Hong Kong's Insurance Authority Introduces Temporary Facilitative Measures In light of the COVID-19 Outbreak

On 27 March 2020, the Insurance Authority (IA) published a circular¹ setting out Phase 2 of the IA’s temporary facilitative measures regarding the sale of certain types of insurance products. The measures were introduced with the aim of minimising the risk of infection in the process of selling insurance policies without adversely affecting the interests of policyholders and potential policyholders, largely through relaxing requirements for face-to-face meetings between licensed insurance intermediaries and potential policyholders.

The IA had previously introduced Phase 1 of the measures in a circular dated 21 February 2020². Phase 1 covered two types of products: 

• The Qualifying Deferred Annuity Policy (QDAP); and
• The Voluntary Health Insurance Scheme (VHIS)

which were prioritised by the IA in introducing non-face-to-face (non-F2F) distribution methods. More specifically, the IA has allowed authorized insurers and intermediaries to dispense with the requirement to conduct a Financial Needs Analysis in recommending and selling QDAP and VHIS products to clients, as long as they: compensate

• Provide upfront disclosure and implement an extended cooling-off period of no less than 30 calendar days for policy documents to be delivered by mail; and
• Allow policyholders time to seek independent professional advice if necessary.

Upfront disclosure is intended to ensure that customers are aware of the nature, features, and risks of the insurance products before deciding to purchase. The upfront disclosure should include, where applicable:

• Objective(s);
• Type and nature of the policy;
• Target benefit period;
• Payment period;
• Level of premiums payable;
• A prominent warning to the customer concerning affordability of the policy during the entire premium payment period; and
• Relevant information highlighting the liquidity risk associated with the product.

In Phase 2, the measures were extended to cover these products in addition to QDAP and VHIS:

• Term insurance policies, and refundable insurance policies without a substantial savings component; and
• Renewable insurance policies without cash value that provide insurance protection (e.g. hospital cash, medical, critical illness, personal accident, disability or long-term care cover).

The IA also confirmed that the guidance and measures in Phase 1 would continue to apply, which include:

1. allowing all non-F2F distribution methods (e.g. digital, tele-marketing, postal, video-conference or any combination of these methods) for the distribution of products covered by Phase 2;
2. continuing to provide upfront disclosure, unless otherwise waived in the Guideline on Financial Needs Analysis (GL [Guideline] 30). However, if intermediaries become aware of any issue or concern regarding the customer’s ability to afford the product, they should not continue the sales process;
3. adopting the same principle of upfront disclosure for the relevant supervisory requirements under the respective guidelines for the sale of long term insurance policies. For the avoidance of doubt, insurers and intermediaries should continue to comply with supervisory requirements which are not hindered by non-F2F distribution (e.g. proper disclosure of product features, risk and benefit illustration at the point-of-sale, post-sale confirmation calls for vulnerable customers under GL16, etc.);
4. alerting policyholders that specific supervisory requirements aimed to protect their interests have been varied under non-F2F distribution due to the current circumstances and they should seek professional advice as they deem fit;
5. implementing appropriate measures such as electronic signature, onsite recording, personal identification number (PIN) verification, sign-and-return-mail, one-time-password, etc., in lieu of a wet signature by the customers to meet the signature requirement;
6. continuing the extended cooling-off period of no less than 30 calendar days for all policies sold under the variation of supervisory requirements adopted in Phase 2 of the measures;
7. implementing adequate policies and procedures, as well as control and monitoring on transactions where the variation has been adopted; and
8. providing staff training as appropriate for adopting the measures.

Phase 2 came into immediate effect on 27 March 2020, and will last until 30 June 2020 unless the IA indicates otherwise. Authorized insurers and intermediaries are advised to keep a close eye on further developments.

1. Insurance Authority (2020) 'Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19', Circulars on Regulatory Matters [online]. Available at: https://www.ia.org.hk/en/legislative_framework/circulars/reg_matters/files/Circular_27032020.pdf (Accessed: 30 March 2020)

2. Insurance Authority (2020) 'Temporary facilitative measures to tackle the recent outbreak of Novel Coronavirus', Circulars on Regulatory Matters [online]. Available at: https://www.ia.org.hk/en/legislative_framework/circulars/reg_matters/files/Circular_21022020.pdf (Accessed: 30 March 2020)