Background of Insurance Industry
As a leading insurance centre in Asia, the insurance industry contributes significantly to the development of Hong Kong financial services. In 2013, the industry registered HK$290.7 billion total gross premium. In 2012, it ranked 6th and 21st in Asia and the world respectively.
Hong Kong is "one of the most liberalized and saturated markets in Asia-Pacific region." It is one of the leaders in the world in terms of insurance penetration. The insurance density was US$4,543.9 in 2012, ranking 2nd in Asia and 7th in the world. The respective insurance penetration was 12.4%, ranking 2nd in Asia and 4th worldwide. The market is highly concentrated as insurers are competing on capital resources and reputation. Nonetheless, there yet exists the room for a fairly large number of small to medium-sized insurers to operate.
As at 31 December 2013, there were 155 authorized insurers, amongst which 92 were general insurers, 44 were long-term insurers and the remaining 19 were composite insurers, and 632 authorized insurance brokers. Of these 155 insurers, 85 were incorporated in Hong Kong and the rest were incorporated overseas.
Insurers are offering a wide variety of products, with high levels of sophistication, to accommodate the diverse needs of customers. Products can be broadly classified into two major categories: general and long-term insurance products. General insurance products can be divided into the following: accident and health, motor vehicle, property damage, general liability, pecuniary loss, marine, professional liability and miscellaneous. In 2013, accident and health, general liability, property damage, and motor vehicle were the key revenue generators. Long-term insurance products comprise both investment-linked and protection type products. Protection type products range from whole life, term life, medical insurance to retirement scheme products. In long-term businesses, individual life products represent the primary premium driver (about 92% of the office premiums in 2013).
The Hong Kong insurance industry in terms of total gross premiums comprising both general and long-term insurance businesses together has enjoyed double digit annual growth rate since 2011. In 2013, total gross premiums of general insurance business amounted to HK$42.1 billion and the total revenue premiums of long-term business recorded HK$248.6 billion. Long-term insurance business started to take up a considerable market share since factories moved their operations to Mainland China in mid-1980s and the demand of marine and fire insurance products plunged.
The industry currently employs more than 90,000 people, comprising approximately 20,000 people from authorized insurance and reinsurance companies, and more than 70,000 insurance intermediaries. Individual agents, as well as responsible officers/technical representatives of both insurance agencies and brokers, represent the majority of the workforce. According to the OCI, as of 31 December 2013, there were 43,760 appointed insurance agents (2,464 insurance agencies and 41,296 individual agents) and 27,452 responsible officers/technical representatives. There were 632 authorized insurance brokers with 9,198 registered chief executives and technical representatives. The nurturing and upgrading of talents has always been a key development concern of the industry. The quest of enhancing the competencies of the workforce concurs with the objective of the Qualifications Framework (QF).
The Quest for Qualification Framework
QF denotes a comprehensive network of learning pathways that enables seamless articulation amongst academic, vocational and continuing education, and defines clear standards of qualifications. Qualifications recognized under QF are outcome-based, i.e. benchmarks of skills, knowledge and other relevant attributes required to perform different jobs at different levels. The Specification of Competency Standards (SCS) for an industry is a set of core competencies for the identified work functions with specification on integrated outcome performance. The SCS is formulated by the industry itself via the participation in Industry Training Advisory Committees (ITAC), comprising representatives from employers, employees and relevant professional bodies, which in turn is supported by the Education Bureau (EDB).
The ITAC of the insurance industry plays a vital role in steering the development of QF. Owing to the enormous diversities in business nature of industry players, the Insurance ITAC agrees to focus the initial development efforts of QF on life and general streams, encompassing the following functional areas:
Sales and distribution management
Legal and compliance
Operational support and services.
Analysis of Macro Environment by STEP Approach
As one of the leaders in the world, the insurance industry faces inevitable challenges and threats on one hand, and is blessed by ample growth opportunities on the other. The success of the industry relies on a continuous supply of talented and competent players to uphold its competitiveness. A sustainable human resource development strategy is therefore crucial. Such strategy also underpins the development of SCS and relies on a comprehensive analysis of the dynamics of the operating environment. As such, a review of the macro environment of the industry using the STEP approach is adopted. STEP approach evaluates the operating environment from the social, technological, economic and political perspectives. A comprehensive review from these four perspectives will inevitably cover a potentially long timeframe and a wide spectrum of factors. As the objective of the review is to guide the development direction of the qualifications framework, only crucial factors that are deemed to incur substantial impact on the human capital development of the industry are highlighted below.
(a) Social Perspectives
Hong Kong has an ageing population. It is expected that in 2030, "one in every four Hong Kong residents will be 65 or above. By 2050, Hong Kong is forecasted by the World Health Organization to rank fifth in the world for cities with the largest percentage of older adults, i.e., 40% of the population in Hong Kong will be 65 or above. " Ageing population can create a considerable financial burden to the government (which is currently incurring HK$40 billion annually to accommodate the needs of the elderly). The Food and Health Bureau is planning to introduce a voluntary Health Protection Scheme (HPS) to shift the potential overload in public health system to the private sector in 2015. Should the finalized version of HPS provide adequate incentives to encourage public at large to buy into medical insurance, the growth potential of this business area can be huge.
People in Hong Kong are becoming more concerned about their financial well-being upon retirement. Common sources of savings are generated from social securities, MPF and personal savings. People are generally aware of the need of retirement planning but may not have taken adequate actions. Annuities and retirement schemes are therefore expected to have high growth potentials. Many insurance operators have ventured into retirement planning and the wealth management arena. Nonetheless, the financial crisis in 2008 revealed that the associated risks of investment-linked and derivative products were not well understood, both by customers and insurance intermediaries.
While customers are questioning the financial knowledge of insurance intermediaries in selling investment-linked products, their concerns over the professional ethics of the intermediaries also remain. Unethical selling, misrepresentations, poor services and liabilities repudiation are common areas of concerns. Coupled with rising customer expectations of insurance services and demand for operation transparency and disclosures, insurers are forced to uphold their professional standards at all times. To enhance the protection of policyholders in case of insurers' insolvency, and to promote public confidence in the industry, the government is planning to establish the Policyholders' Protection Fund (PPF) in 2015.
(b) Technological Perspectives
Multi-channel distribution of insurance products, e.g. bancassurance, remains to be a key trend as the boundaries amongst various financial services are blurring. Customers are looking forward to one-stop shop services. Sales and distribution, as well as policy servicing, are commonly supported via call centre and internet technology. The next wave of technological advancement in insurance services will likely to happen in mobile applications. Mobile technology is regarded as an important tool in sales and distribution, as well as claims adjustment. Insurers will first need to ensure that their websites are "mobile-optimized" to facilitate customer services; the next step will be the development of mobile apps to support policyholders.
(c) Economic Perspectives
While global economic outlook remains uncertain and volatile, insurers in Hong Kong are keen to believe that they will be able to benefit from substantial business opportunities, especially those from Mainland China. The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was introduced in 2003. Under CEPA, concessions accorded to Hong Kong insurance industry include: allows Hong Kong insurers to form groups through re-grouping and strategic mergers to enter the Mainland market (subject to certain conditions); brokers to set up and operate wholly owned insurance agency companies in Guangdong Province (subject to certain conditions); and agency companies to set up wholly owned companies in Mainland to provide agency services to Mainland insurers. For individual Hong Kong residents, those with Chinese citizenship and have obtained the Mainland's professional qualifications in actuarial science are free to practise in the Mainland; and those who have obtained the Mainland's insurance qualifications and are employed by a Mainland insurer are allowed to engage in the relevant insurance business.
In July 2010, the Hong Kong Monetary Authority and the People's Bank of China agreed to raise the limit on Hong Kong residents' purchase of yuan-denominated wealth management products. The agreement opens up a new land of opportunities for insurers.
(d) Political Perspectives
The Government of the HKSAR established the Office of the Commissioner of Insurance (OCI) in 1990 to regulate the industry. Insurers in Hong Kong are regulated by the Insurance Companies Ordinance and its subsidiary legislations concerning long term liabilities, solvency margin and valuation. The Ordinance also serves as a legal backbone for self-regulated insurance intermediaries, i.e., insurance agents and brokers. OCI introduced the Insurance Intermediaries Quality Assurance Scheme (IIQAS) to require all insurance intermediaries to pass an entry examination and to attend continuing professional development programmemes thereafter.
With an aim to "align with international practice that financial regulators should be financially and operationally independent of the Government," the Financial Services and the Treasury Bureau is planning to replace this existing Office of the Commissioner of Insurance by an Independent Insurance Authority (IIA) in 2015. According to the Bureau, IIA will assume the role as "a prudential regulator of the insurance industry with a view to promoting the general stability of the insurance industry and protecting existing and potential policyholders." The proposed functions of IIA include carrying out direct regulation on the conduct of insurance intermediaries, and assisting the government to maintain the financial stability of Hong Kong by taking appropriate steps in relation to the insurance industry. While industry players are supportive to the establishment of IIA in principle, they are concerned about over-regulation, which can possibly limit growth and create cost burden on insurers.
In addition to the establishment of IIA, insurance operations are bounded by different regulatory requirements that require insurers to exercise a high level of diligence and professionalism in their day-to-day operations. For instance, the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance requires insurers to identify and categorize money laundering and terrorist financing risks at customer levels and apply respective measures. Personal Data (Privacy) Ordinance requires cautious handling of customer data in all aspects of insurance operations. The newly introduced Competition Ordinance will also require insurers to ensure that their operations are competition compliant so as to avoid potential cartel conduct, abuses of market power and other forms of anti-competitive conduct.
Insurance businesses root from the need to manage "risks." Insurers are, on one hand, taking the risks for their customers, through the provision of professional products and services to manage customers' risks and hedge against potential losses, and at the same time, managing their own risks, as a result of the risk taking activities that correlate with the macro-economic environment, market factors, and regulatory requirements. Enterprise risk management strategies, that encompass company-specific policies towards risk governance, risk identification, risk measurement, risk monitoring, and risk control and mitigation, are widely developed amongst insurers to sustain healthy operations and future growth. While insurers are proactively safeguarding their operations against various types of risks, e.g. market, liquidity, credit, and operation risks; regulators are also stepping up their measures to ensure insurers are maintaining adequate level of capital mobility to support the amount and types of risks being underwritten. The Office of the Commissioner of Insurance (OCI) is planning to move from existing rule-based capital regime towards the risk-based capital (RBC) regime, taking into account international standards and characteristics of the Hong Kong insurance market.
Utilizing SCS to Develop a Professional Insurance Workforce
Industry players are keen to develop their workforce with the necessary skills and knowledge to succeed in their roles. Under the Insurance Intermediaries Quality Assurance Scheme (IIQAS), insurance intermediaries, responsible officers, chief executives and technical representatives are required to engage themselves regularly in IIQAS Continuous Professional Development (CPD) Programme to enhance their job-related skills and acquire latest industry knowledge in a bid to ensure that they are providing up-to-standard service to policyholders and potential policyholders.
It is no doubt that generic skills for enhancing personal effectiveness and efficiencies, leadership skills for building excelling teams, and management skills for advancing the development of the organizations are fundamental to the sustainable development of the sector. The STEP analysis in the above also revealed that, in order to cope with the upcoming challenges and tap into the market opportunities, there are a number of development areas in demand, namely investment-linked product knowledge, insurance-related legal and compliance knowledge, marketing, risk management, and crisis management.
To ensure that the workforce are equipped with the appropriate levels of skills and knowledge of the above identified areas and other relevant functional disciplines, industry players can leverage SCS to precisely define the training needs tailored to their operational contexts. The process is easy and straight-forward.
i) Identifying the tasks required to be completed by individual positions
Based on the job specifications that define the roles and responsibilities of individual positions, insurers can leverage the SCS to identify the tasks, as defined in the Unit of Competencies (UoCs), required to be completed by individuals at specific positions. As the corporate development strategies, positioning, products and organization structures of the insurers vary, it is not necessary to have the same set of tasks for positions holding the same titles.
ii) Creating competency profiles
With the tasks of each position identified, the next step will be creating competency profiles, which detail the competence and skills required to successfully complete the identified tasks. The competence requirements of the identified tasks have been clearly defined in the UoCs. Insurers will simply need to consolidate the competence requirements of the identified UoCs to create competence profiles of each position. To ensure that neither tasks nor competence are missing from the profiles, it will be helpful to solicit the help from current job incumbents and their supervisors to review the created profiles.
iii) Identifying the gaps in skills and competence
With the competency profiles on hand, insurers can make use of the profiles to develop their workforce. With the assessment criteria defined in the UoCs, insurers can evaluate the current performance of their employees against the prescribed standards, and thereby identify the gaps between expected and current performance. Training programmes can then be developed based on the identified gaps.
In order to maintain its leading position in the global arena, the insurance industry will need to ensure that its workforce possesses a global perspective, and is highly skilled, knowledgeable, and professional. Only when these qualities are available, industry players will be able to constantly uphold their service qualities to stay ahead of competitions. That said, QF plays a pivotal role to guide the development of skills, professionalism and other important attributes, both systematically and holistically, of our practitioners in the industry.