- The Consumer Council (the Council) is pleased to provide its views to the Insurance Authority (IA) regarding the consultation papers on the Draft Code of Conduct for Licensed Insurance Agents (the Agents’ Code) and the Draft Code of Conduct for Licensed Insurance Brokers (the Brokers’ Code). While legislation is effective in ensuring that detailed provisions are successfully applied in the marketplace, the Council also acknowledges that industry codes can complement the legislation as they provide practical guidance on how to comply with legal obligations.
- In relation to the questions raised in the IA’s consultation papers, the Council’s comments and suggestions on the Agents’ Code and the Brokers’ Code (the two Codes) are as follows:
- With the fast changing market environment, and in view of the existence of different types of licensed insurance agents and brokers with regard to size, scale or specialization of their business, the Council agrees that adopting a principle-based approach of the two Codes is appropriate.
- Nevertheless, with a principle-based code of conduct, licensed insurance agents and brokers will be required to exercise proper judgement by themselves. To assist licensed insurance agents and brokers to better conduct their business and for consumer protection, the Council is of the view that certain prescriptive rules setting the minimum standards for critical areas are still necessary. For example, for Standards and Practices 1.3 (d) set out in General Principle 1 – Honesty and Integrity of the two Codes, instead of “as soon as reasonably practicable”, the Council considers that a reasonable timeframe, such as 1 week, should be set for licensed insurance agent to report to its appointing insurer or agency and the IA, and licensed insurance broker to report to the IA and its appointing licensed insurance broker company, when the licensed insurance agent or broker is wound up or adjudicated bankrupt; convicted of criminal offence; or disciplined by other financial regulators in the local.
- Similarly, for Standards and Practices 3.2 set out in General Principle 3 – Exercising Care, Skill and Diligence of the two Codes, instead of “to notify the client within a reasonable period of time”, the Council considers a prescriptive timeframe, such as one day, upon knowing any delay or failure to carry out the client’s instructions, should be set, in view that advancement in technology should improve communication.
- Moreover, as the two Codes apply universally across different types of licensed insurance agent or broker in terms of scale and complexity of business and channels being used to communicate and interface with the insurance public, the Council suggests that the IA should provide timely, handy and convenient enquiry support to the licensed insurance agents and brokers to clarify the principles, the standards and practices, or outcomes sought to be achieved, whenever necessary.
“Treating Clients Fairly” as the Core Theme
- As consumer organization promoting consumer interest and protection, the Council appreciates the adoption of “treating clients fairly” as the core theme running through the two Codes.
- The Council believes that, when fair client treatment is central and fundamental to the regulated activities of a licensed insurance agent or broker, consumer confidence will be instilled and the agent’s or broker’s business will be succeeded in its endeavours.
Act in the Client’s Best Interests
- The Council understands that in fulfilling the main role of licensed insurance agents and agencies to solicit applications for the insurance products offered by the authorized insurer(s) they represent, licensed insurance agent should only recommend insurance products which best meet the client’s interests, from the range of insurance products offered by its appointing insurer or agency.
Given the asymmetries of information and knowledge on insurance products between licensed insurance agent and client, to act fairly and in the client’s best interests (General Principle 2 of the Agents’ Code), apart from carrying out a suitability assessment as set out in General Principle 6 of the Agents’ Code, the Council is of the view that licensed insurance agents should also disclose and explain clearly to their clients if there are any differences between what they are recommending and the client’s interests, and what are the differences, so that the client can make the best informed decision.the Brokers’ Code requires licensed insurance brokers to act in the client’s best interests, placing the interests of clients before all other considerations.The Council suggests similar disclosure arrangements be imposed on licensed insurance brokers to tell their clients about the differences.
- The Council agrees that the Agents’ Code should address the disclosure a licensed insurance agent should make in order to manage any potential and actual conflicts of interest, as set out in General Principle 7. That is, the disclosure of principal-agent relationship and relevant restrictions in the agency agreement, as well as not allowing the agent’s own interests (of another business or occupation) to influence the client’s decision.
- Nevertheless, to ensure clients are fairly treated and clearly informed, the Council suggests increasing transparency regarding disclosure of remuneration. As described under Standards and Practices 7.1 of General Principle 7 – Conflicts of Interest of the Brokers’ Code, the Council is of the view that licensed insurance agents should also disclose to their clients the respective commission or advantage received in relation to the policies or products they recommended for avoiding their own remuneration interest to influence the client’s decision.
- The Council also agrees that licensed insurance agents should make proper disclosure in relation to their identity and capacity. Accordingly, the Council considers that a licensed insurance agent or a licensed insurance broker should inform the client its licence number before providing any regulated advice, instead of only act “upon request” to facilitate the client to verify its identity and capacity (Standards and Practices 5.1 (a) and (c) in General Principle 5 – Disclosure of Information of the Agents’ Code/the Brokers’ Code).
Written Agreements with Clients
- The Council is of the view that it will be a good practice for licensed insurance broker companies to enter into written agreements with their clients and that the Brokers’ Code should provide for such requirement. For better consumer protection from any possible misrepresentation or forgery, the Council further suggests that both the Agents’ Code and the Brokers’ Code should specify licensed insurance agents or brokers in no event to ask their clients to sign any blank or incomplete agreements or forms, and any alternations to agreements or forms must be initialed by the clients on the spot.
Requirements of Controls and Procedures
- The Council supports that the two Codes should set out requirements for the governance, controls and procedures that a licensed insurance agency or broker company should adopt and licensed insurance agencies or broker companies should follow such requirements to ensure the General Principles, Standards and Practices in the two Codes are complied.
- For reporting of material incidents to the IA (paragraph 3(a) of Part D of the Agents’ Code and paragraph 4(a) of Part D of the Brokers’ Code), as in paragraph 4 above, instead of “as soon as reasonably practicable”, the Council suggests that a reasonable timeframe, such as 1 week, should be set for licensed insurance agencies and broker companies to report to the IA.
Council’s comments on other IA’s Guidelines and Rules
- Apart from the two Codes in the consultation papers, the Council has also provided comments to the IA in relation to the draft guidelines or rules on:
- Fit and Proper Criteria for Licensed Insurance Intermediaries;
- CPD for Licensed Insurance Intermediaries;
- Exercising Power to Impose Pecuniary Penalty in Respect of Regulated Persons;
- Maximum Number of Authorized Insurers;
- Financial Needs Analysis;
- Cooling-off Period;
- Benefit Illustrations for Long Term Insurance Policies; and
- Medical Insurance Business.
- As there are provisions in the two Codes in relation to these guidelines or rules, the Council would sincerely invite the IA to also review the previous comments made in the above submissions by the Council. For example, the Council is pleased to note from the recent consultation conclusions on rules prescribing the maximum number of authorized insurers for insurance agents that the Council’s suggestion of making disclosure about an insurance agent’s appointing insurers before making any recommendation to a client when the agent is representing more than one insurer is adopted and that the disclosure requirement is set out in the Agents’ Code at Standards and Practices 5.1 (b) of General Principle 5 – Disclosure of Information.