Insurance Authority "takes aim" at referral fees

On 1 September 2025, the Hong Kong Insurance Authority (IA) distributed a new circular setting out its regulatory expectations for referral fees paid by licensed insurance broker companies. These measures apply only to “participating policies” in relation to section 21B of the Insurance Ordinance (Cap. 41), being certain long-term insurance policies that entitle policyholders to share in the profits of the insurer’s participating business.

Key Takeaways:

• Benchmark: The IA has set a benchmark – referral fees paid to referrers should not exceed 50% of the total commission receivable by a licensed insurance broker for introducing, arranging and servicing participating policies. Exceeding this threshold triggers enhanced disclosure requirements and regulatory scrutiny.
• IA concerns: The IA is addressing risks that excessive referral fees may facilitate unlicensed selling, erode public confidence, and undermine market sustainability. High referral fees could disguise commission rebates or shift regulated activities to unlicensed parties, thereby undermining market integrity.
• Insurer action: Authorised insurers must ensure that broker companies comply with all regulatory requirements when referring business, as part of their intermediary management oversight.
• Enhanced disclosure: Where referral fees exceed the benchmark, broker companies must provide detailed explanations on:
• How clients are sourced
• How referral fee levels are determined
• What safeguards are in place to prevent abuses
• Scope and exemptions: These expectations apply specifically to licensed insurance broker companies dealing with participating policies (as defined under section 21B of the Insurance Ordinance (Cap. 41)). Referral arrangements involving entities regulated by the HKMA (bank regulator), SFC (markets regulator), or MPFA (pensions regulator) are exempt, given their comparable supervisory regimes.
• Regulatory action: Broker companies exceeding the benchmark will face on-site inspections and off-site reviews of governance and controls, which may impact licence renewal. Authorised insurers will also be assessed on their oversight of referral arrangements.
• Compliance deadline: All affected firms must comply with the circular by 1 October 2025.

This circular shows the IA continuing to take stronger steps in the market conduct space and builds on its practice note concerning remuneration structures and commission spreading for participating policies. The IA’s approach reinforces ethical distribution practices, strengthens governance, and safeguards policyholder interests. Broker companies and insurers should review their referral arrangements and internal controls to ensure regulatory alignment with the IA directions. The IA has indicated that it will continue to keep track of market developments to determine whether similar measures should be rolled out to other products or distribution channels, as it sees fit.