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Insurance galvanizes economic development and growth by enhancing the efficiency and depth of the financial sector. This role is manifested in various ways such as promoting use of risk identification, management and mitigation measures, creating a source of long-term finance through contractual savings products, and directing investment towards debt and equity instruments. As prudent institutional investors, insurers also help to induce ethical behaviour, encourage stronger corporate governance and promote greater disclosure. It is fair to say that the emergence of Hong Kong as an international financial centre does owe much to unwavering efforts and dedication of the industry.

Financial services have become a kingpin of the local economy. In 2005, total premiums of the insurance industry grew by 13.2% to $137.3 billion, making up 9.9% of our GDP. This strong performance is again led by long term business whose office premiums in force grew by 16.6% to $114.8 billion, with individual life business making up 85.6% of the total. Meanwhile, the total number of individual life policies in force surged by 8.9% to 6.6 million, representing a penetration of 95 policies per 100 Hong Kong people. Such a trend sustained throughout the first three quarters of 2006 when office premiums of new long term business leaped by 20.8% over the same period in 2005 to reach $38.4 billion.

General insurance business remained stagnant in 2005, moderating from a negative growth of 5.9% in the previous year. Nonetheless, improved claims experience paved way for an increase of underwriting profit by 12.4% to $2.5 billion, while a sum of $2 billion was registered in the first three quarters of 2006. Although this outturn is partly attributable to rational pricing and disciplined underwriting, intense competition will continue to loom over the performance of this sector. Launching of a qualifying examination for travel agency staff in May 2006 should lead to better public understanding and acceptability of travel insurance, thus presenting new business prospects. The recent entry into Hong Kong by global players engaging in trade and credit insurance also bodes well for product diversity and innovation.

Against the backdrop of a highly matured market, an ageing population and rising general affluence, many insurers are already venturing into retirement planning and wealth management to meet consumer demands. The Insurance Authority will focus his attention on product design and marketing strategies to ensure that the interest of policyholders is properly safeguarded. In this respect, we will place emphasis on assessment of client needs, quality of customer service and adoption of good practices.

A vibrant and progressive regulator should not only be content with effective enforcement of prescribed standards, but should also strive to enrich its knowledge and understanding of changing market dynamics. To this end, the Insurance Authority will forge a close partnership with other relevant regulatory bodies to pursue worthwhile initiatives such as coordinated enforcement actions, systematic information exchange and staff secondment programmes.

In light of the international shift towards risk-based regulatory regimes, Government needs to take up the proposal to establish an independent Insurance Authority. This exercise involves a host of complex issues and considerations, on which industry stakeholders will be duly consulted. Looking ahead, the Insurance Authority will collaborate with industry practitioners to open up new frontiers as envisaged in the Report on Economic Summit on China's 11th Five-Year Plan and the Development of Hong Kong.

Clement Cheung
Commissioner of Insurance
January 2007