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Following is a question by the Hon Andrew Cheng Kar-foo and a reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (January 22):

Question:

Under existing Legislation, vehicle owners are required to be insured against third party risks in respect of their vehicles, and the insured persons in such insurance contracts are usually required to pay a specified amount of money (known as "insurance excess") to contribute to the compensation payable to the third party in the event of a traffic accident. It is learnt that, as a usual practice of the insurance industry, insurance companies will pay compensation to the third party concerned only after the insured person has paid the due amount of the insurance excess. In this connection, will the Government inform this Council:

(a) of the number of complaints received by the Office of the Commissioner of Insurance ("OCI") involving claims concerning third party risks insurance of vehicles in the past three years;

(b) how the OCI has handled these complaints; and

(c) given that the third party in a traffic accident is not a contracting party to the relevant insurance contract, whether it will consider amending the relevant legislation to require insurance companies to pay compensation to the third party concerned within certain periods; if so, of the details and the legislative timetable; if not, the reasons for that?

Reply:

Madam President,

Before responding to Hon Cheng's question, I would like to provide some background information, on motor vehicles third party risks insurance (motor insurance).

In general, any person who uses a motor vehicle on a road shall have a civil liability in tort to pay compensation to the third party in an accident, if that user is held liable for the death of or bodily injury to the third party and/or damage to the third party's property. Motor insurance covers an insured person (i.e. the driver and vehicle owner involved) against the above risks.

As claims covering the death of or bodily injuries to third parties involve public interests, the existing legislation requires drivers and vehicle owners to take out motor insurance to cover the death of or bodily injuries to the third parties. The legislation also stipulates that if the insured person is held liable for the death or bodily injury, and judgement in respect of such liability has been obtained against him, the insurance company is required to settle the claim irrespective of whether the insured person has breached the terms of the insurance policy. Therefore, there is usually no arrangement for any specified amount of money (known as "insurance excess") to be paid by the insured person in this type of insurance coverage.

The existing legislation does not require motor vehicle owners to take out motor insurance covering damage to property of the third party. Under common law, a victim may lodge a claim through civil proceedings. Drivers/vehicle owners normally take out such insurance voluntarily to protect themselves. This type of insurance generally includes an "insurance excess", i.e. a claim up to a specified amount which will be paid by the insured person himself. "Insurance excess" encourages safe use of motor vehicles and helps to lower the insurance premium.

The claims for third party property damage in traffic accidents is generally small in amount and therefore may not be referred to the court. Generally, the relevant insurance company would need to ascertain the liable party and whether there is any breach of policy terms. In this connection, whether the insured person agrees to pay the "insurance excess" is one of the relevant factors for insurance companies to consider. If the insured person refuses to pay the "insurance excess", the insurance company would usually withhold paying the compensation to third parties. However, if there is sufficient evidence to prove the insured person's liability for the damage, the insurance company would in general pay the compensation after deducting the "insurance excess". The imposition of "insurance excess" is a common practice of insurers underwriting motor insurance in many other jurisdictions, such as UK and Australia.

I would now respond to Hon Cheng's question -

(a) In the past three years, the Office of the Commissioner of Insurance (OCI) has received a total of 95 complaints concerning motor third party risks insurance. They mainly relate to dispute over liability and progress of claims handling. Of these complaints, only 3 relate to "insurance excess".

(b) Upon receiving a complaint, OCI will follow up the case with the insurance company concerned, this includes requiring the company to provide information and, if necessary, to conduct an investigation. In general, most of the cases have been resolved satisfactorily after negotiation between the insurance companies and complainants. Unresolved cases might be resolved through legal proceedings.

(c) As the time required for processing each claim varies and would very much depend on the circumstance of each case, it would be inflexible to require insurance companies to pay compensation to the third parties in all cases within a specified period. According to OCI, overseas insurance markets in general do not have such a requirement. Therefore, the Government has no intention to amend the legislation to require insurance companies to pay compensation within a specified period. Insurers should pay compensation within a reasonable period as appropriate in the circumstances (e.g. where there is no doubt from the legal point of view that the insured should be held solely liable), otherwise, the claimants can take legal action against the insured persons for compensation under the common law.

End/Wednesday, January 22, 2003

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