The Estate Agency Referral Scheme
Prosperity Homes is a 12-person estate agency in Kwun Tong with no insurance licence. Its manager signs a referral agreement with Kingsway Insurance Brokers Ltd, a licensed broker. Under the arrangement, Prosperity staff receive HK$800 for each completed home-protection policy. Kingsway provides a one-page script that asks about age, dependants and outstanding mortgage, then tells staff to recommend the best plan and help customers complete the proposal form. In practice, a Prosperity negotiator sends a WhatsApp message to a customer comparing two policies, states that Plan A has much better critical illness cover, and collects the signed form and premium cheque. Kingsway's compliance officer says the arrangement is exempt because Prosperity only introduces customers and the HK$800 is a marketing fee, not commission. A customer later asks whether the negotiator is regulated. Kingsway has no file recording the referral arrangement beyond the signed agreement.
1. Was Prosperity Homes or its negotiator performing a regulated activity? Explain the licensing consequences for Prosperity and Kingsway.
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A referral is not automatically exempt because it is labelled a marketing fee. The key question is what the person actually does. Regulated activity includes negotiating or arranging contracts of insurance, inviting or inducing a person to enter into a contract, and giving advice on insurance. A pure introduction, with no advice, no comparison, no negotiation and no handling of the application or premium, may fall outside licensing. Here the negotiator went further: he compared two policies, recommended Plan A, completed the proposal form and collected the premium. Those acts look like advising, arranging and inducing.
Prosperity therefore cannot rely on the referral label. It would need to be licensed as an insurance agency, and the individual negotiator would need to be licensed under it, with responsible-officer supervision. Kingsway, as the licensed broker, cannot use an unlicensed third party to perform regulated activities on its behalf. Accepting business generated through unlicensed activity can expose Kingsway to disciplinary action even if Kingsway did not instruct every act. Unlicensed regulated activity is also an offence under the Insurance Ordinance.
2. What supervisory and record-keeping steps should Kingsway have taken before and after accepting referrals from Prosperity?
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Kingsway should have treated the arrangement as a distribution channel, not a paper agreement. Before accepting referrals it should have done due diligence on Prosperity, defined in writing who may say and do what, trained the staff on the boundary between introduction and regulated activity, and required any advisory or application work to be handled by licensed persons. The script itself is evidence of the intended role and should have been reviewed by compliance.
After acceptance, Kingsway should monitor communications and sampled cases, keep records of referrals, fees, training, complaints and supervisory reviews, and check that customers receive required disclosures. Success-based payments should be analysed carefully because they can encourage selling behaviour. If the arrangement is not exempt, Kingsway should stop it until the licensing structure is corrected. The responsible officer should be able to show active oversight, not merely a signed contract.
3. If the Insurance Authority investigates, what powers and sanctions may be relevant to Kingsway and its responsible officer?
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The Insurance Authority may investigate the licensed broker and its responsible officer, require production of records and explanations, and assess whether Kingsway has breached licensing, conduct or supervisory requirements. The fact that the conduct was carried out by a referral partner does not remove Kingsway's responsibility to supervise its business. The responsible officer's role is to ensure compliance, so a failure to identify and control the arrangement is directly relevant.
If a breach is found, disciplinary powers may include a reprimand, a fine, suspension or revocation of the licence, and other conditions. The Authority may also consider the fit and proper status of the responsible officer. In deciding the response, it would look at the nature and duration of the conduct, whether customers were misled, whether the firm cooperated, and whether remedial steps were taken. A claim that the fee was only marketing would not decide the case; the actual activities and control failures would.