Hong Kong: New Codes Of Conduct For Insurance Intermediaries Are Coming Soon!

Last Updated: 30 May 2019
Article by Tow Lu Lim and Jenny Yu
Most Read Contributor in Hong Kong, September 2019

The new Section 90 of the Insurance Ordinance Cap. 41 ("Ordinance") introduces statutory conduct requirements for licensed insurance agents and insurance brokers. The two proposed Codes of Conduct set out practices and standards ordinarily expected of licensed intermediaries. While these Codes of Conduct do not have the force of law, the IA will take them into account in considering whether the licensed intermediary is fit and proper, or has breached any statutory conduct requirements. These new statutory provisions are not yet in force but expect to commence shortly. 

As to who needs to be licensed and the meaning and scope of regulated activities, please refer to our previous legal update on licensing for employees of insurance companies, which can be accessed here.

General Principles 

The proposed Codes of Conduct adopt a principle-based approach and focus on "treating customers fairly". There are various disclosure requirements for both insurance agents and brokers. Part C of the proposed Codes of Conduct set out what the IA considers to be the fundamental principles of conduct which licensed intermediaries should adopt when carrying on regulated activities. We set out a summary of the General Principles below.

General Principle Draft Code of Conduct for Licensed Insurance Agent Draft Code of Conduct for Licensed Insurance Broker  
1 – Honesty and integrity
  • Not provide inaccurate, misleading or incomplete information to client
  • Not to exert undue influence or pressure client into making a material decision
  • Not to submit any application or claims form knowing it to contain incorrect or incomplete information   
  • Carry out regulated activities in utmost good faith
  • Not provide inaccurate, misleading or incomplete information to client
  • Not to exert undue influence or pressure client into making a material decision
  • Not to submit any application or claims form knowing it to contain incorrect or incomplete information   
2 – Acting fairly and in the client's best interests   
  • Treat client fairly and pay due regard to client's interests 
  • Recommend only insurance products of its appointing insurers which meet the client's interests 
  • Give fair and impartial regulated advice.  This should be advice that a reasonable licensed agent would consider suitable for the client 
  • Treat client fairly and act in the client's best interest, placing interests of client before all other considerations 
  • Recommend insurance products which best meet client's needs. Should source a sufficient range of relevant insurance products 
  • Give fair and impartial regulated advice.  This should be advice that a reasonable licensed broker would consider suitable for the client
3 – Exercising care, skill and diligence
  • Meet the standards of a reasonable and prudent licensed agent
  • Reasonable steps to carry out client's instructions accurately and promptly 
  • Protect client's privacy and confidentiality
  • Meet the standards of a reasonable and prudent licensed broker 
  • Reasonable steps to carry out client's instructions accurately and promptly 
  • Protect client's privacy and confidentiality 
  • Reasonable assistance in submitting a claim
4 – Competence to advise
  • Good understanding of key features of different types of insurance products on which agent may give regulated advice 
  • Not advise on matters which agent is not trained or lacks the skills
  • Good understanding of key features of different types of insurance products on which broker may give regulated advice 
  • Not advise on matters which broker is not trained or lacks the skills
5 – Disclosure of information
  • Where agent is appointed for more than one insurer, agent should identify the insurer being represented 
  • Provide information on key features of insurance product and adequately explain differences when comparing products 
  • When assisting client to make an insurance application, explain to the client that agent has a duty to disclose material facts and correct information, and indicate the materials that ought to be disclosed 
  • Additional information on referrals to be provided (see below) 
  • Not hold out as an insurer or agent of an insurer 
  • When arranging insurance policy with an insurer not regulated by IA (e.g., overseas insurer), to disclose this information and the governing law of the policy to client 
  • When assisting client to make an insurance application, explain to the client that broker has a duty to disclose material facts and correct information, and indicate the materials that ought to be disclosed 
  • Should enter into a client agreement ("Client Agreement") 
  • Additional information on referrals to be provided (see below) 
6 – Suitability
  • Before giving regulated advice, carry out suitability assessment of the client's objectives, circumstances, needs and priorities 
  • Reasonable efforts to ensure regulated advice is suitable for the client 
  • Where client insists on a material decision contrary to the recommendation, should ask client for reasons, provide explanation and confirm the client's decision and properly record it
  • Before giving regulated advice, carry out suitability assessment of the client's objectives, circumstances, needs and priorities
  • Reasonable efforts to ensure regulated advice is suitable for the client 
  • Where client insists on a material decision contrary to the recommendation, should ask client for reasons, provide explanation and confirm the client's decision and properly record it
7 – Conflicts of interest
  • Disclose to client that agent is appointed by insurer and can only advise on products offered by appointing insurer 
  • Explain any restrictions preventing the agent from promoting particular insurance products 
  • Not allow agent's interests in other business or occupation jeopardize agent's integrity and competence 
  • Provide adequate disclosure in relation to remuneration in accordance with applicable laws and regulations 
  • Disclose any association or affiliation with an insurer where the broker is recommending products of that insurer 
  • Not allow broker's interests in other business or occupation jeopardize broker's integrity and competence
8 – Client assets 
  • Should only receive payment of premiums if within the scope of authority 
  • Refuse to receive payment in cash unless there is specific authorization from the appointing insurer, which is subject to control and limits 
  • Handle client assets in strict compliance with requirements under applicable laws and regulations, and the Client Agreement 

Controls and Procedures for Licensed Insurance Agencies and Broker Companies

Part D sets out corporate governance requirements for insurance agencies and broker companies, including proper controls, procedures and supervision, handling of complaints, reporting material incidents to the IA and keeping proper records. 

Further information for referral businesses 

Schedule 1 to the Codes of Conduct provides where a client is referred to an insurance agent or broker, they must inform the client: 

  • The agent or broker will be responsible for arranging the insurance policy and for this purpose, the client should only deal with the agent or broker. 
  • The referrer does not represent the agent or broker and should have no involvement in the arrangement of the insurance policy. 
  • The agent or broker disclaims all liability for any advice in relation to the insurance policy given by the referrer.
  • Where applicable, a benefit is to be given to the referrer (whether monetary or non-monetary). 
  • Premium for the insurance policy should be provided directly either to the broker or to the insurer concerned. In no event should the premium be provided to the referrer.

Comment

The proposed Codes of Conduct provide some more guidance on the expected standards for licensed insurance agents and brokers to comply with the conduct requirements. 

Conduct requirements include acting in the best interests of the policy holder. While this is a duty owed by an insurance broker, it is not a duty of an insurance agent in common law as the insurance agent acts on behalf of the insurer and owes fiduciary duties to its principal. Under the proposed Code of Conduct, General Principle 2 – Acting Fairly and in the Client's Best Interests, the agent is to advise on the suitable products offered by its appointing principals. However, given the agent owes fiduciary duties to its appointing insurer as principal, how does the agent meet the requirements on giving fair and impartial regulated advice? 

Employees of insurers undertaking regulated activities also need to be licensed. For these "employee agents", insurers need to carefully consider how the proposed Code of Conduct for Licensed Insurance Agents applies. These employees could be general hotline staff, brokerage account managers or other staff members. How do these staff meet the requirements on giving impartial advice, suitability assessment, etc? This is particularly an issue given that as employees, they owe fiduciary duties to the insurer as their employer. 

Brokers should also review the proposed Code of Conduct and if any of the proposed requirements require clarification. For instance, what is considered "adequate disclosure" in relation to remuneration under General Principle 7.

Both insurance agencies and broker companies need to be mindful of the corporate governance requirements and having proper controls and procedures to ensure compliance with the Codes of Conduct. 

The draft Codes of Conduct are still at the consultation stage. Insurance intermediaries and insurers need to consider how they can meet the proposed Codes of Conduct and take the opportunity to clarify anything that is needed before the consultation period ends on 28 May 2019.

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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