73 JUN 2022 | WWW.LAWYER-MONTHLY.COM EXPERT INSIGHT do not contain elements of systematic bias and result in unfair outcomes. In Hong Kong, what is a contract of insurance for the purposes of the law and regulation? In what ways does this differ from a contract of reinsurance? There is no regulatory definition of an insurance contract in Hong Kong, but the concept is the same as under English law: it is the provision of an indemnity/ benefit by one party (the insurer) to another (the insured) if an uncertain adverse event occurs, in return for consideration (premium). For general insurance, the policyholder must have an insurable interest in the subject of the policy (i.e. some economic stake that insurance is capable of protecting) at the time the claim is made. Although there is no requirement for insurance contracts to be in writing, it is universal practice. The Insurance Ordinance (Cap. 41) (IO) is Hong Kong’s primary insurance regulation and lists the different types of insurance business in Schedule 1. Insurance contracts are classified by reference to those classes. Insurance and reinsurance contracts are subject to the same governing principles. With a contract of reinsurance, the reinsurer is underwriting the risk of another insurer, and so the contract is with the insurer, not the insured. A reinsurance contract might also contain some additional provisions, for example, to the effect that the reinsurer shall have a “right to associate”, or “claims control”, so that it can closely manage the underlying claim and the potential exposure under the underlying insurance contracts. This will usually depend on how much of the risk is ceded to the reinsurer. There are also some regulatory obligations which apply to insurance contracts, but which do not apply to reinsurance contracts, such as in relation to issuing policies. How are insurers regulated in Hong Kong? Since 2017, the Insurance Authority (IA) has been responsible for administering the IO, which provides the legal framework for the regulation of insurers and insurance intermediaries (agents and brokers) in Hong Kong. The IA is a statutory body independent of both the government and the insurance industry. Prior to the IA, the Office of the Commissioner of Insurance regulated the industry for over 30 years. The IA has been given increased powers modelled on those given to the Securities and Futures Commission (SFC) under the SFO, which regulates licensed corporations. The IO was amended in 2019, whereupon the IA became the sole regulator of all insurance intermediaries in Hong Kong, having taken over from the three self-regulatory bodies – namely the IARB, the CIB and the PIBA. Pursuant to the IO, any person carrying out regulated insurance activities in Hong Kong must be licensed by the IA. Those who are not authorised or exempt risk imprisonment (for individuals) and/or a fine. The IA can inspect, investigate and discipline insurers and intermediaries where it deems a breach has occurred, or if it considers that business has been conducted which is against policyholders’ or the public interest. Insurers and intermediaries in Hong Kong therefore need to ensure they have sufficient internal policies and processes in place, including how to deal with a “knock at the door” by the IA, and maintain proper record keeping. It is perhaps fair to say the IA has been fairly slow to exercise its powers since it was first established. However, in the last 12 months, we have seen this gradually start to change, with the IA bringing more cases before the Insurance Appeals Tribunal (IAT), a statutory and independent body, and a greater focus on enforcement. What are some of the most common insurance compliance issues your clients face? Our clients are long-established multinational insurers, all of whom have substantial experience of adhering to a range of regulatory requirements across a multitude of jurisdictions, and of dealing with local regulators. Insolvencies attract shareholder and creditor scrutiny of management decisions, leaving directors vulnerable to claims. We have seen an uptick in these types of actions.