Spotlight on Industry Developments and Regulatory Insights
The Hong Kong Insurance Authority (IA) has released its March 2025 issue of Conduct In Focus, emphasizing pivotal industry trends, regulatory oversight priorities, and up-to-date statistics on complaints and compliance with professional development standards.
Key Feature: Rise of the Managing General Agency Model
This edition prominently covers the increasing adoption of the managing general agency (MGA) model within Hong Kong. The IA has noted a surge in license applications and inquiries, reflecting a market inclination towards this delegated authority framework. Unlike conventional agency models, MGAs are granted significant responsibilities such as underwriting and claims processing on behalf of insurers.
The IA highlights that while it does not dictate market trends, the integration of technology might be a catalyst for the MGA model’s resurgence. Some digital entrepreneurs are leveraging agency licenses to create insurance solutions that provide essential services like policy and claims management. These setups offer insurers greater operational flexibility without necessitating substantial internal investments.
Furthermore, some insurers are using MGAs to penetrate niche markets, such as cyber insurance, by utilizing external underwriting expertise. Others are aligning advisory services with customized insurance products to enhance risk management solutions.
Regulatory Concerns and Oversight
The IA warns that disconnecting underwriting authority from the financial burden of risk could result in misaligned incentives. In MGA arrangements, commission-based earnings per policy might drive a preference for volume over careful risk assessment, especially if oversight frameworks are insufficient.
Drawing from previous financial crises and a 2024 AM Best report on solvency challenges in the US, the IA noted that excessive reliance on MGAs without strong governance has occasionally led to insurer instability.
When evaluating MGA license applications, the IA prioritizes the qualifications of the responsible officer, the terms of the insurer-agency agreement, and the internal controls meant to ensure compliance and risk management. The IA’s Guideline 14 on Outsourcing (GL14) requires insurers to execute due diligence, monitor service quality, and uphold business continuity plans when delegating functions to MGAs. In instances where delegation is significant, prior notification to the regulator is mandatory.
Complaint Statistics and Professional Development
In 2024, the IA registered 978 complaints, a figure largely stable compared to 2023. Most complaints were categorized under “conduct” issues, including unlicensed selling, twisting, and mishandling of client funds, followed by concerns related to claims processing and policy information presentation. A minor uptick in complaints associated with travel claims was noted.
Additionally, the IA continues to express concern over the high turnover rate among new insurance intermediaries, especially in the life insurance sector, which may result in orphaned policies and disrupt customer service.
Meanwhile, the IA reported an impressive compliance rate of 99.9% for Continuing Professional Development (CPD) among licensed intermediaries during the 2023/24 evaluation period, marking significant progress since the initiation of formal non-compliance tracking in 2021.
The IA also conducted thematic reviews, joint inspections with the Hong Kong Monetary Authority focusing on premium financing, and organized workshops dedicated to corporate ethics for insurance executives.
Future Outlook
As Hong Kong’s insurance landscape continues to transform, the IA is anticipated to maintain vigilant oversight on emerging business models, particularly those involving technologically-driven MGAs. Its regulatory focus will remain committed to ensuring accountability for risk, adherence to regulations, and safeguarding policyholder interests across the sector.
News
