Following is the speech (English only) by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Annual Dinner of the Hong Kong Federation of Insurers today (April 7):
Mr Chan, distinguished guests, ladies and gentlemen,
I am delighted to join you tonight and to speak at this distinguished gathering of the insurance industry.
Let me first begin by expressing my appreciation for the efforts made by the insurance industry to help those affected by the tsunami disaster last December. I understand that many insurers have not only responded quickly after the catastrophe but have also taken a flexible approach to handling the insurance claims. Compensation amounting to over $13 million dollars has been paid out by the insurance industry so far. But as usual "good news never sells".
Due to the very unusual circumstances of the tsunami disaster and that travel insurance policies usually do not have a named beneficiary, although the insurers are willing to deal with the travel claims flexibly, the money cannot be paid out until an administrator of the estate of the diseased has been appointed by the court. It is difficult in a situation like this to expect the victims' families or their representatives to understand the complexity of the law. I would encourage those insurers who have such claims in hand and the Hong Kong Federation of Insurers, as the representative body of the insurance industry, to do their best to explain to the victims' families and their representatives the legal requirement and assist them to complete the legal procedure so that the claims can be settled quickly and satisfactorily to all concerned and in compliance with the legal requirements. I am sure the public will appreciate your efforts in this regard.
Benefiting from the growing affluence of Hong Kong, increased risk awareness of the community and Hong Kong's transformation into a service economy, the insurance industry has shown impressive growth over the last 17 years since the establishment of the Hong Kong Federation of Insurers in 1988:
- Annual insurance premium increased 10 times from $13 billion to over $123 billion last year.
- Hong Kong's insurance penetration rate, i.e. premiums in percentage of GDP, has tripled from 3.0% to 9.6%.
- The number of people employed in the insurance industry has grown three times from 18,000 back in 1988 to 60,000 today.
Insurance is not only an important pillar of Hong Kong's financial industry; it is a major economic sector in its own right.
Principles - Provision of Professional Services, Public Relations and Prudential Management
Indeed, the importance of insurance goes far beyond its economic contribution. Insurance is essentially a risk management business with the primary purpose of protecting policyholders or their beneficiaries from certain eventualities. To this end, a successful and efficient insurance industry contributes to the security and stability of our community.
Insurance is now increasingly viewed not just as a product that provides protection, but an important element of one's financial planning. It helps customers to create a portfolio of financial assets, manage their financial risks and plan for their financial security and their families' well-being.
To respond to this new market development, I would like to share with you some observations on how to take advantage of the opportunities and ensure the continued success and prosperity of our insurance industry, namely, the importance of "3 Ps": professional services, public relations and prudential management.
Today's consumers are more knowledgeable and discerning of their needs. Insurers are expected to be all-round, competent and able to advise their clients not only on insurance matters but also on their investment needs, health protection, retirement planning, planning for children's education, etc.
To meet the rising customer expectation and stay successful in today's highly competitive insurance and financial market, insurers need to constantly upgrade their service standard and provide professional services with quality and integrity in order to gain their customers' trust and distinguish their products from their competitors.
We are committed to promoting the healthy and successful development of the insurance industry through enhancing professionalism of insurers and insurance practitioners. It is generally agreed that the quality of insurance professionals has made significant improvement in recent years since the introduction of the "Insurance Intermediaries Quality Assurance Scheme" in 2000. The Scheme comprises a system of qualifying examinations (IIQE) to control the quality of new entrants admitted to the profession and a continuing professional development (CPD) programme to upgrade the professional knowledge and ethics of the practising professionals. I am pleased that the value of the Scheme has been accepted by the insurance industry and the insurance profession. We will continue to work with the industry to review the programme and requirements to keep pace with new market developments.
To the general public, insurance may be something intangible, highly technical and sophisticated. Even for some policyholders, such as motorists or employers, who have taken out insurance policies for many years, they may still not have a full understanding of the terms and conditions of the insurance policies and the operation of the insurance industry. Many of them would come to know more about the terms of their insurance policies when their claims were declined or quantum in dispute. But then it was too late and inevitably there would be complaints and dissatisfaction from the public.
In this respect, I think public education and good public relations could certainly help fostering a more amicable and mutually beneficial relationship between the insurance industry and the public. With better understanding and acceptance, the public will be able to insure at ease whilst having the required protection in place, and the industry will spend less its valuable resources in handling complaints. I understand that the insurance industry is also working hard towards this direction. Efforts like the provision of Chinese version policy wordings for certain type of policies, the use of more easily understandable language in the policy documentations and the launch of more public educational programmes are appreciated. I hope the industry will keep up its efforts to enhance the industry image and instill public confidence in the insurance industry through the good use of public relations.
Insurance is a contract that provides compensation for specific losses in exchange for a one-off or periodic payment. Like all contracts it works on the trust between the two contracting parties. To secure the trust of the insuring public, we have to always ensure that insurers are solvent and able to meet their legitimate claims. Hong Kong takes pride in having one of the most effectively regulated and liberal insurance markets not only in the region but also in the world. We adhere to the highest prudential regulation standards and the principle of transparency and disclosure and will continue to adopt the best international practices.
However, we cannot afford to take any chances. As the failure of the Australian insurer, HIH tells us; the problem of a single insurer can send shockwaves across the whole industry, creating lasting damage to consumer confidence. Ensuring the security and stability of the insurance industry is not only the job of the Insurance Authority (IA) but also the collective responsibility of the whole insurance industry. I am pleased that the initiatives taken by the IA to bolster prudential regulation of the insurance industry has received the support and close cooperation of the industry.
The actions taken by the IA to deal with the problem of cutthroat competition in the employees' compensation insurance market and measures to tackle the sale of "underground" life policies to Mainland residents are two good examples of cooperation between the regulator and the industry to safeguard the order and stability of the market. But support and cooperation is not enough, I urge you to share your experience and market information with the IA, so that if necessary preventive and proactive action can be taken to nip any problem in the bud. To maintain good order in the market and ensure stability and prosperity for everyone, we not only need good regulator but also good corporate citizens.
Prospects - Hong Kong and the Mainland
Challenges come with opportunities. The SARS outbreak in 2003 and concern about new emerging diseases have heightened our awareness of the public health risks. The recent court ruling on owners' joint liabilities in building safety enhanced public awareness of risks in public liabilities. Coupled with the rising demand for savings and retirement products facing an ageing population of Hong Kong, new market opportunities emerge.
Whilst we are focusing on these emerging opportunities, we must not lose sight of the business opportunities offered by the Mainland's fast-growing economy. In 2004, China's GDP registered a strong growth of 9.5%. As for the insurance sector, China¡¦s total premium income reached RMB 432 billion, registering a strong growth of 11%. Notwithstanding this phenomenal market growth, China's insurance penetration rate, 3.2%, is considered to be very low by any international standard and therefore her market potential is far from full realisation.
Mainland China's accession to the WTO provides foreign insurers not only with easier access to a potential market of 1.3 billion people, but also a better operating environment. Foreign non-life insurers are now allowed to provide a full range of insurance services. For long-term insurance market, group insurance and annuities business have also been opened up.
The implementation of CEPA last year is not only a commitment by the Hong Kong SAR Government to assist Hong Kong business to gain a "first mover" advantage in the Mainland market but also a new phase of economic cooperation between the Mainland and Hong Kong. CEPA is a continuing process. We have made a good start and will continue to discuss with our counterparts in the Mainland to secure more opportunities for Hong Kong insurers.
Before closing, I would also like to take this opportunity to pay tribute to KP Chan. KP is going to step down as Chairman of HKFI in May. During the past year, under KP's leadership, the HKFI, together with the Hong Kong insurance industry, has overcome many challenges. I am sure the next Chairman will be able to build on this strong foundation of cooperation and take the industry to a new height. Indeed, one of the many achievements of KP and his team has been to improve the public image of the insurance industry by making it more forthcoming, proactive and helpful to the community. We must always remember that the core value of insurance is to help people in time of need. I would like to share with you what James Allen, the co-founder of Booz-Allen & Hamilton, one of the oldest firms of management consultants, once said - "To be successful in this business, we must have the active desire to be helpful to someone else". I think this applies to all businesses, but more so to the insurance industry.
Thank you very much.
Ends/Thursday, April 7, 2005