Under the new insurance licensing regime, Section 64G of the Insurance Ordinance Cap. 41 provides that a person must not carry out regulated activities, or hold out as carrying out regulated activities, or for reward in the course of the person's business or employment unless the person is a licensed insurance intermediary or otherwise exempt under the Insurance Ordinance. The new regime is expected to take effect soon.
Meaning of "regulated activities"
The new insurance licensing regime is activity based. This means employees of insurance companies carrying out regulated activities will also need to be licensed. "Regulated activities" is defined under Section 3A of Schedule 1A of the Insurance Ordinance to include:
- Negotiating or arranging insurance contracts
- Inviting or inducing a person, or attempting to invite or induce a person to enter into a contract of insurance
- Inviting or inducing a person, or attempting to invite or induce a person, to make a material decision
- Giving regulated advice
"Material decision" and "regulated advice" means decisions or opinions relating to insurance matters including: applying for insurance; continuing or renewing an insurance contract; cancelling, terminating or assigning an insurance contract; exercising any right or changing a term or condition of an insurance contract; and making or settling any insurance claim.
It is important to be reminded of the breadth of the definition given it also captures attempting to invite or induce a person to enter into a contract of insurance or make a material decision. The use of the word "attempt" potentially has far reaching implications given any effort to induce a person – whether successful or not – is also caught.
"Regulated activities" is therefore a broad concept which covers a range of activities. Employees of insurance companies undertaking insurance activities will also need to be licensed unless exempted. Section 123 of the Insurance Ordinance sets out a number of exemption including:
- Clerical activities
- Risks assessment
- Claims processing
It should however be noted that the exemption only applies to regulated activities carried out for the above purposes. If the insurer's employee carries out regulated activities outside underwriting, risks assessment or claims processing, the employee may need to be licensed. In addition, the Insurance Authority may also grant an exemption to the employee concerned (Section 79(3)(a)). Employees of reinsurers are also exempted (Section 123(3)(b)).
FAQs in Explanatory Note
The Insurance Authority recently issued the Explanatory Note explaining how employees of insurance companies may be undertaking regulated activities. The Explanatory Note sets out a list of FAQs to illustrate examples of circumstances where employees of insurance companies may or may not require to be licensed. Based on the FAQs, it appears that:
- Underwriters and risk-consultants are not required to be licensed for any regulated activities carried out for the purpose of underwriting or risk assessment. For instance, if an underwriter discusses coverage with a customer, this is for the purpose of assessing the risks to be accepted by the insurer (i.e. underwriting) and therefore exempted.
- Clerical activities do not require licensing. For instance, if a staff member of the underwriting department prepares quotations and reviews policy wording to ensure compliance with underwriting guidelines, this is unlikely to be regarded as a regulated activity.
- Claims handlers are exempt from licensing for any regulated activities carried out for the purpose of claims assessment. For example, if a claims handler visits an insured at the hospital and gives an opinion about the insured's eligibility to claim under the insurance policy, this falls within the claims assessment exemption. Likewise, if there is an insurance claims dispute, the claims handler does not need to be licensed for discussing coverage views with the insured.
- Staff handling hotlines: this depends on the scope of the work. If the staff gives any advice to the customer to influence their decision on insurance matter, e.g. whether to purchase an insurance product, whether to cancel or renew an insurance policy, lodge or settle a claim, the staff may be undertaking regulated activities and may need to be licensed. If the staff is only providing factual information, this is not a regulated activity and the staff may not require licensing but need to keep in mind not to go beyond the provision of information.
- An insurer's in-house legal counsel who gives advice to management about an insurance policy may not need to be licensed as this is unlikely to be regarded as a regulated activity.
- Training sessions or presentations generally only involve provision of factual information and are unlikely to be regarded as regulated activities.
- Meetings with insurance brokers: this depends on the scope of the activities. The insurance broker is an agent for the policy holder. If the insurer's staff expresses views during the meeting about coverage under the insurance policy, the staff's views or opinions would be considered as being given to the policyholder and therefore may be carrying on regulated activities. If the meeting is general and only for provision of information (e.g. training session), the staff may not be engaging in any regulated activities.
Comment and conclusion
Whether an employee of an insurer carries out regulated activities depends on the exact scope of work and it is difficult to be categorical. This is especially so for certain employees who might have broader roles or responsibilities within the organization, or there is a blurring of the lines around traditional roles and processes. For instance, underwriters and risk consultants carrying out regulated activities outside underwriting and risk assessment purposes may need to be licensed.
Likewise, if claims handlers carry out regulated activities outside of claims handling, such as , attending meetings with policy holders or brokers to advise about policy coverage and claims history during renewals, this may require licensing.
Another situation may be when a senior management meets with brokers and their clients to discuss potential policies available for the clients.
While training sessions may only involve provision of information, there may also be training sessions specific to policyholders or insurance brokers for the purpose of solicitation or advising on certain products, which may potentially fall within regulated activities.
Given the broad definition of regulated activities, insurers should carefully review internal procedures and activities of staff to ensure staff carrying out regulated activities are licensed.
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