Get to know the insurance premium levy required by the Hong Kong Insurance Authority

This image shows a jar laying sideways with coins spilling out of it for the IA insurance premium levy article.

Ever since 2018, the Hong Kong Insurance Authority (IA) has been collecting insurance premium levies from policyholders. Whether it's a new policy or a long-existing one, the policyholder must pay an additional insurance levy. 

That said, due to the COVID-19 pandemic, the Motor Insurers' Bureau recently announced that they will stop collecting levies for car insurance for one year in hopes that this will help drivers cut their expenses. So, just how do we calculate the IA insurance levy? Why did the IA decide to collect premium levies in the first place? In this Kwiksure article, we'll answer these questions for you - from simple to complex. 

What is the IA premium levy in Hong Kong? 

The IA insurance premium levy is a new surcharge that became mandatory in 2018. Every time an insured person pays the premium, they must also simultaneously pay the levy. This levy is required of most insurance plans in the market, such as life, travel, car, liability, home insurance, and more. Reinsurance and policies from captive insurers, as well as air and marine cargo and shipping insurance, are the only exceptions where the IA levy isn't collected. 

Collection of the premium levy will be divided into four phases, starting from 0.04% before gradually increasing to 0.1%. The levy rate and limit for each phase are as follows:

Name

Phase 1

Phase 2

Phase 3

Phase 4

Time range

January 1st, 2018 to March 31st, 2019

April 1st, 2019 to March 31st, 2020

April 1st, 2020 to March 31st, 2021

From April 1st, 2021 onwards 

Levy rate

0.04%

0.06%

0.085%

0.1%

Levy cap

Life insurance

HKD $40

HKD $60

HKD $85

HKD $100

General insurance

HKD $2,000

HKD $3,000

HKD $4,250

HKD $5,000

The IA may impose a fine of up to HKD $5,000 on any insured person who fails to pay the premium levy in accordance with the law. Also, it has the right to recover the outstanding levy through civil procedures.

An example of a policyholder paying the IA premium levy in Hong Kong

Miss A purchased a home insurance plan, effective from April 1st, 2021. Every month, she pays her HKD $1,000 premium. Let's calculate how much premium levy she must pay as she enters phase 2 (i.e. April 2021 to March 2022).

$12 ($1,000 x 12 x 0.1%) ; or 

$5,000 (i.e. the levy cap for most policies) 

Since a HKD $12 levy is cheaper than a HKD $5,000 levy, Miss A must pay an additional HKD $12 on top of her premium. 

Why is there a need to pay the premium levy in HK? What is it for?

The IA is responsible for overseeing the insurance industry and protecting the rights and interests of all policyholders. As a financially independent regulatory agency, it needs to recover operating costs from insurance companies, brokers, and policyholders to meet its operating expenses.

What is the levy on car insurance in Hong Kong? 

Besides insurance levies, the IA has also established the Motor Insurers' Bureau of Hong Kong (MIB), which isresponsible for managing the two funds: the first fund and the second fund or the Insolvency Fund. 

The first fund assists third-party victims or their families who are injured or killed in traffic accidents. However, these people cannot receive any compensation because the driver involved is either not insured or their whereabouts are unknown. This fund will ensure that the amount of compensation awarded to the traffic accident victim exceeds the policy limit.

The Insolvency Fund compensates third parties who have made claims for injuries or property damage caused by traffic accidents. Though they failed to obtain compensation due to the relevant insurers' inability to foot the bill. 

MIB will stop charging levies on car insurance starting from October 

The COVID-19 pandemic has dealt a heavy blow to the Hong Kong economy. Thus to reduce the financial burden on the public, the MIB decided to stop collecting car insurance levies for one year starting from October 1st, 2021 to September 30th, 2022. This includes levies on renewal, new policies, and any additional premium you pay to be insured against new risks.

Under this new arrangement, the levy on the first fund scheme (applicable to vehicles without a valid insurance policy or when their relevant policy is invalid) is reduced from 1% to 0%. As for the second fund scheme (applicable when the insurer is insolvent), the levy rate is reduced from 2% to 0%.

Continue reading: Compare car insurance in HK: What factors may affect your auto insurance premium

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