Summary of IA Circular: HKMA Circular on Remuneration Structures of Licensed Insurance Intermediaries
1. Document Overview
This document is a formal circular issued by the Insurance Authority (IA) on 5 June 2026. Its primary purpose is to draw the attention of authorized insurers and licensed insurance intermediaries to the Hong Kong Monetary Authority (HKMA) circular titled *"Remuneration Structures of Licensed Insurance Intermediaries which are Authorized Institutions for Participating Policies with Regular Payment Terms."*
The document serves as a regulatory directive to ensure that the commission structures for participating policies with regular payment terms are designed to align the interests of intermediaries (specifically those that are Authorized Institutions) with those of policyholders. It emphasizes a consistent regulatory framework between the IA and the HKMA to ensure fair conduct and long-term service support for consumers.
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2. Main Content
The circular establishes the regulatory expectations concerning commission spreading requirements for Authorized Institutions (AIs) acting as licensed insurance intermediaries. The core content focuses on the following:
- Alignment of Interests: The fundamental principle is that remuneration structures must be properly "prorated." This ensures that the intermediaries are incentivized to provide not just pre-contract sales services, but also ongoing, high-quality service throughout the life of the policy.
- Regulatory Synergy: The circular bridges the gap between the IA’s *Practice Note on Remuneration Structures of Authorized Insurers for Licensed Insurance Intermediaries for Participating Policies* (issued 30 July 2025) and the HKMA’s specific requirements for AIs.
- Holistic Application: The document mandates that the Practice Note and the HKMA Circular must be interpreted and applied as a single, comprehensive regulatory framework.
- Insurer Responsibility: Authorized insurers are explicitly expected to factor these requirements into the design of remuneration structures for any appointed licensed insurance intermediaries that operate as AIs.
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3. Key Changes and New Requirements
While the circular reiterates the necessity of alignment, it introduces or reinforces the following specific requirements:
- Mandatory Commission Spreading: There is an explicit expectation for commission spreading for participating policies with regular payment terms. This moves away from front-loaded commission models that may encourage short-termism.
- Integration of IA and HKMA Standards: Intermediaries must now comply with a harmonized set of rules where the IA’s "Practice Note" serves as the primary guidance for policyholder protection, while the HKMA’s "Circular" provides the specific enforcement framework for those intermediaries that are also AIs.
- Design Accountability: Authorized insurers now face an active duty to audit and modify their existing remuneration architecture to ensure compliance with the criteria set out in the HKMA Circular.
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4. Important Dates
- 30 July 2025: Original date of the Insurance Authority’s *Practice Note on Remuneration Structures of Authorized Insurers for Licensed Insurance Intermediaries for Participating Policies*.
- 5 June 2026: Date of issuance for the HKMA Circular and the corresponding IA Circular for intermediaries.
*Note: As this circular references existing frameworks, institutions are expected to be in immediate compliance with the standards defined in the referenced documents.*
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5. Impact Scope
The scope of this circular is highly targeted but impacts a significant sector of the financial industry:
- Applicability: The circular applies to all insurance products categorized as Participating Policies with Regular Payment Terms.
- Affected Entities:
- Authorized Insurers: Specifically those carrying on long-term business.
- Authorized Institutions (AIs): Those acting as licensed insurance intermediaries.
- Licensed Insurance Broker Companies & Agencies: Only in the context of their regulated activities in respect of long-term business.
- Impact Level: High. This impacts the compensation model and revenue recognition timing for AIs, requiring potential system updates in how commissions are calculated, paid, and spread over the duration of the policy term.
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6. Compliance Requirements
To ensure full compliance, insurers and intermediaries must take the following steps:
- Framework Review: Conduct a comprehensive gap analysis between current commission structures and the requirements set out in the HKMA Circular and the IA Practice Note.
- Structural Realignment: Modify remuneration schemes to adopt a "prorated" approach, ensuring that payouts are spread over the premium payment term rather than being overly front-loaded.
- Ongoing Service Integration: Ensure that the remuneration structure supports the provision of continuous policyholder services, not just initial acquisition.
- Reporting and Oversight: Maintain internal records demonstrating how the remuneration structure aligns with policyholder interests. The IA and HKMA may request evidence of this alignment during supervisory reviews.
- Inquiries: For specific implementation guidance or interpretations, entities should direct their correspondence to
conductsupervision@ia.org.hk.
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7. Technical Details and Definitions
- Participating Policies: Insurance policies that share in the profits of the insurer, typically through the distribution of bonuses (reversionary or terminal) to the policyholder.
- Regular Payment Terms: Policies where the premium is paid in installments over a defined period, rather than a single lump-sum (single premium) payment.
- Commission Spreading: A remuneration design that distributes the total commission payable to the intermediary over multiple years, rather than concentrating the majority of the commission in the first year of the policy.
- Authorized Institution (AI): An institution authorized under the *Banking Ordinance* to carry on banking business, which may also be licensed to carry on regulated insurance activities.
- Licensed Insurance Intermediary: An entity or individual holding a license from the IA to carry out regulated activities (broking or agency services) in relation to insurance products.
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8. Summary of Appendices/References
The document acts as a reinforcing circular rather than a standalone standalone manual. Its primary strength lies in its reference to two key documents:
- IA Practice Note (30 July 2025): This serves as the foundational regulatory document for "Remuneration Structures for Participating Policies." It defines the "what" and "why" regarding the protection of policyholder interests.
- HKMA Circular (5 June 2026): This acts as the enforcement and technical guideline for "Authorized Institutions." It provides the specific "how-to" for entities that are supervised by both the IA (as intermediaries) and the HKMA (as banks/AIs).
Together, these form a "comprehensive regulatory framework" that requires a holistic interpretation. Authorized insurers are cautioned against applying these rules in silos and are expected to harmonize their internal conduct policies with both sets of requirements.