OLN

OLN Marketing

Get Ready for Insurtech!

by

Financial technology (fintech), the use of new technology by financial institutions, has shaken up the banking industry in areas such as foreign exchange, mobile payments and peer-to-peer (P2P) lending. Similarly, the use of technology in the insurance sector is accelerating and will have a potentially transformative effect on the development, marketing, sale, underwriting and administration of insurance products in the near future.  The term “Insurtech” has been coined to describe the application and use of technology in insurance. 

Why Insurtech?
In the insurance area, technological advancement is being used to create a more direct and efficient relationship between insurance companies and their retail customers.  Potentially, this will lead to a better customer experience.  Customers can benefit from lower premiums and greater product choice as insurers use big data to improve risk pricing and offer products (including online sales of insurance) customized to individual needs.  Automation of policy administration and claims handling processes using blockchain technology can lead to smoother and quicker processing of insurance claims, a primary concern for policyholders.   At the same time, insurers can benefit from the greater reach and lower cost of a digital sales platform.  Digital record keeping and settlements can also increase efficiency and reduce costs and fraud risk. 

InsurTech Developments
Current notable developments in InsurTech include the following:

1.  Application of blockchain technology in record keeping and policy administration;

2.  Marketing and sale of insurance on digital platforms; and

3.  Application of telematics technology and big data to underwriting and loss prevention.

Blockchain Technology  
Blockchain is the technology underpinning the cryptocurrency Bitcoin, and allows the creation of a distributed ledger that records transactions on a permanent global database on computer servers around the world. These servers work as nodes, with each node holding a complete copy of the data which is stored in tamper-proof blocks (joined in unbroken chains) on the common ledger.  In this way, each member of the network has a complete, traceable record of all transactions and information stored in the ledger, which cannot be changed or added to without the consent of everyone on the network. 

In insurance, an industry which heavily relies on documentation and databases, blockchain has the potential to increase efficiency and improve transparency by allowing parties to insurance and reinsurance transactions to share data and documentation with each other in real time.

Applications or programs can also be built on blockchain to allow automatic execution of contracts composed in computer code (so-called “smart contracts’) which are stored on the shared ledger.  Such smart contracts have the potential to greatly increase the speed and efficiency of claims processing, as well as alleviating fraud risk since the blockchain ledger provides immutable records and tracking.  As an example, life insurance smart contracts can be programmed in future to automatically transfer life insurance proceeds to the beneficiary’s bank account on the policyholder’s death, verified by an automatic real-time check of the online death register.  

Online Marketing & Sales
Going beyond policy administration, new digital platforms are being launched for the marketing and sale of insurance products.  Price comparison websites are already common, particularly in the automobile insurance area.  Taking digital distribution a step further, pure online insurance sales platforms are emerging with insurers directly selling to consumers with no intermediary or human interface.  In particular, online-only insurance companies are starting to take off in China, with the launch of Zhong An, an online-only property and casualty insurer, in 2013.  Backed by Chinese tech giants Alibaba Group and Tencent Holdings, Zhong An is the first and only company in China to date with an internet insurance license.  It has used its digital platform to sell tailored insurance for particular products/services to the mass market, such as shipping return insurance for online purchases on Taobao and flight delay insurance for online bookings on CTrip via links embedded on the platforms of its online market partners.  From inception through to the end of 2016, Zhong An has sold over 7.2 billion policies and serviced some 492 million customers.  It just raised US$1.5 billion in September 2017 by listing on the Hong Kong Stock Exchange in the city’s biggest fintech offering to date.

Telematics & Big Data
Technology is also being used to inform underwriting decisions, including both risk assessment and pricing.  In particular, telematics, the “Internet of Things” (IoT) technology that collects, stores and transmits data about the location, usage, performance and operating status of devices, machines and products, is being used by insurers for ongoing risk profiling and monitoring of customers, allowing them to customize premiums and improve risk pricing.  For example, many auto insurers in the U.S. and Europe now offer premium discounts to customers for installing telematics devices in their cars (which track factors such as speed, braking, acceleration etc.) and then driving in a certain manner.  Similarly, some health insurers are giving customers free fitness tracking devices and then offering to lower their premiums if they meet certain exercise requirements.  Home insurers are likewise offering premium discounts to customers who install cameras, sensors, smoke detectors, leak detectors and other IoT devices in their homes.  In this way, customers are incentivized to reduce their health and accident risks and avoid claims under their insurance. 

Risks and Challenges
In the area of telematics, the primary challenges relate to privacy and security.  Even with the incentive of premium discounts, customers may be reluctant to share private information with IoT device manufacturers and insurance providers, particularly given security and hacking concerns.  To encourage broader customer take-up of IoT devices, better security will have to be built both into the devices themselves and the software applications and network connections linking the devices.  There is also concern about what companies will do with the information collected, much of which constitutes personal data subject to regulation.  For example, collected data could potentially be used to decline insurance altogether to high-risk customers. Thus, regulators will no doubt closely monitor how insurers collect and use IoT data in underwriting having regard to the fair treatment of customers. 

Online marketing and sales of insurance will likewise be subject to regulatory scrutiny.  While more straightforward products such as car and property insurance may quite easily be sold online, life insurance is a different proposition.  There are stringent regulatory requirements in most jurisdictions (including Hong Kong) regarding steps which must be taken by manufacturers and distributors of long-term insurance products in the marketing and sales of such products in order to ensure protection of the best interests of customers.  Requirements regarding undertaking a thorough suitability assessment of the customer’s insurance needs and financial circumstances and clear communication of complex product features and risks may be hard to meet via an online platform. 

Turning to the use of blockchain technology for policy administration, insurers can only take advantage of it after they digitalize and consolidate all of their contracts and data.  The technology itself also presents regulatory challenges since the blockchain is not located in any one jurisdiction making it difficult to regulate.  On the other hand, the transparent nature of blockchain makes the data available to those on the network and risk monitoring presumably more straightforward.    

Where is Hong Kong?
Following in the footsteps of Singapore and the UK, the Hong Kong Insurance Authority (IA) launched an “Insurtech Sandbox” on September 29, 2017.  This Sandbox will allow authorized insurers in Hong Kong to undertake pilot runs of new Insurtech products/applications without the need to get full regulatory approval provided that the initiatives in question meet certain criteria (which include having adequate safeguards to protect customers’ interests during the trial).  A similar pilot scheme was launched by the Hong Kong Monetary Authority over a year ago under which banks in Hong Kong have been running trials of their new fintech products.  It is expected that insurers will follow suit now that they potentially have a safe space try out new technologies without taking on the full cost and regulatory burden of IA supervisory requirements.

At the same time as launching the Sandbox, the IA introduced a pilot scheme “Fast Track” for applications for authorization from applicants who will carry on insurance business in or from Hong Kong using solely digital distribution channels – i.e. without the use of conventional channels involving agents, brokers or banks.  The intention is to promote direct digital distribution of insurance which it is envisaged will bring benefits to customers in terms of new products and cost efficiency. 

Implications
Insurtech has been slow to take off in Hong Kong, partly due to wariness from insurers and their traditional reliance on middlemen (agents and brokers) for distribution of insurance products. Hong Kong currently has approximately 100,000 individuals who are registered either as individual insurance agents, or responsible officers/technical representatives undertaking insurance agency or brokerage business in Hong Kong.   However, increased online sales of insurance by both traditional and newly authorized online-only insurers will allow insurers to interact directly with customers, allowing them to save on agency/brokerage commissions and reduce operating and distribution costs.  Reduction of the need for middlemen in the industry will likely lead to restructuring and redundancies.

On the other hand, and as warned by the IA in relation to the Fast Track scheme, not all insurance products are suitable to be sold online, and the IA’s expectation is that all of its existing “policyholder protection measures should remain intact”.  Stringent regulatory requirements in relation to the marketing and sale of long-term insurance may be a significant barrier to online distribution of life insurance.

Nonetheless, the advent of the Insurtech Sandbox and Fast Track application process for online insurers will likely draw more technology firms into the insurance sector, following the lead of Alibaba Group and Tencent Holdings which collaborated to set up Zhong An.  Traditional insurers will face competition from the new Insurtech startups and have already begun developing and investing in technology so as not to be left behind.  In this changing Insurtech landscape, the challenge for regulators such as the IA will be to develop a regulatory culture which protects customers but at the same time is flexible enough to support new Insurtech products and services.  

Divorce Confidential: Global Overview of Child Custody In Divorce

by

Entertainment journalists are not lacking for work, as juicy gossip about celebrity breakups continue to make headlines across the globe. Last year’s most surprising split being the divorce of mega superstars, Brad Pitt and Angelina Jolie. There have been numerous reports about what caused this picture-perfect relationship to sour, including allegations of misconduct against the children and abuse of alcohol and drugs. Since initial news broke of the split, Brad Pitt and Angelina Jolie have made great strides by keeping details of the divorce under wraps and agreeing on a settlement.  More recently, there is even talk of a possible reconciliation!

In case of Brad and Angelina, what we do know is that when Angelina Jolie initiated the divorce proceedings and her Petition for Dissolution requested “sole physical custody” of the couple’s six children. This is a significant detail because California laws (and most other states across America) encourage “joint custody” of children. An individual who requests sole physical custody for one reason or another usually makes this request because of concerns about the other parent’s ability to care for the children.

While we may never know Angelina Jolie’s real reasons for requesting sole physical custody, the important point is that California law, like most states in the U.S., encourage joint legal and physical custody of children. However, not all jurisdictions across the globe follow these same standards. As a California attorney, now practicing as a Registered Foreign Lawyer (California, USA) in Hong Kong, I have discussed the differing child custody laws between California and Hong Kong with Stephen J. Peaker, head of the Family Law Department at Oldham, Li & Nie (OLN) and a fellow of the International Academy of Family Lawyers (IAFL). To begin, let’s take a look at what joint legal and physical custody means in California and why it’s so important for the health of families of divorce:

1. California Favors Joint Legal and Physical Custody

Joint legal custody means both parents agree to share in the rights and responsibilities to make decisions relating to the health, education and welfare of a child. Joint physical custody means both parents agree to equally share in the physical care of a child. California law encourages divorcing parents to share responsibilities in both the legal and physical custody of a child because parents who share this responsibility are ultimately working towards the “best interests” of a child. The ultimate goal is to ensure the health and success of the child. Many other countries, including England, Scotland, Australia and New Zealand encourage this model of joint parental responsibility and as family law practitioners, it is our hope that other countries will follow this model. Co-parenting, while difficult at times, encourages healthy relationships when a family unit is broken.

2. Legal Custody, Physical Custody & Control In Hong Kong

In Hong Kong, parents are usually given joint legal custody, but with physical care and control to one parent and with reasonable access to the other parent. This is currently done without reference to joint parental responsibility, which fails to encourage separated parents to act collaboratively in the best interests of the child. When joint custody, care and control is given to one parent, too much authority is given to one individual which can sometimes result in the reasonable access parent having less contact with the child and a diminishing role over time despite having joint custody. This issue is especially important in Hong Kong because many local citizens have dual nationality (following the transfer of sovereignty in 1997 from the United Kingdom to China) and many foreign nationals live and work in Hong Kong. When these citizens with dual nationality divorce in Hong Kong, they are in a system where the best interests of children are the primary focus, but where the law is historically the same law as the United Kingdom had prior to the enactment of the 1989 Children Act. Fortunately, Hong Kong courts are making great strides and moving forward towards a more child-centered model. This is good news for parents who wish to continue to nurture a healthy relationship with the children after divorce.

3. Steps Towards Joint Parental Responsibility Focus

The Law Reform Commission of Hong Kong has published a report on “Child Custody and Access” which has been a point of discussion since March 2005. The primary focus of the 72 recommendations in the report is to emphasize continuing responsibility of parents towards their children even after divorce. This is already evident in Hong Kong courts, which are now making more orders for “joint custody” which divorcing couples in California are already accustomed to. In Hong Kong’s premier radio broadcast show called Backchat on RTHK radio, Stephen Peaker, along with other key players in the family law community in Hong Kong discuss why this is significant for families in Hong Kong. Essentially, this new reform is significant because when parents decide to no longer remain as life partners, the children are no longer deprived of having the love and care from both parents.

4. Input from Children

In custody proceedings in California, a child may be given the opportunity to speak his/her mind about preference as to whom he/she would like to live with. Many judges will consider a child’s preference if the child is at an age of maturity and emotion. Hong Kong’s move towards a child-centered focus will now allow a child’s preferences to be brought into the system. Similar to the appointment of minor’s counsel in California, Hong Kong already has a system for separate representation of children via the Official Solicitor. Stephen Peaker praises these reforms and the role of the Official Solicitor as this is an important matter for children and their families. Mr. Peaker anticipates the Hong Kong government will do their best to bring this to the table as soon as possible. Since 2015, the Hong Kong government and the Chief Justice have promoted the introduction of the law as soon as possible, which is a very welcome move.

No matter where you are located across the globe, the focus in a divorce involving children should always be the “best interests” of the children. Even a child-centered model (as seen in California) does not work without the full cooperation of parents in divorce. As I stated in my article about co-parenting, you can take steps to encourage successful co-parenting with 1) regular communication; 2) seeking assistance from a professional when communication is an issue and 3) avoid court litigation because a court can’t always make the best decision for you and your family. Parents working together is always the best option for a healthy future.

Click here for the article published on The Huffington Post.

Safeguard the Board from Email Scam: Asset Recovery and Protections

by

OLN’s partner Anna Chan, and associate, Jonathan Lam were invited by the Hong Kong Institute of Chartered Secretaries to present on the topic of “Safeguard the Board from Email Scam: Asset Recovery and Protections” on 10th April 2017. The 1.5-hour seminar drew over 180 attendees and they were given an overview on various remedial measures and protection procedures in view of the increasing prevalence of email scam. The seminar also touched on protection of board and company secretary, a topic which is of major concern to the attendees as professional company secretaries.

Email us at marketing.oln@oln-law.com to receive a copy of the presentation slides.

Is your personal data at stake because of the increased transparency in tax administration through Automatic Exchange of Information (“AEOI”)?

by

It is an inevitable trend under the international tax reform that countries will be working together to promote transparency in tax administration. Hong Kong, as a responsible international citizen and a leading financial centre, has recently put in place domestic legislation in relation to Automatic Exchange of Financial Account Information (“AEOI”).

1. What is AEOIs?

AEOI is a new system that involves the transmission of bank account holders’ financial information from Hong Kong to an overseas tax jurisdiction with which Hong Kong has entered into an AEOI agreement (or known as an “AEOI Partner”).

The transmission of the information would involve the following steps:-

What sort of information will be furnished and exchanged?

  • Name, address, jurisdiction of resident, tax identification no., the date and place of birth (in case of individuals)
  • Account number
  • Account balance or value as at the end of the specified information period or other appropriate reporting period
  • Interest income, dividend income, other income generated from the financial assets, gross proceeds from the sale or redemption of financial assets

Whom will the IRD exchange information with?/ Who are our AEOI Partners?

  • From 2018 onwards: Japan, United Kingdom for information of the preceding year
  • From 2019 onwards: Korea
  • Timeframe to be determined (legislation in progress): Belgium, Canada, Guernsey, Italy, Mexico, Netherlands

Additional jurisdictions will be added to the list upon signing of the following agreements with Hong Kong:-

  • A comprehensive avoidance of double taxation agreement (“CDTA”) or tax information exchange agreement (“TIEA”); and
  • A competent authority agreement (“CAA”)

2. Which account holders will be reported?

  • Account holders (both individuals and entities) who are subject to taxation as a resident in other jurisdictions.
  • Hong Kong taxpayers who are not tax residents of any territory outside Hong Kong will not be reported.

How will the reporting financial institutions identify the accounts held by tax residents of other jurisdictions?

The Inland Revenue (Amendment)(No.3) Ordinance 2016 provides the reporting financial institutions with the legal basis to collect the required information from account holders:-

(1) For accounts opened on or after 1 January 2017

Reporting financial institutions should request a self-certification from the account holder.

(2) For pre-existing accounts

If a reporting financial institution has doubts about the tax residence of an account holder, it can seek a self-certification from the account holder to verify its tax residence.

Will the account holders be sanctioned?

As a self-certification is a formal declaration that the account holder makes in connection with his / her tax residence, if the account holder has doubts about his / her tax residence, professional advice should be sought.

An account holder who knowingly or recklessly provides a statement that is misleading, false or incorrect in a material particular in making a self-certification to a reporting financial institutions is liable on conviction to a fine at level 3 ($10,000).

For a deeper discussion or any enquiry, please contact one of our members of the Tax Advisory team.

OLN Sponsors the ALB In-House Counsel Summit

by

On Tuesday the 12th of September 2017, OLN sponsored the ALB In-House Counsel Summit held at the Conrad Hotel. Big thank you to our Partners Richard Healy, Chris Hooley and Anna Chan; as well as Senior Associate Carmen Tang, Associate Jonathan Lam and Consultants Adelina Wong and Gary Wong for volunteering and representing OLN.

This was a great opportunity for OLN to increase our brand presence among in-house counsels and other legal practitioners — as well giving our members the chance to network and be a part of the various workshops.

There were approximately 500 attendees that registered for the different workshops throughout the day; with heavy foot traffic passing our booth situated outside the Grand Ballroom. We were in contact with a variety of guests; many of which were interested in our practice areas and particularly our mints and golf tees!

We hope to build on the success of this event for the upcoming 2017 In-House Congress Hong Kong on the 10th of October 2017 at the Marriott Hotel where Partner, Anna Chan will be delivering a presentation on “Cybersecurity and Data Privacy”. More details to follow.

Legal Assistance for Fintech Start Ups

by

Hong Kong’s “start ups” have seamlessly moved away from “dot.com” to “Fintech”, but irrespective of the actual business of the “start ups” and irrespective of the “APP” or the “tech solution” involved, there are still a number of basic business rules that should apply and which will assist in reducing Founder risk and in making the business as attractive as possible to Investors.

OLN’s Corporate Commercial Practice Group can assist with strategizing on each aspect of the “start-up”, whether that is “pre” start up when looking for initial funding, when the start up is operational, or when there is business growth and the need to look for additional funding or investment.

All these aspects will invariably require clarity of thought and in having documentation that is properly tailored to the operational and business needs of the company.

In this respect, are you aware of all the different types Hong Kong Government funding that could potentially be available to you: https://www.gov.hk/en/business/supportenterprises/funding/. OLN can assist in all procedures and applications for trying to secure such funding.

OLN’s Corporate Practice Group has extensive knowledge, not only acting for Founders, but also acting for private equity investors, so OLN can assist and provide all background information to move forward with the tailored drafting of:

  • Non disclosure agreements;
  • The Term Sheet or Memorandum of Understanding;
  • The commercial terms for the Founders to enable them to put a Shareholder Agreement in place;
  • The Employment Contracts for staff members;
  • All protections to enable relevant intellectual property to be registered;
  • Privacy Policies and in ensuring that data protection principles are understood and dealt with; and
  • Corporate compliance procedures, which will need to be upheld at operational level.
  • We can also assist and advice on the strategy for the use of block chain, smart contracts and cryptocurrencies and in ensuring that all regulatory guidelines are adhered to and or approvals obtained on any aspect of the intended business, especially where data privacy and data protection is involved.

 
OLN’s ongoing work with the Trade and Industry Department and with the Hong Kong Science Park enables us to have a clear understanding of what “start ups” and SMEs practically need.
OLN’s services are tailored to be as practical and pragmatic as possible, so that each client receives proper input and advice relevant to their actual business and needs.