Market Dynamics and Corporate Vision of the Insurance AuthorityMr. Clement CheungChief Executive OfficerInsurance Authority of Hong Kong (IA)11 October 2019

1

2

Agenda

123

45

Market Overview

Macroeconomic Environment

Regulation of Insurance IntermediariesInsurTech Development

New Initiatives

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

500,000

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Year

Per Capita GDP (RHS) Per Capita GDP Year-on-year Growth Average Salary Year-on-year Growth CPI Year-on-year Growth

HKD(%)

3

Macroeconomic EnvironmentEconomic Cycle

Global Financial CrisisSARSAsian

Financial Turmoil

4

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

(%)

Composite Interest Rate Change in Composite CPI

Macroeconomic EnvironmentNegative Interest Rates

5

Macroeconomic EnvironmentChanging Demographics

6

Agenda

123

45

Market Overview

Macroeconomic Environment

Regulation of Insurance IntermediariesInsurTech Development

New Initiatives

7

56.6%

17.7%

10.6%8.5%

4.8%1.0% 0.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Individual whole life Individual lifeinsurance (others)

Individualinvestment linked

insurance

Individualendowment

Annuity and other in-force business

Individual term lifeinsurance

Group life insurance

Market OverviewLong Term Business – Product Mix

8

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

10

20

30

40

50

60

70

80

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Market shareof ILAS

Premiums(HKD billion)

ILAS Market share of ILAS (RHS)Implementation

of GL15*

GlobalFinancial

Crisis

Market OverviewLong Term Business - ILAS products

* Previous known as Guidance Note on Underwriting Class C Business

74%

32%12%

9

Market Overview Long Term Business – Term Life Products

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Market sharePremiums(HKD billion)

Individual Term Life Market share of Term life & Group Life (RHS)

1.9%

1.3%

0.3%

(RHS)

10

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percentage of Premium contributed by MCV

Premiums(HKD billion)

Mainland China Visitors Premium contributed by MCV (RHS)

Market Overview Long Term Business – Mainland Chinese Visitors

4.0%

39.2%

29.3%

Implementation of GL16*

* Previous known as Guidance Note on Underwriting Long Term Insurance Business (other than Class C Business)

Regulatory intervention by former CIRC

Market OverviewDistribution Channels

11

Insurance intermediaries contribute…

New Individual Life premium in 2018

Distributed through insurance intermediaries Others

New Individual Life policies in 2018

99% 97%

Market OverviewImplications

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Social Implications• Low interest rate and excess liquidity• Decent economic and salary growth

• Desire to preserve wealth • Aggressive investment appetite • Bank deposits unable to hedge against inflation

Market implications• Poor awareness of risks exposure• Focus on short-term returns

• Attempt to capture low cost of borrowing• Incomplete perception of market volatility• False sense of security

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Agenda

123

45

Market Overview

Macroeconomic Environment

Regulation of Insurance IntermediariesInsurTech Development

New Initiatives

14

Regulations of Insurance Intermediaries Widened Mandate and Mission

Perform conduct regulation

Protection of existing and

potential policy holders

Solvency and Governance

Facilitate sustainable market

development

Deepen public understanding

Promote market breadth and depth

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Regulation of Insurance Intermediaries Policy Objectives

Promote fair and transparent

regulation to facilitate market

development

Upgrade the professionalism

of licensed insurance

intermediaries

Advocate a robust but flexible regulatory

approach to increase

efficiency

Public Confidence

16

Regulations of Insurance Intermediaries Promote Fair and Transparent Regulation

Set out licensing, Fit and Proper and conduct requirements

Impose disciplinary

actions

Perform inspection and investigation

17

Regulation of Insurance Intermediaries Licensing Requirement

Form 5 or equivalent

Individual Licensee - Level 2 in 5 HKDSE subjectsResponsible Officer - Bachelor degree or other acceptable qualifications

Previous framework New regulatory regime

Insurance Intermediaries

Qualifying Examination

(IIQE)

Postgraduate Diploma in

Insurance in Risk Management

(PgDIRM)

The Professional Diploma in Insurance

(PDI)

Examination and Professional Qualification by VTC/PEAK

18

Regulation of Insurance Intermediaries Code of Conduct

General Principles:

GP 1 - Honesty and Integrity

GP 2 - Acting Fairly and in the Client’s Best Interests (Agents); Acting in the Best Interests of Clients and Treating Clients Fairly (Brokers)

GP 3 - Exercising Care, Skill and Diligence

GP 4 - Competence to Advise

GP 5 - Disclosure of Information

GP 6 – Suitability of Advice

GP 7 - Conflicts of Interest

GP 8 - Client Assets

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Regulation of Insurance IntermediariesContinuous Professional Development

Previous framework New regulatory regime

10 hours15 hours*

At least 3 hours on Ethics or Regulations*

Online training courses max 5 hours annually

Certain insurance-related CPD courses provided by the Institute of Professional Education And Knowledge (PEAK), retrieved on 19/9/2019

*Effective on 1 Aug 2021

New requirement on Ethics or regulation training – Aiming to further enhance professionalism

Continuous & Professional

Development (CPD)

20

Insurance Appeals Tribunal

Appeal

Notice of Decision

Decision

Notice of Proposed Disciplinary Action

Notice

Oral/Written Representation

Response

Conduct Investigation

Investigation

Regulation of IntermediariesInvestigation and Disciplinary Action

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Agenda

123

45

Market Overview

Macroeconomic Environment

Regulation of Insurance IntermediariesInsurTech Development

New Initiatives

Positive disruption

Broader inclusiveness Operational efficiency

Consumer empowerment Customer experience

Market DevelopmentInsurTech StrategyPositive disruption

22

23

Digital insurers* Traditional insurers with digital channel

and more…

InsurTech DevelopmentPositive Disruption

*Avo will be a virtual insurer authorized under the Fast Track (to be announced)

24

Operational Efficiency

Customer Services

Licensed Insurance

IntermediariesCustomers

InsurTech

E-submission

Financial Needs Analysis

Customer Relationship Management

InsurTech DevelopmentPositive Disruption

25

Uninsurable / Emerging risks / New opportunities

e-wallet insurance

Pet insurance

ID-theft insurance

InsurTech

On-demandInsurance

Mobile appNon-invasive sensors

InsurTech DevelopmentBroader Inclusiveness

Parametric travel delay

API

Wearable insurance

Blockchain

26

Agenda

123

45

Market Overview

Macroeconomic Environment

Regulation of Insurance IntermediariesInsurTech Development

New Initiatives

27

New InitiativesTax incentives

Marine and Specialty Insurance• 50% reduction in profits tax rate for marine insurance and

underwriting of specialty risksP&I Clubs• Regulatory concessions and business facilitation

Captives• Tax incentives and scope of insurable risks• Dialogue with State-owned Assets Supervision and

Administration Commission

28

New InitiativesProduct Innovation

• Increase awareness of longevity risk• Induce retirement planning• Enrich available choice of protective products

• Focus attention on medical needs• Shift demand towards private sector• Lay foundation for further development

29

New InitiativesInsurance-linked Securities (ILS) – Prospects and Opportunities

USD$ 13.8bn

USD$37.8bn

Suggest to delete the speaking

notes in Chinese

30

New InitiativesInsurance-linked Securities – Basic Concept

Ceding (re)insurer

Investor• Additional options for

risk diversification• Geographical

imbalance ofglobal ILS market

• Spectre of financialvolatility and turbulence

• Looming CAT riskposed by globalwarming

Insurance premiums

Risk diversification and investment

return

• Alternative riskmanagement tool

• Additional underwriting capacity

• Insurability and viability of parametric covers

• Stimulates research andmitigation measures

Special Purpose Vehicle

Capital marketInsurance market

31

Collaboration with Investor and Financial Education CouncilExamples: • “Tips on Buying Insurance”

Publicity Leaflet• Insurance Education Seminar• Education campaign on

deferred annuity products

“Koi Sai Po Kam” (蓋世保鑑) Facebook page• Provide credible, impartial

information and knowledge about insurance to the public

Research Publicationson “Mortality Protection Gap”• Research Report on Mortality

Protection Gap in Hong Kong

New InitiativesThematic Research and Public Education

32

Corporate Vision of Insurance Authority

HONG KONG

Greater Inclusion and Public Awareness

More Harmonious Society

Reduced Social Burden for the Government

Better Protection for Policyholders

Enhanced Market Stability

Stronger Market Resilience

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Insurance AuthorityTel: (852) 3899 9983Fax: (852) 3899 9993Email: enquiry@ia.org.hkWebsite: https://www.ia.org.hk/en/index.htmlFacebook: https://www.facebook.com/KoiSaiPoKam/