public interest;

whether a licensed insurance broker is fit and proper to - remain licensed;

whether a licensed insurance broker or a responsible officer - of a licensed insurance broker company has satisfied the 4 statutory conduct requirements; or

any other matters under the IO to which the Brokers’ Code - may be relevant.

The IA recognizes that licensed insurance brokers differ in scale and complexity of business, that they utilize different channels to communicate and interface with policyholders and potential policyholders and that there may be different ways in which the General Principles, Standards and Practices, Corporate Governance and Controls and Procedures may be met or implemented. The IA will therefore take account of the relevant context, facts and impact of any matter in considering whether the provisions of the Brokers’ Code have been satisfied and, if not, whether to take any disciplinary action.

Neither the Standards and Practices nor the Corporate Governance, Controls and Procedures in the Brokers’ Code are exhaustive. The Brokers’ Code reflects a principle-based approach.

A summary of the Brokers’ Code (including the General Principles (“GP”), Standards and Practices, and Corporate Governance and Controls and Procedures) is set out below:

General Principle 1 – Honesty and Integrity

A licensed insurance broker should act honestly, ethically, with integrity and in good faith.

(GP1-related) Standards and Practices:

1.1 Accurate representations and presentation

(a) When carrying on regulated activities, a licensed insurance broker should always act in good faith towards its client.

4 In addition to the conduct requirements applicable to licensed insurance broker companies and/or their responsible officers as identified in sections 90 and 91 of the IO, these include the standards and practices specified in any rules made by the IA under section 94 of the IO with which licensed insurance broker companies are required to comply.

(b) A licensed insurance broker should not mislead or deceive a client and should ensure that any representation made or information provided to a client about any insurers, insurance intermediaries or insurance products is accurate and not misleadingor deceptive.

(c) A licensed insurance broker should not make inaccurate, misleading or deceptive statements or comparisons to induce a client to enter into an insurance policy or replace an existing insurance policy with another insurance policy.

(d)Where a licensed insurance broker company develops its own advertising or marketing materials for use in carrying on regulated activities, it should ensure such materials contain only accurate information and are not disparaging, misleading or deceptive.

(e) A licensed technical representative (broker) should only use advertising or marketing materials supplied or approved by its appointing licensed insurance broker company.

(f) A licensed insurance broker company should not use a name (including a registered name, trade name or brand name) that is likely to deceive, mislead or confuse the client.

It should not use a name which may lead the public to believe that it is closely affiliated with an insurer, another insurance intermediary, or a well-known entity unless there is such close affiliation or it has the authority to use the name.

1.2 Compliance

(a) A licensed insurance broker should comply with the following provisions applicable to the broker:

(i) all laws;

(ii) all rules, regulations, codes and guidelines which are administered or issued by the IA; and

(iii) all requirements of other regulatory authorities in connection with the regulated activities carried on by the broker.

(b) A licensed insurance broker should cooperate with the IA and all other relevant regulatory authorities on any matters concerning the regulated activities carried on by the broker.

(c) A licensed technical representative (broker) should comply with the requirements, policies and procedures in relation to the carrying on of regulated activities established by the licensed insurance broker company for which the technical representative is acting as agent.

(d) Where a licensed insurance broker is:

(i) wound up or adjudicated bankrupt by a court in Hong Kong or elsewhere;

(ii) convicted of a criminal offence (other than a 5 minor offence) in Hong Kong or elsewhere; or

(iii) disciplined by the Monetary Authority, the Securities and Futures Commission or the Mandatory Provident Fund Schemes Authority;

the broker should, as soon as reasonably practicable, report this to (i) the IA in writing and, (ii) where the broker is a licensed technical representative (broker), his appointing licensed insurance broker company in a manner specified by the broker company.

1.3 Harassment, Coercion or Undue Influence

A licensed insurance broker should not harass, coerce or use undue influence to induce a client to enter into a contract of insurance or to make a material decision.

1.4 Prevention of Bribery

(a) A licensed insurance broker should be familiar with and not contravene, and should ensure that its employees are familiar with and do not contravene the Prevention of Bribery Ordinance (Cap.

201) (PBO) and should follow all relevant guidance issued by the

5 “Minor offence” means an offence punishable by a fixed penalty under the Fixed Penalty (Traffic Contraventions) Ordinance (Cap. 237), the Fixed Penalty (Criminal Proceedings) Ordinance (Cap.

240), the Fixed Penalty (Public Cleanliness and Obstruction) Ordinance (Cap. 570), the Fixed Penalty (Smoking Offences) Ordinance (Cap.

600) or the Motor Vehicle Idling (Fixed Penalty) Ordinance (Cap. 611), or an offence of similar nature committed in a place outside Hong Kong

Independent Commission Against Corruption concerning matters in relation to the carrying on of regulated activities by the broker.

(b) Without limitation to 1.4(a) above, the PBO may prohibit a licensed insurance broker company (including where it acts through its licensed technical representative (broker)) from:

(i) soliciting or accepting an advantage from a person as an inducement or reward for the broker company taking any action in relation to the affairs or business of a client of the broker company, without the broker company first obtaining the requisite permission from that client;

or

(ii) offering an advantage to another person who is an agent (as defined in the PBO) as an inducement or reward for that agent taking any action in connection with the affairs or business of that agent’s principal, without the requisite permission (i.

e. permission which satisfies the requirements set out in section 9(5) of the PBO) from the principal.

General Principle 2 – Acting in Best Interests of Clients and Treating Clients Fairly

A licensed insurance broker should always act in the best interests of its clients and treat its clients fairly.

(GP2-related) Standards and Practices:

2.1 Acting in client’s best interests and being impartial, objective and fair

A licensed insurance broker should:

(i) place the interests of clients before all other considerations;

(ii) treat the client fairly; and

(iii) give suitable, impartial and objective advice to its client which takes account of the client’s interests.

2.2 Sourcing insurance products

(a) A licensed insurance broker should recommend insurance products which best meet its client’s interests. In this respect, the insurance products which best meet the client’s interests would be those that a reasonable licensed insurance broker would consider suitable for the client based on the client’s circumstances.

(b) Before recommending an insurance product to a client, a licensed insurance broker should source a sufficient range of available insurance products, suitable to its client’s circumstances, from a sufficient range of different insurers.

(c) A licensed insurance broker should not prejudice its client’s selection of insurers by being unreasonably dependent on any particular insurer.

2.3 Giving fair and impartial regulated advice in client’s best interests

(a) A licensed insurance broker should, prior to giving regulated advice:

(i) make such enquiries as are reasonable to obtain information relating to the client, to the extent such information is necessary in order for the broker to provide regulated advice; and

(ii) if it is reasonably apparent that such information is incomplete or inaccurate(e.g. if there are any inconsistencies in the information provided), make reasonable follow-up enquiries to obtain complete and accurate information.

(b) When giving regulated advice, a licensed insurance broker should:

(i) take into account the information it has obtained from its client including the client’s circumstances, and have a reasonable basis for the advice;

(ii) consider what available insurance products can reasonably meet the client’s circumstances, when making a recommendation on an

insurance product, based on the insurance products sourced by the broker (see 2.2 above); and

(iii) provide the client with adequate information in order to assist the client in making an informed decision.

(c) The regulated advice given by a licensed insurance broker to a client should be advice that a reasonable licensed insurance broker would consider suitable for the client based on the information obtained from the client, including the client’s circumstances.

General Principle 3 – Exercising Care, Skill and Diligence

A licensed insurance broker should act with due care, skill and diligence.

(GP3-related) Standards and Practices:

3.1 Meeting the standards expected of a reasonable and prudent licensed insurance broker

A licensed insurance broker should always carry on regulated activities to a reasonable standard of care and skill and with due diligence. The reasonable standard of care, in this respect, is the standard expected of a prudent professional insurance broker carrying on regulated activities.

3.2 Handling of application and claim forms

Where any application, claim or other forms which are required to be completed by a client are being completed or submitted on behalf of the client by a licensed insurance broker or with the assistance of the broker, the broker:

(i)should inform the client that it is the client’s responsibility to ensure the information provided in the form, or in the document(s) provided in support of the form, is accurate and complete;

(ii) should not complete, amend or submit to the insurer concerned any such form without obtaining the client’s authority and confirming the completeness and accuracy of the contents with the client; and

(iii) should not submit any such form to the insurer concerned if the broker knows that the form contains inaccurate information.

3.3 Carrying out client’s instructions

(a) A licensed insurance broker should take reasonable steps to carry out a client’s instructions accurately and promptly, and notify the client as soon as practicable in case of any delay or failure to carry out the instructions.

(b) Where a client terminates its appointment of a licensed insurance broker company, the broker company should provide all reasonable cooperation to bring the appointment to an end in an orderly manner.

3.4 Protecting client’s privacy and confidentiality

(a) A licensed insurance broker should treat all informationin relation to a client as confidential and should not use it or disclose it other than:

(i) for the purposes of carrying on regulated activities for which such information has been provided;

(ii) with the written consent of the client; or

(iii) for the purposes of complying with any laws or regulations which apply to the broker and which require disclosure to be made.

(b) With regard to a client’s personal data collected by a licensed insurance broker in the course of the carrying on of regulated activities, the broker must comply with the Personal Data (Privacy) Ordinance (Cap.

486) and follow the related guidance issued by the Privacy Commissioner concerning collection, retention, use and security of personal data.

3.5 Record Keeping

(a) A licensed insurance broker company should keep proper records in relation to the regulated activities it carries out, so as to comply with the record keeping requirements of all laws, rules, regulations, codes and guidelines applicable to the broker company.

(b) A licensed technical representative (broker) should act in accordance with all requirements, policies and procedures of the licensed insurance broker company he represents relating to the keeping of proper records established by the broker company in order for it to comply with 3.5(a) above.

3.6 Cooling-off period

If an insurance policy contains a cooling-off period provision, a licensed insurancebroker should adhere to the following practices:

(i) before the client’s application for the insurance policy is signed or (in the case of an application without a signature) before the application process for the insurance policy is completed, the broker should inform the client of his right to cancel the insurance policy during the cooling-off period and that the client should notify the insurer concerned during the cooling-off period if he wishes to exercise such right;

and

(ii) if the insurance policy is delivered to the broker by the insurer concerned, the broker should deliver the insurance policy to the client as soon as reasonably practicable (and keep a record of the date of such delivery) so that the client will have sufficient time to review the insurance policy and reflect on his decision to purchase it before the expiry of the cooling-off period.

3.7 Assistance in relation to insurance claims

With regard to insurance claims made by a client:

(i) unless stated otherwise in the client agreement, a licensed insurance broker should (where requested by the client) provide the client with reasonable assistance in submitting any claim under an insurance policy which was negotiated or arranged by the broker on behalf of the client and pass on any relevant information received from the client in relation to the claim to the insurer concerned as soon as practicable;

and

(ii) exercise due care to discharge all obligations in relation to the administration, negotiation and settlement of such claims to the extent that such

obligations are within the scope of the broker’s services stated in the relevant client agreement.

General Principle 4 – Competence to Advise

A licensed insurance broker should possess appropriate levels of professional knowledge and experience and only carry on regulated activities in respect of which the broker has the required competence.

(GP4-related) Standards and Practices:

4.1 Product knowledge

A licensed technical representative (broker) should have a good understanding of the nature and key features of, and the risks covered by and associated with, the different types of insurance products in respect of which he may carry on regulated activities.

4.2 Being clear about the limits of their knowledge

A licensed technical representative (broker) should not carry on regulated activities on matters in relation to which he lacks the specific skills or knowledge necessary for carrying on the relevant regulated activity.

When in doubt, he should seek guidance from the responsible officers or senior management in his appointing licensed insurance broker company.

General Principle 5 – Disclosure of Information

A licensed insurance broker should provide clients with accurate and adequate information to enable them to make informed decisions.

(GP5-related) Standards and Practices:

5.1 Disclosure in relation to identity and capacity

(a) A licensed insurance broker should provide a client with the following information:

(i) the name (the registered name as well as the trade name, if any) of the broker;

(ii) the licence number of the broker;

(iii) the type of licence, i.e. insurance broker company licence or technical representative (broker) licence;

(iv)where the broker is a licensed technical representative (broker), the name of his appointing licensed insurance broker company; and

(v) the fact that the broker acts on behalf of the client in dealing with insurers on matters relating to insurance policies being procured by the client.

(b) Where a licensed technical representative (broker) acts for more than one licensed insurance broker company, he should clearly identify to the client which licensed insurance broker company he is representing in relation to each particular insurance transaction.

(c) A licensed insurance broker should provide the information in 5.1(a) and (b) above before or (if this is not feasible) as soon as reasonably practicable after commencing any regulated activity in relation to the client.

(d) A licensed technical representative (broker) should ensure the following information is correctly shown on his business card (including any digital business card) if a business card is distributed by the technical representative for the purpose of carrying on regulated activities:

(i) the name as shown on his Hong Kong identity card or passport;

(ii) his licence number;

(iii) the type of licence; and

(iv) the name of his appointing licensed insurance broker company.

5.2 Disclosure in relation to insurance products

(a) A licensed insurance broker should provide a client with all relevant information on the key features of each insurance product recommended or arranged by the broker.

The information should include:

(i) the name of the insurer concerned;

(ii) the major policy terms and conditions (e.g. coverage, policy period, conditions precedent, exclusions, warranties and any other clauses which would reasonably be considered to adversely impact the client’s decision to enter into the insurance policy);

(iii) the level of premium and the period for which premiums are payable; and

(iv)the fees and charges (other than premiums) to be paid by the client, if any.

(b) When comparing insurance products, a licensed insurance broker should adequately explain the similarities and differences between the products.

Any comparison made should be accurate and not misleading (see also 1.1(c) above).

(c) Where a licensed insurance broker intends to give regulated advice on or arrange an insurance policy with an insurer which is not authorized by the IA, the broker should disclose to the client:

(i) the name and address of the insurer in the jurisdiction where the insurer has issued the policy and (if different) the jurisdiction where the insurer was incorporated;

(ii) the fact that the insurer is not regulated by the IA and is subject to different laws and regulations;

(iii) the financial standing of the insurer (e.g. whether the insurer has a credit rating and, if so, what the credit rating is); and

(iv) the governing law of the insurance policy and the jurisdiction in which disputes under the policy will be determined.

Where the client is an individual, the licensed insurance broker should also obtain written acknowledgement from the client of the disclosures in (i) to (iv) above, and keep a record of such acknowledgement.

5.3 Disclosure in relation to policyholder’s obligations

(a) When a client is making an application for insurance with the assistance of a licensed insurance broker, the broker should explain to the client:

(i) the principle of utmost good faith and remind the client that non-disclosure of material facts or provision of incorrect information to an insurer may result in the insurance policy being invalidated or avoided or claims being repudiated by the insurer;

(ii) the sort of material facts which ought to be disclosed by the client to the insurer; and

(iii) any declaration which needs to be made by the client in respect of the application and give the client the opportunity to review it before the client signs or makes the declaration.

(b) When negotiating or arranging an insurance policy with an insurer on behalf of a client (i.e. prior to the insurance contract being entered into), a licensed insurance broker should:

(i) not make any false statements or mislead the insurer;

(ii) disclose to the insurer all material facts in relation to the insurance policy, which have been provided to the broker by the client; and

(iii) disclose to the insurer all material facts in relation to the prospective insurance policy of which the broker is aware.

5.4 Client agreements and terms of business with clients

(a) A licensed insurance broker company should enter into an agreement with a client, setting out in writing the terms and conditions of business on which the licensed insurance broker will carry on regulated activities for the client.

(b) The client agreement may be entered into:

(i) by the client signing the agreement which sets out the written terms and conditions;

(ii) by the client providing written consent to the broker’s written terms and conditions of business (including by e-mail or other electronic mechanism); or

(iii)by conduct (with the broker company providing the client with its written terms and conditions of business for carrying on regulated activities for the client’s review, and the client proceeding or continuing with the instruction to the broker company to carry on regulated activities, or otherwise indicating acceptance of such written terms and conditions of business, for example, by paying the premium for the insurance product arranged by the broker company).

(c)A copy of the client agreement should be provided to the client as soon as reasonably practicable and the broker company should keep a record of the client agreement.

5.5 Disclosure in relation to a client referred by another person

(a) Where a client is referred to a licensed insurance broker by another person (referrer), the broker should, in addition to complying with the policies, procedures or requirements relating to referrals that the licensed insurance broker company has in place and before arranging an insurance policy for the client, inform the client that:

(i) the broker will be responsible for arranging the insurance policy and, for this purpose, the client should only deal directly with the broker (in other words, the client should not deal with the referrer for arranging the insurance policy);

(ii) the referrer does not represent the broker and should have no involvement in the arrangement of the insurance policy;

(iii)the broker disclaims all liability for any advice in relation to the insurance policy given to the client by the referrer; and

(iv) the premium for the insurance policy should be paid directly to either the broker or the insurer concerned (and not to the referrer).

(b) 5.5(a) above does not apply where:

(i) the client is referred to a licensed insurance broker company by its appointed licensed technical representative (broker); or

(ii) a referral is made to a licensed insurance broker company in the context of the broker company being engaged by another insurance broker for the purpose of arranging an insurance policy for the client.

General Principle 6 – Suitability of Advice

A licensed insurance broker’s regulated advice should be suitable for the client taking into account the client’s circumstances.

(GP6-related) Standards and Practices:

(a) Before giving regulated advice, a licensed insurance broker should carry out an appropriate suitability assessment in relation to the client’s circumstances.

The objective of such suitability assessment is to ensure that a licensed insurance broker obtains sufficient information in relation to the client’s circumstances on which to base its regulated advice to the client.

(b) To achieve the objective of a suitability assessment, a licensed insurance broker should:

(i) take reasonable steps to understand the client’s circumstances;

(ii) source a sufficient range of relevant insurance products available from a sufficient range of different insurers or explore other insurance options, and consider the available insurance options in view of the client’s circumstances;

(iii) take into account the client’s circumstances when giving regulated advice to the client, and have a reasonable basis for such advice; and

(iv) if the client does not provide information for the suitability assessment which is necessary for the licensed insurance broker to achieve the objective in 6.1(a) above, explain that its regulated advice may not be suitable to address the client’s circumstances unless such information is provided.

(c) The level of suitability assessment should be proportionate and reasonable, taking into account the client’s circumstances and other factors such as the type of insurance product under consideration.

Reference should also be made to the guidelines issued by the IA in relation to life insurance policies which set out specific requirements in relation to suitability assessments for these policies (e.

g. financial needs analysis). For example, for travel insurance, the suitability assessment may be conducted as a part of the applicable process (where the client’s circumstances would be the trip details, the ages of the person’s travelling, the length of the journey, etc.

(a) The regulated advice given by a licensed insurance broker to a client (e.g. advice in relation to the making of an application or proposal for a contract of insurance) should be advice that a reasonable licensed insurance broker would consider suitable for the client based on the information obtained from the client, including the client’s circumstances.

(b) If, after a licensed insurance broker has carried out a suitability assessment and provided regulated advice, the client insists on making a material decision contrary to the recommendation included in the advice which, in the broker’s opinion, is not suitable for the client’s circumstances, the broker should document and keep a proper record of:

- the recommendation made by the broker to the client;

-the reasons given by the client (if any) to the broker for making a decision which does not follow the recommendation;

- the explanation given by the broker to the client for considering the client’s decision to be unsuitable; and

-the fact that the decision is the client’s own decision.

General Principle 7 – Conflicts of Interest

A licensed insurance broker should use the best endeavours to avoid conflicts of interests and when such conflicts cannot be avoided, the broker should manage them with appropriate disclosure to ensure clients are treated fairly at all times.

(GP7-related) Standards and Practices:

7.1 Avoiding potential conflicts of interest by providing appropriate disclosure in relation to remuneration

Where a licensed insurance broker company intends to arrange an insurance policy for its client and will receive remuneration from the insurer concerned, the broker company should, before arranging the insurance policy, provide adequate disclosure in relation to such remuneration to the client.

Such disclosure should include information and be made in accordance with the manner stated in any rules, regulations, codes or guidelines administered or issued by the IA or other regulatory authorities.

7.2 Addressing potential conflicts of interest regarding relationships with insurers

If a licensed insurance broker has any association or affiliation with an insurer (such as, without limitation, a common shareholder, director and controller) and the licensed insurance broker intends to recommend an insurance product to a client which is offered by that insurer, then the broker should (prior to making the recommendation) disclose its association or affiliation with the insurer to the client.

7.3 Avoid allowing own interests to influence client’s decision

(a) Where a licensed insurance broker has another business or occupation, the broker should avoid any conflict arising between its interests in that other

business or occupation and the interests of the client when carrying on regulated activities. In the event the broker is unable to avoid such conflict, it should disclose the conflict to the client as soon as practicable and, at all times, act fairly in relation to the client, placing the client’s interests ahead of the broker’s interests in that other business or occupation.

(b) Where another company in the same group of companies as the licensed insurance broker company is providing services in relation to an insurance policy in respect of which the broker is providing regulated activities, the broker should take steps to avoid or manage (through, for example, disclosure) any potential conflicts of interest which may arise, so as to ensure the client is treated fairly at all times.

General Principle 8 – Client Assets

A licensed insurance broker should have sufficient safeguards in place to protect client assets received by the broker or which are in the broker’s possession.

(GP8-related) Standards and Practices:

8.1 Handling of client assets

(a) A licensed insurance broker company must handle client monies (and any other client assets received by the broker in the course of carrying on regulated activities) in strict compliance with the requirements stipulated in law and the relevant rules, regulations, codes and guidelines administered or issued by the IA, including without limitation:

(i) the requirements set out in Section 71 of the IO;

(ii) the requirements set out in the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules;

(iii) the terms and conditions of its client agreement with the client; and

(iv) the fiduciary duties it owes to its clients.

(b) A licensed insurance broker company should have sufficient controls and security in place to prevent unauthorized access to client assets.

Corporate Governance and Controls and Procedures (Section IX of the Brokers’ Code)

A licensed insurance broker company should have proper controls and procedures in place to ensure that the broker company and its licensed technical representatives (broker) meet the General Principles, Standards and Practices set out in the Brokers’ Code.

Corporate Governance

A licensed insurance broker company should establish and implement an organizational and management structure which includes adequate controls and procedures to ensure the interests of clients are not prejudiced. Such organizational structure should include clear roles and lines of responsibility and accountability of its senior management which underpins the objectives of acting in the best interests of clients and treating clients fairly.

The extent and scope of the broker company’s governance structure will depend on the nature, size and complexity of the business as well as the medium it uses for solicitation of business and the types of insurance it promotes, advises on or arranges.

Controls and Procedures

The requirements for controls and procedures that a licensed insurance broker company is expected to adopt are set out under six headings:

- Compliance; - Insurance product and insurer due diligence; - Handling of complaints; - Keeping of records; - Reporting of incidents to the IA; and - Accountability of the responsible officer and senior management.

(g) Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (“the Rules”): The Rules were made by the IA under the applicable provisions of the IO and came into effect on 23 September 2019 (the commencement date).

The Rules include certain transitional arrangements for ‘specified insurance broker companies’. For the purposes of the Rules, the term ‘specified insurance broker company’ means a company which was immediately before the commencement date registered with an approved body of insurance brokers [which was an SRO under the old regulatory regime]

as a member, and regarded as having been granted an insurance broker company licence on the commencement date under the transitional arrangements the IO provides for.

The Rules prescribe the following requirements applicable to licensed insurance broker companies:

(i) Share Capital and Net Assets: A licensed insurance broker company must at all times maintain a paid-up share capital of not less than HK$500,000 and net assets of not less than HK$500,000, with the calculation of the amount of net assets in accordance with the prescribed manner, subject to the following transitional arrangements applicable to specified insurance broker companies:

-HK$100,000 for the period that begins on the commencement date and ends on 31 December 2021; and

- HK$300,000 for the period that begins on 1 January 2022 and ends on 31 December 2023.

(ii) Professional Indemnity Insurance (PII): A licensed insurance broker company must maintain a PII policy that covers claims made against the company for liability arising from a breach of duty in the course of carrying on its regulated activities, subject to the following minimum limit of indemnity and maximum deductible amount prescribed in the Rules:

- Limit of Indemnity: Like the limit of indemnity for any one claim, that for any one policy period of 12 months must not be less than: (a) 2 times the aggregate amount of the company’s insurance brokerage income in the 12 consecutive months immediately before the commencement date of the policy period, up to HK$75,000,000;

or (b) HK$3,000,000 whichever is the greater.

Nevertheless, in relation to a company which is in its first 12 months of operation as a licensed insurance broker company, the limits of indemnity must not be less than HK$3,000,000.

Furthermore, the policy must provide for at least one automatic reinstatement to the effect that, in the event of its limit of indemnity being reduced by a loss or claim, the limit of indemnity will be restored to an amount not less than the applicable minimum amount(as the case may be).

- Deductible: The deductible amount under a licensed insurance broker company’s PII policy must not exceed 50% of the company’s net assets as at the end of its financial year immediately before the commencement date of the policy period.

The above requirement on deductible amount does not apply to a specified insurance broker company for the period that begins on the commencement date and ends on 31 December 2023.

In relation to a company which is in its first 12 months of operation as a licensed insurance broker company, the deductible amount must not be more than 50% of the company’s paid-up share capital as at the commencement date of the policy period.

(iii) Keeping of Separate Client Accounts: A licensed insurance broker company that receives or holds client monies must maintain at least one client account with an authorized institution in the name of the company and bearing the word ‘client’ in the account title. It must also give written notice to that authorized institution, stating that the client account is maintained by the company pursuant to section 71 of the IO;

and keep proper records of the notice.

The monies which a licensed insurance broker company is required to pay into a client account as soon as practicable after receiving them include:

- monies received by the company from or on behalf of a policyholder or potential policyholder as premiums payable to an insurer under a contract of insurance arranged by the company;

- monies received by the company from an insurer, a reinsurer, an insurance intermediary or any other party for the purpose of or relating to the settlement of a claim under a contract of insurance;

- monies received by the company from or on behalf of a policyholder or potential policyholder for any purposes which are incidental to the carrying on of regulated activities by the company in relation to the policyholder or potential policyholder;

and

- the following types of monies arising from the ordinary transactions of the company’s business of carrying on regulated activities:

‧ premiums, renewal premiums, additional premiums and return premiums of all kinds;

‧ claims and other monies due under contracts of insurance;

‧ refunds to policyholders;

‧ policy loans and associated interests;

‧ fees, charges and levies relating to contracts of insurance; and

‧ premium discounts, commissions and brokerage.

Licensed insurance broker companies must also perform reconciliation of client accounts at least once a calendar month. Nevertheless, this requirement does not apply to specified insurance broker companies for 6 months beginning on the commencement date.

(iv) Keeping of Proper Books and Accounts: A licensed insurance broker company must, in relation to its business which constitutes the carrying on of regulated activities:

- keep, where applicable, such accounting and other records (including records relating to the assets or affairs of the company’s clients) as are sufficient to:

‧ explain, and reflect the financial position and operation of, such business;

‧ enable financial statements that give a true and fair view of its financial position and financial performance to be prepared from time to time;

‧ account for all client monies that it receives or holds; and

‧ demonstratecompliance by it with these Rules and that there is no contravention of certain specified provisions of the IO.

- keep those records in such manner as will enable an audit to be conveniently and properly carried out; and

- make entries in those records in accordance with applicable accounting standards.

A licensed insurance broker company is also required to keep all records in writing in the Chinese or English language or in such a manner as to enable them to be readily accessible and readily converted into written form in the Chinese or English language. In addition, it must retain the records that are required to be kept under the Rules for at least 7 years.

(v) Submission of Audited Financial Statements: A licensed insurance broker company must prepare the financial statements to be provided to the IA under section 73(1) of the IO in accordance with applicable accounting standards.

The financial statements so provided in relation to a financial year must include the company’s:

- insurance brokerage income for the financial year distinguishing between general business and long term business;

- aggregate balances of cash held in its client accounts as at the end of the financial year; and

- insurance premiums payable as at the end of the financial year,

except for the audited financial statements of a specified insurance broker company for a financial year beginning before 1 January 2021.

Any document (except an auditor’s report) provided under section 73(1) must beapproved by the directors of the company, andsigned by 2 of its directors on its directors’ behalf; or where it only has 1 director, by the director.

(vi) Auditor’s Report: The auditor’s report on the financial statements provided by a licensed insurance broker company under section 73(1)(d) of the IO in relation to a financial year must contain statements stating whether the financial statements, in the auditor’s opinion, give a true and fair view of:

(vii) -the financial position of the company as at the end of the financial year; and

• the financial performance of the company for that year.

In addition, the auditor’s report must contain statements stating whether, in theauditor’s opinion, the company has continued to comply with the requirements under the Rules and the relevant provisions of the IO in relation to:

• the capital and net assets of the company;

• the PII taken out by the company;

• the keeping of separate client accounts by the company; and

• the keeping of proper books and accounts by the company,

as at the end of the financial year and 2 such other dates in the financial year as the auditor may elect, provided that the intervening period between those 2 dates must not be shorter than 3 months.

(h) Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (GL24)

Pursuant to section 133 of the IO, the IA has published the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (GL24) with an aim to provide general guidance for the following categories of persons to comply with the CPD requirements set out therein:

• an individual licensee;

- an authorized insurer which appoints a licensed individual insurance agent;

- a licensed insurance agency which appoints a licensed technical representative (agent); and

- a licensed insurance broker company which appoints a licensed technical representative (broker).

GL24 has taken effect on 23 September 2019, save for the CPD hour requirements for individual licenses (required under paragraphs 3.1 and 3.3 of GL24) which will take effect from 1 August 2021 onwards.

GL24 is not intended to be exhaustive and does not constitute legal advice. Yet a failure to comply with any of the CPD requirements may adversely affect the fitness and properness of the person concerned and may result in a disciplinary action to be taken by the IA against that person.

GL24 sets out the requirements applicable to individual licensees and principals, respectively. In GL24, ‘principal’ means:

-in relation to a licensed individual insurance agent, an authorized insurer which appoints the licensed individual insurance agent;

- in relation to a licensed technical representative (agent), a licensed insurance agency which appoints the licensed technical representative (agent); and

- in relation to a licensed technical representative (broker), a licensed insurance broker company which appoints the licensed technical representative (broker).

Below are the key CPD requirements for individual licensees and CPD requirements for principals:

Individual Licensees

Subject to prescribed transitional arrangements, individual licensees, except for technical representatives (agent) licensed to carry on regulated activities in restricted scope travel business only, are required to attend any of the 8 types of Qualified CPD Activities (e.

g. Approved CPD Activities (Type 1) and CPD Activities Organised by the IA (Type 7), etc.) to earn not less than 15 CPD hours in each Assessment Period (i.

e. 1 August of a year - 31 July of the following year), including a minimum of 3 CPD hours related to a topic falling under ‘Ethics or Regulations’ in Annex 1 to GL24.

In other words, the enhanced CPD hour requirements under the new regulatory regime represent an increase in the minimum aggregate number of CPD hours required from 10 (under the now-defunct self- regulatory regime) to 15, and the additional requirement to earn, among the aggregate CPD hours of 15, at least 3 CPD hours that are related to an ‘Ethics or Regulations’ topic.

Apart from prescribing a range of topics recognized as Qualified CPD Activities (e.g. local insurance (or related) legislation, regulatory aspects of insurance practice in Hong Kong, insurance, risk management, financial planning, ethics, etc.

, and any other topics the IA may add from time to time), GL24 also prescribes such details for Types 4 to 8 Qualified CPD Activities as topics, specified qualifications, examples of recognized professional bodies, etc. For the first time in Hong Kong’s history of insurance regulation, E- learning became a recognized manner of participation in Qualified CPD Activities, subject to the restriction that an individual licensee may not earn more than 7 CPD hours for each Assessment Period through participation in E-learning Activities recognized as Type 1

6 or 7 Qualified CPD Activities (in aggregate).

Subject to prescribed transitional arrangements, technical representatives (agent) only licensed to carry on regulated activities in restricted scope travel business are required to attend Qualified CPD Activities to earn not less than 3 CPD hours in each Assessment Period, and are not compulsorily required to attend Qualified CPD Activities related to ‘Ethics or Regulations’.

Under section 64ZZC(6) of the IO, ‘restricted scope travel business’, in relation to a travel agent that is a licensed insurance agency,means effecting a travel insurance policy (exclusive of an annual policy) that is tied to a tour, travel package, trip or other travel services arranged by the travel agent for its customers.

With effect from 1 August 2021 (instead of 23 September 2019), for individual licensees who are newly licensed in an Assessment Period, the minimum number of total CPD hours required for that Assessment Period varies according to the month in which the individual concerned is granted a licence;

and whether he is a technical representative (agent) licensed to carry on regulated activities in restricted scope travel business only (in which case, depending on which month the license is granted, the minimum requirement ranges from 0, 2 to 3 CPD hours);

or an individual licensee (other than a licensed technical representative (agent) (in which case, depending on which month the license is granted, the minimum requirement ranges from 0, 6 to 12 CPD hours, including a minimum of 3 CPD hours related to ‘Ethics or Regulations’ if the relevant license is granted within August 2021 - January 2022).

Individual licensees should comply with the CPD requirements so long as they remain licensed even when their licences are under suspension (for instance, they are not appointed by any principal).

However, subject to the discretion of the IA, concessions may be granted to individual licensees in special circumstances (e.g. prolonged illness) which preclude their attendance or completion of Qualified CPD Activities.

Only those Qualified CPD Activities which an individual licensee attend when he is licensed will count towards the total number of minimum CPD hour requirements specified in GL24.

6 According to paragraphs 30 – 32 of Annex 1 to GL24, individual licensees can earn a maximum of 5 CPD hours for each CPD Assessment Period through participation in E-learning Activities that are recognised as Type 1 or Type 7 Qualified CPD Activities.

However, to facilitate the achievement of CPD hours and to encourage greater use of Elearning Activities, the maximum cap on the number of CPD hours that can be obtained through Type 1 and Type 7 E-learning Activities is increased from 5 CPD hours to 7 CPD hours for each Assessment Period. For details, see the interpretation notes relating to GL24 issued on 2 Aug 2021 by the IA.

Individual licensees should report to the IA the Qualified CPD Activities they have attended in each Assessment Period on a CPD Declaration Form in a prescribed format and manner no later than 2 months after the expiration of the relevant Assessment Period (i.

e. by 30 September). Any CPD hours earned during an Assessment Period in excess of the total number of minimum CPD hours required cannot be carried forward to subsequent Assessment Periods.

Individual licensees should also inform their principal(s) of the Qualified CPD Activities reported to the IA by the same deadline.

Individual licensees are required to properly retain sufficient documentary evidence of their attendance at or completion of all the Qualified CPD Activities reported to the IA on their CPD Declaration Forms for a minimum of 3 years after the expiration of the relevant Assessment Period. They should promptly produce such evidence to the IA for compliance check upon request.

Transitional CPD Arrangements for Individual Licensees

Annex 3 to GL24 sets out transitional CPD arrangements (or the minimum numbers of CPD hours required) for individual licensees for the period 23 September 2019 - 31 July 2021 for the following five categories of individual licensees:

- individual licensees (except for licensed technical representatives (agent) who are licensed to carry on regulated activities in restricted scope travel business only) who were registered with a former SRO immediately before 23 September 2019;

- licensed technical representatives (agent) who are licensed to carry on regulated activities in restricted scope travel business only and were registered with IARB immediately before 23 September 2019;

- individual licensees (other than licensed technical representatives (agent) who are licensed to carry on regulated activities in restricted scope travel business only) who are newly licensed by the IA between 23 September 2019 and 31 July 2020 (both days inclusive);

- licensed technical representatives (agent) who are newly licensed by the IA between 23 September 2019 and 31 July 2020 (both days inclusive) to carry on regulated activities in restricted scope travel business only;

- individual licensees who are newly licensed by the IA between 1 August 2020 and 31 July 2021 (both days inclusive).

Principals

A principal should ensure that each individual licensee appointed by it complies with the applicable CPD requirements.

It should also have in place adequate controls and procedures to monitor and ensure compliance with the CPD requirements by the appointed individual licensees.

In this respect, the principal should request, check and verify the documentary evidence in support of the CPD Declaration Forms submitted to the IA by the individual licensees.

Representative Examination Questions

Type ‘A’ Questions

1 In the general rules for the authorisation of insurers under the Insurance Ordinance, the requirement concerning reinsurance is that it must be:

(a) adequate; ..... (b) sufficient to meet all liabilities; ..... (c) at least equal to the solvency margin; ..... (d) all be placed with Hong Kong reinsurers. .....

[Answer may be found in 6.1.1a]

2 Which of the following is a regulated activity for the purposes of the statutory licensing requirement for insurance intermediaries?

(a) printing an insurance policy; ..... (b) negotiating an insurance contract; ..... (c) giving advice on investing in insurance business; ..... (d) none of the above. .....

[Answer may be found in 6.2.1]

Type ‘B’ Questions

3 Which of the following are required to have at least one responsible officer?

(i) licensed insurance institution; (ii) licensed insurance agent; (iii) licensed insurance agency; (iv) licensed insurance broker company.

(a) (i) and (ii) only; ..... (b) (i) and (iii) only; ..... (c) (ii) and (iv) only; ..... (d) (iii) and (iv) only. .....

[Answer may be found in 6.2.1]

4 In determining whether a person is a fit and proper person to be granted a licence to be a licensed individual insurance agent by the Insurance Authority (“IA”), the IA is required by the Insurance Ordinance to have regard to which of the following matters?

(i) his family background; (ii) his nationality; (iii) his education; (iv) his reputation.

(a) (i) and (ii) only; ..... (b) (i), (ii) and (iii) only; ..... (c) (ii) and (iii) only; ..... (d) (iii) and (iv) only. .....

[Answer may be found in 6.2.4(c)]

[If still required, the answers may be found at the end of the Study Notes.]

Chapter 7: ETHICAL AND OTHER RELATED ISSUES PDF p.159

7.1 INSURANCE INTERMEDIARIES' DUTIES TO POLICYHOLDERS PDF p.159

At the outset, it must be remembered that insurance intermediaries may be either insurance agents or insurance brokers. Depending on the category involved, the duties towards policyholders may be different.

Of course, there are areas which are common ground. These will include:

(a) absence of fraud: this is a common obligation on all;

(b) fair and reasonable behaviour: if not specifically covered by (a) above, then this standard must at least be expected when considering ethical issues;

(c) take no unfair advantage of clients: especially of physical, mental or educational deficiencies (again, this must be a matter of basic ethics);

(d) exert no undue influence: the role of the insurance intermediary is that of an adviser, not a persuader or enforcer;

(e) all actions must be legal: the honourable insurance intermediary will not only keep to the letter of the law, he will observe the spirit of the law and good insurance practice;

(f) where the duties are governed or required by legislation, it is important to know that a breach could involve criminal proceedings, with severe penalties.

All the above are virtually self-evident, but they are still important things to remember in the context of this Chapter. Specifically, there are other matters that should be borne in mind, according to whether the insurance intermediary is an insurance agent or an insurance broker.

We shall look at them in reverse order.

7.1.1 If the Insurance Intermediary is an Insurance Broker

(a) Relationship: the cardinal point to remember is that the insurance broker is normally agent of the policyholder. All the legal obligations and duties within agency law therefore apply to the insurance broker in relation to the insured.

(b) Regulatory Requirements: In addition to the requirements of agency law, insurance brokers have to comply with the relevant provisions of the IO, and the rules made by and the codes and guidelines published by the IA under the IO.

(c) Insurance Broker's general responsibilities: the insurance broker is seen to be an expert in insurance. He must also be independent of any one insurer.

His client is the policyholder, who may expect impartial advice, with his interests paramount.

(d) Professional liability: if, as a deemed expert, the insurance broker fails to take reasonable care in his client's interests, he could well be guilty of professional negligence. This would give the policyholder the right to sue the insurance broker, who is required to be covered by Professional Indemnity Insurance (see 6.2.5(g)).

7.1.2 If the Insurance Intermediary is an Insurance Agent

(a) Relationship: the relationship with the policyholder is quite different for the insurance agent. His principal is normally the Insurer, not the Insured. As such, his primary responsibilities are to the insurer, although of course he is not exempt from the legal and ethical obligations discussed in 7.1 above.

(b) Minimum Requirements: insurance agents have to comply with the relevant provisions of the IO, and the rules made by and the codes and guidelines published by the IA under the IO.

(c) Professional liability: Tortious liability on the part of an insurance intermediary may to some extent depend upon the degree of knowledge/expertise expected of him, which in turn depends upon the nature of the skills he has professed for undertaking on behalf of the claimant the activity which has allegedly led to a loss to the claimant.

As the typical insurance broker will hold himself out as being an insurance expert for the client, his duty of care to the client can be said to be onerous.

By contrast, if an insurance agent has not professed to his clients special skills for undertaking an activity for them, he should be at a much lower risk of being held liable to them for incompetent performance of such activity.

Given this contrast and the statutory imposition of vicarious liability on an insurer for the conduct of any person he has appointed as his agent (see 6.2.2), it is understandable that unlike an insurance broker an insurance agent is not statutorily required to buy and maintain professional indemnity insurance.

7.2 PROTECTION OF PERSONAL DATA PDF p.160

One of the consequences of the ‘computer revolution’ has been the fear that the speed, efficiency and capabilities of information technology will severely affect personal privacy.

This has been a worldwide concern and many jurisdictions, including Hong Kong, have passed laws to safeguard the individual in this respect.

The particular statute for Hong Kong is the Personal Data (Privacy) Ordinance (the Ordinance).

7.2.1 Features of the Ordinance

(a) Scope: by international standards, this Ordinance is thorough, relating to personal data without distinguishing between automatic and manual personal data, and binding all persons and the Government as well.

A body has been established under the Ordinance to oversee its application, namely the Office of the Privacy Commissioner for Personal Data (“OPCPD”).

(b) Definitions: the following terms are defined in the Ordinance:

(i) ‘data’ - any representation of information (including an expression of opinion) in any document and includes a personal identifier;

(ii) ‘personal data’ - any data (including expressions of opinions)

(1) relating directly or indirectly to a living individual (data subject); (2) from which it is practicable for the identity of the individual to be directly or indirectly ascertained; and (3) in a form in which access to or processing of the data is practicable.

(c) Data Protection Principles: any person who controls the collection, holding, processing or use of personal data (data user) has to follow the six data protection principles stipulated in the Ordinance, as follows:

(i) Principle 1 - purpose and manner of collection of personal data: it outlines the lawful and fair collection of personal data, also the information that the data user should give to the data subject when collecting personal data.

Example: When insurance practitioners collect customers’ personal data, they should provide the customers with a Personal Information Collection Statement (“PICS”) stating clearly the purpose of collecting the data, the classes of persons to whom the data may be transferred, the consequences of failing to supply the data, and the right of access to and correction of the data. The PICS should be attached to documents such as insurance application forms.

(ii) Principle 2 - accuracy and duration of retention of personal data: the personal data should be accurate, up-to-date and kept no longer than necessary.

In particular, if a data user engages a data processor, whether within or outside Hong Kong, to process personal data on the data user’s behalf, the data user should adopt contractual or other means to prevent any personal data that has been transferred to the data processor from being kept longer than is necessary for processing of the data. The term ‘data processor’ means ‘a person who (a) processes personal data on behalf of another person, and (b) does not process the data for any of the person’s own purposes’.

For the Privacy Commissioner for Personal Data’s (“PCPD”) recommended means of compliance with the requirements, please see 7.2.1(d) below.

Example: If letters sent to a customer are always returned, it could be because of an inaccurate mailing address. Insurance practitioners should stop using that mailing address and update it.

(iii) Principle 3 - use of personal data: unless the data subject gives consent, the personal data should only be used for the purposes for which they were collected, or a directly related purpose.

Example: Under general circumstances, insurance practitioners are not allowed to disclose their customers’ personal data to other companies for promotion of their products, unless prior prescribed consent has been obtained from the customer.

(iv) Principle 4 - security of personal data: appropriate security measures should be applied to personal data (including data in a form in which access to or processing of it is not practicable) to ensure that personal data are protected against unauthorised or accidental access, processing, erasure, loss or use.

In particular, if a data user engages a data processor, whether within or outside Hong Kong, to process personal data on the data user’s behalf, the data user should adopt contractual or other means to prevent unauthorised or accidental access to, processing, erasure, loss or use of, the data that has been transferred to the data processor for processing. For the definition of ‘data processor’, please see (ii) above. Please see 7.2.1(d) below for the PCPD’s recommended means of compliance with the requirements.

Example: When using window envelopes to mail documents containing customers’ personal data, insurance practitioners should ensure that the customers’ sensitive data (e.

g. identity card number) does not show through the envelope window. If the letter is intended for the recipient only, insurance practitioners should consider marking ‘Private and Confidential’ on the envelope and seal it.

(v) Principle 5 - information to be generally available: data users should take all practical steps to ensure openness and transparency about their policies and practices in relation to personal data, the kind of personal data they hold and the main purposes for which personal data is used.

Example: Formulate and maintain a Privacy Policy Statement, stating the kinds of personal data held, purpose for using the personal data and its personal data policies and practices, which can be displayed on the website of the insurance practitioners’ company.

(vi) Principle 6 - access to personal data: data subjects have the rights of access to, and of correction of, their personal data.

Example: A customer has the right to ask an insurer to supply a copy of the personal data contained in his insurance policy.

(d) How to Comply with Requirements of Data Protection Principles 2 and 4 where Processing of Personal Data is Outsourced to a Data Processor: the PCPD recommends to data users the following means of compliance with the requirements (source:

website of the Office of the Privacy Commissioner for Personal Data):

(i) Through contractual means

The primary means by which a data user may protect personal data entrusted to its data processor is through a contract. In practice, data users often enter into contracts with their data processors for the purpose of defining the respective rights and obligations of the parties to the service contract.

To fulfil their obligations under data protection principles 2 and 4 where processing of personal data is outsourced to a data processor, data users may incorporate additional contractual clauses in the service contract or enter into a separate contract with the data processor.

The types of obligations to be imposed on data processors by contract are numerous, including the following:

(1) Security measures required to be taken by the data processor to protect the personal data entrusted to it and obligating the data processor to protect the personal data by complying with the data protection principles;

(2) Timely return, destruction, or deletion of the personal data when it is no longer required for the purpose for which it is entrusted by the data user to the data processor;

(3) prohibition against any use or disclosure of the personal data by the data processor for a purpose other than that for which the personal data is entrusted to it by the data user;

(4) the data user’s right to audit and inspect how the data processor handles and stores personal data; and

(5) consequences of breach of the contract.

(ii) Through other means

Sometimes, a data user may not be able to enter into a contract with its data processor to protect the personal data entrusted to it.

The Ordinance provides flexibility by allowing the use of ‘other means’ of compliance. The term ‘other means’ is not defined in the Ordinance. Generally, data users may engage non-contractual oversight and auditing mechanisms to monitor their data processors’ compliance with the data protection requirements.

(iii) Further good practice recommendations

Further good practice recommendations are made by the PCPD to data users who engage data processors to process personal data on their behalf:

(1) Data users should be transparent about their personal data handling practices and, when collecting personal data, make it plain to the data subjects, in clear and understandable language, that their personal data may be processed by data processors.

(2) If the data processors are not situated in Hong Kong, the data users should make sure that their contracts are enforceable both in Hong Kong and in the countries in which the data processors are situated. The meaning of any technical and legal terms to be used in the contracts such as ‘personal data’, which may vary from one jurisdiction to another, should be clearly defined to suit compliance with the Hong Kong requirements.

(3) Both data users and data processors should keep proper records of all the personal data that have been transferred for processing.

(4) Before entrusting any personal data to data processors for system testing, data users have to consider whether use of anonymous or dummy data by data processors can equally serve the purpose.

(e) Direct Marketing: a new Part 6A of the Ordinance comprising provisions relating to use of personal data in direct marketing and provision of personal data for use in direct marketing has been introduced, with effect from 1 April 2013.

(i) Interpretation of Part 6A: in this Part,

Direct Marketing is defined to include the offering, or advertising of the availability, of goods, facilities or services through direct marketing means;

Direct Marketing Means means—

(1) sending information or goods, addressed to specific persons by name, by mail, fax, electronic mail or other means of communication; or

(2) making telephone calls to specific persons;

Marketing Subject, in relation to direct marketing, is defined to include any goods, facility or service offered, or the availability of which is advertised.

(ii) Data user to take specified actions before using personal data in direct marketing

A data user who intends to usethe personal data of a data subject in direct marketing, or to provide it to others for use in direct marketing should inform the data subject of certain prescribed information (see below) and provide the data subject with a response channel through which the data subject may indicate whether he objects to the intended use or provision.

A data user who intends to use the data subject’s personal data in direct marketing for his own purposes is permitted to provide the data subject with the prescribed information either orally or in writing. However, the provision of personal data (whether for gain or not) to another data user will be subject to the requirement that the data user should provide to the data subject in writing the prescribed information.

The prescribed information includes the kinds of personal data to be used or provided, the classes of marketing subjects in relation to which the data is to be used in direct marketing, and (where appropriate) the classes of persons to which the data is to be provided for direct marketing purposes.

If the personal data is to be provided for gain, the data user must inform the data subject the data is to be so provided.

Presentation of the prescribed information by data users should be done in a manner that is easily readable and understandable.

(iii) Grandfathering arrangement for pre-existing personal data

The abovementioned requirements for a data user to notify the data subject of his intention to use the latter’s personal data in direct marketing will not apply to personal data that the data user has, before the entry into force of the new provisions concerned, used in direct marketing in compliance with those requirements under the Ordinance that existed before. This grandfathering arrangement applies to use of any personal data of the data subject in relation to the same class of marketing subjects if any of the data subject’s personal data has been so used before the commencement of the new provisions.

(iv)Data user must not use personal data, or provide it to others for use, in direct marketing without data subject’s consent or indication of no objection

A data user can only use a data subject’s personal data, or provide it to others for use, in direct marketing if he has provided the prescribed information and response channel to the data subject and received a reply from the data subject indicating that the data subject consents or does not object to the data user doing so.

Where a data user intends to use a data subject’s personal data in direct marketing for his own purposes and provides the data subject with the prescribed information either orally or in writing, the data subject’s reply to the data user indicating his consent or no objection may reciprocally be given either orally or in writing. If the reply is given orally, the data user must, before using the personal data in direct marketing, confirm in writing to the data subject within 14 days from the date of receipt of the reply, the permitted kind of personal data and the permitted class of marketing subjects.

Where a data user provides a data subject’s personal data (whether for gain or not) to others for use in direct marketing, he must, before proceeding to provide the data, receive a reply in writing from the data subject indicating that the data subject consents or does not object to the data user doing so.

(v) Data user must notify data subject when using personal data in direct marketing for the first time

As before, a data user must notify a data subject of his opt-out right when using personal data in direct marketing for the first time. The maximum penalty for a contravention is a fine of HK$500,000 and imprisonment for 3 years.

(vi) Data subject may require data user to cease to use personal data or provide it to others for use in direct marketing

A data user must comply with a data subject’s request at any time to cease to use the data subject’s personal data in direct marketing.

A data user must comply with a data subject’s request at any time to cease to provide the data subject’s personal data to others for use in direct marketing, and to notify any person to whom the data subject’s personal data has been so provided to cease to use the data in direct marketing.

(vii) Penalty

Contraventions of the requirements under the new regulatory regime are offences. For those contraventions that involve provision of personal data for gain, the maximum penalty is a fine of HK$1,000,000 and imprisonment for 5 years.

For other contraventions, the maximum penalty is a fine of HK$500,000 and imprisonment for 3 years.

(f) Offence of Disclosure of Personal Data Obtained Without Data User’s Consent

(i)Offences and penalty: A person commits an offence if the person discloses any personal data of a data subject which was obtained from a data user without the data user’s consent, with an intent (a) to obtain gain in money or other property, whether for the benefit of the person or another person, or (b) to cause loss in money or other property to the data subject.

A person also commits an offence if he discloses any personal data of a data subject which was obtained from a data user without the data user’s consent, and the disclosure causes psychological harm to the data subject.

The maximum penalty for either offence is a fine of HK$1,000,000 and imprisonment for 5 years.

(ii)Defence: The Ordinance provides the following defence to any person charged with any of the offences:

(1) he reasonably believed that the disclosure was necessary for the purpose of preventing or detecting crime; (2) the disclosure was required or authorised by or under any enactment, by any rule of law or by an order of a court;

(3) he reasonably believed that the data user had consented to the disclosure; or

(4) he disclosed the personal data for the purposes of a prescribed news activity or a directly related activity; and had reasonable grounds to believe that the publishing or broadcasting of the personal data was in the interest of the public.

(g) Contravention of the Ordinance:

Data subjects may complain to the PCPD about a suspected breach of the Ordinance and sue the wrongful data users for compensation for damage (inclusive of injured feeling) they have suffered as a result of a contravention of the Ordinance.

Complications are involved where an alleged breach occurred as a result of a data user’s outsourcing of processing of a data subject’s personal data to a data processor.

The data processor is not directly liable to the data subject for infringing his personal data privacy. The aggrieved data subject may seek recourse from the data user, who is liable as principal for the wrongful act of its authorised data processor.

Where a complaint is brought by a data subject against a data user for its data processor’s wrongful act or practice which has infringed his personal data privacy, the contract made between the data user and the data processor incorporating specific provisions on data protection can be admitted as evidence of the data user’s compliance with data protection principles 2 and 4.

The data user may also bring an action against the data processor by relying on any contractual terms that govern the data processor’s obligations in data protection.

Apart from breaches of the Ordinance that may give rise to civil redress by data subjects, there are also a variety of offences under the Ordinance, including the offence of non-compliance with an enforcement notice that has been served by the PCPD.

(h) Exemptions: The right to privacy is not absolute. Clearly, criminals have no right to expect total secrecy, and the normal conduct of business and social life in a community demand that some information can be generally or specifically available to those with a legitimate right to know.

Exemptions from the Ordinance include:

(i) a broad exemption for personal data held for domestic or recreational purposes;

(ii)exemptions on access by data subject for certain employment- related personal data held by their employers;

(iii) exemptions from the subject access and use limitation requirements where their application is likely to prejudice certain competing public or social interests, i.

e. security, defence and international

relations; prevention or detection of crime; apprehension, prosecution or detention of offenders; assessment or collection of any tax or duty; health; legal professional privilege; news activities; statistics and research;

and human embryos, etc.

(i) User-friendly Materials for Use by Data Users and Insurance Practitioners: apart from the Ordinance, insurance practitioners are also advised to read the guidance notes and information leaflets issued by the relevant regulatory bodies for practical guidance on collection and use of personal data, including the following:

(i) ‘How Insurance Practitioners Can Protect Their Customers' Personal Data’ jointly issued by the OPCPD and the Hong Kong Federation of Insurers;

(ii) ‘Guidance on the Proper Handling of Customers’ Personal Data for the Insurance Industry’ issued by the OPCPD; and

(iii) ‘New Guidance on Direct Marketing’ issued by the OPCPD.

7.2.2 Insurance Applications

The above relate to society generally, of which insurance is of course a part. In order to assist the insurance industry in complying with the relevant requirements of the Ordinance when handling the collection, storage, use and security of customers’ personal data, and when handling customers’ data access requests, the PCPD has published a guidance note titled ‘Guidance on the Proper Handling of Customers’ Personal Data for the Insurance Industry’ (the Guidance Note).

Insurance practitioners should find the Guidance Note useful as it covers real work situations which they commonly encounter and which involve various key data protection compliance issues.

The following are some of the practical tips that the Guidance Note offers to insurance practitioners:

(a) Collection of customers’ medical data: insurers often collect customers’ medical data on an application for life or health insurance or in processing a claim under such insurance.

(i) No collection of excessive data: collection of excessive data is contrary to data protection principle 1. For example, in an insurance claim for medical expenses incurred in relation to an operation to remove a claimant’s tonsils, it may not be necessary to collect medical data about a surgery performed on his knee ten years ago, unless the insurer can show the relevancy of the data to the claim.

(ii) Lawful and fair means of collection: as required by data protection principle 1, personal data should only be collected by means which are fair and not prohibited under any law.

In general, obtaining information by deception or misrepresentation would not be considered fair means of collection of data.

(b) Collection of Hong Kong identity card (“HKIC”) number and copy: collection of an HKIC number (and other personal identifiers such as a passport number) and an HKIC copy is regulated by data protection principle 1 and the Code of Practice on the Identity Card Number and other Personal Identifiers (“PI Code”) issued by the PCPD.

(i) HKIC number: a data user should not collect HKIC number (or other personal identifiers) of an individual unless authorised by law or permitted in the situations set out in paragraph 2.3 of the PI Code. For example, an insurer may require the HKIC number of a customer or beneficiary to ensure that an insurance claim is paid to the right person.

(ii) HKIC copy: insurance institutions should comply with paragraph 3.2 of the PI Code in collecting an HKIC copy. For example, an insurance institution may collect a copy of the identity card of an individual who is a life insurance customer, as proof of compliance with section 3 of Schedule 2 to Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

(c) Engagement of private investigators in insurance claims: insurers may appoint private investigators to investigate suspicious claims.

While private investigators are regulated by the Ordinance, insurers who appoint private investigators should pay attention to the issue of vicarious liability for the acts of their appointed private investigators.

(i) Lawful and fair means of collection: generally speaking, obtaining information covertly would not be considered fair means of collection of data. However, each case turns on its own facts and there may be special circumstances which justify particular means of collection.

For example, collecting information about a claimant’s activities by physical surveillance may be justified if there is reasonable suspicion of a fraudulent insurance claim of personal injury and there are no realistic alternatives to using such means of collection in seeking evidence of the suspected fraud.

(ii) Data is adequate but not excessive: in the course of investigating a suspected false claim of personal injury, for instance, data in relation to the claimant’s private life which is unrelated to the claim should not be collected.

(d) Collection and use of personal data in direct marketing: the following examples highlight some of the areas to which insurance practitioners should pay attention:

(i) Lawful and fair means of collection: when an insurance practitioner changes job to work for another insurance institution, he should not make copies of the insurance policies or other information of his former customers from the records of his former principal/employer.

(ii) No change in purpose of use of data: In example (i) above, using a former customer’s personal data for marketing products or services of the new principal/employer would unlikely be within the original purpose for which the data was collected by the former principal/employer.

(e) Access to, storage and handling of customers’ personal data by staff and agents: in compliance with the requirement of data protection principle 4, insurance institutions should take security safeguards and precautions in relation to the security of customers’ personal data held by them or by their staff or agents, which should include the following:

(i) Secure transmission of documents containing personal data: When transmitting documents containing personal data of customers, insurance institutions and insurance practitioners should ensure that the data is protected against unauthorised or accidental access by unrelated parties.

For example, in the case of transmission by mail or via another person, sealed envelopes should be used, no sensitive data (e.g. HKIC number) is visible through the envelope window, and mail only intended for the eyes of the addressee should be marked ‘private and confidential’.

(ii) Insurance agents or representatives working at home or outside workplace: insurance agents and representatives often meet customers in public places, taking with them policies and other documents that contain the customers’ personal data. During the process, they should ensure that the personal data is not seen, and conversations concerning sensitive customer information are not overheard by unrelated parties.

On the other hand, insurance institutions should provide clear policies and guidelines to the relevant staff for handling customers’ data outside the workplace.

For more examples, please refer to the Guidance Note.

7.3 ISSUES REGARDING EQUAL OPPORTUNITY PDF p.172

7.3.1 Legislation Addressing Discrimination

An Equal Opportunities Commission (“EOC”) exists to implement four Ordinances, whose objectives are to eliminate discrimination on grounds of:

(a) sex, marital status or pregnancy (the Sex Discrimination Ordinance, 1995);

(b) disability (the Disability Discrimination Ordinance, 1995);

(c) family status (the Family Status Discrimination Ordinance, 1997); and

(d) race (the Race Discrimination Ordinance, 2008).

7.3.2 ‘Fair’ Discrimination in Insurance

The insurance industry, like every other area of our society, must respect the law regarding anti-discrimination. That said, in the practice of insurance business, insurers will in certain circumstances differentiate between proposers in ways that are legitimate, insofar as that is permitted by the Ordinances mentioned above. An identical provision is contained in each of the first three Ordinances (not including the Race Discrimination Ordinance) to the effect that the treatment of a person in relation to insurance is not outlawed where the treatment (a) was effected by reference to actuarial or other data from a reliable source, and (b) was reasonable having regard to the data and any other relevant factors.

The following are instances of ‘discrimination’ in insurance that are generally considered to be legitimate:

(a) Life insurance: The premium charged for a life insurance is very much affected by the life expectancy of the life insured at the time the insurance is arranged. Statistically, women live longer than menon average. From this, insurers may:

(i) charge a lower premium rate for life insurance on women than for men of the same age, health condition, etc., because on average the policy benefit will not be paid so soon and/or more premium payments are expected in the case of women;

and

(ii) offer higher annuity benefit payments to men than to women of the same age, health condition, etc., because on average fewer payments will be made to men.

(b) Personal accident insurance: A person with a disability, such as impaired eyesight or another serious medical condition, may present a very different risk from a person who is not disabled. This difference could mean that insurers decline (refuse to insure) such persons, or impose various underwriting measures (higher premium, additional policy limitations, etc.).

7.3.3 Unfair Discrimination in Insurance

Unfair discrimination (such as appointing only either sex, unfairly denying promotion to either sex, refusing to employ the physically handicapped, sexual harassment and so on) is, quite rightly, not permitted by the anti-discrimination laws referenced in 7.3.1 above. Below are two examples of unfair discrimination with insurance:

(a) Motor insurance: charging higher premiums or imposing stricter terms on women simply because of a prejudice to the effect that women drivers are worse than men.

(There have been statistics of accidents and driving convictions in certain countries which suggest that the opposite is true!)

(b) Fire insurance: refusing to grant household insurance to a woman on the grounds that she is divorced or a single parent.

7.4 PREVENTION OF MONEY LAUNDERING AND TERRORIST FINANCING PDF p.173

7.4.1 What is Money Laundering

Money laundering (“ML”) generally refers to the process through which illegally obtained funds, such as proceeds from criminal activities, are disguised to appear as if they came from legitimate sources.

Its primary purpose is to facilitate various criminal enterprises, including drug trafficking, human trafficking, arms trafficking, and corrupt practices.

Money laundering is crucial for criminals because it allows them to utilize the illicit funds without attracting the attention of law enforcement.

ML offences are prescribed under Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) (“DTROP”) and Organized and Serious Crimes Ordinance (Cap.

455) (“OSCO”). These two provisions criminalise the dealing with property known or reasonably believed by the person to represent proceeds of indictable offences or of drug trafficking. This will be discussed further in paragraph 7.4.6b below.

7.4.2 What is Terrorist Financing

Terrorist financing (“TF”) generally refers to the act of collecting, soliciting, or providing property with the intention of supporting terrorist organizations or carrying out terrorist acts.

Terrorists and terrorist organizations require financial resources to achieve their objectives. To acquire and utilize funds discreetly, terrorists often resort to money laundering techniques to conceal the origin and intended use of the funds.

Hong Kong has a sound counter-financing of terrorism (“CFT”) framework which effectively criminalises TF through the United Nations (Anti- Terrorism Measures) Ordinance (Cap.

575) (“UNATMO”) and the United Nations Sanctions Ordinance (Cap. 537) (“UNSO”). This will be covered in paragraph 7.4.6c and 7.4.6d below.

7.4.3 What is Proliferation Financing

Proliferation financing (“PF”) can be generally regarded as the act of providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations.

The counter PF regime in Hong Kong is implemented through legislation, including the regulations made under the United Nations Sanctions Ordinance (Cap.

537) (“UNSO”) which are specific to Democratic People’s Republic of Korea (“DPRK”) and Iran, and the Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap.

526) (“WMD (CPS)O”). Section 4 of the WMD (CPS)O prohibits a person from providing any services where he believes or suspects, on reasonable grounds, that those services may be connected to PF.

The provision of services is widely defined and includes the lending of money or other provision of financial assistance.

7.4.4 Stages of Money Laundering

There are three common stages in the laundering of money, and they frequently involve numerous transactions. These stages are:

(a) Placement: the disposal of cash proceeds derived from illegal activities into the financial system;

(b) Layering: separating illicit proceeds from their sources by creating complex layers of financial transactions designed to disguise the source of the money, subvert the audit trail and provide anonymity; and

(c) Integration: creating the impression of apparent legitimacy to criminally derived wealth. In situations where the layering process succeeds, integration schemes effectively return the laundered proceeds back into the general financial system and the proceeds appear to be the result of, or connected to, legitimate business activities.

7.4.5 Vulnerabilities in Insurance Industry

As per the Financial Action Task Force (“FATF”), an inter-governmental organization which sets global standards for combating ML, TF and PF, the purchase of insurance products is a known international typology employed during the layering and integration stages of the money laundering process.

This is particularly evident in the context of long-term insurance policies, considering the substantial premium amounts, benefits, and inherent characteristics of life insurance contracts, as well as the legitimate purposes for which life insurance policies can be utilized.

For example,

• Criminals would purchase insurance products with illicit proceeds and subsequently withdraw the funds to obtain a “clean” cheque from the insurer as a layering process.

• When a life insurance policy matures or is surrendered, funds become available to the policyholder or other beneficiaries (such as an assignee if the policy has been assigned, or a trustee if the policy has been placed in trust).

The beneficiary of the policy contract can be changed before maturity or surrender, such that the insurer may make payments to a new beneficiary.

Money launderers or terrorist financiers may attempt to achieve their objectives by designating their conspirator as a beneficiary of a life insurance policy.

• A life insurance policy can also serve as collateral to purchase other financial instruments or obtain financing. It could be utilized by money launderers during the layering stage to create a complex series of transactions, thereby preventing the tracing of funds back to their criminal source.

In combating ML/TF risks, insurance intermediaries play a pivotal role as they are often the direct link to the policy holder for distribution, underwriting and claims settlement of long-term insurance products.

The same principles that apply to insurers should generally extend to insurance intermediaries. Criminals seeking to launder money or finance terrorism may seek an insurance intermediary who is not aware of or does not conform to necessary procedures, or who fails to recognise or report information regarding possible cases of ML or TF.

The intermediaries themselves could have been set up to channel illegitimate funds to insurers. Therefore, it is important for insurance intermediaries to be conversant with the statutory and regulatory requirements of AML/CFT and the ML/TF risks arising from its businesses.

7.4.6 Legislation on Money Laundering and Terrorist Financing

As a member of the FATF, Hong Kong is obliged to implement the latest FATF Recommendations, and it is important that Hong Kong complies with the international AML/CFT standards in order to maintain its status as an international financial centre.

The main pieces of legislation in Hong Kong that are concerned with ML, TF, PF and financial sanctions are the Anti-Money Laundering and Counter- Terrorist Financing Ordinance (Cap.

615) (“AMLO”), the DTROP, the OSCO, the UNATMO, the UNSO and the WMD(CPS)O.

It is of utmost importance that Financial Institutions (“FIs”) and Designated Non-Financial Business Professionals (“DNFBP”) comprehend their obligations under these various legislations.

As defined in section 1, Part 2 of Schedule 1 to the AMLO, FIs include authorized insurers, licensed individual

insurance agents, licensed insurance agencies, and licensed insurance broker 7 companies (hereafter collectively referred to as "insurance institutions" (“IIs”)).

It is crucial for both the officers and staff of the IIs to possess a comprehensive understanding of their respective responsibilities under the relevant legislations.

7.4.6a Customer Due Diligence (“CDD”) and Record Keeping Requirements - Anti-Money Laundering and Counter- Terrorist Financing Ordinance (“AMLO”)

The AMLO supports the prevention and detection of ML/TF activities by requiring IIs to conduct CDD on their customers and keep records for a specified period. The effective implementation of CDD and record-keeping requirements is aided by the AML/CFT Guideline specific to the insurance sector, commonly refer to as the GL3 (see paragraph 7.4.7 below), which is published under the AMLO by the Insurance Authority (“IA”), and may be taken into consideration in any court proceedings under the AMLO.

IIs, including their management or employees, are subject to criminal or supervisory sanctions for breaches of the AMLO requirements.

The maximum penalty for the most serious offence under the AMLO is a fine of HK$1 million and imprisonment of 7 years. Disciplinary actions that may be imposed on an II include a public reprimand, an order for remedial action, and a pecuniary penalty not exceeding the greater of HK$10 million or three times the amount of the profit gained (or cost avoided) by the II as a result of a contravention.

7.4.6b ML offences - Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) and Organized and Serious Crimes Ordinance (“OSCO”)

ML offences are prescribed under section 25 of the OSCO and of the DTROP. These two provisions criminalise the dealing with property known of reasonably believed by the person to represent proceeds of 8 indictable offences or of drug trafficking. Under the OSCO, proceeds of an indictable offence include proceeds of a crime committed elsewhere, if the crime would also have constituted an indictable offence had it been committed in Hong Kong. It is not necessary for the prosecution to prove the commission of or the specific conduct of the indicatable offence or drug trafficking, or to prove that the property in question is in fact the proceeds of an indictable offence or drug tracking. The maximum penalty for ML is imprisonment for 14 years and a fine of HK$5 million.

7 As defined in sections 5(2) and 5(3) of the AMLO, the requirements on CDD and record- keeping as defined in Schedule 2 to the AMLO only has effect with respect to: - (1) an authorized insurer only in relation to long term business carried on by the insurer.

(2) a licensed individual insurance agent, licensed insurance agency or licensed insurance broker company only in relation to any transaction carried out by that agent, agency or company involving a contract of insurance described in column 3 of Part 2 of Schedule 1 to the Insurance Ordinance (Cap.

41).

8 “Indictable offences”, as opposed to “summary offences”, refer to the more serious crimes in common law jurisdictions.

The OSCO and DTROP also make it an offence if a person fails to disclose, as soon as it is reasonable for him to do so, his knowledge or suspicion of any property that directly or indirectly, represents a person’s proceeds of, was used in connection with, or is intended to be used in connection with, an indictable offence or drug trafficking respectively.

This offence under OSCO and DTROP carry a maximum term of imprisonment of 3 months and a fine of HK$50,000 upon conviction.

“Tipping off” is another offence under the OSCO and DTROP. A person commits this offence if, knowing or suspecting that a disclosure has been made, he discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following that first-mentioned disclosure. The maximum penalty for the offence upon conviction is imprisonment for 3 years and a fine.

7.4.6c TF offences - United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”)

The UNATMO implements, inter alia, a decision of the United Nations Security Council Resolution (“UNSCR”) 1373 relating to measures for the prevention of terrorist acts.

Section 7 and 8 criminalize the provision or collection of any property to commit terrorist acts; and the act of making any property or financial (or related) services available, or collecting property, or soliciting financial (or related) services, to or for the benefit of a terrorist or terrorist associate. The maximum penalty for either of these offences is 14 years of imprisonment and a fine of unlimited amount.

The UNATMO was amended in 2018 to prohibit any person from dealing with specified terrorist property and property of specified terrorist or terrorist associates, as well as to criminalize, among other things, the financing of the travel of individuals between states for the purpose of perpetration, planning or preparation of, or participation in , terrorist acts or the provision or receiving of terrorist training, in line with the FATF recommendation to enhance the freezing mechanism of terrorist property and UNSCR 2178 which affirms the need to combat threats by foreign terrorist fighters.

The UNATMO also make it an offence if a person fails to disclose, as soon as it is reasonable for him to do so, his knowledge or suspicion of any property that directly or indirectly, represents a person’s proceeds of, was used in connection with, or is intended to be used in connection with terrorist property.

This offence carries a maximum term of imprisonment of 3 months and a fine of HK$50,000 upon conviction.

“Tipping off” is another offence under the UNATMO. A person commits this offence if, knowing or suspecting that a disclosure has been made, he discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following that first- mentioned disclosure. The maximum penalty for the offence upon conviction is imprisonment for 3 years and a fine.

7.4.6d Targeted Financial Sanctions and Proliferation Financing (“PF”) - United Nations Sanctions Ordinance (“UNSO”) and Weapons of Mass Destruction (Control of Provision of Services) Ordinance (“WMD(CPS)O”)

The UNSO empowers the Chief Executive to make regulations to give effect to instructions given by the Ministry of Foreign Affairs of the People’s Republic of China (“PRC”) to implement sanctions imposed by the United Nation Security Council (“UNSC”) against persons and places outside the PRC, including targeted financial sanctions against certain persons and entities designated by the UNSC or its committee. Designated persons and entities are specified by notice published in the Gazette or on the website of the Commerce and Economic Development Bureau.

Except under the authority of a license granted by the Chief Executive, it is an offence: -

(a) To make available, directly or indirectly, any funds or other financial assets or economic resources to, or for the benefit of, (i) designated persons or entities, (ii) persons or entities acting on behalf or at the direction of the designated persons or entities mentioned in (i), or (iii) entities owned or controlled by any persons or entities mentioned in (i) or (ii);

or

(b) to deal with, directly or indirectly, any funds or other financial assets or economic resources belonging to, or owned or controlled by, such persons and entities falling within paragraph (a) above.

As far as targeted financial sanctions related to PF are concerned, the United Nations Sanctions (Democratic People’s Republic of Korea) Regulation (Cap.

537AE) and the United Nations Sanctions (Joint Comprehensive Plan of Action – Iran) Regulation, both made under the UNSO, implement the UNSC sanctions against DPRK and Iran.

The maximum penalty for contravening targeted financial sanctions under the two Regulations is imprisonment for 7 years and a fine of unlimited amount.

The WMD(CPS)O controls the provision of services that will or may assist the development, production, acquisition or stockpiling of weapons capable of causing mass destruction or that will or may assist the means of delivery of such weapons.

Section 4 of the WMD(CPS)O prohibits a person from providing any services where he believes or suspects, on reasonable grounds, that those services may be connected to PF.

The provision of services is widely defined and includes the lending of money or other provision of financial assistance. The maximum penalty for offences under the ordinance is imprisonment for 7 years and fine of unlimited amount.

7.4.7 Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) 7.4.7a Introduction

Under section 7 of the AMLO and section 133 of the IO, the IA has published the GL3 which sets out the relevant AML/CFT statutory and regulatory requirements, and the AML/CFT standards which IIs should meet in order to comply with the statutory requirements under the AMLO and the IO.

The GL3 is intended for use by IIs, and their officers and staff, which include licensed individual insurance agents and licensed technical representatives (agent)/(broker).

Its primary objectives are twofold: firstly, to provide a general background on the subjects of ML and TF, including a summary of the main provisions of the applicable AML/CFT legislation in Hong Kong; and secondly, to offer practical guidance to assist IIs and their senior management in developing and implementing their own policies, procedures and controls in the relevant operational areas to meet the relevant AML/CFT statutory and regulatory requirements.

However, the content of this GL3 is not intended to be an exhaustive list of the means of meeting the statutory and regulatory requirements.

IIs should use this GL3 as a basis to develop measures appropriate to their structure and business activities.

A failure by any person to comply with any provision of the GL3 does not by itself render the person liable to any judicial or other proceedings but, in any proceedings under the AMLO before any court, the GL3 is admissible in evidence;

and if any provision set out in GL3 appears to the court to be relevant to any question arising in the proceedings, the provision must be taken into account in determining that question.

In considering whether a person has contravened a provision of Schedule 2, the IA must have regard to any relevant provision in the GL3.

In addition, a failure to comply with any provision of the GL3 by an authorized insurer or a reinsurer carrying on long term business may, for example, reflect adversely on the fitness and properness of its directors and controllers, and may result in a disciplinary action being taken against the authorized insurer or reinsurer concerned. In addition, a failure to comply with any provision of the GL3 by a licensed individual insurance agent, a licensed insurance agency or a licensed insurance broker company carrying on regulated activities in respect of long term business may, for example, reflect adversely on the fitness and properness of the licensed individual insurance agent, and (in the case of a licensed insurance agency and a licensed insurance broker company) its controller(s), director(s) and responsible officer(s), and may result in disciplinary action being taken against the regulated persons.

7.4.7b Risk-Based Approach (“RBA”)

RBA is central to the effective implementation of an AML/CFT regime. IIs are expected to identify, assess and understand the ML/TF risks to which they are exposed and take AML/CFT measures commensurate with those risks in order to manage and mitigate them effectively.

RBA allows an II to allocate its resources more effectively and apply preventive measures that are commensurate with the nature and level of risks, in order to focus its AML/CFT effort in the most effective way.

Therefore, an II should adopt an RBA in the design and implementation of its AML/CFT policies, procedures and controls (hereafter collectively referred to as “AML/CFT systems”) with a view to managing and mitigating ML/TF risks.

(a)Institutional ML/TF Risk Assessment (“IRA”)

The IRA forms the basis of the RBA, enabling an II to understand how and to what extent it is vulnerable to ML/TF. The II should conduct an IRA to identify, assess and understand its ML/TF risks in relation to:

(a) its customers; (b) its countries or jurisdictions its customers are from or in; (c) the countries or jurisdictions the II has operations in; (d) the products/services/transactions of the II; and (e) delivery/distribution channels of the II.

The IRA should consider any higher risks identified in other relevant risk assessments which may be issued from time to time, such as Hong Kong’s jurisdiction-wide ML/TF risk assessment and any higher risks notified to the IIs by the IA.

To keep the IRA ML/TF risk assessment up-to-date, an II should conduct its assessment every two years and upon trigger events which are material to the II’s business and risk exposure.

(b) Customer Risk Assessment (“CRA”)

An II should assess the ML/TF risks associated with a proposed business relationship, which is usually referred to as a CRA. The CRA conducted at the initial stage of the CDD process would determine the extent of CDD measures to be applied. This means that the amount and type of information obtained, and the extent to which this information is verified, should be increased where the ML/TF risks associated with the business relationship are higher.

It may also be simplified where the ML/TF risks associated with the business relationship is lower.

Similar to other parts of the AML/CFT Systems, an II should adopt an RBA in the design and implementation of its CRA framework, and the complexity of the framework should be commensurate with the nature and size of the II’s business and should be designed based on the results of II’s IRA.

In general, the CRA framework will include customer risk factors; country risk factors; product/service/transaction risk factors and delivery/distribution channel risk factors.

7.4.7c AML/CFT Systems

An II should implement AML/CFT Systems, which includes appropriate internal AML/CFT policies, procedures and controls, having regard to the nature, size and complexity of its businesses and the ML/TF risks arising from those businesses, and which should include:

(a) compliance management arrangements; (b) an independent audit function; (c) employee screening procedures; and (d) an ongoing employee training programme.

The senior management of an II is responsible for implementing effective AML/CFT Systems that can adequately manage the ML/TF risks identified. In particular, the senior management should appoint a Compliance Officer (“CO”) at the management level to have the overall responsibility for the establishment and maintenance of the II’s AML/CFT Systems;

and a senior staff as the Money Laundering Reporting Officer (“MLRO”) to act as the central reference point for suspicious transaction reporting.

7.4.7d Group-wide AML/CFT Systems

A Hong Kong-incorporated II with overseas branches or subsidiary undertakings that carry on the same business as a financial institution (“FI”) as defined in the AMLO should implement group-wide AML/CFT Systems to apply the requirements set out in the GL3 to all of its overseas branches and subsidiary undertakings in its financial group, wherever the requirements in the GL3 are relevant and applicable to the overseas branches and subsidiary undertakings concerned.

In particular, a Hong Kong-incorporated II should, through its group-wide AML/CFT Systems, ensure that all of its overseas branches and subsidiary undertakings that carry on the same business as an FI as defined in the AMLO, have procedures in place to ensure compliance with the CDD and record-keeping requirements similar to those imposed under Parts 2 and 3 of Schedule 2 to the AMLO, to the extent permitted by the laws and regulations of that place.

7.4.7e Customer Due Diligence (“CDD”)

An II should apply an RBA (usually through its CRA framework) when conducting CDD measures and the extent of CDD measures should be commensurate with the ML/TF risks associated with a business relationship.

Where the ML/TF risks are high, the II should conduct enhanced due diligence (“EDD”) measures. In low-risk situations, the II may apply simplified due diligence (“SDD”) measures.

The following are CDD measures applicable to an II:

(a) identify the customer and verify the customer’s identity using documents, data or information provided by a reliable and independent source;

(b) where there is a beneficial owner in relation to the customer, identify and take reasonable measures to verify the beneficial owner’s identity so that the II is satisfied that it knows who the beneficial owner is, including, in the case of a legal person or trust, measures to enable the II to understand the ownership and control structure of the legal person or trust;

(c) obtain information on the purpose and intended nature of the business relationship (if any) established with the II unless the purpose and intended nature are obvious; and

(d) if a person purports to act on behalf of the customer: (i) identify the person and take reasonable measures to verify the person’s identity using documents, data or information provided by a reliable and independent source;

and (ii) verify the person’s authority to act on behalf of the customer.

When an II knows that a customer or a beneficial owner of a 9 customer is a non-Hong Kong Politically Exposed Person (“PEP”), it should, before (i) establishing a business relationship or (ii) continuing an

9 A non-Hong Kong PEP is defined in section 1 of Schedule 2 to the AMLO as: (a) an individual who is or has been entrusted with a prominent public function in a place outside Hong Kong and (i) includes a head of state, head of government, senior politician, senior government, judicial or military official, senior executive of a state-owned corporation and an important political party official;

(ii) but does not include a middle-ranking or more junior official of any of the categories mentioned in subparagraph (i); (b) a spouse, a partner, a child or a parent of an individual falling within paragraph (a) above, or a spouse or a partner of a child of such an individual;

or (c) a close associate of an individual falling within paragraph (a).

existing business relationship where the customer or the beneficial owner is subsequently found to be a non-Hong Kong PEP, apply all the following EDD measures:

(a) obtaining approval from its senior management for establishing or continuing such business relationship; and

(b) taking reasonable measures to establish the customer’s or the beneficial owner’s source of wealth and the source of the funds.

7.4.7f Ongoing Monitoring

Ongoing monitoring is an essential component of effective AML/CFT Systems. An II should continuously monitor its business relationship with a customer in two aspects:

(a) ongoing CDD: reviewing from time to time documents, data and information relating to the customer that have been obtained by the II for the purpose of complying with the requirements imposed under Part 2 of Schedule 2 to ensure that they are up-to-date and relevant;

and

(b) transaction monitoring: (i) conducting appropriate scrutiny of transactions carried out for the customer to ensure that they are consistent with the II’s knowledge of the customer, the customer’s business, risk profile and source of funds;

and

(ii) identifying transactions that (i) are complex, unusually large in amount or of an unusual pattern; and (ii) have no apparent economic or lawful purpose, and examining the background and purposes of those transactions and setting out the findings in writing.

7.4.7g Targeted Financial Sanctions, Database Maintenance, Screening and Enhanced Checking

As mentioned in paragraph 7.4.6d above, the UNSC from time to time imposes sanctions on countries, entities and individuals deemed to be engaged in activities including terrorism, proliferation of weapons of mass destruction and corruption.

The UNSC sanctions are generally implemented in Hong Kong under the UNSO and the UNATMO. Sanctions lists are published and updated via notices in the Government Gazette or on the website of the Commerce and Economic Development Bureau (CEDB) pursuant to the relevant legislation.

The IA provides links to these notices in its circulars and email alerts issued to the IIs and require the IIs to screen all new designation against their customer lists as soon as practicable whenever there are such updates.

Inclusion of a country, individual, entity or activity in a UNSC sanctions resolution or sanctions list may constitute grounds for knowledge or suspicion for the purposes of relevant money laundering and terrorist financing laws, thereby triggering statutory (including reporting) obligations as well as offence provisions.

IIs should therefore establish and maintain effective policies, procedures and controls so that they should be able to identify terrorist suspects and possible designated parties, and detect prohibited transactions.

To this end, an II should ensure that it maintains (or subscribe to) a database of names and particulars of terrorists and designated parties which consolidates the various lists that have been made known to the II.

An II should implement an effective screening mechanism, which should include:

(a) screening its customers and any beneficial owners of the customers against current database at the establishment of the relationship; and

(b) screening its customers and any beneficial owners of the customers against all new and any updated designations to the database as soon as practicable.

The screening requirements should extend to the connected parties (such as director of a corporate customer) and the person purporting to act of behalf of the customer (“PPTA”) using an RBA.

An II should also screen its payees, including policy beneficiaries, to ensure that proposed payments to terrorist suspects and possible sanctioned parties are not made at the time of the payout.

When possible name matches are identified during screening, an II should conduct enhanced checks to determine whether the possible matches are genuine hits.

In case of any suspicions of TF, PF or sanctions violations, the II should make a report to the JFIU. Records of enhanced checking results, together with all screening records, should be documented, or recorded electronically.

7.4.7h Suspicious Transaction Reports (“STR”)

It is a statutory obligation under sections 25A(1) of the DTROP and the OSCO, as well as section 12(1) of the UNATMO, that where a person knows or suspects that any property: (a) in whole or in part directly or indirectly represents any person’s proceeds of, (b) was used in connection with, or (c) is intended to be used in connection with drug trafficking or an indictable offence;

or that any property is terrorist property, the person shall as soon as it is reasonable for him to do so, file a suspicious transaction report (STR) with the Joint Financial Intelligence Unit (JFIU) of the Hong Kong Police Force. The STR should be made together with any matter on which the knowledge or suspicion is based. Under the DTROP, the OSCO and the UNATMO, failure to report knowledge or suspicion carries a maximum penalty of imprisonment for three months and a fine of $50,000.

An II should implement appropriate AML/CFT Systems in order to fulfill its statutory reporting obligations as set out above, and properly manage and mitigate the risks associated with any customer or transactions involved in an STR.

The AML/CFT Systems should include:

(a) appointment of an MLRO;

(b) implementing clear policies and procedures over internal reporting, reporting to the JFIU, post-reporting risk mitigation and prevention of tipping off; and

(c) keeping proper records of internal reports and STRs.

As far as an II is concerned, when a transaction or a series of transactions of a customer is not consistent with the II’s knowledge of a customer, or is unusual (e.

g. in a pattern that has no apparent economic or lawful purpose), the II should take appropriate steps to further examine the transactions and identify if there is any suspicion.

Examples of what might constitute suspicious transactions are provided in paragraph 7.4, Annex I and Annex II of the GL3, which are not intended to be exhaustive. However, identification of any of the types of these transactions should prompt further investigations and be a catalyst towards making at least initial enquiries about the source of funds.

An II should provide sufficient guidance to its staff to enable them to form suspicion or to recognize the signs when ML/TF is taking place. Also, an II should establish and maintain clear policies and procedures to ensure that:

(a) all staff are made aware of the identity of the MLRO and of the procedures to follow when making an internal report; and (b) all internal reports should reach the MLRO without undue delay.

Once a staff of an II has reported suspicion to the MLRO in accordance with the policies and procedures established by the II for the making of such reports, the statutory obligation of the staff has been fully satisfied. However, a staff should be mindful that the tipping off provision, as described in paragraph 7.4.6b above, includes circumstances where a suspicion has been raised internally within an II, but has not yet been reported to the JFIU.

When evaluating an internal report, an MLRO should take reasonable steps to consider all relevant information, including CDD and ongoing monitoring information available within or to the II concerning the customer to which the report relates.

The review process should be documented, together with any conclusions drawn. If after completing the review of the internal report, an MLRO decides that there are grounds for knowledge or suspicion, he should disclose the information to the JFIU as soon as it is reasonable to do so after his evaluation is complete together with the information on which that knowledge or suspicion is based.

7.4.7i Record-keeping Record-keeping is an essential obligation as required under the AMLO as well as the GL3 as it forms the audit trail for the detection, investigation, and confiscation of criminal or terrorist property and funds.

An II should maintain CDD information, transaction records and other records that are necessary and sufficient to meet the statutory and regulatory requirements that are appropriate to the nature, size, and complexity of its businesses.

All documents and records as required under the AMLO and GL3 should be kept throughout the continuance of the business relationship with the customer and for a period of at least five years after the end of the business relationship.

Where customer identification and verification documents are held by an intermediary on which an II is relying to carry out CDD measures, the II concerned remains responsible for compliance with all record-keeping requirements.

The II should ensure that the intermediary being relied on has systems in place to comply with all the record-keeping requirements under the AMLO and the GL3, and that documents and records will be provided by the intermediary as soon as reasonably practicable after the intermediary receives the request from the II.

For individual insurance agents who are appointed agents of an authorized insurer, the GL3 points out that they are usually required to provide all customer and transaction related documentation to the insurer directly, and they do not have the capacity to maintain such documents.

Under this arrangement, and from the perspective of meeting the record- keeping requirements set out in Part 3 of Schedule 2 to the AMLO, these individual agents are considered to have deposited the required records and documents at the premises of the insurer.

However, the individual insurance agents should still ensure that:

(a) the insurer to which they provide the records and documents has systems in place to comply with all the record-keeping requirements under the AMLO; and (b) such records and documents are accessible from the insurer without delay upon request by the IA.

7.4.7j Staff Training

According to GL3, it is an II’s responsibility to provide adequate training for its staff so that they are adequately trained to implement its AML/CFT Systems.

An II should implement a clear and well-articulated policy for ensuring that relevant staff receive adequate AML/CFT training. The scope and frequency of training should be tailored to the specific risks faced by the II and pitched according to the job functions, responsibilities and experience of the staff. New staff should be required to attend initial training as soon as possible after being hired or appointed. Apart from the initial training, an II should also provide refresher training regularly to ensure that its staff are reminded of their responsibilities and are kept informed of new developments related to ML/TF.

It is important for the II’s staff to be made aware of their II’s and their own personal statutory obligations and the possible consequences for failure to comply with CDD and record-keeping under the AMLO; and failure to report suspicious transactions under the DRTOP, the OSCO, and the UNATMO.

The staff should also observe the other statutory and regulatory obligations under the DTROP, the OSCO, the UNATMO, the UNSO, the WMD(CPS)O and the AMLO and the possible consequences of breaches.

The II should also adequately train their staff on their policies and procedures relating to AML/CFT, including suspicious transaction identification and reporting, and any new or emerging techniques, methods and trends in ML/TF to the extent that is needed by the staff to carry out their role in the II with respect to AML/CFT.

No matter what training approach is adopted, an II should maintain records of who have been trained, when the staff received the training and the type of training provided for a minimum of 3 years.

7.4.7k Wire Transfers

GL3 provides guidance on wire transfers, which primarily applies to authorized institutions and money service operators. Other FIs should also comply with section 12 of Schedule 2 and the guidance on wire transfers if they act as an ordering institution, an intermediary institution or beneficiary institution as defined under the AMLO.

7.5 PREVENTION OF CORRUPTION PDF p.187

Corruption is generally defined as the abuse of entrusted power for personal gain. Enforced by the Independent Commission Against Corruption (“ICAC”), the Prevention of Bribery Ordinance (Cap.

201) (“POBO”) helps maintain a corruption-free environment that is conducive to efficiency and fair competition. It safeguards the interests of different stakeholders and protects principals against agents’ abuses of authority for personal gain.

Being subject to the POBO, insurance practitioners should comply with the law when doing insurance business.

7.5.1 Major Provisions of the POBO (a) Offences and Penalty

(i)Under section 9(1) of the POBO, when conducting his/her principal's business or affairs, an agent should not solicit or accept any advantage without the permission of his/her principal.

For example, an individual insurance agent who accepted an advantage from a client for assisting the latter in concealing his pre-existing illness when applying for life insurance would commit the offence.

(ii)According to the POBO, both offering and accepting any advantage constitute an offence. Therefore, the offeror of advantage as stated

in (i) above commits an offence under section 9(2) of the POBO. In the above example, the client who offered an advantage to the insurance agent would commit the offence.

(iii)Section 9(3) of the POBO provides that any agent who, with intent to deceive his/her principal, uses any receipt, account or other document which is false or erroneous commits an offence. For example, an individual insurance agent who used bogus insurance applications to trick his/her appointing insurance company out of commissions would commit the offence.

(iv)The maximum penalty for committing any of the above offences is imprisonment for 7 years and a fine of HK$500,000.

(b) Elaborations of Key Elements

(i)Principal and Agent relationship: In the context of the POBO, an ‘agent’ includes any person employed by or acting for his/her ‘principal’.

Generally speaking, a licensed individual insurance agent appointed by an insurer, a licensed technical representative (agent) appointed by a licensed insurance agency, a licensed technical representative (broker) appointed by a licensed insurance broker company, or an employee is an ‘agent’ of the ‘principal’ concerned and owes his/her principal both contractual and 10 fiduciary obligations.

Insurance intermediaries and employees should obtain permission from their respective principals for accepting any advantage in relation to the principals’ affairs.

(ii)Advantage: The term ‘advantage’ is broadly defined to mean money, gift, loan, reward, commission, office, employment, contract, service, favour, the exercise of a duty, forbearance from the exercise of a duty, etc. Even tips, ‘red packet money’ and ‘tea money’ are included irrespective of amounts.

However, entertainment (i.e. food and drink consumed on the spot) is excluded.

(iii)No defence for corruption: Under Section 19 of the POBO, customs in any profession, trade, vocation or calling do not constitute a defence for bribery.

It is also not a defence for the recipient to claim that ‘the act requested to be done was not actually carried out’ as stated in Section 11 of the POBO.

The offeror and the recipient of a bribe will commit an offence irrespective of whether or not the act of bribery has actually been carried out.

10 According to the Insurance Ordinance (Cap. 41), a licensed insurance agency is granted a licence to carry on regulated activities as an agent of its authorized insurer; whereas a licensed insurance broker company is granted a licence to carry on regulated activities as an agent of its policy holder or potential policy holder.

(iv)Indirect bribery via third party: Accepting or offering bribes indirectly through a third party is also against the law. As long as the purpose of offering the advantage is to induce the agent to do an act in relation to his principal’s business or to reward him for doing so, both the offeror and the recipient will commit an offence under the POBO.

(v)Dealing with public servants: In order to avoid committing or being accused of committing an offence under section 8 of the POBO, an insurance intermediary is advised to refrain from offering any advantage to a public servant while having business dealings with the organisation that employs the public servant, even if the intermediary is doing this out of the goodness of his/her heart (or without a corrupt intent).

And if the offering of an advantage to a public servant aims for a reciprocal act in abusing his/her official authority, it will be an offence under Section 4 of the POBO.

‘Public servants’ include government officers and employees of public bodies.

(vi)Cross-boundary bribery: If any part of the act of bribery, including offering, soliciting or accepting a bribe and agreeing on or processing the illegal deal, can be proved to have taken place in Hong Kong, both the offeror and recipient may be pursued under Section 9 of the POBO.

7.5.2 Report Corruption

In dealing with clients or other third parties, insurance intermediaries should uphold integrity, say no to corruption and guard against violating the POBO or other crimes.

When encountering corruption, intermediaries are encouraged to report them to the ICAC so as to protect the company’s and their own interests.

The ICAC’s 24-hour report hotline: 25 266 366. All complaints are handled in strict confidence.

7.5.3 Assistance from the ICAC

The ICAC has all along been working together with the insurance industry actively to prevent corruption and to uphold a high ethical standard amongst insurance intermediaries.

The following resources and services are readily available for use by intermediaries and insurance companies:

(a) Anti-corruption and Ethics Training: The ICAC jointly arranges recognised Continuing Professional Development (“CPD”) training courses with various professional bodies, and the participants will be entitled to qualified CPD hours upon completion of any such course. It also assists insurance companies with their anti-corruption activities for staff.

(b) Dedicated Resources for Insurance Industry: With a view to preventing corrupt conduct and promoting ethical practices, the Hong Kong Business Ethics Development Centre of the ICAC has produced a range of useful resources for the insurance industry, including the “Online Learning Course for New Practitioners of Insurance Industry” dedicated to the candidates of the Qualifying Examination and insurance practitioners who are new to the industry.

The resources are available on the Centre’s dedicated website for the insurance industry (https://hkbedc.icac.hk/insurance).

7.6 PREVENTION OF INSURANCE FRAUD PDF p.190

Fraud is of course ‘dishonesty’ or ‘cheating’. Since insurance is a process involving a high element of trust, there is ample scope for the dishonest person to take advantage.

Insurance fraud may take any of a large number of forms. Usually, we tend to associate the term with dishonest claims, from relatively ‘small’ matters, such as having a cheap watch stolen and saying that it was an expensive one, to elaborate swindles involving arson or faked death certificates.

There have even been examples of large life insurance being arranged and then having the person concerned murdered for the insurance moneys.

Fraud, however, may arise at other than the claims level. Obtaining insurance by the deliberate falsification of material information, or knowingly hiding bad features, is equally fraud. Of course, this is a form of breach of utmost good faith (see 3.2 above), but often it is difficult to prove such things later.

Although fraud may be committed by anyone involved with insurance (policyholder, insurance intermediary or even the insurer), we shall concentrate on the customary understanding of the proposer or insured seeking an illegal advantage against the insurer.

The comments below refer specifically to the role of the insurance intermediary in this subject area.

7.6.1 Beware of Becoming Partners in Crimes

Undoubtedly all of us know that we must refrain from carrying out criminal activities, or we may face criminal prosecution and even civil actions.

For instance, an insurance intermediary who misappropriates premiums that have been collected on behalf of his principal is liable to prosecution for theft, and to civil action by the principal to recover the stolen money and for damages such as loss of interests.

It is also common knowledge that, apart from the actual perpetrator(s), a secondary party to the crime (see the next paragraph for its definition) is also punishable by law.

However, a general knowledge cannot be assumed that the secondary party and the principal perpetrator (or just ‘principal’) can be equally responsible for the same crime. This 7.6.1 introduces the criminal law of secondary parties so as to enhance the ability of insurance intermediaries to identify potential criminal activities and to prompt them to take extra care in distancing themselves from such activities.

It will be seen that the

discussions here are not restricted to the offence of fraud and offences involving fraud, in view of the fact that the law of secondary participation is generally applicable to all offences.

Depending on the nature of participation, a participant in crime can either be in the capacity of a principal or a secondary party (alternatively known as ‘secondary participant’ and ‘accessory’).

Where there are more than one principal and they should be jointly responsible, they are also known as joint principals. A secondary party to an offence is one who aids, abets, counsels or procures the commission of that offence. Without going into details about these four legal terms, it is sufficient for the purposes of these Study Notes to mention that secondary participation almost invariably consists simply in assisting or encouraging the commission of the crime.

It surprises almost anyone who is new to this area of the law to know that it is generally immaterial whether a defendant is alleged to have participated in the crime as principal or as secondary party, as he is equally responsible either way.

Not too many people, it is also believed, realise that participation by inactivity can be as culpable as participation by acting. Where the defendant has the right to control another person’s actions and he deliberately refrains from exercising the right, such inactivity may constitute a positive encouragement to that other person to carry out an illegal act, and therefore an aiding, etc. Let us say, an insurance agent Mr Wong (who is an agent of Insurer A alone) solicits insurance business from a prospective client for Insurer B, with his up-line manager Miss Chiu (who is also an agent of Insurer A) standing by and watching. If Miss Chiu knows that Mr Wong is not an agent of Insurer B, then her failure to stop Mr Wong very likely constitutes aiding and abetting the commission of the offence under section 77(1) of the IO.

The final aspect of the law of secondary participation to be discussed here is the mens rea (or guilty mind) of the defendant at the time of aiding, etc. that must be proved as one of the elements of the crime. Neither an intention to gain from the commission of the crime nor from the conduct of aiding, etc. is required. What is required is an intention to aid, etc.

, which conduct he knew to be capable of assisting or encouraging the commission of the crime. Such an intention, it should be noted, is not the same thing as an intention that the crime be committed. Let us say, an insurance intermediary issues to a client, at the request of the latter, an inflated premium receipt for a private car insurance policy, which receipt he realises might be presented to the latter’s employer for the purposes of over- claiming living costs allowance. By so doing, the insurance intermediary can still be held to be an aider and abettor, even if he is indifferent whether the client cheats his employer by use of the bogus receipt as planned.

7.6.2 The Insurance Intermediary and Examples of Insurance Fraud

As stated, fraud takes many forms. We do not talk about deliberate collusion and dishonesty on the part of insurance intermediaries.

The illegality and unethical nature of that is self-evident. Below are examples where the insurance intermediary may be approached or tempted to assist in insurance fraud:

(a) Arranging the insurance: it often happens that the insurance intermediary possesses or is supplied with information which could have an adverse effect upon an application or proposal for insurance. This information could even mean that the risk is uninsurable. Under no circumstances should that information be omitted or misrepresented. Doing this with the intention of misleading the insurer is fraud.

Remember, by law and ethics, an insurance intermediary is bound to exercise the duty of utmost good faith in such matters, whatever the practical consequences for the proposed insurance.

(b) Fraudulent claims: it is not the responsibility of the insurance intermediary to become a ‘detective’ or a ‘law-enforcement officer’, but there is a common duty not to assist fraud and to report evidence or suspicions of it.

Concerning claims, this may mean suspicious circumstances, doubtful medical or other documentary evidence or even verbal communications which clearly indicate that all is not correct with a particular claim.

Note: A word of caution must be given. Fraud is a most serious matter and to allege it is something that must not be done lightly.

It is the insurer's primary duty to investigate claims, and certainly only he can allege fraud. The insurance intermediary's role is to assist the insurer, and indeed the law, in resisting attempted fraud and in revealing fraud, but this is a matter of the greatest sensitivity, as will be readily appreciated.

7.6.3 Practical Steps in Preventing Fraud

As with all matters involving illegal activities, perhaps the most important advice in preventing fraud is firstly to be aware that it can happen.

Of course, we must not become paranoid about this, but the possibility that it can arise is always a good beginning in fraud prevention.

Additionally:

(a) Vigilance: suspicious actions, like sudden increases in sums insured with no or inadequate explanation, apparently inordinate amounts of insurance, and so on, should put the insurance intermediary on guard. (b) Diligence:

sometimes fraud can arise when records are inadequately kept or unnecessary delays occur. Keeping up to date with actions and record keeping is not only good business, it is an excellent fraud prevention exercise. (c) Communication:

whether representing the insured or the insurer, the insurance intermediary should always keep in close touch with the insurer, especially where there may be suspicious circumstances.

(d) Integrity: by law, contract and all recognised ethical behaviour, insurance agents and brokers have to maintain the highest moral standards.

Remembering this at all times will almost automatically supply all necessary guidance in this area. Insurance agent, insurance broker or insurer, we are all the enemy of fraud.

Representative Examination Questions

Type ‘A’ Questions

1 The Personal Data (Privacy) Ordinance for Hong Kong applies to:

(a) the public sector only; ..... (b) the private sector only; ..... (c) both the public sector and the private sector; ..... (d) neither the public sector nor the private sector. .....

[Answer may be found in 7.2.1(a)]

2 Legislation has been enacted in Hong Kong regarding equal opportunity. Which of the following are areas where discrimination may arise have been made the subject of an appropriate Ordinance?

(a) sex; ..... (b) pregnancy; ..... (c) physical disability; ..... (d) all of the above. .....

[Answer may be found in 7.3.1]

Type ‘B’ Questions

3 Which of the following are among the recognised principles of Data Protection?

(i) Access to personal data (ii) Security of personal data (iii) Purpose and manner of collection (iv) Information to be generally available to the data subject

(a) (i) and (ii) only; ..... (b) (i) and (iii) only; ..... (c) (ii) and (iv) only; ..... (d) (i), (ii), (iii) and (iv). .....

[Answer may be found in 7.2.1(c)]

4 Which of the following are among the types of insurance commonly used in money laundering activities?

(i) Fire insurance (ii) Purchased annuities (iii) Motor insurance (iv) Unit-linked single premium contracts

(a) (i) and (ii) only; ..... (b) (ii) and (iii) only; ..... (c) (ii) and (iv) only; ..... (d) (i), (iii) and (iv) only. .....

[Answer may be found in 7.4.3]

[If still needed, the answers may be found at the end of the Study Notes.]

Glossary PDF p.195

Abandonment A practice effectively restricted to marine insurance,（委付）whereby the assured surrenders all rights in the subject matter insured to the insurer, in return for a total loss settlement.

3.4.6

Academic Classification of Insurance A method of classifying（保險的學術類別）insurance business, often used for examination and educational purposes (insurance of the person, insurance of property, insurance of pecuniary interest and insurance of liability).

5.1.3

Acceptance (in law of contract)One of the elements of a（承約(合約法中的)）contract, where one party agrees to accept an offer. 2.1.3(b)

Accounting and InvestmentThose functions of insurers which（會計及投資）concern the receipt and payment of monies and the effective and productive use of accumulated funds.

4.10

Actuarial Support The contribution of actuaries in insurance, in such（精算支援）matters as premium rating, loss reserving and valuation of liabilities.

4.9

Adequate Reinsurance One of the requirements under the（足夠的再保險）Insurance Ordinance for an insurer wishing to be authorised, or to remain to be authorised, in Hong Kong. 6.1.1e

Administrator Put simply, he is a person appointed to manage the（遺產管理人）property of another. 3.1.4(b)

Agency Principal and agent relationship. 2.2.1 （代理關係）

Agency by Estoppel An application of the doctrine of（不容反悔的代理權）estoppel to an agency situation is where a person, by words or conduct, represents or allows it to be represented that another person is his agent, in which case he will not be permitted to deny the authority of the agent with respect to anyone (third party) dealing with the agent on the faith of such representation.

2.2.3(d)

Agent A person acting on behalf of a principal. 2.2(a)（代理人）

(i)

Agreed Value Policy Property insurance where it is agreed at（約定價值保單）policy inception that the item(s) concerned have, throughout the currency of the contract, the value stated in the policy.

Mostly used with items that tend not to depreciate, e.g. jewellery and antiques, and in marine insurance. 3.4.8(c)

“All Risks” A form of property insurance cover where all causes of loss（「全險」）are insured unless specifically excluded. 1.1.1 Note 2

Ancillary Functions of Insurance Indirect benefits,（保險的輔助功能）consequences and results of insurance (as opposed to its direct intentions and objectives).

1.2(b)

Annuity A contract whereby an insurer promises to make a series of（年金）periodic payments (‘annuity benefit payments’) to a designated person (‘payee’) throughout the lifetime of a person (‘annuitant’) or for an agreed period, in return for a single payment or a series of payments made in advance by the annuity purchaser.

Very often, the payee, the annuitant and the annuity purchaser are the same person. 5.1.1(a)

Apparent Authority The authority of an agent may be apparent（表面權限）instead of actual, where it results from a manifestation of consent, made to third parties by the principal.

This doctrine is distinct from the doctrine of estoppel in that it applies where an agent is allowed to appear to have a greater authority than that actually conferred on him, whereas the doctrine of estoppel applies where the supposed agent is not authorised at all but is allowed to appear as if he was.

2.2.3(b)

Assignment It generally means the transfer of a right. In insurance, there（轉讓）are broadly two types of assignment: assignment of the insurance contract (or insurance policy) and assignment of the right to insurance moneys (or insurance proceeds).

3.1.6

Assignment of the Insurance Contract It has the effect of（保險合約的轉讓）passing the interest of the assignor in the contract wholly to the assignee, so that when an insured event occurs afterwards, the insurer is obliged to pay the assignee for his loss - not that suffered by the assignor, if any.

3.1.6

Assignment of the Right to Insurance Moneys The（收取保險金的權利的轉讓）transfer of the right to insurance moneys to a third party, who then acquires the right to sue the insurer under the contract.

3.1.6

(ii)

Automatic Reinstatement Where a liability policy provides for（自動恢復保障額）an aggregate limit (or ‘limit per period’), any claim paid under the policy will have the effect of reducing the amount of cover available for the remainder of the policy period accordingly, unless the cover is reinstated (or restored) either by making a mutual agreement of reinstatement in the form of an endorsement or by triggering a pre-agreed automatic reinstatement clause. By way of illustration, under a liability policy subject to a limit for any one occurrence of $1m, a limit for any one period of $2m, and an automatic reinstatement provision for two reinstatements, the insurer might end up paying $6m cumulatively as the maximum for the whole policy period. 6.2.5(g)

Average (in marine insurance)partial (i.e. non-total) loss.（海損（海上保險中的）3.4.7(a) Note

Average (in non-marine insurance) a policy（比例分攤（非海上保險中的））provision which imposes a penalty for under-insurance when a claim arises.

3.4.7(a)

BaileeA bailee of goods is a person taking possession of the goods（受託保管人）with their owner’s consent, where there is no intention to transfer ownership.

3.5.3

Breach ） Failure to fulfil an obligation, perhaps in connection with（違反contractual terms, or related to agency relationship. 2.1.3, 2.2.5(c)

Capacity 1 Capacity to Contract The legal ability to（訂約的行為能力）enter into a contract, without which, the proposed contract will be defective. 2.1.3(d) 2 Underwriting CapacityThe practical, financial（承保能力）ability of an insurer to accept proposed business, with or without the assistance of reinsurance. 4.8(b)

Captive Insurer It primarily underwrites its founder’s own（專屬自保保險人）risks. The founder, or parent company, may be one company, several companies, or an entire industry.

(Note: a captive insurer, more strictly defined in the IO, is subjected to less stringent statutory supervision than an ordinary insurer.) 6.1.1b(d)

Cash Payment A method of providing an indemnity, or paying the（現金支付）policy benefit. 3.4.4(a)

Claims The request by the insured for indemnity or（索償／保險金要求）policy benefit under his insurance. Alternatively, claims made by a third party against the insured of a liability policy.

The term ‘claims’ is also used to refer to an insured’s act of asking for payments of benefits under his policy. 4.7

(iii)

Claims OutstandingPut simply, they are claims which, as at a（未決申索）particular date, remain unpaid. The term is defined in much greater detail in the IO.

6.1.1c(a)(ii)

Classification of RiskCategorising risks for a particular purpose.（風險的分類）1.1.2 Client Servicing(see Customer Servicing) 4.2 （顧客服務）（客戶服務）

Code of Conduct for InsurersImplemented by The（《承保商專業守則》）Hong Kong Federation of Insurers in May 1999, this code lays down recommended practices for insurers.

The code only applies to insurance for personal policyholders resident in Hong Kong, effected in their private capacity only. 6.1.2

CollectabilityWhether or not arranged reinsurance is（收回應收賬款的能力）likely to prove effective (i.e. whether the reinsurers can or will pay their shares of loss).

It in fact is not a technical term. 6.1.1e

Complaints and Disputes This important topic is given guidelines（投訴及糾紛）and recommended practices in the Code of Conduct for Insurers, and includes such matters as the existence of appropriate structures for receiving and dealing with complaints, both internally and externally.

6.1.2e

Composite (Insurer)Originally designating an insurer（綜合業務（保險人））which transacted more than one type of business, the term now is likely to mean an insurer which transacts both types of insurance business as per the IO (i.

e. Long Term Business and General Business). 5.2.1(c)

Contract 合約A legally enforceable agreement. 2.1.1 （）

Counter-OfferAn offer made by the original offeree to the original offeror,（反要約）proposing a contract on different terms from those originally offered by the latter (thus legally destroying the original offer).

2.1.3(b)

Customer Servicing Also known as Client Servicing,（客戶服務）（顧客服務）this involves all aspects of communication with existing policyholders and potential policyholders, including public relations, complaints handling and correspondence. 4.2

Deeds A deed is a written instrument signed, sealed and delivered. 2.1.2(b)（契據）

Deemed Treated as. 2.2.1 （當作）(iv)

Defective Contracts Contracts which, for one reason or another,（有缺陷的合約）are void, voidable or unenforceable, as the case may be. 2.1.3

Denial of ClaimsA section within the Code of Conduct for Insurers（拒絕賠付）relates to guidelines to be followed when rejecting insurance claims.

Broadly, these guidelines call for a fair and reasonable approach and good communication with the claimant as to the reasons for the denial, etc. 6.1.2c(b)

Duties owed by Agent to Principal Responsibilities（代理人對委託人的責任）deemed to apply, or individually specified, such as obedience to legitimate orders, the exercise of due care and skill, etc. 2.2.4

Duties owed by Principal to Agent Corresponding（委託人對代理人的責任）responsibilities deemed to apply, or individually mentioned, such as payment of agreed remuneration, etc. 2.2.5

Electronic Transactions OrdinanceLegislation which from（《電子商務條例》）April 2000 (amongst other things) allows electronic information submission when supplying details required by the Insurance Authority.

6.1.1f(c) Note 1

Emotional (Risk) Emotional risk is the risk of being affected（情緒上的（風險））by grief and sorrow. 1.1.1(c)

Employees' Compensation InsuranceCompulsory insurance（僱員補償保險）in Hong Kong which relates to the statutory liability of an employer to pay specified compensation in respect of an employee’s death or injury arising out of and in the course of his employment.

5.1.1(b)

EndorsementA document that an insurer issues to add policy provisions（批單）to an existing policy. 4.6(d)

Equal OpportunityA concept that has received particular legislative（平等機會）attention in Hong Kong, with Ordinances passed with a view to eliminating discrimination on various grounds, such as sex, marital status, disability, race, etc. 7.3.1

EquityEquity is a set of rules originally established by the Chancery Court（衡平法）of England to mitigate the rigour of common law so as to achieve enhanced fairness.

Equity prevails over common law. 3.5.1

Excepted (Excluded) PerilA cause of loss excluded by the terms of the（除外危險）insurance (e.g. suicide under a personal accident insurance), or by statutory provisions.

3.3.2(b) (v)

Excess A policy provision requiring the insured to bear the first amount,（免賠額）up to the prescribed amount, with each and every claim; in other words, the insurance is only liable ‘in excess’ of the prescribed amount.

3.4.7(b)

Executor Person named in a will whom the testator wishes to（遺囑執行人）administer the estate. 3.1.4(b)

Fair Discrimination in InsuranceJustified differential（保險中的「公平」歧視）practices adopted by insurers to meet the realities of situations, e.

g. charging men more premium in life insurance than women of the same age, health condition, etc. Thus, this is no breach of the relevant anti-discrimination legislation.

7.3.2

Fidelity Guarantee (Insurance) Fidelity guarantee（忠誠保證（保險））insurance insures an employer against loss of money or property as a result of any act of fraud, theft or dishonesty by any person in the course of employment by the employer.

5.1.1(b)

Fiduciary Obligations In equity, an agent owes to his principal（受信人責任）fiduciary obligations or duties – sometimes referred to as duties of loyalty – which do not depend on the fact that the principal is paying for the agent’s services.

7.5.1(b)(i)

Financial (Risk)Financial risk is the risk of suffering a loss（財務上的（風險））measurable in monetary terms. 1.1.1(a)

Fit and properA common phrase in regulatory instruments,（適當人選）indicating that the individual occupying or wishing to occupy a certain position is suitable and acceptable from a regulatory point of view.

6.1.1d, 6.2.4

Franchise A rare policy provision whereby the insured is not covered for（起賠額）any loss not exceeding or attaining the specified franchise, but is covered in full if the loss exceeds or attains the franchise, depending on the wording used. It could be related to a time, rather than an amount, so that (for example) no hospitalisation compensation or benefit is payable for less than three days’ stay, but compensation for the full period is payable for longer stay.

3.4.7(c)

Fraud (Insurance) Fraud against the insurer is possible in a（（保險）詐騙）number of ways. These could involve the insurance intermediary, concerning the arrangement of the insurance or in connection with a claim.

7.6

(vi)

Fraudulent Misrepresentation A breach of utmost good faith,（欺詐性失實陳述）arising from the fraudulent provision of false or inaccurate material facts.

3.2.5(a)

Fraudulent Non-Disclosure A breach of utmost good faith,（欺詐性不披露）arising from a fraudulent omission to provide a material fact. 3.2.5(c)

Fundamental RiskThat type of risk whose causes are outside the（基本風險）control of any one individual or even a group of individual, and whose outcome affects large numbers of people. 1.1.2b(ii)

General BusinessOne of the two major divisions of insurance（一般業務）classified under the IO. It consists of a very wide range of different types of insurance, with seventeen classes in the IO.

5.1.1(b)

General Insurance Another term for General Business, denoting（一般保險）insurance other than long term insurance. 5.1.1(b)

Indemnity An exact financial compensation, restoring the insured to the（彌償）same financial situation he occupied immediately prior to the loss.

A standard understanding of all insurances except life and personal accident (but its application or non-application may be modified by contractual terms).

3.4.1

Indemnity (How Provided) Exact compensation to the（（如何提供）彌償）insured may be provided by a cash payment, by repair or replacement, or by reinstatement.

The non-marine practice is that this will be at the insurer's option. 3.4.4

Insurable Interest The relationship with the subject matter of（可保權益）insurance that gives the right to effect insurance on it. 3.1.1

Insurable RiskA threat of financial loss that meets the necessary（可保風險）criteria for feasible insurance cover. 1.1.1

Insurance Agent In insurance terminology, an insurance agent (or（保險代理人）agent) is a person in the business of representing as agent in law one or more insurers to sell their insurance products.

2.2

Insurance Broker In insurance terminology, an insurance broker（保險經紀）(or broker) is a person in the business of representing a policyholder or potential policyholder in negotiating or arranging insurance between the policyholder or potential policyholder and an insurer, as agent in law of the policyholder or potential policyholder.

2.2(a)

(vii)

Insurance Claims Complaints Panel Consisting of an（保險索償投訴委員會）independent Chairman and four members, only two of which are nominated by The Hong Kong Federation of Insurers, the Panel may hear and adjudicate on claim-related complaints from personal policyholders.

No fee is involved for the policyholder, win or lose. 6.1.3a

Insurance Complaints Bureau (“ICB”) With a membership of（保險投訴局）all authorized insurers carrying on personal insurance business in Hong Kong, its primary function is to help resolve both claim-related and non-claim related disputes of a monetary nature arising from personal insurance contracts, in the capacity of an adjudicator and mediator respectively.

6.1.3

Insurance Intermediaries’ Duties to Policyholders（保險中介人對保單持有人的With this topic, there are common areas for both insurance agents and責任）insurance brokers.

In addition there will be separate requirements upon each, the former especially involving the requirements of the agency agreement.

7.1

Insurance IntermediaryAn insurance term meaning an insurance（保險中介人）agent or insurance broker. 2.2(a)

Insurance of Legal RightsAlso called pecuniary insurance,（合法權利保險）this covers the infringement of rights or the loss of future income, e.

g. fidelity guarantee insurance and business interruption insurance. 3.1.4(d)

Insurance of LiabilityInsurance where the subject matter is the legal（責任保險）liability of the insured for death, injury or property damage to third parties, e.

g. public liability insurance and motor car (third party) insurance. 5.1.3(c)

Insurance of Pecuniary Interests The insurance of financial（經濟權益保險）interests, not conveniently falling within the traditional categories of property insurance, liability insurance or insurance of the person.

Includes fidelity guarantee and business interruption insurance. 5.1.3(d)

Insurance of PropertyInsurance where the subject matter is physical（財產保險）property, e.g. motor car (own damage) and fire insurance. 5.1.3(b)

Insurance of the PersonInsurance where the subject matter is the life,（人身保險）limb or health of the person insured, e.g. life insurance and personal accident insurance. 5.1.3(a)

(viii)

Insurance Ordinance (“IO”) This is the legislation for regulating（保險業條例）the Hong Kong insurance industry. It is formerly known as the Insurance Companies Ordinance (Cap.

41). With the relevant provisions of the Insurance Companies (Amendment) Ordinance 2015 coming into operation on 26 June 2017, the Insurance Companies Ordinance (Cap.

41) was renamed the Insurance Ordinance (Cap. 41). 6.1.1

Insurance SalesThe activity of an insurer in connection with（保險的銷售）marketing, product liaison and general monitoring of the results of product development.

4.4

Insured Peril A cause of loss insured by the policy. An insured peril（受保危險）must always be involved before a valid claim can arise. 3.3.2(a)

保險人Insurer That party to an insurance contract who carries the risk. Insurers（）usually are corporations, though individual insurers are also found in the Lloyd’s market.

1.1.2a

Intention to Create Legal Relation An important element（訂立法律關係的意向）in simple contracts, whereby the parties must have intended the agreement to have legal consequences in the event of breach. 2.1.3(f)

Invalid (Contract)An agreement that has no legal effect. 2.1.3 （無效的（合約））

Inwards ReinsuranceReinsurance of part or all of another insurer's（分入再保險）risks, resulting in reinsurance premium coming ‘in’. 5.1.4(b)

Joint Tortfeasors Joint wrongdoers in cases of common action,（共同侵權人）agency or vicarious liability. 3.6.4(b)(iii)(2)

Jointly and Severally LiableWhere in a civil suit（負上共同及各別的法律責任）two or more defendants are held to be jointly and severally liable to the plaintiff for damages, the plaintiff may collect the entire judgment debt from any of those defendants in various amounts until the judgment debt is fully paid. 6.2.2

Legality (law of contract)An essential requirement（合法性（合約法中的））with contracts, that the proposed agreement is not contrary to any aspect of law; otherwise, the contract is generally unenforceable. 2.1.3(e)

Life InsuranceThe major type of Long Term Business and forming（人壽保險）the leading class of insurance, by premium volume, in Hong Kong. 5.1.1(a) (ix)

Lloyd’sLloyd’s, or Lloyd’s of London, is the world’s largest insurance（勞合社）marketplace, with members of Lloyd’s providing the capital needed for underwriting insurance business.

Apart from other overseas markets, Lloyd’s also participates in the Hong Kong market. 6.1.1f(d)

Long-tail BusinessClasses of insurance where claims under a（長期責任業務）policy may arise and develop over a long period of time, perhaps a number of years after the expiry of the period of insurance, e.

g. most types of liability insurance. 4.9(b)

Long Term BusinessOne of the two major divisions of insurance,（長期業務）as per the IO . The dominant categories within this division concern life insurance contracts.

It is ‘long-term’ because policies are normally not annual contracts, but last for a number of (sometimes many) years. 5.1.1(a)

Loss Prevention The lowering of the frequency of identified losses.（損失防範）1.1.3(c)(iii)

Loss Reduction The lowering of the severity of identified losses.（損失降低）1.1.3(c)(iii)

Marine ClauseA clause in a fire policy to the effect that any marine（海上條款）insurance covering the same loss should pay for the loss and the fire policy will pay towards any remaining uncompensated loss after the marine policy has responded. 3.5.5(c)

Market Co-operationWhilst competition is strong among insurers,（市場合作）there is considerable inter-company co-operation, especially seen in the central representative body for insurers, The Hong Kong Federation of Insurers.

5.3(c)

Marketing and PromotionConscious contact with the public（市場行銷及促銷）to maintain public relations and promote the company's interests.

4.3

Material Fact A fact that would influence the judgement of a prudent（重要事實）underwriter as to the acceptance of a risk or the premium on which it is to be accepted. 3.2.3

Money LaunderingA process through which illegally obtained funds,（洗錢）such as proceeds from criminal activities, are disguised to appear as if they came from legitimate sources.

7.4.1

(x)

More Specifically InsuredA provision which is effectively（更具體地受保）a non-contribution clause, so that any insured item (e.g. under a household contents insurance) which has a more specific insurance (e.

g. an ‘all risks’ policy covering that item alone) is excluded from the less specific insurance. 3.5.5(b)

Motor Insurers' Bureau of Hong Kong (“MIB”) An industry（香港汽車保險局）organisation of which all authorised motor insurers in Hong Kong must be members.

Funded by a levy on motor insurance premiums, it exists to implement the intentions of compulsory motor insurance, by compensating eligible victims for death or injury claims required to be covered by compulsory motor insurance, but where for some reason the insurance does not exist or is defective. 5.5.3(b)

‘New for Old’ Cover Claims settlements are not（「以新代舊」的保險保障）subject to deduction for wear and tear, depreciation, etc. An expression found mostly with personal lines property insurance, with some items (e.

g. clothing) not subject to this provision. 3.4.8(b)

Non-Contribution ClauseA provision in an indemnity policy to（免分擔條款）avoid contributing to a claim settlement in the event of a double insurance. 3.5.4(b)

Non-fraudulent Misrepresentation A breach of utmost（非欺詐性失實陳述）good faith, arising when one party innocently or negligently gives to another party an inaccurate or untrue representation of a material fact.

3.2.5(b)

Non-fraudulent Non-Disclosure A breach of utmost good（非欺詐性不披露）faith, arising when one party innocently or negligently fails to give to another party material facts.

3.2.5(d)

ObligeeThere are three parties to a suretyship: the surety, the principal（權利人）and the obligee. It is the obligee in whose favour the suretyship is issued. That is to say, when there is failure on the part of the principal to fulfil an obligation to the obligee, the surety will pay the obligee. 2.1.2(b)

Offer (in law of contract)An essential element in a（要約（合約法中的））simple contract, constituting the proposed terms of the intended contract.

2.1.3(a)

OffereeThe person to whom a contract offer is made. 2.1.3(b)（受要約人）

OfferorThe person making a contract offer. 2.1.3(a)（要約人）

(xi)

Ordinary Good Faith The common law duty not to lie or deliberately（一般誠信）mislead the other party in a contract. However, this duty does not require the disclosure of all facts known, but only in response to specific questions.

3.2.1

Outwards ReinsuranceReinsurance of insurer’s own business（分出再保險）with a reinsurer, thus resulting in reinsurance premium having to be paid ‘out’.

5.1.4(a)

Paid-up CapitalShares for which no amount remains（實繳股本／繳足款股本）‘on call’ (i.e. all the money due for them has actually been paid to the company).

6.1.1a&b

Participating PolicyEvery year a life insurer will determine the（分紅保單）amount of its divisible surplus, if any. Dividends will be paid out of the divisible surplus to holders of its participating policies.

4.7(a)(v)

Particular RiskA risk where the consequences are potentially of（特定風險）limited application, i.e. affecting relatively few people or a relatively small area (although the consequences for those concerned may be fatal or very serious).

1.1.2b(i)

Performance BondA guarantee that a construction contract will（履約保證書）be carried out. 5.1.1(b)

Peril The cause of a loss. This is important in connection with the（危險）application of proximate cause. 1.1.1Note 2, 3.3.2

Personal Data Protection A subject of international（保護個人資料）importance, with the advances in computer technology. The specific legislation dealing with the issue in Hong Kong, which includes any applications in insurance, is the Personal Data (Privacy) Ordinance. 7.2

Physical (Risk) The risk of dying or getting injured.（身體上的（風險））1.1.1(b)

Policy A written/printed instrument most often issued to an insured as an（保單）evidence of the insurance contract. 2.1.1

(xii)

Policy ConditionPolicies often contain a collection of provisions（保單條件）which are known as ‘policy conditions’ or ‘conditions’, and which provide a framework for the policy explaining some of the relationships, rights and duties of the insured and the insurer.

3.5.5

Policy LimitsPolicy provisions which determine the maximum（保單限額）amount of insurance recovery, e.g. sum insured. 3.4.7(d)

Powers of Intervention The powers that the IO gives the Insurance（干預權）Authority (“the IA”) to take action in specified circumstances, for the purposes of executing the IA’s functions under the IO.

6.1.1g

Practical Classification of InsuranceThe categorisation of（保險的業務分類）insurance business best suited to the internal organisation of the insurer (perhaps, for example, using the source of business as the category: direct, broker produced and agent produced).

5.1.2

PremiumThe consideration payable by the insured for an insurance.（保費）4.6(d)

Primary Functions of InsuranceThe direct objectives and（保險的主要功能）intentions of insurance, e.g. transferring risk and compensating losses.

1.2(a)

Principal The person for whom an agent in law acts. 2.2(a)（委託人）

Product DevelopmentThe invention and introduction of new（產品的開發）forms of cover, either as an individual product or as a portfolio development (package of cover).

4.1

Product ResearchMonitoring and developing existing and new（產品的研究）products to keep in line with trends and market competition. 4.1(c)

Professional Indemnity Insurance (“PII”) A liability insurance（專業彌償保險）covering professional people (doctors, lawyers, insurance brokers, etc.) for legal liability in respect of injury, loss or damage caused through their negligence. 6.2.5(g)

Professional NegligenceA failure of the expected degree of professional（專業疏忽）competence, resulting in death, injury or loss to a third party.

Resulting claims may be covered by various forms of professional indemnity insurance. 7.1.1(d)

(xiii)

Professional ReinsurerAn insurer that only transacts reinsurance（專業再保險人）business. 5.1.4

Proliferation Financingact of providing funds or（武器擴散資金籌集）An financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations.

7.4.3

Proposal Form (or Application Form)A standard form on which a（投保書）proposer of insurance is required to supply the insurer with material information.

2.1.3(a)

Proposer A prospective insured who completes a proposal form when（投保人）seeking insurance; may also be known as an applicant. 2.2(a)

Proximate Cause The dominant or effective reason for a loss, which must（近因）be ascertained to determine whether that loss constitutes a valid claim under an insurance contract or not.

3.3

‘Pure’ General Business When an authorized insurer in Hong（「純」一般業務）Kong is described as doing ‘Pure’ General Business, that means it transacts only general (not long term) business.

5.2.1(b)

‘Pure’ Long Term Business When an authorized insurer in（「純」長期業務）Hong Kong is described as doing ‘Pure’ Long Term Business, that means it transacts only long term (not general) business.

5.2.1(a)

Pure Risk ）A risk whose outcome is either a loss or no（純粹風險／純風險change. 1.1.2a(i)

QuantumThe amount of loss, or the amount recoverable from the insurer.（數額）4.7(c)(ii)

Rateable ShareThe proportion of a loss to be paid by the respective（比率份額）insurers in a contribution situation, i.e. where more than one insurer is involved with providing indemnity to the same insured. 3.5.5(a)

(xiv)

Ratification A retrospective act of adopting a contract or a transaction by（追認）someone who was not bound by it originally because it was entered into on his behalf but without his authority.

2.2.2(b)

Regulation of Insurance Intermediaries Under the（保險中介人的規管）now-defunct self-regulatory regime, insurance intermediaries are required to be registered with and be regulated by one of the three former self-regulatory organisations (“SROs”), namely the Insurance Agents Registration Board (“IARB”), the Hong Kong Confederation of Insurance Brokers (“CIB”) and the Professional Insurance Brokers Association (“PIBA”).

The new Insurance Authority established under the Insurance Companies (Amendment) Ordinance 2015 took over the regulation of insurance intermediaries on 23 September 2019 from the SROs through a statutory licensing regime.

6.2

Reinstatement (Property insurance) As a method（恢復原狀（財產保險））of providing an indemnity, it means the restoration of the insured property to the condition it was in immediately before its destruction or damage. 3.4.4(d)

Reinstatement Insurance Property insurance where the settlement（重置保險）basis for claims is effectively ‘new for old’ (i.e. no deduction for depreciation, etc.) if the damage is reinstated (or made good).

3.4.8(a)

ReinsuranceAn insurance used to transfer all or part of the risk assumed（再保險）by an insurer under one or more insurance contracts to another insurer.

4.8

RenewalThe continuation of an insurance contract for a further period（續保）(legally constituting a new contract). 4.5(b)

Replacement A method of providing an indemnity, by the insurer providing（更換）a substitute item for the one lost/damaged. 3.4.4(c)

ReserveAn amount subtracted from a firm’s retained earnings for a（儲備金）general or specific purpose. (A firm’s ‘retained earnings’ represent its cumulative net income since it was established, less the total dividends (or drawings, in the case of unincorporated businesses) that have been paid to owners over its entire life.) 4.9(b)

Restricted Scope Travel BusinessUnder section（受限制的旅遊保險業務）64ZZC(6) of the IO, Restricted Scope Travel Business, in relation to a travel agent that is a licensed insurance agency— (a) means effecting a travel insurance policy that is tied to a tour, travel package, trip or other travel services arranged by the travel agent for its customers;

and (b) does not include effecting an annual travel insurance policy. 6.2.5(h) (xv)

RevocationThe cancellation of an agency agreement by either party（撤銷協議）(which must be subject to legal and specific contractual terms).

2.2.6(b)

Risk Uncertainty concerning a potential loss. 1.1 （風險）

Risk AvoidanceElimination of the chance of loss of a certain kind（風險避免）by not exposing oneself to the peril. 1.1.3(c)(iii)

Risk FinancingNo matter how effective the loss control measures（風險融資）an organisation takes, there will remain some risk of the organisation being adversely affected by future loss occurrences.

A risk financing programme is to minimise the impact of such losses on the organisation. It uses tools like: risk assumption, risk transfer other than insurance, self-insurance, insurance, etc. 1.1.3(c)(iii)

Risk Management (as used by insurers) Ways（風險管理（保險人所運用的））and means of improving the insured loss potential of risks that are insured. 1.1.3

Risk Management (not as used by insurers)（風險管理（不屬於保險人所運用的））In banking and other financial service areas, the reference is to the control of speculative risks.

As a separate field of knowledge and discipline, it refers to the identification, quantification and methods of dealing with all types of risk, pure and speculative. 1.1.3

Risk Transfer A risk management tool that shifts a prescribed risk of（風險轉移）loss from oneself to another party. 1.1.3(c)

Salvage (in maritime law and marine insurance)（救助賞金／救助（海商法及海上保This term is used to mean (a) A reward payable to險中的））（救助賞金）a person (salvor) who has successfully rescued ships or other maritime property from perils of the sea, pirates or enemies by the property owners, or (b) such a（救助）rescue. 3.4.5 Note

Salvage (in non-marine insurance)損餘） What is left of the（（非海上保險中的）subject matter of insurance, following damage, e.g. the wreck of a car, which may still have some scrap value. 3.4.5

Section Limit A policy provision limiting the amount payable under a（部分限額）particular section of the policy. 3.4.7(d)(ii)

(xvi)

Short-tail Business Classes of insurance where claims arise and（短期責任業務）are notified in a relatively short time-scale, e.g. fire insurance and motor (own damage) insurance. 4.9(b) Note

Simple ContractIt is a contract created verbally, or by writing not（簡單合約）under seal. It can also be inferred from conduct. 2.1.2(a)

Single Article LimitA property policy provision stipulating that（單一物件限額）the policy liability in respect of any one article should not exceed a specified sumcalled the ‘single article limit’, unless separately subject to its own sum insured. 3.4.7(d)(i)

Solvency Margin The extent to which assets exceed liability.（償付準備金）Insurers in Hong Kong must have a solvency margin which does not fall below the ‘relevant amount’ (minimum required sum) at all times.

6.1.1a(b)

Speculative Risk A risk which offers the possibilities of gain and loss.（投機風險）1.1.2a(ii)

Statutory Classification of Insurance The categorisation of（法定的分類）insurance classes in accordance with statute (the IO), which broadly divides insurance into Long Term Business and General Business.

5.1.1

Stop-ListsRisks identified by the insurer as being of a type or class（拒絕名單）not to be offered insurance cover (e.g. comprehensive motor insurance to young drivers of high-powered motor cars).

4.5(e)

Subject Matter of InsuranceWhere the Subject Matter of （保險標的）Insurance is lost, damaged, injured, or the like, the insurance policy will pay the insured according to the extent to which his interest in it will have been affected. It can be property, the person, potential liability or legal right.

5.1.3

SubrogationThe common law principle allowing an insurer to acquire and（代位）exercise for his own benefit any recovery rights the insured may possess against third parties in respect of the loss for which the insurer has indemnified the insured. 3.6

Subrogation - How ArisingSubrogation may arise in tort,（代位（如何產生））under contract, under statute or in salvage. 3.6.2

Subrogation - Rights LimitedThe insurer may not retain（代位（權利的限制））under subrogation more than he paid as an indemnity. 3.6.4(b)(i) (xvii)

Subsidiary LegislationIt means any proclamation, rule, regulation,（附屬法例）order, resolution, notice, rule of court, bylaw or other instrument made under or by virtue of any Ordinance and having legislative effect, subject to the approval of the Legislative Council.

6.2.5

Sum InsuredThe limit of the insurer's liability under the policy. 3.4.7(d)（保額）

SuretyshipA suretyship contract is one whereby the surety is obliged（擔保）to pay the obligee in the event of the principal’s failure to fulfil an obligation to the obligee. It is the principal who pays the contract price. 2.1.2(b), 5.1.1(b)

Target Risks1 General insurance: the term may be used to refer to（目標風險）large, hazardous risks. 4.5(d) 2 Life insurance: risks that are especially attractive to the insurer (e.

g. healthy school teachers) and therefore actively sought by insurance agents. 4.5(d)

Termination of Agency An agency relationship may be brought（終止代理關係）to an end on various grounds, including mutual consent. 2.2.6

Terrorist Financing An act of collecting, soliciting, or（恐怖分子資金籌集）providing property with the intention of supporting terrorist organizations or carrying out terrorist acts.

7.4.2

Third PartyA person, not being the insured or the insurer, who might be（第三者）involved in a claim as a claimant against the insured or a potential source of subrogation.

2.2.1

Tontine An unusual type of Long Term Business, where the policy（聯合養老保險）benefit is payable to the last survivor of a specified insured group of persons.

5.1.1(a)

Tort The law of tort is notoriously difficult to define. In simple words,（侵權）it is a kind of civil wrong (especially negligence) giving rise to a possible claim against the wrongdoer.

It is the most important source of subrogation rights of insurers. 3.2.6(b), 3.6.2(a)

Training and DevelopmentAn important area of company activity,（培訓及發展）both with inside and field staff. Especially important with insurance agents, whom the insurer is under a duty to train.

4.11

(xviii)

Trustee A person who is holding property on trust for another. 3.1.4(b)（受託人）

Underwriting The process of determining the insurability of a risk and the（核保）terms to be applied. 4.5

Unenforceable ContractA contract which cannot be（不能強制執行的合約） enforced (or sued on) in a court of law. 2.1.3

Unfair Discrimination in Insurance This relates to the（保險中的不公平歧視）application of different terms which are not justified by the technical merits of the risk, e.

g. charging higher premiums for women drivers in motor insurance. 7.3.3

Uninsured Peril A cause of loss which is not specifically excluded（不保危險）from policy cover, but it is not specifically included either, e.

g. raining under a standard fire policy. Damage from an uninsured peril may be recoverable, if proximately caused by an insured peril, e.

g. water damage caused in fighting a fire. 3.3.2(c)

Unit-linked In unit-linked insurance, the policyowner’s contributions（單位相連）(after deductions for expenses and premiums) are used to buy ‘units’ in an investment fund, so that the value of the policy is linked to the value of the units held under the policy.

5.1.1(a)

Utmost Good Faith The common law duty upon both parties in an（最高誠信）insurance contract to reveal all material information to the other party, whether or not such information has been specifically requested.

3.2

Valued Policy A valued policy – a policy effected on a valued basis –（定值保單）is commonly issued in marine insurance. A sum called ‘agreed value’ is specified in the policy, which will be taken as the value of the subject matter insured throughout the currency of the policy.

3.4.8(c)

Vicarious Liability () A person’s liability at law for the acts and omissions轉承責任of another, e.g. the principal, in respect of his agent's actions.

2.2(c)

Void ContractAn agreement devoid of any legal effect. 2.1.3 （無效的合約）

Voidable ContractAlthough it has full legal effect, a voidable（可使無效的合約）contract may be declared void as from inception, at the option of the aggrieved party.

A temporary situation demanding selection by that party within a reasonable time, failing which the contract will become valid. 2.1.3 (xix)

Waive (a breach) Effectively an ‘act of forgiveness’, where（不追究（違反））a breach of policy condition or other contractual requirement is disregarded – actively or passively - by the aggrieved party, so that the contract remains unaffected by the breach. 3.2.2 Note 2, 3.2.6(c)

Warrant To make a formal declaration as to the truth and accuracy of（保證）information supplied. 3.2.2 Note 1

Warranty An absolute undertaking by the insured to do, or to refrain（保證）from doing, some specified thing(s), or an absolute affirmation as to the truth and completeness of information supplied. 3.2.2 Note 1, 6.1.2c(b)(iii)

(xx)

Index PDF p.215

Abandonment 委付 3.4.6 Academic classification of insurance 保險的學術類別 5.1.3 Acceptance (in law of contract) 承約（合約法中的） 2.1.3(b) Accessory 從犯 7.6.1 Accounting and investment 會計及投資 4.10 Actuarial investigation report 精算調查報告 6.1.1f(c) Actuarial support 精算支援 4.9 Adequate reinsurance 足夠的再保險 6.1.1e Administrator 遺產管理人 3.1.4(b)廣告Advertising 4.3(c)代理關係Agency 2.2.1 不容反悔的代理權Agency by estoppel 2.2.3(d)代理人Agent 2.2(a)約定價值保單Agreed value policy 3.4.8(c)協議Agreement 2.1.1 「全險」‘All risks’ 1.1.1 Note 2打擊洗錢及恐怖分子資金籌集系統AML/CFT Systems 7.4.7c 保險的輔助功能Ancillary functions of insurance 1.2(b)年金Annuity 5.1.1(a)《打擊洗錢條例》Anti-Money Laundering and Counter- 7.4.6 Terrorist Financing Ordinance (“AMLO”) Apparent authority 表面權限 2.2.3(b)投保書Application form 2.1.3(a)獲委任保險代理人Appointed insurance agent 6.2.1 認可保險經紀團體Approved bodies of insurance brokers 5.5.2 轉讓Assignment 3.1.6 Assignment of policy (or insurance 保險單（或保險合約）的轉讓3.1.6 contract) Assignment of the right to insurance 收取保險金的權利的轉讓 3.1.6 moneys必要權限Authority of necessity 2.2.3(c)獲授權保險經紀Authorized insurance broker 6.2.1 自動恢復保障額Automatic reinstatement 6.2.5(g)海損（海上保險中的）Average (in marine insurance) 3.4.7(a) Note (in non-marine insurance) 比例分攤（非海上保險中的）3.4.7(a)受託保管人Bailee 3.5.3 違反Breach 2.1.3, 2.2.5(c)訂約的行為能力Capacity to contract 2.1.3(d)資本贖回保單Capital redemption policies 5.1.1(a)

(1)

專屬自保保險人Captive insurer 6.1.1b(d) Cash payment 現金支付 3.4.4(a) Chief executive (of insurance broker) 行政總裁（保險經紀的） 6.2.1 Claims 索償／保險金要求 4.7 Claims outstanding 未決申索 6.1.1c(a)(ii) Classification of risk 風險的分類 1.1.2 Client account 客戶賬戶 6.2.5(g) Client servicing 顧客服務 4.2 Code of Conduct for Insurers 《承保商專業守則》 6.1.2 Code of Conduct for Licensed Insurance 《持牌保險代理人的操守守則》 6.2.5(f)(i) Agents《持牌保險經紀的操守守則》Code of Conduct for Licensed Insurance 6.2.5(f)(ii) Brokers Codes of Conduct for Licensed Insurance 《持牌保險中介人的操守守則》 6.2.5(f) Intermediaries Code of Practice for the Administration of 《保險代理管理守則》 5.5.1(c) Insurance Agents收回應收賬款的能力Collectability 6.1.1e 投訴及糾紛Complaints and disputes 6.1.2e 綜合業務（保險人）Composite (insurer) 5.2.1(c)強制保險Compulsory insurance 4.1 持牌中介人的操守規定Conduct requirements for licensed 6.2.5(e) insurance intermediaries Consideration 代價 2.1.3(c) Contract 合約 2.1.1 Contribution 分擔 3.5 Controller 控權人 6.1.1a, 6.2.4 Corporate governance 公司管治 6.1.1d Counter-offer 反要約 2.1.3(b) Customer Due Diligence (“CDD”) 客戶盡職調查 7.4.7e Customer Risk Assessment (“CRA”) 客戶風險評估 7.4.7b Customer servicing 客戶服務 4.2 Damages 損害賠償 3.6.2(a)免賠額Deductible 3.4.7(b)契據Deeds 2.1.2(b)當作Deemed 2.2.1 當作持牌人Deemed licensee 6.2.1 有缺陷的合約Defective contracts 2.1.3 拒絕賠付Denial of claims 6.1.2c(b)直接或間接地Directly or indirectly 3.3.4(a)《殘疾歧視條例》Disability Discrimination Ordinance 7.3.1(b)

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重複保險Double insurance 3.5.1 Drug Trafficking (Recovery of Proceeds) 《販毒（追討得益）條例》 7.4.6b Ordinance (“DTROP”)代理人對委託人的責任Duties owed by agent to principal 2.2.4 委託人對代理人的責任Duties owed by principal to agent 2.2.5 《電子商務條例》Electronic Transactions Ordinance 6.1.1f(c) Note 1情緒上的（風險）Emotional (risk) 1.1.1(c)僱員補償保險Employees' compensation insurance 5.1.1(b)批單Endorsement 4.6(d)平等機會Equal Opportunity 7.3.1 衡平法Equity 3.5.1 除外危險Excepted (excluded) peril 3.3.2(b)免賠額Excess 3.4.7(b)遺囑執行人Executor 3.1.4(b)保險中的「公平」歧視‘Fair’ discrimination in insurance 7.3.2 《家庭崗位歧視條例》Family Status Discrimination Ordinance 7.3.1(c)忠誠保證（保險）Fidelity guarantee (insurance) 5.1.1(b)受信人責任Fiduciary obligations 7.5.1(b)(i)財務特別行動組織Financial Action Task Force 7.4.5 打擊洗錢及恐怖分子資金籌Financial Institution (“FIs”) as defined in 7.4.7d AMLO集條例中定義的金融機構Financial (risk) 財務上的（風險） 1.1.1(a) Fit and proper 適當人選 6.1.1d, 6.2.4 Franchise 起賠額 3.4.7(c) Fraud (Insurance) （保險）詐騙 7.6 Fraudulent misrepresentation 欺詐性失實陳述 3.2.5(a) Fraudulent non-disclosure 欺詐性不披露 3.2.5(c) Functional classification 功能性分類 5.1.3 Fundamental risk 基本風險 1.1.2b(ii) General business 一般業務 5.1.1(b) General business return 一般業務報表 6.1.1f(c) General insurance 一般保險 5.1.1(b)集團範圍內的打擊洗錢及恐怖Group-wide AML/CFT Systems 7.4.7d 分子資金籌集條例系統《持牌保險中介人持續專業培Guideline on Continuing Professional 6.2.5(h) Development for Licensed Insurance訓的指引》（指引）24 Intermediaries (GL24) Guideline on Exercising Power to Impose 《保險業條例》（第41章）有6.2.5(d) Pecuniary Penalty in Respect of關向受規管人士行使施加罰款Regulated Persons under the Insurance權力的指引》（指引18）Ordinance (Cap.

41) (GL18)

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《保險業條例》（第章）有Guideline on “Fit and Proper” Criteria for 416.2.4(c) Licensed Insurance Intermediaries under關適用於保險中介人的適當人the Insurance Ordinance (Cap.

41) (GL23)選準則的指引（指引23）Hong Kong Confederation of Insurance 香港保險顧問聯會5.5.2(a) Brokers (“CIB”)香港保險業聯會（「保聯」）Hong Kong Federation of Insurers 5.5.1 (“HKFI”)彌償Indemnity 3.4.1 查察員Inspector 6.2.5(b)機構風險評估Institutional Risk Assessment (“IRA”) 7.4.7b 可保權益Insurable interest 3.1.1 可保風險Insurable risk 1.1.1 保險代理人Insurance agent 2.2 保險代理登記委員會Insurance Agents Registration Board 5.5.1(c), 6.2 (“IARB”)（「登記委員會」）Insurance Authority (“IA”)保險業監管局 6.1 Insurance broker 保險經紀 2.2(a) Insurance Complaints Bureau (“ICB”) 保險投訴局（「投訴局」） 6.1.3 Insurance Claims Complaints Panel 保險索償投訴委員會 6.1.3a (“the Panel”)（「投訴委員會」）Insurance (Financial and Other 《保險（持牌保險經紀公司的6.2.5(g) Requirements for Licensed Insurance財務及其他要求）規則》Broker Companies) Rules保險機構Insurance Institutions (“IIs”) 7.4.6 保險中介人Insurance intermediary 2.2(a)保險中介人對保單持有人的責Insurance intermediaries' duties to 7.1 policyholders任Insurance (Maximum Number of 《保險（獲授權保險人數目上6.2.5(a) Authorized Insurers) Rules限）規則》Insurance of legal rights 合法權利保險 3.1.4(d) Insurance of liability 責任保險 5.1.3(c) Insurance of pecuniary interests 經濟權益保險 5.1.3(d) Insurance of property 財產保險 5.1.3(b)人身保險Insurance of the person 5.1.3(a)《保險業條例》Insurance Ordinance (“IO”) 6.1.1 保險的銷售Insurance sales 4.4 受保危險Insured peril 3.3.2(a)保險人Insurer 1.1.1 整合Integration 7.4.4 訂立法律關係的意向Intention to create legal relation 2.1.3(f)無效的（合約）Invalid (contract) 2.1.3 調查員Investigator 6.2.5(b)

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分入再保險Inwards reinsurance 5.1.4(b) Joint Financial Intelligence Unit (“JFIU”) 聯合財富情報組 7.4.7h Joint principal 共犯 7.6.1 Joint tortfeasors 共同侵權人 3.6.4(b)(iii)(2) Jointly and severally liable 負上共同及各別的法律責任 6.2.2 Layering 分層 7.4.4 Legality (in law of contract) 合法性（合約法中的） 2.1.3(e) Licensed individual insurance agent 持牌個人保險代理人 6.2.1 Licensed insurance agency 持牌保險代理機構 6.2.1 Licensed insurance agent 持牌保險代理人 6.2.1 Licensed insurance intermediary 持牌保險中介人 6.2.1 Licensed technical representative (agent) 持牌業務代表（代理人） 6.2.1 Licensed technical representative (broker) 持牌業務代表（經紀） 6.2.1 Licensed insurance broker 持牌保險經紀 6.2.1 Licensed insurance broker company 持牌保險經紀公司 6.2.1 Licensing regime 發牌制度 6.2.1 Life insurance 人壽保險 5.1.1(a) Long-tail business 長期責任業務 4.9(b) Long term business 長期業務 5.1.1(a) Loss prevention 損失防範 1.1.3(c)(iii) Loss reduction 損失降低 1.1.3(c)(iii) Marine Clause 海上條款 3.5.5(c) Market co-operation 市場合作 5.3(c) Marketing and promotion 市場行銷及促銷 4.3 Material decision 關鍵決定 6.2.1 Material fact 重要事實 3.2.3 犯罪心意Mens rea 7.6.1 洗錢Money laundering 7.4.1 Money Laundering Reporting Officer 洗錢報告主任7.4.7c (“MLRO”) More specifically insured 更具體地受保 3.5.5(b) Motor Insurers' Bureau of Hong Kong 香港汽車保險局 5.5.3(b) (“MIB”)「以新代舊」的保險保障‘New for old’ cover 3.4.8(b)免分擔條款Non-contribution clause 3.5.5(b)非欺詐性失實陳述Non-fraudulent misrepresentation 3.2.5(b)非欺詐性不披露Non-fraudulent non-disclosure 3.2.5(d)非香港政治人物Non-Hong Kong Politically Exposed 7.4.7e Person (“PEP”) Non-material fact 非重要事實 3.2.3(b)權利人Obligee 2.1.2(b)

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要約（合約法中的）Offer (in law of contract) 2.1.3(a) Offeree 受要約人 2.1.3(b) Offeror 要約人 2.1.3(a) Office of the Commissioner of Insurance 保險業監理處 6.1 (“OCI”)持續的客戶盡職調查Ongoing CDD 7.4.7f 持續監控Ongoing Monitoring 7.4.7f 一般誠信Ordinary good faith 3.2.1 《有組織及嚴重罪行條例》Organized and Serious Crimes Ordinance 7.4.6b (“OSCO”) Outwards reinsurance 分出再保險 5.1.4(a) Paid-up capital (of authorized insurers) 繳足款股本（獲授權保險人的） 6.1.1a&b Paid-up share capital (of authorized 實繳股本（獲授權保險經紀的） 6.2.5(g) insurance brokers) Participating policy 分紅保單 4.7(a)(v) Particular risk 特定風險 1.1.2b(i) Pecuniary penalty 罰款 6.2.5(c) Performance bond 履約保證書 5.1.1(b) 1.1.1 Note 2, 3.3.2 Peril 危險Personal Data (Privacy) Ordinance 《個人資料（私隱）條例》 7.2 Personal data protection 保護個人資料 7.2 Physical (risk) 身體上的（風險） 1.1.1(b) Placement 放置 7.4.4 Policy 保單 2.1.1 Policy condition 保單條件 3.5.5 Policy limits 保單限額 3.4.7(d) Powers of intervention 干預權力 6.1.1g Practical classification of insurance 保險的業務分類 5.1.2 Premium 保費 4.6(d) Prevention of Bribery Ordinance 《防止賄賂條例》 7.5 Primary functions of insurance 保險的主要功能 1.2(a) Principal (in criminal law) 主犯（刑事法中的） 7.6.1 Principal (in law of agency) 委託人（代理法中的） 2.2(a) Principal perpetrator 主犯 7.6.1 Privacy Commissioner for Personal Data 個人資料私隱專員公署 7.2.1(a) Privity of contract 合約的相對性 2.1.4 Product development 產品的開發 4.1 Product research 產品的研究 4.1(c) Professional indemnity insurance (“PII”) 專業彌償保險 6.2.5(g) Professional Insurance Brokers 香港專業保險經紀協會 5.5.2(b) Association (“PIBA”)

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專業疏忽Professional negligence 7.1.1(d) Professional reinsurer 專業再保險人 5.1.4 Proliferation financing 武器擴散資金籌集 7.4.3 Proposal form 投保書 2.1.3(a) Proposer 投保人 2.2 (a) Proximate cause 近因 3.3 Public relations 公共關係 4.2(b), 4.3(a) ‘Pure’ general business 「純」一般業務 5.2.1(b) ‘Pure’ long term business 「純」長期業務 5.2.1(a) Pure risk 純粹風險／純風險 1.1.2a(i) Quantum 數額 4.7(c)(ii) Race Discrimination Ordinance 《種族歧視條例》 7.3.1(d) Rateable proportion 比率之數 3.5.2 Rateable share 比率份額 3.5.5(a) Ratification 追認 2.2.2(b) Record Keeping 備存記錄 7.4.6a Registered insurance intermediaries 登記保險中介人 5.2.2 Regulated activity 受規管活動 6.2.1 Regulated advice 受規管意見 6.2.1 Regulated person 受規管人士 6.2.1 Reinstatement 恢復原狀 3.4.4(d) Reinstatement insurance 重置保險 3.4.8(a) Reinsurance 再保險 4.8 Renewal 續保 4.5(b) Repair 修理 3.4.4(b) Replacement 更換 3.4.4(c)儲備金Reserve 4.9(b)負責人Responsible officer 5.5.1(c), 6.2.1 撤銷協議Revocation 2.2.6(b)風險Risk 1.1 風險避免Risk avoidance 1.1.3(c)(iii)風險為本的方法Risk-based approach (“RBA”) 7.4.6d 風險融資Risk financing 1.1.3(c)(iii)風險管理Risk management 1.1.3 風險轉移Risk transfer 1.1.3(c), 1.2(a)救助賞金／救助（海商法及Salvage (in maritime law and marine 3.4.5 Note insurance) 海上保險中的）損餘（非海上保險中的）Salvage (in non-marine insurance) 3.4.5 從犯Secondary participant 7.6.1 Secondary party 從犯 7.6.1

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保單部分限額Section limit 3.4.7(d)(ii) Self-regulatory organisations (“SROs”) 自我規管機構 6.2 Sex Discrimination Ordinance 《性別歧視條例》 7.3.1(a) Short-tail business 短期責任業務 4.9(b) Note Simple contract 簡單合約 2.1.2(a) Single article limit 單一物件限額 3.4.7(d)(i) Solvency margin 償付準備金 6.1.1a(b), 6.1.1c Speculative risk 投機風險 1.1.2a(ii) Statement of assets and liabilities 資產負債表 6.1.1f(c)(ii) Staff training 員工培訓 7.4.7j Statutory classification of insurance 保險的法定分類 5.1.1 Stop-list 拒絕名單 4.5(e) Subject matter of insurance 保險標的 5.1.3 Subrogation 代位 3.6 Subsidiary legislation 附屬法例 6.2.5 Suspicious Transaction Reports (“STRs”) 可疑交易報告 7.4.7h Sum insured 保額 3.4.7(d) Suretyship 擔保 2.1.2(b), 5.1.1(b) Targeted Financial Sanctions 針對性的金融制裁 7.4.6d Target risks 目標風險 4.5(d) Technical representative 業務代表 5.5.1(c), 6.2.1 Termination of agency 終止代理關係 2.2.6 Terrorist financing 恐怖份子籌資活動 7.4.2 Third party 第三者 2.2.1 Tipping off 通風報訊 7.4.6b, c Tontine 聯合養老保險 5.1.1(a)侵權Tort 3.2.6(b), 3.6.2(a)培訓及發展Training and development 4.11 交易監控Transaction Monitoring 7.4.7f 受託人Trustee 3.1.4(b)核保Underwriting 4.5 承保能力Underwriting capacity 4.8(b)不能強制執行的合約Unenforceable contract 2.1.3 保險中的不公平歧視Unfair discrimination in insurance 7.3.3 不保危險Uninsured peril 3.3.2(c)《聯合國（反恐怖主義措施）United Nations (Anti-Terrorism 7.4.6c Measures) Ordinance (“UNATMO”) 條例》《聯合國制裁條例》United Nations Sanctions Ordinance 7.4.6d (“UNSO”)聯合國安理會決議United Nations Security Council 7.4.6c Resolution (“UNSCR”)

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單位相連Unit-linked 5.1.1(a) Utmost good faith 最高誠信 3.2 (breach of) 3.2.5 & 3.2.6 （違反）(extension of common law duty) 3.2.2 Note 1（普通法責任的延伸）Valued policy 定值保單 3.4.8(c) Vicarious liability 轉承責任 2.2(c) Void contract 無效的合約 2.1.3 Voidable contract 可使無效的合約 2.1.3 Waive (a breach) 不追究（違反） 3.2.2 Note 2, 3.2.6(c) Warrant 保證 3.2.2 Note 1 Warranty 保證 3.2.2 Note 1, 6.1.2c(b)(iii) Weapons of Mass Destruction (Control of 《大規模毀滅武器（提供服7.4.6d Provision of Services) Ordinance務的管制）條例》(“WMD(CPS)O”)電匯Wire Transfer 7.4.7k

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Representative Examination Questions Answers PDF p.224

QUESTIONS

CHAPTER 1 2 3 4

1 (d) (a) (b) (d)

2 (a) (c) (d) (d)

3 (c) (a) (d) (a)

4 (a) (c) (d) (d)

5 (d) (c) (b) (c)

6 (a) (b) (d) (d)

7 (c) (d) (d) (c)

Acknowledgements PDF p.225

Gratitude is given to the representatives of the following organisations for their contributions towards these Study Notes:

1.Insurance Authority 2. The Hong Kong Federation of Insurers 3. The Chartered Insurance Institute Hong Kong Limited

4.Vocational Training Council 5. Insurance Training Board 6. The Hong Kong Confederation of Insurance Brokers

7.Professional Insurance Brokers Association 8. The Hong Kong General Insurance Agents Association Limited 9. The Life Underwriters Association of Hong Kong Limited 10.

General Agents & Managers Association of Hong Kong Limited

11. LOMA Society of Hong Kong

Appreciation also goes to the Institute of Professional Education And Knowledge of the Vocational Training Council for the original writing and development of the Study Notes.