Licensing of insurance intermediaries: brokers, agencies, responsible officers and fit and proper criteria
The perimeter
A person may not carry on a regulated activity - advising on, or arranging, a contract of insurance - unless licensed by the IA, is an authorized insurer, or is a bank acting as a registered institution. Introducing a client to an insurer for a fee, or "just passing the application along", is arranging and requires a licence.
The four licence types
- Licensed insurance agency company and licensed insurance broker company.
- Licensed insurance agency (individual) and licensed insurance broker (individual).
Every company licensee must have at least one responsible officer (RO) approved by the IA - an individual licensee with the experience and authority to supervise the business. The IA can also withdraw an RO approval.
Agent versus broker
An agent is appointed by one or more insurers under a written agency agreement and acts for the insurer; it may be paid commission by the insurer. A broker acts for the client, must be independent of insurers, must put the client's interest first, must carry professional indemnity insurance and must account for its remuneration. A broker cannot be appointed by an insurer.
Fit and proper
The IA assesses financial status (an undischarged bankruptcy is a bar), qualifications and experience, competence (IIQE papers and CPD), integrity (convictions involving fraud or dishonesty, adverse regulatory findings), management and governance (ROs, compliance, resources) and a substantial presence in Hong Kong. The same criteria govern ROs and continuing eligibility, not just the initial application.
Application, renewal and changes
Applicants submit the IA's forms, examination results, company documents and fee. Licences run for three years and must be renewed before expiry. Licensees must notify the IA of changes - address, directors, ROs, shareholding, cessation of business - within the prescribed period, and the register of licensees is public.
Worked example
Mr Chan has eight years' bancassurance experience and wants to set up a broker company. He needs an individual broker licence, approval as RO, a company licence with the prescribed capital, net assets and professional indemnity cover, a business address and a compliance plan. As sole RO he must genuinely supervise; lending his name to a firm run by someone else is a fit-and-proper failure.
Traps
- Treating the company licence as covering its sales staff - each individual needs a licence.
- Confusing an agent's duty to the insurer with a broker's duty to the client.
- Assuming RO status is an internal job title rather than an IA approval.
- Forgetting notification duties: silence about a change of RO or director is itself a breach.