To enhance the protection of policyholders who intend to use premium financing when taking out life insurance policies, the Insurance Authority (IA) and the Hong Kong Monetary Authority (HKMA) have issued relevant circulars to life insurers, intermediaries and financial institutions such as banks.
The circulars spell out what life insurers and their agents must do when their potential policyholders intend to use premium financing. Using the Important Facts Statement - Premium Financing (IFS-PF), life insurance agents must fully explain the disclosure requirements and the risks involved to their customers when the latter want to use premium financing for their policies. Such customers are required to complete and sign the IFS-PF for each new insurance policy application involving premium financing.
The circulars also touched on issues such as affordability assessment, additional measures for customers with risk of over-leveraging, sales practice and training.
All the supervisory standards and requirements covered in the circulars will take effect on 1 January 2023, according to a joint statement by the IA and HKMA.
In the joint statement, the Executive Director of Long Term Business of the IA, Ms Carol Hui, said, "While there has been growing popularity amongst policyholders in using premium financing for wealth and liquidity management, the relevant risks must not be overlooked. Following the release of key findings of our joint inspection with the HKMA last year, the IA aims, through the issuance of this IA circular, to specify our expectations on insurers and insurance intermediaries when they conduct businesses involving premium financing for better protection of potential policyholders."
Concurring, the Executive Director (Banking Conduct) of the HKMA, Mr Alan Au, said, "The HKMA and the IA have been collaborating closely with an aim to enhancing protection to customers on the use of premium financing. The HKMA circular complements the IA circular to provide guidance to banks, which play the role as an insurance intermediary and as a premium financing facility provider in their premium financing activities, to accord protection to potential policyholders and bank customers."