LegCo Panel on Financial Affairs

Information Note on the Regulation of the Health Insurance Industry


Health insurance insures a person against the risks of pecuniary loss to him due to sickness, infirmity or incapacity.

2. Majority of the health insurance contracts are in the form of an annual contract, which provides protection mainly against medical and other related expenses, e.g. hospitalization, theatre and doctor's fees. Besides being available in a stand-alone policy, health insurance may also be purchased as an "extra" or "rider" to a life insurance policy.

3. Some health insurance contracts may be purchased in the form of a permanent health insurance policy which pays out specified benefits/income when the insured is unable to work due to sickness, infirmity or accident.

Market overview

Authorized insurers

4. Under the Insurance Companies Ordinance (Cap. 41) ("Ordinance"), no person is allowed to carry on any class of insurance business in or from Hong Kong except authorized by the Insurance Authority. As at 31 May 1996, there were 221 authorized insurers in Hong Kong, out of which 161 (73% of total) are authorized to carry on health insurance business. Premium rates and policy terms for health insurance business are not subject to any form of regulation. Insurers are therefore competing with each other on the basis of product design and pricing. In view of this and the number of authorized insurers, there is sufficient competition in the health insurance market.

Gross Premiums

The gross premiums for health insurance business have experienced an average increase of about 23% in the past 3 years. For the year 1994, it recorded gross premiums of HK$2,079 million, representing an increase of 21% over the previous year. The relevant statistics are shown in Table A below. The increase in premiums is believed to be the result of the increasing consciousness of people towards health and the need for this insurance protection.

Table A

1994 1993 1992 1991

Gross Premiums (HK$m)





Increase Rate over

Previous Year (%)




6. The statistics on the gross claims paid and underwriting profits are as shown in Table B below. According to the statistics, the health insurance business attained an underwriting profit of about 5% of gross premiums for the past four years from 1991 to 1994.

Table B

1994 1993 1992 1991

Gross Premiums (HK$m)





Gross Claims Paid(HK$m)





Underwriting Profits (HK$m)





% on Gross Premiums





The Medical Insurance Association of Hong Kong Limited

7. The Medical Insurance Association of Hong Kong Limited, a member of the General Insurance Council of Hong Kong, is an association of medical insurers formed for the purposes of promoting and developing medical insurance business and collecting relevant statistics for use by its members. It however does not set premium rates or policy terms for its members. Currently, it has 40 members which together wrote about 80% of the market premiums in respect of health insurance business for 1994.

Regulatory system

8. Insurers carrying on health insurance business are subject to the same prudential requirements stipulated in the Ordinance as other insurers. The purpose of these requirements is to ensure the solvency of an insurer so that it will be able to meet its liabilities when they are due. These include requirements on minimum paid-up capital, solvency margin, fitness and propriety of directors and controllers, maintenance of assets in Hong Kong and adequate reinsurance arrangements.

9. The minimum paid-up capital required for an insurer carrying on health insurance business is HK$10 million. The insurer is also required to maintain surplus assets of a value not less than the solvency margin. The solvency margin is determined by reference to the amount of its premium income (generally calculated at one-fifth of its net premium income after reinsurance), subject to a minimum amount of HK$10 million.

10. Another major requirement is that the directors and controllers (generally those holding more than 15% of the shareholding) must be fit and proper persons to hold the position. The Insurance Authority is empowered to object to the appointment if the need arises.

11. To ensure that there will be sufficient assets available in Hong Kong to meet the legitimate claims of the Hong Kong policy holders, an insurer is required to maintain assets in Hong Kong of a value not less than its net liabilities plus the solvency margin attributable to Hong Kong insurance business.

12. For the purpose of monitoring compliance with the above requirements, an insurer carrying on health insurance is continually monitored by the Insurance Authority through examination of its annual financial statements and business returns. These returns may be supplemented by more frequent reporting of additional information which may be requested by the Insurance Authority if he has identified any cause for concern.

13. There are also legislative provisions enabling the appointed auditor or actuary of an insurer to report irregularities to the Insurance Authority.

14. The Ordinance also empowers the Insurance Authority to take interventionary action against any insurer who gives cause for concern. The major powers of intervention are :-

  1. Restrictions on New Business - Not to effect new contracts or renew or vary existing contracts.
  2. Custody of Assets - Assets to be held by a person approved by the Insurance Authority as trustee for the insurer. Any mortgage or charge subsequently made on such assets will be invalid.
  3. Limitation of Premium Income - To restrict the amount of premium an insurer can write within a specified period.
  4. Appointment of Manager - To appoint a manager to manage the affairs, business and property of an insurer when deemed appropriate by the Insurance Authority for the protection of policyholders or potential policyholders.
  5. Making of Statutory Bank Deposits - To require the making of bank deposits in the name of the Insurance Authority in trust for the insurer.
  6. Residual Powers - To make any other requirements as may be considered appropriate for the protection of policy holders' interests.
  7. Winding-up - To petition to the High Court for the winding up of an insurer which is insolvent.

Last Updated on 18 Aug, 1998