Hong Kong a ‘target market’ for Irish and European insurtechs

Out-Law Analysis | 07 Jun 2022 | 10:11 am | 6 min. read

The insurance and ‘insurtech’ markets in the Hong Kong Special Administrative Region (SAR) offer significant opportunities to European and Irish insurance companies seeking access to key Asian markets.

Ireland is currently positioning itself as a burgeoning hub for insurtech and innovative regulatory compliance solutions (regtech). Major opportunities for successful Irish insurtechs and regtechs will arise from larger markets outside of Ireland, including Hong Kong.

Hong Kong is an international financial hub and an essential gateway to China and the wider Asia-Pacific region, with exceptionally vibrant financial, insurance and technology sectors. The rise of digital consumption patterns, combined with the regional administration’s prioritisation of innovation, create the perfect market conditions. The administration has actively and successfully targeted the growth of Hong Kong’s insurtech market, having leveraged extensively from its experience with wider fintech growth in doing so.

How the Hong Kong insurtech market has developed

The insurance sector is an indispensable part of Hong Kong’s financial economy. In response to market demand and following the trend of wider and smarter use of technology in the broader financial services sector, the insurance industry has also been able to leverage technological developments to bring innovation to their operations and offerings. Against this background the market regulator, the Insurance Authority (IA), spared no effort in promoting insurtech in Hong Kong. The IA has been closely monitoring the development and application of technology in the insurance industry and proactively assisting market participants to tackle insurtech-related regulatory issues.

Leveraging fintech sector experience

The thriving development of fintech in the Hong Kong market has a major influence on insurtech.  Hong Kong is an international financial centre and the Hong Kong government has devoted substantive resources to promoting and supporting the development of fintech in Hong Kong.  Besides the existing Hong Kong Science Park and Cyberport, Hong Kong and Shenzhen are planning a Hong Kong-Shenzhen Innovation and Technology Park in Lok Ma Chau Loop. This shows the government’s commitment to promoting and developing technology in Hong Kong and the Greater Bay Area. Apart from that, the government has also been keen on hosting international conferences to promote fintech locally and globally. Fintech has been a clear priority for the Hong Kong government for a number of years.

Irish insurtech and regtech companies are actively targeting the Hong Kong markets and there are already strong links between the two

As Hong Kong’s fintech sector has grown, opportunities for insurtech have also increased as a lot of innovative ideas and market insights derived from developing fintech can be transferred and applied to the insurance industry. The Future Task Force of the Insurance Industry (FTF), established by IA founding chair Dr Moses Cheng, was set up to promote discussion and make recommendations to drive the development of insurtech in Hong Kong. One of its working groups, “embracing fintech in Hong Kong’, focuses on promoting the application of fintech to the insurance industry. The IA has recognised the importance and the transferrable nature of fintech to insurtech, and has collaborated with the FTF to explore ways to promote and proactively facilitate market participants to develop insurtech innovation by leveraging the Hong Kong market’s experience in developing fintech.

Insurtech sandbox

In 2017, the IA launched its ‘insurtech sandbox’ to facilitate a pilot run by authorised insurers of innovative insurtech applications to be applied in their business operations. Through the sandbox, the IA adopts a flexible approach where the authorised insurers face any difficulty in meeting the its supervisory requirements of the IA. The IA then assesses the data collected from the running of sandbox to consider and form a view as to whether such insurtech applications can broadly meet the relevant supervisory requirements under the IA’s codes and guidelines or other regulatory practices.

Fast track authorisation

The IA also launched a ‘fast track’ pilot scheme in 2017 to expedite authorisations of new insurers owning and operating solely digital distribution channels. The fast track scheme aims to expedite these authorisation applications by providing a dedicated queue and streamlined process compared with other insurance licence applications. The scheme is available to insurers who have an innovative and robust business model that focuses on the use of digital distribution to improve product development, delivery, customer service and cost efficiency of products and services provided to the public.

InsurTech Facilitation Team

The IA has also set up an insurtech facilitation team dedicated to enhancing communication with businesses involved in the development and application of insurtech in Hong Kong and promoting Hong Kong as a hub for insurtech in Asia.

The legislative framework

While there are lots of exciting opportunities in these areas in Hong Kong, companies must also be mindful of compliance with the laws, regulations, and guidance, especially the personal data protection laws in Hong Kong and China as a whole.

In Hong Kong, personal data is protected and regulated by the Personal Data (Privacy) Ordinance (PDPO). The PDPO is a more relaxed piece of legislation than, for example, the EU’s General Data Protection Regulation (GDPR), with six data protection principles, making regulatory compliance easier for insurtech firms. In mainland China, personal data is primarily regulated by the Personal Information Protection Law (PIPL), on top of the Cybersecurity Law and Data Security Law. Some would describe that the PIPL has in many respects aligned with the GDPR. However, since the PIPL only came into force in November 2021, many aspects of the regime remain unclear pending the issuance of further guidance by the authorities. These could ultimately impose equally restrictive requirements on insurtech companies in mainland China.

The IA regularly publishes guidelines giving general guidance to authorised insurers on the insurance business they carry on in and from Hong Kong. Some of the guidelines relevant to digital insurers and insurtechs include:

  • the Guideline on Cybersecurity (GL 20), which took effect on 1 January 2020. The guideline sets out the minimum standard for cybersecurity that authorised insurers are expected to have in place and the general guiding principles the IA adopts in assessing the effectiveness of an insurer’s cybersecurity framework;
  • the Guideline on the Use of Internet for Insurance Activities (GL 8), which applies to insurance activities or transactions authorised insurers and insurance intermediaries conduct on the Internet.

Insurtech opportunities in Hong Kong

A number of digital insurers have emerged in the Hong Kong insurance market in recent years, demonstrating the growing domestic digital insurance market in Hong Kong. These include:

  • Blue, a digital insurer providing life insurance, which was launched in 2018 as a joint venture between Aviva, investment expert Hillhouse Capital, and the global tech giant Tencent;
  • virtual insurer Bowtie, which offers medical insurance. Former financial secretary John Tsang, is an advisor to Bowtie. OneDegree is another virtual insurer offering insurance products ranging from property, pets to personal health care. Both virtual insurers are Hong Kong-based and used to be insurance technology start-ups under the Cyberport Incubation Programme. These two virtual insurers subsequently obtained their respective virtual insurance licences under the IA fast track scheme;
  • traditional insurance companies have also embraced technology innovations in their business. For example, FWD Insurance launched a new one-stop digital platform in 2021, allowing customers to easily purchase an array of insurance products online with multiple promotion offers.

The Hong Kong market also provides opportunities for insurance groups and insurtech operations outside Hong Kong. This has been identified and availed of by a number of Irish insurtech and regtech companies including:

  • Fineos Corporation, a Dublin-based software development company which provides a platform to global group and individual life, accident and health insurance providers. Fineos opened offices in Hong Kong in 2019 as part of its expansion into Asia to support customers deploying Fineos products to their Asian operations;
  • Fenergo, an Irish-headquartered provider of digital transformation, customer journey and client lifecycle management solutions, opened offices in Hong Kong in 2021;
  • Daon, a mobile authentication and biometrics company, has been working with MOX, the Hong Kong bank, for a number of years;
  • Boxever is an Irish customer personalisation platform based on data and artificial intelligence, and is actively targeting Asian insurer customers. It recently partnered with HK Express, a Hong-Kong based low-cost air carrier.

Looking to the future

The above examples demonstrate that Irish insurtech and regtech companies are actively targeting the Hong Kong markets and there are already strong links between the two. In the other direction, Bolttech, a Hong Kong headquartered insurtech group, entered the Irish market in 2020 through a device protection partnership with Three Ireland. All of this demonstrates that despite geographical distance the Hong Kong insurance and insurtech market currently is and will remain a key target market for Irish insurtech firms. In fact, this is likely to increase going forward.

Sarah Chan and Chris Lau of Pinsent Masons contributed to this article.