Hong Kong Central Bank HKMA and Insurance Authority Conduct Inspection on Premium Financing for Insurance Policies
1st October 2021 | Hong Kong
Hong Kong Central Bank HKMA (Hong Kong Monetary Authority) and Insurance Authority (IA) have jointly issued a circular and press release to conduct joint inspection on premium financing activities on insurance policies. View Circular: HKMA & IA
“ Hong Kong Central Bank HKMA and Insurance Authority Conduct Inspection on Premium Financing for Insurance Policies “
Premium Financing: An arrangement whereby the prospective policy holder borrows money from a financial institution (usually a bank) to settle part of the insurance premiums and, in doing so, assigns all or part of his/her rights under the policy to the financial institution as collateral.
Hong Kong Monetary Authority (HKMA) and Insurance Authority (IA):
While undergoing a prolonged period of low interest rate, policy holders are increasingly attracted to the use of premium financing as a tool for wealth and liquidity management. In order to ensure that they are aware of the full range of risks involved, the IA and the HKMA carried out a joint inspection exercise in the second half of 2020 to identify current industry practice and areas requiring improvement.
Based on findings of the joint inspection, the IA and the HKMA will engage the industry and relevant stakeholders to clarify the standards expected on long term insurers and licensed insurance intermediaries carrying out premium financing activities.
The areas covered by the joint inspection included:
- suitability and affordability assessment;
- distribution and selling process;
- disclosure of risks and other important matters; and
- processing of policy services such as assignment and maturity.
View Circular: HKMA & IA
Clement Cheung, Chief Executive Officer of the Insurance Authority (IA):
“Premium financing involves leveraged borrowing and exposure to the risk of interest rate hikes, with low or even negative returns being a distinct possibility when non-guaranteed benefits produced by insurance policies fall short of expectations.
The interest of policy holders has to be adequately protected.”
Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA):
“The joint inspection on premium financing activities has demonstrated the collaborative effort and commitment of the HKMA and the IA to tackle cross-sectoral insurance related issues. The two regulators will continue to work closely to monitor market developments and raise industry conduct standards with a view to further enhancing protection of policy holders and bank customers.”
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