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Speech by Commissioner of Insurance at Financial Times Asia Insurance Summit (English only)
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     Following is the speech by the Commissioner of Insurance, Ms Annie Choi, at the Financial Times Asia Insurance Summit today (September 18):

Good morning, Angela, distinguished guests, ladies and gentlemen.

     I am delighted to join you here this morning at the first ever Financial Times Asia Insurance Summit. I see many familiar faces in the audience, which testifies not only to the standing of Financial Times, but also to the relevance of the well-chosen theme of the Summit, and to the enormous potential of the Asian insurance market.

     Indeed, the Asian insurance market has tremendous potential. Last year, direct premiums written globally amounted to over US$4.6 trillion, and Asia alone accounted for some 28 per cent. While the total global premiums grew by 1.4 per cent, premiums in the emerging Asian markets rose by 7.5 per cent. For Hong Kong, which is certainly not a virgin market, with over three life policies per working capita, we also saw a strong growth of over 6 per cent last year. We are happy to see that this small city with 7 million people has managed to achieve an insurance density of US$5,000, ranking first in Asia and sixth globally. And for our neighbours, many have fast-growing economies, huge populations and increasingly affluent societies. Opportunities are just everywhere.

     Back to today's Summit, I am more than happy that Angela and her team have picked this excellent theme: "Navigating Regulatory, Economic and Investment Challenges to Find Long-Term Growth". No doubt, all of us would love to see the word "growth", but the theme has highlighted the need for long-term growth. This is absolutely right. By its very nature, insurance business is a long-term business, so it is incumbent upon us to ensure that our business is a sustainable one, our products bring long-term value to policyholders, and that we should go about seeking long-term growth, rather than short-term gains.

     The theme of the Summit also highlights "Regulatory Challenge" as the first of all three challenges. This is no surprise to me, for many a time, the insurance industry would complain about new regulatory requirements. The new set of Insurance Core Principles, for instance, is a rule book of 403 pages. Same in Hong Kong. Guess what is the expression that I have heard most in cocktails and seminars? The expression is, "Please, Commissioner. Not another consultation!"

     Perhaps I can make use of my prerogative today and say a few words about the global regulatory reform. Before the financial crisis, we often boasted that our industry is not quite the same as other financial sectors, in that we are a long-term business and are less contagious. But the events in 2008 shook up the entire financial industry, and to our dismay, the insurance industry was not immune. Most insurers were affected in one way or another - some might feel the credit crunch, another might need capital injection to maintain their solvency level, others might just see a sudden drop in their business because of weak consumer confidence. And the whole world was asking the same questions: "Why would these things happen? Are these financial institutions not regulated?"

     Well, that is not quite fair to regulators, but whether they are fair or otherwise, the very fact is that financial products have become increasingly complex, and members of the public do treat regulators as their proxy and rely on them to protect their interests. From a small consumer complaint to an outdated industry practice or an unfair contract term, or a company insolvency, regulators always have to bear the brunt of everything. Whatever they do, the industry would say it is too much, but consumers would say that it is not enough. So please do not think that regulators are nasty animals who take pleasure in breathing down insurers' necks. We don't. But we don't have a choice. It is our duty.

     So, in the aftermath of the financial crisis, global financial regulators have revisited the entire regulatory framework and found the many areas that have been taken for granted in the past. Why was this done, or why was that not done? Why could they have done this? Why shouldn't they have done that? Everybody was hoping for the best, and yet not quite prepared for the worst. The hard lesson learnt was that policyholder protection cannot solely rely on the goodwill of the management of institutions, but must be built on strong and comprehensive corporate governance with adequate checks and balances, conflict management systems, good communication and a high level of transparency. This explains the whole range of new requirements that have been put forward, covering not only capital adequacy and risk management frameworks, but remuneration structure, public disclosure, sales process and the concept of fair treatment of customers as well. All these requirements have one common objective, which is providing better consumer protection, directly or indirectly.

     Hong Kong, being a key member of the global financial community, is doing the same. In respect of the insurance regulatory structure, we are setting up an Insurance Authority that is not part of the Government, as mandated in ICP 2. We are also abolishing our current self-regulatory system for intermediaries to strengthen the conduct regulatory regime. We are establishing a Policyholders' Protection Fund to provide another safety net for policyholders. We issued new requirements on underwriting unit-linked policies, following the cradle-to-grave approach adopted in ICP 19 on Fair Treatment of Customers. We also introduced a new intermediaries' remuneration disclosure system to enhance transparency. Together with the banking and securities regulators, we have enacted a new legislation on anti-money laundering and are working on a resolution regime for financial institutions. Just two days ago, we issued a consultation paper on a risk-based capital framework for Hong Kong. So, you can understand why I hear so very often, "Please, Commissioner. Not another consultation!"

     Another bitter lesson that we have learnt is that being big does not necessarily mean being foolproof or infallible. Quite the contrary. The truth is nothing more than grandma's everyday wisdom. Small ones have small problems, big ones have big problems. That leads to a new regulatory focus on institutions that are "too big to fail", or systemically important institutions, that may require special treatment. For the insurance industry, regulators are currently working together on additional regulatory capital and other requirements for them. It is a very resource-intensive and tedious exercise, but we hope that we can come up with a framework that is practicable for the industry and at the same time provides further protection for consumers.

     Regulators should not just regulate. They should also co-operate. A new feature in the global insurance industry is the blossoming of the supervisory college, which is in layman's language a joint regulators' meeting with the top management of insurance groups with cross-jurisdiction operations. We place much emphasis on such regulatory co-operation and we endeavour to participate in colleges of the groups that have operations in Hong Kong. Well, I can assure you. This is a very useful forum where regulators could share regulatory concerns with each other and understand more about the group's operations, and issues of common concern which may suggest a group-wide inadequacy would be raised with the group's management. This is a proactive approach for regulators to work together with insurers to enhance their governance, fill the gaps and address anomalies before a problem arises.

     I fully understand that these regulatory changes present substantial challenges for the industry. Cost of compliance aside, the corporate orientation, business model and product designs, etc, etc, may all have to be revamped. In fact, for some insurers, the financial crisis, the new Insurance Core Principles and other regulatory requirements are but a wake-up call, calling for a paradigm shift in their fundamental culture, mindset and modus operandi.

     But I am not at all worried. The insurance industry has for decades demonstrated their innovativeness and responsiveness to the needs of clients, so I am sure they would have no difficulties rising to these regulatory challenges. With the global concerted efforts in reforming the industry, we will in no time see a much stronger industry and a more stable business environment, which in turn will be conducive to the long-term growth of the insurance market.

     Insurance is an amazing concept which over the centuries has evolved into fascinating products, almost like magic or witchcraft. Many ordinary people rely on its protection against adversities, use it to prepare for the future, and make it a legacy for their beloved ones. While it is absolutely legitimate for the industry to reap gains from using this craft to meet the needs of society, we should also see to it that what we do brings benefits to all those who have put their faith and trust in us. Long gone are the days when insurers can follow the footsteps of the witches in Shakespeare's "Macbeth", singing "Fair is foul and foul is fair, and hover through the fog and filthy air" to make easy money. Let us be a good witch, using our ability, knowledge, professionalism and skillset to achieve sustainable long-term growth of the industry, through our added value, innovation and quality services for policyholders.

     I wish you all a very successful and fruitful Summit. Thank you.

Ends/Thursday, September 18, 2014
Issued at HKT 12:04

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