The Hong Kong Insurance Authority (HKIA) has announced that it is exploring a potential smoothing mechanism for insurance commission structures, particularly on participating policies. This move is aimed at addressing concerns over improper selling practices and improving the overall servicing of policies.
The HKIA’s latest regulatory update, published in its Conduct In Focus report on March 28, also highlighted the rising interest in the managing general agency (MGA) model. This model allows agents greater authority to handle underwriting and claims on behalf of insurers, and the HKIA is considering how to regulate this model, including through its licensing process.
Addressing Conflicts of Interest and Commission Structures
The report pointed to ongoing concerns regarding conflicts of interest, particularly related to commission structures for agents and brokers. To mitigate these issues, the HKIA is considering implementing a commission smoothing mechanism, similar to the one used for investment-linked assurance schemes. This change aims to curb potential misconduct and promote more ethical sales practices.
The commission smoothing system would help ensure that agents and brokers are incentivized to provide better long-term service for policyholders, rather than focusing solely on short-term sales targets.
Compliance Rates Show Improvement
The report also included encouraging news on the compliance front. For the 2023/24 assessment period, insurance intermediaries achieved a near-perfect 99.9% compliance rate with Continuing Professional Development (CPD) requirements. This marks a significant improvement, especially following the introduction of the CPD Non-Compliance League Table in the 2021/22 period, which has helped increase accountability within the industry.
The HKIA’s latest actions reflect ongoing efforts to improve transparency, reduce conflicts of interest, and ensure that the insurance sector operates with higher standards of integrity and professionalism. These measures are expected to further enhance the trust and confidence of consumers in Hong Kong’s insurance market.
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