- The Consumer Council (the Council) is pleased to submit its response to the Financial Services and the Treasury Bureau (FSTB) regarding the consultation paper (the Consultation Paper) on the proposed establishment of a Policy Holders’ Protection Scheme (PPS) in Hong Kong.
- The Council sets out below its views in relation to the recommendations and issues on key aspects of the proposed PPS, including its objectives and guiding principles, coverage and level of compensation, funding mechanism, relief for policy holders in the event of insurer insolvency and governance arrangements. The Council further provides its views and suggestions on other matters relating to the PPS which are important for the protection of consumer interests.
The Need for Establishing a PPS in Hong Kong
- The Council welcomes the establishment of a PPS in Hong Kong, as it can provide an additional safety net to policy holders in case of insurer insolvency and allow Hong Kong to benchmark with international standards and best practices. The Council notes that a PPS would be especially helpful to policy holders who are economically vulnerable, enabling them to receive compensation quicker without having to wait for the completion of liquidation procedures. Moreover, the establishment of a PPS can strengthen market stability and enhance public confidence in the insurance industry.
- While the Council fully supports the establishment of the PPS, it has concerns that associated costs can be shifted to policy holders despite the proposal of collecting levies from participating insurers. The Council considers that the proposed supervisory board of the PPS should monitor the situation to avoid unreasonable cost transfer to policy holders upon the inception of the PPS.
- The Council also emphasises that regulatory standards and requirements for supervision of insurers are complements rather than substitutes of a PPS. As such, the existing regulatory standards and supervisory requirements should not be in any way relaxed notwithstanding the establishment of the PPS. The Council also considers that the potential adoption of new regulatory standards, for example the implementation of the Risk-based Capital regime, does not nullify the need for a PPS, since regulatory standards and a PPS serve different purposes.
Objectives and Guiding Principles
- The Council in general concurs with the objectives and guiding principles of the PPS suggested in the Consultation Paper. The Council reiterates that the establishment of the PPS should not compromise the regulatory standards and requirements laid down by the Insurance Authority (IA) for supervision of insurers.
- The Council would like to highlight the reasonable expectation of policy holders on the continuity of their policies without disruption, and that they should not be required to bear extra costs for this basic protection. As such, the guiding principles should include that the cost to policy holders should be minimised. In addition, the guiding principles should also clearly delineate which policy holders and policies are afforded protection under the proposed PPS. As the Council opines below, the current proposal should provide further clarity as to whether non‑local policy holders are protected under the proposed PPS. Clarity in the guiding principles can help the general public and policy holders understand whether they fall within this safety net.
Coverage
- The Council supports focusing on individual policy holders as individuals are generally considered less capable in protecting their own interests, as they may not possess sufficient knowledge to assess the financial health of insurers and choose an insurer that is financially‑sound.
- Given the difference in the nature of long term policies and general policies, including the time horizon and purposes, the Council concurs with the recommendation to provide protection to these two types of policies via two separate funds.
- Further to the above, the Council sets out below views and suggestions on more specific aspects of coverage, in terms of who is to be covered and what policies are to be covered.
Small and medium enterprises (SMEs)
The Council is of the view that the PPS should ultimately cover SMEs considering the potential impact on consumers in case of insurer insolvency. Also, SMEs in general have less resources to assess the financial health of insurers and are less capable of protecting their interests than large corporations. If SMEs are not covered by the PPS, insurance taken out to protect themselves (such as product liability insurance) and their employees (such as group medical insurance) will also be at risk, and such employees and customers of the SMEs would bear the brunt of insurer insolvency. Nonetheless, the Council recognises that the inclusion of SMEs can be a complicated matter as there are diverse views on the scale of businesses that warrant protection under the PPS. The Council opines that the PPS could extend to cover SMEs at a later stage, given further work is needed in defining SMEs and for the concerned operational arrangements. Also, SMEs may be covered under a separate category than individuals and with different arrangements, as SMEs are likely to face needs different to individual policy holders. The Council also emphasises that simplicity and clarity are essential attributes for the smooth operation of the PPS, and this should be borne in mind when the definition of SMEs and the operational arrangements are devised.
Non-local policy holders
- The Consultation Paper does not seem to have specified whether non‑local policy holders who have taken out insurance in Hong Kong are to be protected by the proposed PPS. However, the Council notes the recommendation that all insurers authorised to carry on business in Hong Kong should be required to participate in the PPS and that the proposed exemption of offshore risks applies to general insurance only. Based on this understanding, the proposed PPS would at least provide coverage to non‑local policy holders who have taken out long term policies in Hong Kong. The Council opines that specific clarification on this matter is needed.
- If non‑local policy holders are protected, the Council further suggests that the administrator of the proposed PPS should ensure communication on matters relating to PPS, including the details of the scheme and the process of claiming compensation, are accessible and understandable to all policy holders including prospective and non-local ones.
- With the ongoing development of the Greater Bay Area, further opportunities for cross‑border insurance businesses will continue to grow, such as the long‑discussed "insurance connect" scheme. The Council opines that the proposed PPS should aim to be forward‑looking, and that the public would also benefit from knowing if and how the proposed PPS arrangements would apply to future developments in cross‑border insurance.
Third party liability insurance policies of building owners’ corporations (OCs)
- The Consultation Paper suggests providing coverage to third party liability insurance policies of building OCs. The Council supports this proposal given that the owners of buildings are often individuals and it is a legal requirement for OCs to procure such insurance. The Council however queries whether the proposed protection is limited to policies taken out by OCs only. The Council notes that owners with other owners’ organisations, such as owners’ committee, can also procure third party risks insurance, and that the Home Affairs Department has also encouraged such owners to do so.[1] As such, the Council considers it legitimate that the policies procured by owners other than OCs should also be covered under the proposed PPS, and suggests clarification be made to the public.
- The Council further notes that under the Building Management (Third Party Risks Insurance) Regulation, the required minimum insured amount of each third party liability insurance policy is set at HK$10 million per event. As such, the Council is concerned that none of the three proposed PPS compensation limits, namely HK$1 million, HK$2 million and HK$4 million, would provide a sufficient degree of protection to this type of insurance policy. The Council suggests FSTB to consider whether there is a need to adopt a different arrangement for this type of insurance policy, for example assigning a specific higher compensation limit or protecting such policy under a different scheme.
Investment‑linked policies
- To enhance policy holders’ understanding of the protection of investment‑linked long term policies under the PPS, the Council considers that FSTB may need to provide further illustrative examples and clarification on the policy value to be protected under such policies that contain investment elements, in view of the fluctuation in policy value as affected by investment performance and the market environment. Furthermore, there are also investment‑linked policy products where the policy value is guaranteed or assured to a certain amount, for example the higher of a certain multiple of the premium payable or a certain multiple of the account value. For these policies, clarification on the policy value to be protected under the PPS should be given. Reference may be drawn from other jurisdictions on their compensation arrangement for similar types of policies.[2]
- To safeguard the interests of policy holders, the Council would like to point out that if a PPS is implemented in Hong Kong, prospective policy holders of investment‑linked policies need to be made well aware of the degree of protection before making purchase decisions. The Council suggests that policy documents should be required to state clearly what factors would affect the policy value and how the degree of protection offered by the PPS would also be affected. IA should also take steps to ensure there is no misleading representation by insurers or insurance intermediaries.
Exclusion of offshore risks
- The Consultation Paper suggests that offshore risks of general insurance policies would not be covered by the proposed PPS, except for travel, accident, sickness, and goods in transit insurance. Other than specifying the types of policies to be exempted from the proposed PPS as referred in footnote 8 of the Consultation Paper, data on offshore policies in Hong Kong was not sufficiently provided to back up the aforementioned recommendation. The Council is therefore of the view that FSTB should further explore and explain if the exclusion of offshore risks would not substantially lessen the level of protection to individual policy holders.
Exemption of foreign‑incorporated insurers
- It is proposed in the Consultation Paper that foreign‑incorporated insurers would be exempted from the proposed PPS on a case‑by‑case basis if equivalent protection is provided by a similar scheme in other jurisdictions. The Council recommends that FSTB should provide further clarification on what benchmarks are to be adopted in gauging whether schemes in other jurisdictions offer an equivalent degree of protection, given the diversity of such schemes and that they are likely to offer different compensation limits to the one proposed in Hong Kong. To ensure ongoing protection to policy holders, there should also be mechanism in place to timely revoke the exemption of foreign‑incorporated insurers, should the schemes in other jurisdictions be modified to such an extent that they no longer offer equivalent protection as the PPS in Hong Kong. The Council also notes that foreign‑incorporated insurers are currently major players in the long term insurance market,[3] and that any decision to exempt them may have an impact on the viability and sustainability of the Long Term Fund.[4]
- Even in the case of exemption, the Council considers it necessary for the administrator of the proposed PPS to impose disclosure on membership status and provide assistance to distressed policy holders seeking compensation from schemes in other jurisdictions. The administrator of the proposed PPS may also consider setting up cooperation arrangements with the administrators of schemes in other jurisdictions so that speedy assistance to such policy holders could be rendered.
Arrangements in the Event of Insurer Insolvency
Compensation cap
- The Consultation Paper seeks views on the three suggested compensation caps, respectively HK$1 million, HK$2 million, and HK$4 million. While amongst the three options, the HK$4 million cap is seemingly the most beneficial to policy holders as it offers the highest level of protection, the Council is of the view that none of these three options seem optimal from a consumer interest perspective, as even for the HK$4 million option, protection is extended to only around four-fifths of the total of claim amount in the market according to the estimation provided in the Consultation Paper.
- As mentioned in prior paragraphs, given that third party liability insurance policies of building OCs are to be protected under the proposed PPS, a compensation cap higher than the proposed caps seems more appropriate. Moreover, the Council is concerned that a low cap, such as HK$1 million, will fail to provide adequate coverage to current and future life insurance policies a lot of which have benefits over HK$1 million. Setting a low cap might also induce policy holders to break up a large life insurance policy into several smaller ones to maximise their degree of protection which, however, would lead to higher administration costs for all parties.
- Apart from the amount of the compensation cap, the Council notes that the Consultation Paper proposes applying the same compensation arrangements (namely the compensation cap, the claim amount that is covered in full, and the percentage of coverage for the remainder of the claim that is not fully covered) to both general policies and long term policies. The Council considers this apply‑to‑all approach to be unsuitable from a consumer protection perspective, since general policies and long term policies differ vastly in their nature, including their purposes, benefits, and premium amounts. For fairness to consumers, the suitability of applying the same compensation arrangements across the board should be reconsidered.
- Taking reference of practices in other jurisdictions, the Council notes that in the United Kingdom and Singapore, there are different compensation arrangements for general policies and long term policies.[5] Noting that FSTB had provided reference to such schemes when the Consultation Paper discussed the international developments of protection against insurer insolvency, the Council considers it useful to draw on the examples from overseas to set different compensation arrangements for general policies and long term policies. In fact, even within these two major types of insurance, the types of policies can be so diverse to warrant having different arrangements within each major type. For example, third party liability insurance policies of building OCs and travel insurance policies both belong to general policies and are subject to the same compensation cap, yet the former has minimum insured amounts of HK$10 million while the latter usually have far lower insured amounts.
- The Council notes that the Consultation Paper has provided data on the level of protection merely for the two major types of policies. As mentioned above, the types of insurance within these major types can also be quite different. Without more granular data, it is difficult for the public to assess the suitability of the three proposed compensation caps.
- The Council suggests that regardless of the compensation arrangements to be adopted for the proposed PPS ultimately, there should be provisions to require regular review in a timely manner after initial implementation of the PPS, to ensure compensation arrangements will remain effective and relevant in protecting the interests of policy holders. The basic items to be reviewed should include the compensation cap, the claim amount that is fully covered, and the percentage of coverage for the remainder of the claim.
Prioritising transfer of long term policies
- Long term policies may serve life protection purposes for policy holders, but the premature cashing out or surrender of such policies could lead to a substantial loss for policy holders. Due to these considerations, the Council agrees with the recommendation to prioritise the transfer and continuance of such policies in the event of insurer insolvency, as well as the measures proposed to facilitate such transfer. The Council supports that the PPS should settle claims and pay benefits for protected policies pending such transfer.
- To allow informed decision‑making, the Council suggests that liquidators of the insolvent insurer should clearly indicate to policy holders that they can choose to terminate the policy concerned or accept the transfer of policy to the replacement insurer, while also informing them of the risks and benefits associated with each choice.
- The Council opines that in the cases where the Court has ordered a reduction of amount of contracts of insurance or where policies are terminated by the liquidators, it is reasonable that the affected policy holders are accorded assistance. As such the Council agrees with the recommendation in the Consultation Paper that the PPS may make "ex‑gratia" payment to assist the procurement of replacement policies.
Arrangement for general policies
- It is recommended in the Consultation Paper that the PPS should provide insurance coverage for protected general policies for a limited period of time, namely either up to 60 days after the PPS is called into action, or until the expiry or termination of such policies, whichever is earlier. Unexpired premiums would be refunded. The Council recognises that to keep on providing insurance coverage for a long period of time after an insurer is insolvent would make the administrator of the PPS take up a role akin to an insurer and might involve higher administration expenses. Nonetheless, the Council is of the opinion that to provide certainty and continuity of protection to policy holders, the insurance coverage to protected general policies should not be restricted to a limited period and should last until the expiry or termination of such policies.
- The Council is aware that in the consultation exercise of 2011, the Government had proposed to provide continuity of coverage for general policies until their expiry. The Council urges for further information on the rationale for the changed stance, especially considering the Government’s previous comments that imposing a cut‑off date of insurance coverage and refunding the unexpired portion of premiums would lead to a substantial cash flow requirement by the fund of the scheme upon the cut‑off date and a significant increase in the levy rates.
Funding Mechanism
- The Council agrees with the recommendation of adopting a progressive funding model to fund the PPS, where an initial levy set at a moderate rate is to be collected from participating insurers, and to be complemented by an additional levy upon occurrence of insolvency. It is believed that this funding model can address concerns on affordability and flexibility. An upfront reserve for the PPS Funds can be built up without creating an immediate heavy burden for insurers and policy holders or locking up excessive amount of funds that the insurance industry might put to more efficient uses.
- The Council also agrees that the PPS should be allowed to borrow from a third party to bridge liquidity gaps, subject to approval by the Legislative Council. The Council emphasises that one of the main attractions of a PPS is the ability to provide speedy compensation to affected policy holders, instead of having policy holders wait for the outcome of lengthy liquidation processes. As such, the Council suggests that measures and procedures should be set up such that if the PPS Funds are not sufficient or can be foreseen to be insufficient to meet all the liabilities of an insurer insolvency, the PPS would be able to quickly make any borrowing proposals. The Council also opines that to minimise borrowing costs, it would be optimal for the PPS to borrow from the Government direct, or for the Government to act as a guarantor when the PPS borrows from commercial lenders.
- The Council concurs with the recommendation to consider the suspension or reduction of levy rate when the accumulated amount exceeds the target size of the PPS Funds and two years’ operating expenses for the PPS. This can help alleviate the burden on insurers and the pressure on premiums charged to policy holders.
- From the perspective of policy holder protection, having a clear and definite mechanism to replenish depleted funds is an even more important matter. In this regard, the Council agrees with the recommendation that an additional levy may be collected to restore fund sizes back to target levels. The Council has no particular view towards the rate or cap of any additional levy, as long as such arrangements can ensure the financial sustainability of the funds and protect the interests of policy holders.
- FSTB should consider the possibility that the PPS Funds might not be sustainable based on industry contribution alone, in the face of financial challenges that are sectoral-wide and systematic, for example the occurrence of an extreme weather event that leads to many huge life‑ and property‑related claims and the insolvency of multiple insurers. How to ensure the viability of the funds in such critical instances is of crucial importance to policy holders, and should be explained to the public.
- In addition to the above comments on matters relating to the funding mechanism of the PPS, the Council puts forward below comments specific to the initial levy rate and the creditor ranking of PPS under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO).
Initial levy rate
- The Council opines that instead of a single levy rate based on premium income, charging different levy rates according to the level of risk of individual insurers and incorporating their liabilities into the calculation of the levy would be a fairer arrangement. Such an arrangement would not only help avoid implicit cross-subsidisation of insurers, but can also mitigate potential moral hazard impacts. With the guarantees provided by a PPS, prospective policy holders might incline to select insurers on the sole basis of low premiums and cost, without regard to insurers’ risk of failure, and hence potentially creating a moral hazard problem. Subjecting riskier insurers to a higher levy may help prevent this inclination.
- The administrator of PPS should undertake a risk-based and proactive approach to identify the underlying trends within the insurance industry and adopt methodologies to evaluate the risk of failure in the market, so as to derive a levy rate appropriate to individual insurers that ensures the fair treatment of both insurers and policy holders. The Council notes that the IA has already established a supervisory risk assessment framework to monitor and assess the risk profile of each insurer, with assessment conducted at least annually, and that a Risk-based Capital regime for the insurance industry may be implemented in the near future. Therefore, information on the riskiness of individual insurers appears to be already available or will be readily available, which will facilitate the implementation of a risk-based levy. The Council notes that the Policy Owners' Protection Scheme in Singapore also adopts a risk‑based approach in charging levies which may serve as a reference for Hong Kong.[6]
- The Council also opines that the liabilities of insurers should be taken into account when determining the rate of levy. The Council considers that liabilities of insurers would be more reflective of the exposure of the PPS to each insurer, as it is more directly linked to the amount of payout to be made by the PPS in the event of insurer insolvency. The Council notes that in both Singapore and the United Kingdom, liabilities of insurers factor into their calculation of levies.[7]
- Overall, the Council has no objection to the PPS initially adopting the levy rate arrangements as recommended in the Consultation Paper. Yet, based on the Council’s observations from the practices in other jurisdictions, there is room to consider a more sophisticated approach in setting the levy rate. This change may be undertaken now, or at a later stage by drawing upon the experience from the operation of the PPS and the availability of information on an insurer’s level of risk. Regardless of the levy rate arrangements to be used, the Council suggests that they should be subject to periodic review, especially on their appropriateness and the need for modification.
Creditor ranking of PPS under CWUMPO
- The Council notes that FSTB welcomes views on whether the PPS should have equal ranking with the Employee Compensation Assistance Fund and all other direct insurance claims not met by the PPS under section 265 of the CWUMPO. The Council agrees with the above proposed ranking to facilitate the recovery of funds by the PPS in time of an insurer insolvency. Under this proposed ranking, the PPS would enjoy preferential status over ordinary creditors, such that the PPS will have priority to recoup from the estates of an insolvent insurer the expense used for compensating distressed policy holders. This in turn can help with the sustainability of the PPS and minimise the scheme levy payable by insurers, and hence potentially lowering the insurance premiums payable by policy holders in the long run.
Governance of PPS
- The Council in principle supports the governance arrangement recommended in the Consultation Paper, which is to establish the PPS via legislation and for the PPS to operate under the oversight of a statutory body named the Policy Holders’ Protection Scheme Board (PPS Board). The Council believes such an arrangement can increase the certainty and authority of the PPS and is conducive to achieving an effective supervisory system, which would in turn safeguard the interests of policy holders and provide greater accountability and transparency to the public.
- As regards the recommendation that the IA should serve as the administrative arm of the PPS Board, the Council understands that this will help enhance the operational efficiency of the PPS Board by leveraging on the IA’s existing administrative resources and structure. Nonetheless, given that the IA is a regulator of the insurance industry and that the PPS Board may include industry stakeholders, the Council considers it is important that clear mandates are set out for the IA in performing its administrative role to the PPS Board, so as to address handling and sharing of sensitive information between the two bodies.
- Concerning the composition of the PPS Board, the Council opines that including a good mix of lay members and professionals with relevant expertise from various sectors can help promote good governance practice. The Council would like to emphasise the importance of including consumer representative in the PPS Board so that the voice of consumers as policy holders could be well represented and clearly heard.
Functions and powers of the PPS Board
- The Council suggests that the PPS Board as well as the administrator of the PPS should have the responsibility of promoting the PPS and act as a central point of information to the public. For example, the public should be informed about the types of insurance products and policy holders covered under the PPS, as well as the mechanism for making a claim, the estimated total compensation amount and the details of payout procedures, to avoid any false expectation of protection.
- The Council further suggests setting a target time for payment of compensation to eligible policy holders, since one of the main attractions of a PPS is to provide speedy compensation.
Appeal Mechanism
- The Council concurs with the recommendation to set up an independent Policy Holders’ Protection Appeals Tribunal to allow policy holders to have the right to appeal against the decisions made by the PPS Board. The Council suggests that there should be sufficient documentation and transparency regarding the decisions, procedures, and rulings of the appeal tribunal, with consumer representatives involved in the appeal process.
Disclosure of Information
- The Council opines that while the establishment of a PPS can provide protection to policy holders, it can also create risks of disinformation and false expectations for policy holders. This is particularly so when not all policies are covered and compensation cap(s) are imposed, and when compensation can be a long and complicated process and difficult for consumers to understand.
- In this regard, the Council suggests mandatory disclosure of whether an insurance policy is protected by the PPS. This disclosure should take place prior to the making of purchase decisions by consumers. For instance, it can take the form of a standardised disclosure statement that is displayed in the product summaries and policy documents, stating clearly whether the policy is protected by the PPS or not. Insurers should also keep a register of insurance policies that is accessible to consumers and can facilitate them to find out which policies are protected by the PPS. Relatedly, the Council recommends that regulatory authorities should undertake both publicity and inspection efforts to ensure insurers and intermediaries do not misrepresent to consumers the status of protection of an insurance product.
- The Council also suggests setting up a searchable database accessible to consumers that contains information on insurers, including comparative financial and non‑financial information and whether an insurer is participating in the PPS. This would assist consumers in determining the financial health of an insurer and whether the insurer participates in the PPS, helping them to assess risks before purchasing insurance policies and to make an informed decision.
Public/Consumer Education
- The Council would like to highlight the importance of public/consumer education in drawing the attention of the public to the PPS, especially at the time of its initial establishment. The public should be well‑informed on the functions, operations, and coverage of the PPS, on the relief extended to policy holders in the event of insurer insolvency, and on how compensation would be calculated and determined. Such educational efforts should also be ongoing, and hence it is best that the statutory functions of the future PPS Board should include taking up an educational role to conduct activities regularly to enhance public awareness of PPS and safeguard consumers’ rights.
Conclusion
- The Council welcomes the setting up of a protection scheme for policy holders which endeavors to advance the level of protection available to them. The Council is in support of establishing such a scheme which would allow Hong Kong to benchmark with international standards and best practices. The Council believes that the above views and suggestions could further help the proposed PPS achieve these objectives.
- The Council however would like to request attention of the future PPS Board on the importance of constant review of the scope, level of coverage, fund sizes, levy rates and other aspects of the PPS that would be of concern to policy holders, so as to keep up with the ever‑changing developments of the insurance market and the new insurance products launched by insurers. Consumer education undoubtedly would also have a key role to play.
[1]Home Affairs Department (n.d.) Building Management (Third Party Risks Insurance) Regulation, https://www.buildingmgt.gov.hk/file_manager/en/documents/insu_09_eng.pdf.
[2]The Council is aware that there had been some confusion as to if and how different kinds of investment‑linked policies were to be covered under the Policy Owners' Protection Scheme in Singapore, and that the Monetary Authority of Singapore had to issue further clarification on this matter, including whether specific types of investment‑linked policies would have their benefits covered and explaining the rationale. The experience in Singapore demonstrates the complexity of investment‑linked policies and the need for FSTB to explain clearly in advance, especially to the industry and policy holders, the degree of protection to be provided to such policies under the proposed PPS. Source: Monetary Authority of Singapore (2017) Review of Policy Owners’ Protection Scheme – Scope, Coverage & Operational Issues, https://www.mas.gov.sg/-/media/mas/resource/publications/consult_papers/2017/consultation-paper-on-review-of-ppf-scheme.pdf.
[3]Insurance Authority (2022) Annual Statistics for Long Term Business 2021: L13 Total In-Force Business, https://www.ia.org.hk/en/infocenter/statistics/files/Table-L13_2021.xlsx.
[4]Based on its calculation of data from the Insurance Authority, the Council notes that insurers incorporated in Bermuda play a significant role in the long term insurance market in Hong Kong, underwriting 60% of the total number of such policies in force and taking up 58% of all sums assured in 2021. The Council notes that Bermuda currently does not have in place a PPS and so the Council anticipates such insurers would not be exempted from the PPS in Hong Kong. However, if in the future Bermuda has new arrangements for policy holder protection that allow such insurers to be exempted from further participation in the PPS here, given their market size and influence, the Council opines there has to be some consideration towards the potential impact to the viability and sustainability of the Long Term Fund caused by their non-participation.
[5]In the United Kingdom, the Financial Services Compensation Scheme provides full protection to life insurance and critical illness insurance and 90% protection to general policies such as travel and property insurance. Meanwhile in Singapore the Policy Owners’ Protection Scheme has a cap of S$500,000 (HK$2.9 million) for life insurance policies, while there is generally no cap for general insurance policies.
[6]In the Singapore case, insurers are categorised into one of four supervisory risk ratings, that of low, medium low, medium high, and high respectively. Insurers with a higher risk rating is charged a higher levy rate, with different rates for different kinds of insurance business. For life businesses, the levy rate applicable ranges from 0.028% to 0.142%, while for general business, this ranges from 0.106% to 0.529%. Source: Singapore Statutes Online (2023) Deposit Insurance and Policy Owners’ Protection Schemes (Policy Owners’ Protection Scheme) Regulations 2011, https://sso.agc.gov.sg/SL/DIPOPSA2011-S419-2011?DocDate=20120330&ViewType=Advance&Phrase=Deposit+Insurance+and+Policy+Owners%27+Protection+Schemes&WiAl=1&ProvIds=Sc-#Sc-.
[7]In Singapore, the levy for protection of life insurance policies is calculated with reference to the aggregated protected liabilities of insurers for the insured policies. As for the levy for general insurance policies, this is usually calculated with reference to the gross premium income of the insured policies of the insurer. Meanwhile, in the United Kingdom, the levy for both general insurance and life insurance is split on a ratio of 75:25 between relevant net premium income and eligible liabilities. Source: Singapore Statutes Online (2023) Deposit Insurance and Policy Owners’ Protection Schemes (Policy Owners’ Protection Scheme) Regulations 2011, https://sso.agc.gov.sg/SL/DIPOPSA2011-S419-2011?DocDate=20120330&ViewType=Advance&Phrase=Deposit+Insurance+and+Policy+Owners%27+Protection+Schemes&WiAl=1&ProvIds=pr5-#pr5; Bank of England PRA Rulebook (2023) Policyholder Protection - Annex 2: Methodology for Calculation of a Participant Firm’s Levy Share, https://www.prarulebook.co.uk/rulebook/Content/Chapter/214238.
