What's Happening?
The Insurance Authority (IA) in Hong Kong has implemented a cap on referral fees for insurance brokers, limiting them to 50% of commissions for long-term profit-sharing life policies. This move aims to address
the issue of unlicensed selling and hidden commission rebates that have been prevalent in the market. Previously, unlicensed third-party referrers could capture up to 95% of commissions through concealed rebate structures. The IA's new benchmark targets arrangements where licensed brokers pay large portions of their commission to unlicensed referrers for customer introductions. Payments exceeding the 50% threshold will now attract regulatory scrutiny and require justification. This regulation affects 803 licensed insurance broker companies in Hong Kong, many of which may need to adjust their referral arrangements.
Why It's Important?
The cap on referral fees is significant as it seeks to enhance governance and compliance within the insurance industry. By limiting the portion of commissions that can be paid to unlicensed referrers, the IA aims to prevent brokers from outsourcing their functions to parties that are not subject to the same ethical and conduct standards. This measure is expected to protect consumers by ensuring that they receive fair treatment and that the distribution chain is free from misconduct. The policy aligns with international best practices, although it is more prescriptive than measures in other jurisdictions like the UK, Singapore, or Australia. The regulation could lead to a more transparent and accountable insurance market in Hong Kong.
What's Next?
The IA has indicated that it will monitor market developments and may consider extending similar measures to other distribution channels, such as bancassurance. This potential expansion would require coordination with other regulators to ensure comprehensive oversight. The IA's approach could serve as a model for other jurisdictions looking to enhance consumer protection and market integrity. As the industry adapts to these changes, brokers will need to evaluate their referral arrangements to ensure compliance with the new regulations. The IA's actions may prompt other regions to adopt similar measures, potentially leading to a global shift in how insurance referral fees are managed.
