XN000022-1995-01-25 — Page 26

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Direct insurers in Hong Kong have so far been able to provide unlimited insurance cover to motorists to insure against their liability for motor vehicle third party bodily injuries by relying on the unlimited reinsurance cover provided by reinsurers. However, following recent shrinkage in reinsurance capacity in the international market, reinsurers in Hong Kong have concluded that it is no longer commercially viable for them to provide unlimited reinsurance cover for this type of policy. Without unlimited reinsurance protection, direct insurers cannot continue providing unlimited insurance coverage to motorists in Hong Kong. Consequently, the requirements of the MVIO, under which a motorist must take out unlimited insurance cover, can no longer be met. It is therefore necessary to amend the Ordinance to specify a minimum obligatory cover that would provide adequate protection for the injured in such circumstances.

The proposed limit of $100 million for any one event is considered appropriate having regard to the capacity of reinsurers to meet claims upon insurers. In proposing this amount, consideration has also been given to the fact that the largest claims for motor vehicle third party bodily injuries insurance have so far not exceeded $15 million per event.

I would like to add that the proposed amendments will not prejudice the right of an injured person to seek compensation over and above the limit of $100 million in the unlikely event that liabilities exceeded that amount. Any excess above the limit will be payable out of the assets of the insured. If any excess liabilities remain unpaid thereafter, the rights of the injured party will be further protected by the compensation funds maintained by the Motor Insurers' Bureau of Hong Kong.

In addition, the Bill proposes to exempt vehicles used exclusively on construction and industrial sites from the requirement for compulsory third party insurance under the MVIO. Such vehicles have always been regarded as plant and equipment. It has been the market practice to insure them by standard all risks insurance policies, not by motor vehicle (third party risks) insurance policies. However, an amendment to the Road Traffic Ordinance (RTO) in 1988 unintentionally may have had the effect of requiring vehicles on industrial and construction sites to be compulsorily insured against third party risk under the MVIO. This in turn may have had the effect of rendering null and void any standard all risks insurance held by contractors for site based vehicles, as such policies exclude liabilities compulsorily insurable under any legislation. In other words, there is a risk that third party claims arising in connection with site based vehicles will not be entertained under the standard all risk insurance policies, resulting in losses to claimants.