A recent statement from the Insurance Authority’s (“IA”) CEO Mr Clement Cheung indicated that the IA is set to approve its first authorised insurer licence under the “fast track” system. Approval is expected by the end of the year.
In this post, we recap what the IA’s fast track system is, before quickly outlining the significance of this milestone for the insurance market, the IA and Hong Kong as a whole, as it strives to become an international centre for fintech.
What is Fast Track?
Readers may be surprised to learn that the fast track licensing initiative (“Fast Track”) is not new. It was launched in September 2017 as part of the IA’s drive to promote fintech. In short, Fast Track seeks to provide a dedicated, expedited, and streamlined process for new applicants seeking authorisation as an insurer in Hong Kong.
Is it for every applicant?
No. The eligibility criteria to be part of Fast Track include the following conditions:
- Direct distribution only – The applicant insurer must solely operate in direct digital distribution channels, without the use of any intermediaries: that is, agents, banks or brokers. Insurers under Fast Track would not be allowed to accept business from any channels other than its own proprietary digital distribution system.
- Innovative, robust and valuable – The applicant must have an innovative and robust business model using digital distribution to bring benefits to the consumers in Hong Kong in product development, delivery, customer service and cost efficiency. It is for the applicant to satisfy these requirements.
An applicant is not exempt from existing authorisation requirements under the Insurance Ordinance. For example, the applicant would still need to satisfy the IA that it, and its controllers are fit and proper, and that all solvency, capital, and local asset requirements are satisfied. Indeed, we would expect a high degree of scrutiny in respect of the business model of the applicant as part of the application.
So what is all the fuss?
Of itself, having only one (likely) approved application more than a year after its introduction is not particularly noteworthy. There is a thick layer of irony to the slow start of Fast Track, a point that was not lost on Mr Cheung.
Despite this, the approval of a Fast Track licence is significant for a number of reasons:
1. Technology is important to Hong Kong – The willingness of the IA to accept and implement the Fast Track is indicative of the IA’s, and the Hong Kong government’s attitude to technology and innovation. When the decision was made that the IA would become the ‘one-stop-shop’ regulator for the insurance industry, one of its objectives was to modernise the insurance industry. Further, the Hong Kong government and the IA itself have been very vocal in the desire for Hong Kong to be an international centre for fintech. While there have been many such statements of Hong Kong’s desire to be a centre for fintech, as always, the proof is in the pudding.
More broadly, the imminent approval also shows the willingness of IA and Hong Kong’s regulators not shy away from fintech, or new developments that shape financial services. Other good examples of this include:
- the SFC’s announcement regarding its virtual asset sandbox; and
- the HKMA’s proposed issuance of virtual banks licences by the end of this year.
Actions like the above provide a platform for fintech investment to prosper in Hong Kong.
2. Enhancing competition in the digital economy – The approval also provides evidence that there are opportunities to be explored in online distribution of relatively simple insurance products. The Hong Kong insurance market is very mature, with a high barrier to entry given capital and regulatory requirements imposed on authorised insurers, not to mention well entrenched incumbents. However, the application shows there is a willingness to compete and dip one’s toes in the retail insurance market.
3. Riding the wave – Consistent with the above, for the past few years, there has been an ongoing trend to digital distribution (think Zhong An, WeSure) versus the more traditional distribution models of utilising agents and brokers. This is not surprising and follows growing regulation in Hong Kong to specifically cater for online distribution and related business models (for example, see the IA’s ‘Guideline on the use of the Internet for Insurance Activities’ dated June 2017 and the recent ‘SFC Guideline on Online Distribution and Advisory Platforms’ (effective 6 April 2019)).
As insurtech firms continue their growth, we believe that they will continue to blur the sector lines, and disrupt what has been to now a very traditional market. Fast Track assists with this disruption in allowing new entrants, which in turn helps broader insurtech growth.
We continue to support a number of market participants in their engagement on new products and delivery channels for insurance.
Looking forward, the IA and the insurance industry is undergoing dramatic transformation as the IA consolidates its position as the sole insurance regulator in Hong Kong and modernise the existing framework. In the coming months, there will be a raft of regulatory developments which will be sure to keep the industry and IA’s hands full.