An overview of the Hong Kong Insurance Authority's temporary facilitative measures to facilitate the sale of certain long term insurance products during COVID-19
In response to COVID-19, the Insurance Authority introduced temporary facilitative measures (TFM) which allow insurers and intermediaries to sell certain types of long term insurance by non-face-to-face methods, departing from the face-to-face (F2F) distribution ordinarily required. The TFM have been introduced following collaboration between the Insurance Authority and industry.
The aim of the TFM is to minimise the risk of spreading the COVID-19 virus in F2F meetings, while ensuring continued access by the insuring public to applicable products, protecting their interests and effective prudential supervision by the Insurance Authority. The TFM should help insurers and intermediaries mitigate loss of business due to difficulties in having F2F meetings while the threat of COVID-19 is prevalent.
What types of insurance do the TFM apply to?
The current TFM apply to long term insurance only, as general insurance (such as property insurance, travel insurance, commercial products such as public liability or employees' compensation) does not have a F2F requirement as part of the selling process. The TFM so far have been implemented in two phases to reflect different characteristics and risk features of long term insurance products:
- Phase 1 (21 February 2020 until 31 March 2020). It applied to:
- Qualifying Deferred Annuity Policy (QDAP) products – a retirement planning tool under which policyholders pay regular premium which in turn provides them with regular payouts after a designated period of time
- Voluntary Health Insurance Scheme (VHIS) products with long term insurance elements – a government scheme for individual indemnity hospital insurance plans which meet specified minimum standards. The intention behind VHIS being the provision of an enhanced protection level for policyholders and to encourage greater use of private healthcare, alleviating pressure on the public system (See our article on VHIS for more information). The long term insurance element can arise for policies that have both life and sickness cover (e.g. by a medical rider attached to a life policy or a policy which has both life and medical coverage).
Having regard to practical matters, the Insurance Authority launched Phase 1 before the end of the 2019/2020 tax assessment year so policyholders could avail of applicable tax deductions on VHIS and QDAP issued by tax year-end.
- Phase 2 (27 March 2020 until 30 June 2020, unless extended by the Insurance Authority). Phase 2 applies to a wider range of products:
- Phase I products (QDAP and VHIS)
- term policies
- refundable insurable policies without substantial savings component
- renewable insurance policies without cash value.
So, for example, hospital cash, medical, critical illness, personal accident, disability or long-term care insurance are covered in Phase 2.
Other long term insurance products, such as investment-linked insurance schemes (which are more suitable for sophisticated investors) are not included within scope of the TFM (at least at this stage). The Insurance Authority will continue to engage with industry to explore other products that could benefit from the TFM in future.
What are the TFM?
The TFM apply to distribution of the relevant products under Phase 1 and 2 by any non-F2F means (e.g. digital, tele-marketing, video-conference, postal, or any combination of these). The Insurance Authority has in Phases 1 and 2 provided for:
- dispensing with the otherwise-required Financial Needs Analysis (FNA) – a key suitability tool by which intermediaries collect policyholder information to understand their circumstances, including their needs and financial situation. FNA is considered vital to the fair treatment of the customers because customers receive adequate information before the point-of-sale of the product and recommendations given to them by intermediaries are suitable based on their particular circumstances
- extended cooling-off period of at least 30 days instead of the usual minimum of 21 days, within which time the policyholder can change his/her mind.
To safeguard the fair treatment of customers, the Insurance Authority requires intermediaries to comply with the following measures in lieu of the FNA under the TFM:
- act in accordance with the fair treatment of customers principle
- unless otherwise waived in the Insurance Authority's Guideline on Financial Needs Analysis (GL30), make upfront disclosure to customers of information including the product's objective, its nature and type, the target benefit and payment periods, the premiums payable, information on liquidity risk and affordability warnings so they are aware of the nature, risk and features of the product and so can make informed decisions
- terminate the sales process, if intermediaries are aware of any issues as to affordability for the customers
- alert policyholders that specific supervisory requirements have been varied under the TFM and advise them to seek professional advice if they deem fit
- provide more frequent updates to non-F2F customers.
There are various other requirements for insurers and intermediaries who are considering adopting the TFM, such as:
- staff training and adequate policies and procedures, in particular in relation to cybersecurity to prevent breaches or leakages of sensitive customer data that can arise during non-F2F sales processes
- alternative measures to satisfy the usual wet-ink original signature requirements. For example, electronic signature, on-site recording, verification of personal identification number, sign-and-return-mail and one-time-passwords
- continued compliance with other relevant supervisory requirements which are not impeded by non-F2F distribution, such as proper product disclosure before the point-of-sale (Guideline on Underwriting Long Term Insurance Business (other than Class C Business) (GL16)), post-sale confirmation calls for vulnerable customers (GL16), effective customer identification procedures (Guideline on Anti-Money Laundering and Counter Terrorist-Financing (GL3)), on-going monitoring standards (GL3).
In parallel with the Insurance Authority's TFM, individual insurers have also implemented supportive measures to assist their existing and potential policyholders during the current period, such as:
- increased the grace period for payment of premiums up to 180 days
- expanded medical coverage
- relaxed hospital procedures
- simplified and expedited claim procedures
- hospital cash benefit
- death benefit.
The TFM’s – A route to the future for the Hong Kong insurance industry?