Insurance Authority bans former insurance agent for six years for misappropriating and mishandling premium

20 December 2023

The Insurance Authority (IA) has banned a former insurance agent from applying for a licence for six years for mishandling and misappropriating the premium payments from two policy holders.

In 2014, the agent sold critical illness insurance policies to a friend whom he had known since childhood and his friend’s wife. In November 2017, the agent informed them that if they changed their current monthly premium payment mode to annual payment, they would be entitled to a discount. This was a lie by which the agent induced his clients into cancelling their auto-payment arrangement and into depositing their annual premium to the agent’s personal bank account. Instead of paying the premium onto his appointing insurer, the agent diverted the funds for his own personal use. Both insurance policies lapsed in January 2018 for non-payment.

In October 2018, the agent told his clients that the same premium discount would be available if the renewal premiums were paid that week. The agent even offered to pay the premium on their behalf if they were unable to come up with the funds in time, so they could take advantage of the discount. The clients took him up on the offer and, trusting that he had made such payment, transferred their renewal premiums to the agent. Not only was the premium discount a lie, however, the agent had never paid the premium to the insurer and the insurance policies had already been lapsed for ten months.

The truth was revealed when the clients submitted claims under their policies, via the agent, thinking they were still in-force. Initially the agent made various excuses when asked about the status of the claims and the policies. Eventually, however, the clients discovered the true position when they contacted the insurer. Confronted by his clients, the agent returned the premium payment he had received in 2018, but not the premium payment for 2017 in the sum of HK$20,149.70.

The agent admitted his wrongdoings during the IA’s investigation.

This case demonstrates the level of trust that members of the public place in insurance intermediaries to help them arrange insurance and the reason why integrity and ethics are a fundamental prerequisite to serving as an insurance practitioner. Trust is the enabling dynamic for the insurance market and the means by which insurance is able to fulfil its vital social function. If an insurance intermediary breaches that trust through unethical behaviour, regulation must step in to punish with an unequivocal message of intolerance for such actions.

In this case, the betrayal of trust was significant. This was not just a client relationship, but a childhood friendship on which the insurance agent had leveraged for dishonest personal gain. After the agent had successfully deceived his clients the first time in 2017, he succumbed to the temptation to do it a second time in 2018. On this second occasion, the deception was more elaborate. The agent drew the clients into paying him, by creating a sense of reciprocation based on the pretense that he had paid the premium on their behalf so they could benefit from the fictitious premium discount. A third set of lies followed, as the agent sought to explain away why the claims were not being paid.

The ethical line between right and wrong is a clear and bright one. Once crossed, however, it blurs and darkens making it easier to cross a second time and then a third time until the line disappears altogether in the perpetrator’s mind. This is the nature of ethical fading and in this case it resulted in the betrayal of a friendship, the worst kind of treachery.

Whilst it may not be uncommon for members of the public to buy their insurance through an insurance agent with whom they have a friendship or to whom they are related, the agent is held to the same professional standards and ethics under the insurance regulatory framework irrespective of any personal relationship which exists. Where an insurance agent abuses both his position as an agent and as a friend to misappropriate premium, the IA will have no hesitation in punishing this intolerable behaviour with the penalty it deserves. Put simply, there is zero tolerance for such conduct.

Policy holders are urged always to use the official payment channels provided by the insurer for paying of premium. Individual insurance agents are not permitted to accept payment of premium into their personal bank accounts and policy holders are advised never to make payment by this means.

Since the facts took place before the current regulatory regime for insurance intermediaries came into force on 23 September 2019, the IA has been constrained to decide the case by applying the applicable rules that were in place at the relevant time. Within these constraints, however, the six-year prohibition reflects the IA’s intolerance for the unethical misconduct displayed. In deciding the disciplinary action, the IA has weighed all relevant circumstances in the balance, including:

1. The deliberation in the agent’s actions to mislead and deceive;
2. The agent covered up the truth about the policies having lapsed;
3. The agent obtained financial benefit from his conduct;
4. The client was unable to claim for the medical expense incurred as a result of the lapsed policies;
5. The agent’s admission of his actions; and
6. The need to send a strong deterrent message against mishandling and misappropriation of premiums.

For further information on the IA’s enforcement work, please see the “Enforcement News” section of the IA’s website. Public disciplinary actions against licensed insurance intermediaries may also be searched on the Register of Licensed Insurance Intermediaries on our website.

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