• "THE NEXT FOUR YEARS: LEGCO, THE INSURANCE INDUSTRY AND HONG KONG"
  
• "The Challenge of Employees' Compensation Insurance"
• SOME THOUGHTS ON ...... SURVEYORS & SURVEYING. (1)

Dear Members,

On behalf of the committee, I wish you all a Happy Lunar New Year and Proporous Year of Snake

Dear members,

Enclosed is a copy of a survey from the Honourable Bernard Chan and he would appreciate your views by returning the survey back to his office as soon as possible. For further information please contact Ms Janet Li at 2867 7018 or fax to 2545 0093

Membership renewal notice has been sent out to all of our members last week. If you have not receive your renewal form, please contact our Membership Chairman William Ng at 2852 5216.

"The Next Four Years: Legco, the Insurance Industry and Hong Kong"speech to HK insurers' club - 25 Sep 2000

Ladies and Gentlemen:

First of all, I would like to thank all my friends at the Hong Kong Insurers Club for so kindly inviting me here today.

This is my first formal opportunity since the Legislative Council election to thank my colleagues in the insurance industry for their support.

I am deeply grateful for the confidence and trust that the Constituency has shown in me. And I am determined to spend the next four years putting our seat in the Council to good use for our industry and for the community.

***

I would like to discuss three major themes that I expect to see discussed at length in Legco during the next four years.

The first is the trend for the Government to limit its presence in the economy and in our lives. In particular, the government will steadily seek to offload risk from the public to the private sector. The biggest example will be reform of health care financing. This trend will have very important implications for the development of the insurance industry - and the development of our whole society.

The second theme is the development of our business environment as our economy adapts to continued globalisation and the opening of China. I believe there will be external and internal pressure for changes in our fiscal, regulatory and other structures. And some companies or sectors may not be comfortable with these changes. I believe this trend will be the cause of some intense discussion between the business community and the Administration in the next four years.

The third theme is a subject that will be debated by everyone in Hong Kong, and probably by commentators overseas. And that is political reform.

***

Let us start with the first theme - the trend for Government to transfer risk from itself and onto the private sector.

This is good news for the insurance industry and for the taxpayer. A good example would be statutory insurance for inherent defects in construction work.

However, the most interesting aspects of this trend will be those that encourage the people of Hong Kong to look less to Government for social assistance. One obvious example is the Mandatory Provident Fund, which has already opened up some new opportunities for insurance companies.

In particular, further ahead, there is likely to be reform of financing of health and long-term care.

This trend will give the insurance industry the chance to play a bigger, and a very positive, role in the development of Hong Kong as a modern, prosperous community.

As living standards have risen over the last few decades, so have people-s expectations. It is important for our economic competitiveness, and for the good of our whole society, that the Government does not fall into the trap of taking on open-ended social welfare commitments. It is therefore essential that the people of Hong Kong are able to provide a healthy level of security for themselves and their families.

I believe that all of us here in this room will have a role to play in helping them do that. I also believe that it will be the subject of some very lively debate in the Legislative Council in the next four years.

Especially where health care is concerned, we can expect reforms to be controversial. There may be resistance from many quarters, including private health care providers. I believe we in the insurance industry will need to be sensitive to people-s concerns.

My personal view is that Hong Kong must always have a decent safety net to ensure that those who cannot help themselves are looked after. But in the longer term, only the private sector will be able to help people meet their rising expectations in an efficient way. That will put a new and serious responsibility on the insurance industry. People will expect more from us, as they expect less from the Government.

The implications for this trend towards private provision for social welfare go beyond the development of the insurance industry. This trend will give people more freedom of choice, more control over their lives, and more responsibility for themselves.

I believe this will have significant implications for the whole relationship between our people and our government. I will mention more about that in a moment.

***

The second trend I want to discuss is the development of our business environment as our economy adapts to continued globalisation and to the opening up of China.

If you see the Hong Kong economy as a static structure, you have every reason to be pessimistic. Our function as "middleman" between China and the world is becoming far less important. The days when we owned the keys to the only "Gateway to China" are clearly over.

On the other hand, if you see the economy as a living, evolving organism, I believe you should feel much more optimistic. With China joining the WTO, Hong Kong is uniquely placed as a provider of top quality, high value services and expertise. I believe we have little to fear - providing our business environment is flexible, competitive and attractive.

This means that we must ensure that Hong Kong offers value for money. This means we must have a workforce that provides good value for its high salaries. If our schools do not improve sufficiently, that means businesses may have to take training far more seriously.

Value for money also means that Hong Kong must keep its accommodation costs reasonable. If we don-t do it, Shenzhen will. The Government must therefore make enough land available to meet demand, and this may mean that it will have to become less reliant on the property sector as a source of revenue. And that in turn means it must consider new forms of taxation.

At the same time, we must make Hong Kong into a pleasant place in which to live in non-material terms. That means cleaning up our environment, caring about the human aspects of planning and architecture, and making space for culture, arts, sport and voluntary work.

Furthermore, if we are to be the equal of New York and London, we must also examine our business-related legislation and regulation. Do we need policies to actively encourage competition and minimise barriers to entry in some sectors of the economy? Can we remain satisfied with our existing standards of corporate governance, securities regulation and protection for minority shareholders?

From training, to tax reform, to the environment, to regulation - there will be plenty for Legco to discuss in the coming four years where the business environment is concerned. The discussion may be quite lively, because we may have to make changes that not everyone in the business community will support.

If new forms of taxation are necessary, there is a lot to be said for having a simple consumption tax. Yet this would be opposed by retailers.

For environmental reasons, we will have no choice, sooner or later, but to start rationing road space. But this will upset car distributors and related businesses.

On the regulatory front, I believe we will see growing awareness of consumer rights and shareholders- rights. These will increase pressure to change practices and attitudes in various sectors, especially, perhaps, some of our smaller local companies.

My main point is that I believe the business environment will have to change, and there will be winners and losers from that process. Just as individual citizens will need to accept more responsibility for their health and old age provision, the business sector will probably need to accept some changes in order to help Hong Kong find its place in the new globalised economy.

I do not envy the government officials who will be caught in the crossfire in Legco when these issues are debated in the next four years.

***

This brings me to the third and final issue I want to discuss - political reform.

Before I do so, let me briefly summarize what I have just said about the first two themes.

In the next few years, more and more Hong Kong people will gradually become less reliant on the government for their welfare. The "dependency culture" that has been growing for the last decade or two will - I hope - decline. They will have more freedom to choose how to provide for themselves.

At the same time, globalisation and the opening of China will force our economy to change. Our business sector may have to adjust to new ways of doing things as our business environment moves yet closer to "world city" standards.

As these trends continue in the coming years, I believe they will generate great debate. And I believe that these discussions will become intertwined with the debate on political reform.

I would not like to predict at this stage what sort of political reforms we will see in the longer term. Under the Basic Law, significant changes cannot take effect until 2008 at the earliest. However, I think most of us accept that the status quo will not continue.

There are several major issues here, notably the relationship between executive and legislature, the role of political parties, and the possible transition to a ministerial system. However, the focus of the debate will inevitably be the growing demand for more democracy.

Some will ask for democracy to be expanded at a faster rate than the Basic Law allows. Others will resist any expansion of the franchise at all. I suspect both those factions will be disappointed.

My own belief is that our ability to expand democracy will be directly related to our ability to accommodate the first two trends that I mentioned to you earlier.

In order to have a successful democracy, we need an electorate that does not look to the Government for free lunches. And we need a business community that also does not expect too much of Government, and can adapt to inevitable changes in the business environment.

In other words, we need a community of individual and corporate citizens, all of whom believe they have a stake in Hong Kong and a shared interest in a healthy economy. We do not yet have that. Unfortunately, we have perceptions of conflicting interests and social division.

I believe that we in the insurance industry will have a unique role to play in helping Hong Kong move forward.

More than any other business sector, we will pick up from Government the role of helping people provide for themselves. That will put a great responsibility on our shoulders. If we give people more freedom of choice and a sense of control over how they provide for themselves, we will be contributing to the development of our whole society, not just our industry.

At the same time, we must accept that the business environment will be changing in line with the overall economy. As China opens up, and as globalisation continues, we may have to accept changes in our local fiscal, competition or regulatory regimes. It may be that the insurance sector will not be as affected as some other sectors by tax reform, to take one example.

However, we will be present at the debate, and we will need to make our views known

***

Ladies and gentlemen - that is my personal view of the major issues that will occupy the new Legco. All of them affect the Insurance industry to some degree. And all of them will be discussed at great length in Legco in the coming four years.

These issues are extremely important. I believe they are actually more serious than many of the issues that were debated over the last two years. Since 1998, we have been preoccupied with economic recovery. In the next four years, we will be looking at developing a self-confident, self-reliant and harmonious community.

I hope that this will take the form of far more serious and constructive discussion in Legco than we have seen in the last few years. For my part, I will do my best to see that it does when I put forward the views of our industry!

As I said at the beginning, I am very thankful to everyone in the insurance industry for the confidence and trust they have shown in me. And I am most grateful for their past support. I look forward to representing the industry in Legco for the next four years, however turbulent the debates may be. Thank you all very much.

"The Challenge of Employees - Compensation Insurance"

Over 70 people attended the above seminar, which was held at the HKFI Meeting Room on 22 November 2000.

Two papers were presented. The first paper - "Pricing EC Insurance" was presented by Mr Tim Andrews, Director of Trowbridge Consulting and the second paper - "Effective Case Management - Employees' Compensation" was presented by Mr Mike Turnbull, Partner of Deacons.

A brief summary of the papers follows:

1. Pricing Employees' Compensation Insurance
(Tim Andrews of Trowbridge Consulting)

The paper focused on the following main topics:

• The Actuary's role in pricing
• An overview of HK Employees' Compensation Insurance statistics
• The difficulties in the pricing of Employees' Compensation Insurance
• Theoretical pricing

• The Actuary's Role In Pricing

• An Overview Of HK Employees' Compensation Insurance Statistics

• The Difficulties In The Pricing Of Employees' Compensation Insurance Market

• Theoretical Pricing

Obtain access to data	- Own company data and industry data
You may need less than you think.
Consider segmentation of data into	- Industry groups
	- Distribution channel
	- Policy size

• IBNR (use accident year concept)
• Large losses
• Investment income
• Reinsurance result (and cost)
• Expenses (fixed vs variable)
• Profit requirement

• Summary
• Prices are led by market forces without regard to the cost of product.
• Identification of costs is not a simple task
• You can learn a lot from your own portfolio.
• You need to fully utilize all available resources.

   

2. Case Management
(Mike Turnbull of Deacons)

• Fundamental Criteria of Case Management
• You manage it
• Do not let it manage you

• How To Manage Cases

• Action delayed is (extra) costs incurred.

• Strategize Case Management

• Get a plan of action organized for each case

• Preparation of Cases

• Winning is in the preparation - not at the trial

• Action Plan
• Prepare your action plan at the start and not as you go along
• Appoint your legal adviser early and ask him/her to:
  • Provide a realistic assessment of liability
  • Seek an early costing for legal, medical, rehabilitation.

   

• Commitment of Time and Resources

• Commit sufficient resources to the defence
• Seek an early assessment of likely costs.
• Be prepared to go the whole way (in court).
• Have the mind set to be innovative in rehabilitation (interim payments, surgery, return to work etc)

• Look for Alternatives
• Legal proceedings are expensive
• Seek a conciliation process
  • Mediation
  • Direct settlement of smaller claims.
• Medical options are available
  • Early treatment can mitigate damages.
  • Occupational therapy - work with the victim (not all victims are malingers).
  • Explore availability of rehabilitation centres.

• Save On Costs Without Compromising Quality
• Establishing a panel of experienced solicitors/experts who know the process.
• Set up an incentive programme that will give you top quality service at competitive rates.
• Ensure any barrister that is engaged is giving value for money and is adding value.
• Take care to control costs of other experts. Do not just accept the charges.

SOME THOUGHTS ON... ...SURVEYORS & SURVEYING. (1)

Mr. J. D. Gardner has been kind enough to share with us his story to become a marine surveyor and his experience in marine surveying. This article will come in parts, the second part will be published in our forthcoming issue of the Newsletter. Watch out for it.

I joined Paulsen & Bayes Davy, Marine Surveyors & Consultants, Hong Kong, in 1961. It is perhaps interesting to look back over the last 40 years and review some of the changes that have taken place in the surveying business.

It was in September 1946, I joined the training ship HMS Worcester moored in the river Thames near Gravesend, London for my two years of preliminary training. That was a brutal introduction to seafaring, which today would not be permitted. The discipline was by modern standards, extreme. The sawn off hockey stick was used nightly. The so called cat of nine tails, a whip consisting of 9 pieces of leather bound with fuse wire was also part of the weaponary but was only used with the utmost discretion for serious offences and under the supervision of the Captain, the Chief Petty Officer and a doctor. What was the purpose of education for seafarers in those days? It was to teach you to instantly obey, without question, any command that was given to you. In 1946 Britain still thought it could recover it's shattered empire and those in command were still thinking in pre 1939 terms. I only tell this background because it has obviously played a very important part in my life. Of course it also affects my current views. It explains why I am somewhat critical of certain things today and is also part of the story about where surveyors came from in 1961. From HMS Worcester I went to sea. For three years as an apprentice on 12 pounds a month (plus keep) rising in my final year to 15 pounds a month and then through all the examinations and associated sea time to eventually qualify for command. And so it was that in 1960, as a second officer here on board a Blue Funnel Ship,( in those days Blue Funnel had their own private wharf (called Holts wharf) just east of the old railway station in Tsim Sha Tsui) that I was approached and went for my first interview with the notorious Captain Samuel Clifford Smith, square rigged Master Mariner, and then boss of Paulsen & Bayes Davy. Ah! you will say. So what is a square rigged Master Mariner? Well his upbringing had been even more brutal than mine. But can I save the story of Samuel Clifford and the background of Paulsen & Bayes-Davy for some future edition? You may well wonder whether anything I have said is even remotely related to surveyors and surveying but your dear editor restricts me to 500 words or so. If I am invited to continue¡K.some hope, well I may have a lot to say about surveyors and many other matters affecting the insurance industry here over the last 40 years.