On 19 Nov 2025, the HKMA clarified expected standards for premium financing facilities following a review of AI practices, emphasizing the separation of financing from insurance applications, prohibition of return-enhancing promotions, and mandatory disclosure of key risks. The circular mandates aligned repayment terms with policy durations and reinforces good practices for managing customer financial distress, applying to new facilities from 1 January 2026.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 19 Nov 2025, the Hong Kong Monetary Authority (HKMA) issued a circular sharing key observations and expected standards from its review of premium financing activities for insurance policies conducted by Authorized Institutions (AIs) and their subsidiaries, clarifying regulatory expectations to address identified deficiencies and promote consumer protection.
Key Observations on Premium Financing Practices
The HKMA identified that while AIs generally had operational procedures for handling customers in financial distress, improvements were needed in explaining premium financing features and disclosing associated risks. Specifically, frontline staff were found to bundle financing with insurance applications, promote premium financing as a return-enhancing strategy during low-interest periods, and use short-term facilities (e.g., overdrafts) for long-term insurance premiums without adequate risk disclosure, potentially causing repayment burdens upon loan renewal failure.
Expected Standards for Premium Financing Facilities
The HKMA reinforced that premium financing must be presented as a separate payment option distinct from insurance policies, with clear disclosure of terms, risks (including interest rate fluctuations, early surrender penalties, and payment timing mismatches), and suitability aligned to policyholders' repayment capacity. AIs must avoid promoting financing as a return-enhancing tool, ensure appropriate loan tenors matching policy durations, and provide balanced product information. For AIs solely providing financing facilities, standards on disclosure (paragraphs 1.5, 1.7, 2.3, 2.4) apply, while dual-capacity AIs must adhere to all annex standards.
Good Practices for Financial Distress Management
The HKMA highlighted good practices including assessing customers' financial situations to offer tailored solutions (e.g., interest rate adjustments or grace periods for overdue repayments), mitigating distress without compromising repayment obligations. AIs are reminded to exercise due care, promptly address deficiencies, and align all practices with existing suitability requirements to prevent consumer protection concerns.
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