Press release
LCQ18: Professional indemnity insurance
Wednesday, March 16, 2005
Following is a question by the Hon Howard Young and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (March 16):
Question:
Will the Government inform this Council:
(a) of the types of trades for which professional indemnity insurance (PII) is provided by the insurance industry at present and the total amount of annual premium received from such trades;
(b) of the total amount of compensation claimed from PII over the past five years and the trade which has made the highest amount of claims;
(c) whether it will consider imposing a mandatory requirement that those trades with high operational risks should take out PII; and
(d) as many insurance companies have raised the PII premium for travel agents since the September 11 incident in the United States of America, thereby subjecting travel agents to higher operational costs, whether the authorities will consider setting an upper limit for the compensation amount of each claim so as to reduce the premium concerned?
Reply:
Madam President,
(a) At present, the insurance industry is providing professional indemnity insurance (PII) to different types of trades or professions, including accountants, solicitors, medical practitioners, and directors and officers of corporations. Statistics collected by the Office of the Commissioner of Insurance are for the purpose of prudential supervision of insurers. PII is grouped under the class of "general liability - non-statutory" business with other types of liability insurance, such as contractors' liability and product liability, and separate statistics are not available. According to the latest statistics, in 2003 the annual gross premium received from "general liability - non-statutory" business is HK$1,837.8 million.
(b) The annual amounts of compensation paid out for the class of "general liability - non-statutory" business in the past five years are as follows (in HK$million):
1999 2000 2001 2002 2003
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503.1 638.0 419.3 362.4 613.4
(c) The Government considers that it is not appropriate to impose an across-the-board requirement for those trades or professions with high operational risks to take out PII. Insurance is a risk-assessing and pricing business. The operation risk varies from trade to trade or from profession to profession and from business to business within each trade or profession. It should be best left to individual trade or profession to decide, taking into account such factors as the characteristics and the level of risks concerned, past claims experience, financial capability, the prevailing market situation, the operation and practice of the trade or profession, etc.
(d) Any rise or fall in premium, claims and compensation for professional indemnities in individual business may be the result of many different factors, such as inherent risk of the business and the market situation, etc.
In Hong Kong, the common law recognises the principle of fairness that a wrongdoer should be responsible for the consequence of his acts and omission and be liable to pay to the victim full compensation for the loss attributable to his acts and omission. In assessing the amount of compensation, the principle is to compensate the victim in such manner that his original position can be restored in so far as this can be done by payment of damages. Save in exceptional circumstances, damages awarded are purely compensatory, instead of punitive. From a legal point of view, capping compensation therefore seems to be inconsistent with such common law principles. From a policy point of view, capping compensation will have read-across implication upon other compensation-seeking situations. It may also lower deterrence of malpractice and erode the responsibility for risk management by travel agents.
To strengthen the risk management on the part of travel agents and enhance protection for outbound travellers, the Travel Industry Council (TIC) issued in January 2005 two documents on issues to pay attention to by outbound tour operators when they work with partners outside Hong Kong and a safety checklist for package tours to all travel agents in Hong Kong. These documents aim to help outbound tour operators and tour escorts to enhance both the quality and the safety of outbound tours.
The Administration has been assisting the TIC to communicate with the insurance sector to study the coverage of PII. The concerted efforts of the travel agents and the TIC to reduce the operational risks, and the better communication and understanding between them and the insurance sector would help resolve the issue of insurance premium.
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