DEAL­ING WITH CHINA’S DE­MAND

Moses Cheng, the chair­man of the new In­surance Au­thor­ity, has an ex­tra­or­di­nary job ahead of him: reg­u­lat­ing an in­surance in­dus­try that has grown enor­mously thanks to China’s in­vestors.

The Peak (Hong Kong) - - The Brief -

Moses Cheng Mo-chi, the first chair­man of the new In­surance Au­thor­ity (IA), was al­ready en­joy­ing a beck­on­ing re­tire­ment be­fore be­ing called out by the gov­ern­ment to es­tab­lish the IA. At 67, Cheng has seen a lot of change in Hong Kong and in its fi­nan­cial and in­surance in­dus­try. Cheng was one of the first full time law stu­dents to get his de­gree from Hong Kong Uni­ver­sity, tak­ing his first job in 1973. Though he re­tired in 2015, he con­tin­ued to work as a con­sul­tant. Known for his con­tri­bu­tions to so­ci­ety and love of the arts, he is the found­ing chair­man of Opera Hong Kong and the Child De­vel­op­ment Match­ing Fund.

The IA is so new that Cheng’s in­ter­view for this ar­ti­cle took place in his old law of­fice – the of­fices of the In­surance Au­thor­ity were still in build; the IA of­fi­cially started op­er­a­tions on June 26, 2017. The new reg­u­la­tor took over from the Of­fice of the In­surance Com­mis­sioner as the reg­u­la­tor for all in­surance com­pa­nies and over­see­ing about 90,000 in­surance sales staff.

It’s no small task. The gov­ern­ment de­bated the creation of such an agency for ten years, as the in­dus­try it­self ex­ploded. The gross value of in­surance pol­icy pre­mi­ums in 2016 stood at HK$448.8 bil­lion, up 763 per cent from HK$52 bil­lion in 1997, ac­cord­ing to gov­ern­ment statis­tics. The num­ber of poli­cies had more than tripled in the same pe­riod, to 12.66 mil­lion last year from 3.4 mil­lion 20 years ago. And the num­ber of sales agents in Hong Kong has grown by 141 per cent to 92,465 in 2016 from 38,383 in 1997.

Main­land China is the driv­ing force be­hind this growth. In 1997, there were no statis­tics of main­lan­ders buy­ing poli­cies and prod­ucts in Hong Kong, a trend that did not truly start un­til al­most a decade later. Cheng says the sta­ble eco­nomic en­vi­ron­ment; the sup­port of the Hong Kong gov­ern­ment has led to many in­ter­na­tional in­surance com­pa­nies set­ting up of­fices here.

Chi­nese peo­ple spent HK$48.9 bil­lion buy­ing poli­cies in Hong Kong dur­ing the first nine months of last year, the lat­est avail­able data from the gov­ern­ment. It rep­re­sents 37 per cent of all poli­cies sold. That’s 26 times higher than the HK$1.8 bil­lion they pur­chased in the nine months from April to De­cem­ber 2005, when the data was first pub­lished. The fall in the RMB has only in­creased main­land buy­ers’ ap­petite.

Main­land Chi­nese com­pa­nies have sub­se­quently started to buy the city’s in­surance firms. Of the 21 pro­posed takeovers of Hong Kong in­sur­ers worth at least US$4 bil­lion in the past three years, nine have been led by main­land com­pa­nies, ac­cord­ing to data from Thom­son Reuters.

“I’ve learned a lot of new things in the past two decades, with the most sig­nif­i­cant one to be my Pu­tonghua. I be­lieve my Pu­tonghua was hor­ri­ble twenty years ago, but now I can make a pub­lic speech in the lan­guage flu­ently,” Cheng says with a laugh.

Cheng reck­ons these trends are healthy and likely to con­tinue. “Hong Kong is a free mar­ket and we wel­come main­land com­pa­nies to in­vest in Hong Kong in­surance com­pa­nies.” Look­ing af­ter all these takeovers re­quires en­sur­ing that the peo­ple who buy Hong Kong in­surance com­pa­nies know what to do once they have them.

The Hong Kong In­surance Au­thor­ity is to work with its main­land coun­ter­part, the China In­surance Reg­u­la­tory Com­mis­sion, on cross bor­der reg­u­la­tion. The na­ture of cross­bor­der trans­ac­tions will re­quire vig­i­lance on any form of mal­prac­tice, Cheng says. Look­ing ahead, Cheng be­lieves up­com­ing in­fra­struc­ture pro­jects stem­ming from the Belt and Road Ini­tia­tive will fur­ther in­crease de­mand for re­lated in­surance poli­cies, lead­ing to more work in the in­dus­try.

As the lat­est piece in the gov­ern­ment’s reg­u­la­tory frame­work, Cheng has to find a way for his new IA to work with the SFC and the HKMA in par­tic­u­lar. Be­fore the IA was set up, a gov­ern­ment depart­ment is­sued li­censes to in­surance com­pa­nies, but let an in­dus­try body self-reg­u­late some 90,000 agents. A ma­jor task for the IA will be to de­velop a new licensing sys­tem. From 2019, all in­surance agents will need a li­cense from the IA be­fore the can do busi­ness.

The new reg­u­la­tor op­er­ates as a pub­lic body with in­de­pen­dent fi­nan­cial status. The plan is for the IA to em­ploy up to 300 peo­ple un­der non-civil ser­vice con­tracts. As a fi­nan­cial reg­u­la­tor, the In­surance Au­thor­ity has a sim­i­lar status as the Se­cu­ri­ties and Fu­tures Com­mis­sion and Hong Kong

Mon­e­tary Au­thor­ity. One as­pect of the gov­ern­ment’s decade-long dis­cus­sion about the IA was whether it should be a stand­alone agency, or if it should be merged with the SFC, since so many in­surance prod­ucts are in­vest­ment linked poli­cies that need SFC ap­proval.

Like his reg­u­la­tory coun­ter­parts, Cheng be­lieves that Hong Kong’s reg­u­la­tory sys­tem works well, as long as its lead­ers are al­ways talk­ing to each other. “The in­vest­ment linked in­surance prod­ucts need to be ap­proved be­tween the SFC and the In­surance Au­thor­ity. There are many banks sell­ing in­surance prod­ucts that need the HKMA and In­surance Au­thor­ity to work to­gether to make sure the sales­per­sons have ex­plained the prod­ucts ap­pro­pri­ately to the pol­i­cy­hold­ers,” Cheng says. He counts both SFC Chair­man Carl­son Tong and HKMA Chief Ex­ec­u­tive Nor­man Chan as friends. “It does not mat­ter for us to have sev­eraleral new reg­u­la­tor. What is more im­por­tant is to have the lead­ers of the dif­fer­ent reg­u­la­tors to work closely to­gether.”

It was Cheng’s work as a so­lic­i­tor­tor in the 1970s that in­tro­duced him to the in­surance in­dus­try, where ere civil lit­i­ga­tion in­volved in­surance com­pen­sa­tion on per­sonal nal in­jury cases. But his knowl­edge (and friend­ships) of fi­nance and in­surance nsurance re­ally comes from past po­si­tions with both the SFC and the he HKMA, in­clud­ing chair­man of the SFC’S Process Re­view Panel and nd the Ex­change Fund Ad­vi­sory Com­mit­tee Au­thor­ity of Hong Kongng Mon­e­tary Au­thor­ity. He also spent six years as a di­rec­tor of the Hong Kong Ex­changes and Clear­ing Ltd.

In 2006, Cheng set up the Fi­nan­cial­cial Re­port­ing Coun­cil, gar­ner­ing sig­nif­i­cant ex­pe­ri­ence deal­ing with gov­ern­ment.overn­ment. So when Secretary for Fi­nan­cial Ser­vices and the Trea­sury Chan Ka Ke­ung in 2016 asked Cheng to take up the job to es­tab­lish­ablish the In­surance Au­thor­ity, he said yes with­out hes­i­ta­tion. tion. “It is great to es­tab­lish a new reg­u­la­tion from noth­ing, ing, but it is also a ma­jor chal­lenge to es­tab­lish it from scratch,” cratch,” he says.

That en­thu­si­asm will be nec­es­sary, sary, given the task ahead. But Cheng also likes to keep a smile on his face. He says he takes pride inn the growth of the le­gal pro­fes­sion, and the path h of Hong Kong over the past 20 years. “Be­ing gaa happy per­son is im­por­tant to (stay­ing)ing) healthy and young.” He there­fore rec­om­mends Hongkongers look to the fu­ture, and avoid com­pla­cency. “We should be hum­ble and ready to learn from our neigh­bours; re-en­gi­neer our­selves in or­der to com­pete on the global stage,” he says. Per­haps he’ll need to de­liver a sim­i­lar mes­sage in Pu­tonghua.

“I BE­LIEVE MY PU­TONGHUA WAS HOR­RI­BLE TWENTY YEARS AGO, BUT NOW I CAN MAKE A PUB­LIC SPEECH IN THE LAN­GUAGE FLU­ENTLY” – Moses Cheng

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