Secretary for Financial Services & the Treasury James Lau
The Hong Kong Federation of Insurers was founded on August 8, 1988, to promote the interests of the insuring public and advance the growth of the industry. Indeed, as the representative body of insurers in Hong Kong, it is fitting to say that HKFI has been a witness to many changes for the insurance industry over the past 30 years. In June last year, we saw the formal establishment of the Insurance Authority, and we have next year the imminent introduction of a statutory licensing regime for insurance intermediaries.
These regulatory changes have to be seen in the context of wider developments in the overall landscape for the insurance industry. First, Hong Kong’s demographic changes usher in a rapidly ageing society, which would lead to increased demand for insurance products. The second development concerns the Greater Bay Area and the Belt & Road, which we anticipate can bring new business opportunities, especially in reinsurance and captive insurance. Thirdly, there is the global trend of the development of fintech, and more specifically, insurtech. All of these changes bring opportunities and challenges, and the Government stands committed to helping the insurance industry to sail through these challenges.
Here I must digress briefly to refer to President Xi’s speech delivered at the Boao Forum for Asia on April 10. This speech referred to a change welcomed by the insurance industry because President Xi reiterated that the commitments made in November 2017 on the progressive opening of China’s financial services to foreign investors within three to five years would be duly implemented. It is actually interesting that he made a specific reference to the insurance industry – that there should be an acceleration in the opening up of the Mainland’s insurance sector.
Yesterday, Governor Yi Gang of the People’s Bank of China announced at Boao six measures to further open China’s economy, including a raise in the foreign equity cap in life insurance companies to 51% by late June this year, and a full elimination of the cap within three years. So this presents more opportunities for Hong Kong, and the Government and the Insurance Authority will continue to work with our counterparts to seek to enlarge the window for Hong Kong insurers.
Now let me come back to the happenings in Hong Kong. After taking over the statutory functions of the Office of the Commissioner of Insurance last June, the Insurance Authority is working on a new licensing regime for the regulation of insurance intermediaries. The target is for the regime to come into operation in mid-2019. Here I need to acknowledge the strong support provided by the HKFI and the industry – otherwise, this would be a mission impossible. This regime brings Hong Kong in line with the Insurance Core Principles published by the International Association of Insurance Supervisors and also addresses the concern expressed previously by the International Monetary Fund.
Another development is our ageing society. In 2016 about 16% of our population was aged 65 and above. But this will rise to about 29% in 2036. The need for retirement protection has seen a rise in demand for annuities, because they can provide a stable future income stream to the annuitants. We are working with the HKFI to formulate proposals on tax concession for premiums of deferred annuity products. This will encourage the development of the deferred annuity market as another option under the voluntary third-pillar for retirement protection. We count on HKFI’s professional input from the service providers’ perspective, and we will also join hands to educate the public about annuity products for retirement protection.
For the third development, I look beyond Hong Kong to the Greater Bay Area and Belt & Road initiatives, which present new opportunities for our insurance industry. For the Greater Bay Area, with the increased flow of people, capital and investments, this should lead to increased cross-border co-operation among insurers in Guangdong, Hong Kong and Macau, and we will continue to closely liaise with the industry and relevant authorities to promote cross-border opportunities for the local industry.
As for the Belt & Road Initiative, Hong Kong has the potential to emerge as a major risk management centre for large-scale investments and infrastructure projects. Aside from direct insurance and insurance brokerage services to Mainland enterprises, there are opportunities in reinsurance and captive insurance in particular.
To further develop Hong Kong as a captive domicile, we are amending the Inland Revenue Ordinance to extend the existing 50% tax concession for profits arising from offshore insurance business of professional reinsurers and captive insurers to their onshore business. The Government and the IA will strengthen our promotional work and proactively seek the support of relevant Mainland authorities to encourage more Mainland enterprises to set up captive insurers in Hong Kong.
The final development I would flag is the revolutionary impact of technological changes. Financial technology is revolutionising the financial services industry globally, and the insurance industry is no exception. The use of big data analytics can help insurers gain insights of customers’ needs and market demand, while the use of blockchain technology can raise business efficiency and allow insurers to enjoy easy and secure access to timely and accurate data. In this regard, I am glad to note that HKFI is developing a blockchain e-platform for motor insurance. I encourage the insurance industry to continue to devote more resources to embrace insurtech.
Of course, the Insurance Authority has also been proactive in promoting the application of fintech in the insurance industry in Hong Kong. The IA launched an Insurtech Sandbox last September to facilitate a pilot run of innovative insurtech applications by authorised insurers. Also in September last year, the IA launched a pilot Fast Track scheme, which aims to expedite applications for new authorisation to carry on insurance business using solely digital distribution channels. In addition to the above, the IA has also signed MOUs with a number of jurisdictions to strengthen international co-operation.
I am sure the insurance industry in Hong Kong is gearing up to cope with the changes and seize the new opportunities arising. Looking forward, I have every confidence that the public and private sectors will continue to work hand in hand to safeguard the professionalism and prosperity of our insurance industry, and that HKFI will continue to play an important role in the growth and development of the sector.
Secretary for Financial Services & the Treasury James Lau gave this speech at the Annual Reception of the Hong Kong Federation of Insurers on April 12.