Conflict of Interest: Hong Kong’s New Insurance Regulator Will Be Underfunded If It Enforces Consumer Protection Laws

The new Independent Insurance Authority (IIA) is expected to obtain 70% of its funding by imposing a 0.1% levy on policyholders’ premiums. 

This plan assumes that new premiums will continue to grow by about 2% per year.

Last year, life insurers collected roughly 99% of new premiums by selling ripoff life investment products, such as whole life and ILAS. Life insurers only earned 0.7% of new premiums by selling pure life insurance (i.e., term). 

2013 Life Insurance New Business - Highlighted

Countless independent experts say that term life is the only type of life insurance product that 99% of consumers should own. Experts also say that life investment products, such as ILAS and whole life, are blatantly exploitative and often deceptive. Such policies are rarely bought by informed consumers.

The Insurance Companies (Amendment) Bill 2014 will soon legally require insurance salespeople to act “honestly, fairly, [and] in the best interests of the policy holder”.

Conduct Requirement

If this law is enforced, new premiums collected by life insurers will not grow by 2% per year as LegCo is assuming. Instead, new premiums will drop by as much as 99%, since sales of ripoff life investment products should fall to near zero.

As a result, the IIA will be significantly underfunded.

The only way the IIA could avoid a fiscal crisis is by allowing insurers to break the law and continue exploiting consumers.

In other words, the interests of the IIA will be aligned with the interests of insurers and pitted against the interests of consumers.

To eliminate this inevitable conflict of interests, and to allow the IIA to do its job and enforce the law, LegCo must introduce an alternative, viable funding plan for the IIA.

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