ComplianceOne Insurance Newsletter – Feb 2025
The topics discussed in this monthly newsletter are as follows:
IA News Updates
1. IA to Facilitate the Caps on Commission Rates
The Insurance Authority (IA) issued a Practice Note to address concerns that overly optimistic benefit illustrations for participating life insurance policies, influenced by aggressive investment assumptions, could mislead consumers. Under existing guidelines (GL16 and GL28), insurers must provide transparent, non-misleading projections of policy returns, balancing guaranteed and non-guaranteed benefits.
The update, effective 1 July 2025, mandates illustration rate caps of 6.0% for HKD-denominated policies and 6.5% for other currencies on projected surrender values (Customers’ IRR) to curb unrealistic expectations. These caps apply to Customers' IRR on projected surrender values across all payment modes, policy terms, and scenarios (base, optimistic, pessimistic).
Illustration rate caps
6.0% for products denominated in Hong Kong Dollar (HKD).
6.5% for products denominated in other currencies.
If the underlying IRR is below the cap, insurers must use the actual IRR (per best estimates under GL28). Caps do not limit underlying investment assumptions but guide illustration realism.
Exemption: Caps do not apply to re-illustrations of in-force policies, but re-illustrations must not be used for aggressive sales tactics.
SIGNIFICANCE:
This Practice Note reflects a proactive regulatory stance to balance innovation, competition, and consumer trust in Hong Kong’s insurance sector. Insurers should begin preparing now to ensure compliance by July 2025. And the Consumers benefit from clearer, more reliable projections, fostering informed decisions and aligning with the principle of "treating customers fairly."
2. Hong Kong to License Mainland Insurers for Greater Bay Area Retirement Plans Targeting Middle-Income Residents
The Insurance Authority (IA) plans to introduce new service providers, primarily large mainland Chinese insurers, to offer integrated retirement and elderly care insurance products targeting middle-class residents seeking to retire in the Greater Bay Area (GBA). This initiative, led by Mr Marty Lui Yu-kwok, the IA’s Executive Director for Long-term Business, aims to address growing demand from Hong Kong residents for northbound retirement options, driven by trends in cross-border consumption and aging populations.
The proposed insurance products would provide one-stop solutions covering accommodation, healthcare, and other elderly care services in mainland China. These providers, which currently lack Hong Kong licenses, are expected to bring specialized expertise and value to the local market. The IA aims to issue licenses by the end of 2024, with product launches following shortly after.
The target demographic includes middle-income earners with monthly salaries between HK$30,000-50,000, reflecting demand for affordable, high-quality retirement options in the GBA. This move aligns with broader regional integration efforts and responds to challenges posed by Hong Kong’s aging population and high local elderly care costs. The IA emphasizes collaboration with mainland regulators to ensure compliance and consumer protection.
Market News
3. ICAC investigates puppet insurance agent case involving HK$52 million
The Independent Commission Against Corruption (“ICAC”) investigated a corruption complaint involving "puppet insurance agents," leading to the conviction of a former insurance branch manager and 10 puppet agents for conspiracy to defraud and money laundering.
Case Details:
Between 2016 and 2020, the former branch manager of an insurance company recruited individuals to act as puppet insurance agents for two insurance companies.
The insurance companies approved these 478 policy applications and paid commissions, bonuses, and allowances totaling over 52 million HKD to the defendants—exceeding 22 million HKD from one company and 29 million HKD from the other.
Related insurance policies were high-commission products, and the majority lapsed due to non-payment of premiums.
On 11 February 2025, the District Court sentenced the former branch manager to 46 months’ imprisonment. The 10 puppet agents received prison terms ranging from 11 to 22 months.
SIGNIFICANCE:
The convictions demonstrate the serious legal consequences for individuals involved in fraudulent activities within the insurance industry. The prison sentences imposed reflect the severity of the offenses and serve as a warning to others against engaging in similar misconduct.
[End of ComplianceOne Insurance Newsletter –February 2025]
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The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice.
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