The Insurance Authority (IA) of Hong Kong has given its official backing to a new Reference Checking Scheme introduced by the Hong Kong Federation of Insurers (HKFI).
Starting from September 1, this initiative mandates that authorized insurers involved in long-term business must comply with the scheme.
Addressing the persistent issue of “rolling bad apples” within the insurance industry, the scheme aims to tackle the problem where certain insurance intermediaries evade accountability by moving between employers without disclosing their past misconduct.
In a letter addressed to chief executives of authorized insurers engaged in long-term business in Hong Kong, the IA emphasized the importance of preventing these isolated cases from tarnishing the reputation of the entire insurance sector.
Under the new Reference Checking Scheme, when a long-term insurer (recruiting insurer) considers hiring an agent who has previously worked for another insurer (responding insurer) within the last seven years, they are required to conduct comprehensive reference checks. These checks will be standardized and responses from previous employers must be provided within a specified timeframe.
Although recruiting insurers retain the discretion to proceed with an appointment despite adverse findings, they are obligated to document their decision-making process. These documents will be subject to review by the key person in control function for intermediary management (KPIM) and may be requested by the IA for inspection.
Initially applicable to individual agents in the long-term business segment, which constitutes the largest group of licensed intermediaries in Hong Kong, the scheme is planned for expansion to other types of intermediaries based on initial feedback and experience.
The IA’s endorsement of the scheme aligns with its broader objectives to protect policyholders and maintain high standards of conduct across the insurance industry. As per Section 13AE of the Insurance Ordinance (IO), insurers are required to obtain IA approval for appointing key persons in control functions, including the KPIM responsible for intermediary management compliance with regulatory guidelines.
In addition to supporting the Reference Checking Scheme, the IA expects insurers to implement rigorous due diligence procedures when onboarding new agents. The responsibility for these controls lies with the insurer’s board of directors and controllers, including the KPIM. Weaknesses in these processes could result in regulatory actions from the IA.
Participation in the scheme is viewed as a minimum internal control measure for assessing prospective agents. Non-compliance or repeated failures could indicate systemic issues within an insurer’s governance framework, prompting heightened scrutiny from the IA.
Insurers failing to meet their obligations under the scheme may face closer examination of their recruiting and licensing practices. The scheme, developed through extensive consultations between long-term insurers, intermediary representatives, and the IA, underscores a collective commitment to uphold professional standards and enhance trust in Hong Kong’s insurance market.
