Press Release

Employees Compensation Insurer Insolvency Scheme

Thursday, January 23, 2003

The Employees Compensation Insurer Insolvency Scheme ("ECIIS"), which will take over from the existing Employees Compensation Assistance Scheme ("ECAS") the responsibility to protect employees compensation (EC) policyholders from insurer insolvency, will soon be established by the insurance industry.

'Insolvency of EC insurers would create sudden and substantial strain on the cash flow of the ECAS Fund. This is undesirable,' a Government spokesman said today (January 23).

'We conclude that it would be appropriate for the insurance industry to set up a dedicated ECIIS to meet claims arising from insurer insolvency, and to excise insurer insolvency from the scope of the existing ECAS. The Employees Compensation Assistance (Amendment) Ordinance ("Amendment Ordinance"), enacted by LegCo in June 2002, already contains provisions for such excision which have not yet come into operation.'

'To ensure that all EC insurers will join the ECIIS and policyholders will be adequately protected, the details of the ECIIS will be set out in an agreement to be entered into between the Government and the ECII Bureau (ECIIB), a non-profit making body to be established by the insurance industry to administer the scheme. The insurance industry together with the concerned Government departments is now finalising the relevant legal documents.'

The Government spokesman emphasized that the rights of EC policyholders and claimants will not be affected by the new arrangement.

The Government spokesman added, 'The scope of ECIIS and the claims and settlement procedures will largely be the same as those under the existing ECAS. It will be financed by contributions made by EC insurers, the level of which to be determined by ECIIB after seeking actuarial advice and consulting the Government.'

The insurance industry intends to establish the ECIIB in early 2003. It will be given a year to accumulate funds through contributions made by EC insurers before taking over from ECAS. The date of take over will coincide with the commencement of the exclusion provisions in the Amendment Ordinance, currently scheduled for early 2004.