ENG-2007 — Page 121

Financial and Monetary Affairs ❘ 81

Recent Developments

The IA oversees the well being of the insurance market and the insurance needs. of the insuring public. To address public concerns over the lack of coverage for certain high-risk trades and emerging calls for a central employees' compensation scheme, the Employees' Compensation Insurance Residual Scheme was successfully launched in May 2007. The scheme is operating on a co-insurance arrangement entered into by all employees' compensation insurers. Under the scheme, any employer who has been declined by no less than three insurers or has received three successive quotations in excess of the benchmark premium rate are eligible to apply. for coverage.

The IA, on behalf of the Government, entered into a market agreement with insurers in June 2007 to extend, at no extra premiums, the territorial scope of all existing motor and employees' compensation insurance policies to cover Shenzhen Bay Port Hong Kong Port Area (HKPA) after it began operation on July 1, 2007. The market agreement serves as a cost-effective and convenient means to resolve the problem that insurance policies issued prior to July 1, 2007 would not automatically cover the HKPA, which would pose potential problems to motor and employees' compensation policyholders.

In line with international supervisory principles and to keep pace with rapid development of the insurance market, the Government is looking into the proposal of turning IA into an independent regulatory authority. In this regard, a consultancy study was commissioned in November 2007 to look into the various aspects of an independent IA. Taking into account the consultant's recommendations, the Government will prepare proposals on the setting up of an independent IA for consultation with stakeholders.

The IA had commissioned a consultancy study on the need and feasibility of establishing Policyholders' Protection Funds (PPFs) in Hong Kong, and the final consultancy report was issued in March 2007. In light of the findings in the final report which revealed that while a form of PPF scheme might work in Hong Kong, its success would depend heavily on the scope and nature as well as availability of industry and public support, the Government is focusing attention on developing together with the insurance industry a post-funded contingency plan that does not require legislative backing to cope with potential insurer insolvencies in future.

The IA had commissioned another consultancy study in September 2003 to examine the supervisory regime of the assets of long-term business insurers. This study focused on an appropriate asset valuation framework and the need for a more robust mechanism to safeguard the interest of Hong Kong policyholders upon failures of long-term insurers. The study was completed, and the IA will pursue administrative measures to strengthen its monitoring regime on long-term business insurers.

To facilitate mutual assistance and exchange of information, the IA concluded a Memorandum of Understanding respectively with the

the Australian

Australian Prudential Regulation Authority and the Isle of Man Insurance and Pensions Authority in February 2007.