• Seminar on insurance and the internet
• President's Message
• Legislative Highlights
• Seminar on E-Commerce
• More Changes in Personal Injury Litigation

SEMINAR ON INSURANCE AND THE INTERNET

E-commerce is definitely one of the hottest topics in the industry. Many companies are already preparing themselves for a new era of marketing and direct dealings via the internet.

To meet the need, IIHK held a seminar on this advance technology and had invited Mr. Andrew Chow of Sun-evision and Dr Schanz of Swiss Re to share their views with its members.

If you would like to know the details of this talk, please read on ...

IIHK WEB SITE

You will also be pleased to know that IIHK is launching its own web site. The preparation work is now at its final stage. The IIHK web site, aims at servicing its members, will provide details on

> up to date information on examinations
> syllabuses
> quarterly newsletters
> list of council members
> other relevant matters

IIHK welcomes any comments on our website.

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Interested in posting an advertisement either on our Newsletter or on our Website? For details please contact Karen Ching at 2598 2230 or write to the Institute's postal address.

President's Message

Fed up with discontentment and repeated calls from the public towards Hong Kong's serious air-pollution problem, the government on May 9 threw out a basket of sweeping measures in a bid to clean up the air in the next five years.

Both pecuniary incentives and stiff penalties will be executed to combat air pollutants mainly caused by emissions of particulate by the diesel vehicles, and to switch all diesel vehicles from using diesel fuel to more environmentally friendly fuel, such as Liquefied Petroleum Gas (LPG) and ultra-low sulphur diesel (ULSD). A taskforce chaired by the Secretary for Environment and Food was formed to oversee the progress of policy implementations.

Stricter measures were proposed to fight against illegal trafficking of mainland fuel, and the government also considered restricting the amount of fuel might be brought from the mainland by cross-boarder traffic. Apart from the short-term measures, a review of Hong Kong's entire transport system will take place in near future.

As we all know, pollution has become such a serious problem that not only our health but also our economy is suffering. Poor air will harm our health and increase our expenditure in medical treatment. It will also affect Hong Kong's leading status in Asia, and the world as some foreign businessmen have already aired their discontents and threatened to move to other countries with better environment to do business.

On June 5, the World Environmental Day, some government officials and Legislative Council members demonstrated their support by taking public transport to get to their work place. One car-free day certainly could not help much to our environment but it at least aroused public concern over the issue.

Chief Executive Tung Chee-hwa earlier vowed to improve Hong Kong's air quality to as good as to that of New York and London by 2005. This will be achieved only with the concerted efforts from all of us.

Article from The Honourable Bernard Chan
Legislative Councillor (1998-2000)

Members will recall that this seminar was held on Wednesday 28 June 2000. Over 60 people attended making this event one of the most popular in recent years.

Two papers were presented during the seminar, both complementing each other.

The first paper was on the use of E-Commerce. This was presented by Andrew Chow, Managing Director of Sun Evision. Sun Evision is the owner of insurance street.net which in only 2 months has offered 44 products with 8 insurers on its web site.

The second paper was entitled E-Business : Is the traditional insurance company an endangered species? This was presented by Dr Kair Uwe Schanz, Head of Economic Research and Consulting (Asia) for Swiss Reinsurance Company.

In the paper on the use of E-Commerce some features were highlighted including the following:

• Users are able to specify their insurance requirements and receive on-line quotes for plans and premium from any participating insurer chosen by them, allowing them to select the best coverage of their choice via the platform

• Application forms and policy jackets for various products are available for downloading purposes

• Users are able to select appropriate insurance packages round the clock through the Internet. Confirmation of cover is given on-line

• Payment can be made by credit card through the payment gateway. The payment gateway is readily arranged by the participating insurers and the financial institutions

• Security of payment transaction over Internet is ensured through the use of Secured Socket Layer (SSL) technology

• E-mail confirmation from web-master to users and insurers are given instantly in confirmation of any transaction made

• After sales service such as guidance on claims procedures and downloading claim forms are provided on-line. Insurance contract can be delivered either by post or through e-mail

The benefits of using E-Commerce were also detailed as follows:

• Transparency
  free to compare various products, including cost, terms and coverage, by the participating insurers

• Quick and convenient
  a quick and convenient way for insurance companies to disseminate the latest information on this growing e-commerce industry to the insuring public

• Cost Effective
  this method of buying insurance on-line reduces cost for both users and the insurance companies

• 24-hour global services
  users can obtain information they need any time and at anywhere

• User focus in information
  provides up-to-date information from relevant professionals and market news to users

• New channel
  provides an alternative new channel to the insurance industry for transacting insurance products on-line

• No intermediary
  users are more independent in selecting their insurance cover themselves without any intermediary

• Efficient delivery of contract
  no delivery of product (logistic) problem as insurance contract can be delivered either by post or e-mail handily

• Personal record keeping
  users can make use of the portal to up-keep and keep track of personal data in respect of their own insurances

• Wider range of selection
  users are able to have a wider choice of service providers and products

• Value-added services for marketing planning
  with the use of data mining for the analysis of users demographic profile, insurance companies can react rapidly to the dynamic insurance market

Finally the challenges in promoting E-Commerce were outlined as follows:

• Education and promotion
  on-going education and promotion to the insuring public for a change of and adapting their procurement behavior to conducting on-line transactions over the Internet are vitally necessary

• On-line security
  ensures the security protection on data encryption to increase the confidence of users

• Consumer expectation
  consumer expectation becomes more demanding because of the easy access and transparency of the insurance market through the Internet

• E-brand name image
  to build up an e-brand name image of the portal by way of innovation, efficiency and service enhancement so that users have trust and confidence on the web-site

• First mover
  it is a big challenge to maintain the first mover position and advantage

• Professionalism
  to upkeep its professionalism and differentiate its advantage over the competitors including the e-commerce market and other distribution channels in the insurance industry

• Key to success
  be proactive and innovative

In the paper on "E-Business: Is the traditional insurance company an endangered species strategic global outlook was presented.

The advent of the e economy was presented

• Between 1995 and 1997: focus on the Internet's potential as a marketing tool and an additional, low-cost distribution channel

• As from 1998: the Internet starts to turn mainstream business upside down and inside out. It

  • dramatically lowers costs across the value chain
  • makes possible quantum leaps in customer service
  • creates new revenue streams, e.g. by tapping markets formerly unaccessible due to geography

From 1999 to 2000 a rapid increase in on line penetration is forecast with the USA growing for 40% to 60% at increase from 15 to 45%.

The develop of E-commerce in Hong Kong was highlighted as follows:

• By 2003 there could be as much as 3 million Internet users in the territory, i.e. 40% of the total population (source: Goldmann Sachs, BCG)

• Major drivers of e-business in Hong Kong
  • fully digital telephone network
  • high mobile phone penetration (two thirds of the adult population)
  • more than 100 ISPs
  • 70% of all households have the capability to access high-speed broadband connectivity
  • establishment of an e-cluster in "cyberport"

Insurers are still laggards in the E-commerce race as indicated:

• Insurers still look at the Internet as merely a communication tool and - still at an early stage - additional distribution channel
• The stage of development is far behind that of online brokerage or online banking
• E-business has not yet been tapped as a tool for achieving quantum leaps in efficiency and customer service quality

With the reasons for the slow adoption of E-business being :

• Complexity and little standardization of products
• Channel conflicts
• Low contact frequency between insurer and client
• Data security concerns on part of customers
• Regulatory hurdles
• Legacy IT systems

The deconstruction of the value chain is facilitate by E-business ad demonstrated by :

• B2B will transform business models and will lead to more organizations such as Dell Computer or the UK's Virgin Group
• The Internet makes it easier to deconstruct the value chain. All links can be optimized or outsourced to a rapidly growing number of specialized external providers
• The traditional vertically integrated insurance company will be challenged by "insurance webs" characterized by an unprecedented degree of specialization along the value chain
• Dramatically declining transaction costs and the new economics of electronic networks could lead to an unbundling of traditionally integrated corporate activities

It was demonstrated that E-business radically lowered market entry barriers :

• Established distribution networks are no longer an insurmountable barrier to market entry
• Quantum leaps in terms of price and product transparency
• Online insurers generally enjoy cost advantages which help to gain market share (e.g. direct writers in motor insurance)
• However, new insurers have to establish a brand name and run higher marketing expenses
• Against this backdrop it is highly attractive for non-insurers with a well-established brand reputation and strong customer loyalty to set up insurance operations

The benefit for the insurance customer were many as indicated below :

• Lower price
• Round-the-clock services
• Faster services (e.g. claims settlement)
• More customer convenience
• Unprecedented degree of market transparency
• Easy access to foreign providers

Finally in conclusion the following comments were made :

• In standardized personal lines insurance, sigma expects an on-line market share of nearly 10% in the US and almost 5% in Europe by 2005.
• Most life and pension products, health and commercial insurance products have only a limited suitability for online-distribution
• Online market potential in personal lines in 2005 is about 3% to 5% in Europe and 5% to 10% in the US
• About one third of the total US market volume is suitable for online selling
• In the short-term less than 10% of the total insurance volume in Hong Kong is suitable for online distribution
• The short-term local potential is relatively small due to
  • low significance of motor business
  • virtually no individual annuities business
• The medium-term potential, however, is significantly larger as individual whole life and endowment products (35% of the total market volume) become more standardised

The two papers provided much information and produced a lively debate. Many questions were forthcoming from the attendees.

The institute is grateful to the two speakers and for their permission to re produce extracts from their presentations.

Summary by Nick Donne
Seminar Chairman

In addition, we are delighted to have an article entitled "The impact of e-business on the insurance industry: Pressure to adapt - chance to reinvent" from Dr Kai-Uwe Schanz of Swiss Reinsurance Company.

Online sales in personal lines insurance will have cornered a market share of 5-10 percent in the US and 3-5 percent in Europe by 2005; e-business will enable US personal lines insurers to cut costs by up to 12 percent; growing transparency and easier access to the market via the internet will increase competition globally in the insurance markets.

These are the conclusions drawn in the latest sigma study entitled "The impact of e-business on the insurance industry: Pressure to adapt - chance to reinvent". In standardised personal lines insurance, sigma expects online channels to have gained a market share of 5-10 percent in the US and 3-5 percent in Europe by 2005, whilst most life and pension products, health insurance and commercial insurance have only a limited suitability for sale via the internet. E-business facilitates better tailored products, shorter response times, greater flexibility in cover structures and better risk management support.

US personal lines insurers will, in the long term, decrease their expenditure on sales, administration, claims settlement and claims payments by up to USD 15 billion, or 12 percent. Given the high level of advisory services and tailor-made products in commercial insurance, the potential cost cuts are USD 11 billion, or 9 percent of total expenditure.

The internet enables new entrants to enter into the market without the expensive and lengthy process of setting up traditional sales networks. In addition, "lateral" entrants from other sectors are benefiting from easier access to the insurance market: natural candidates are, in particular, financial services and internet companies such as banks, online brokers and internet service providers. These companies take advantage of their internet presence and brand name to add insurance products to their existing product range. The new breed of internet insurers is able to exploit to the full the potential which e-business offers for increasing efficiency, without having to be concerned about legacy business systems. Established insurers are thus facing growing competitive pressure.

E-business makes it possible to disseminate information quickly and in large volumes. This allows insurers to deconstruct the traditional value chain and outsource certain links to specialist providers. Some new companies already consistently outsource to partner companies.

Insurance brokers in the area of standard products, where there is little need for advice, are finding themselves faced with considerable competition on account of falling information costs in the internet. In contrast, where products require a large amount of advice, and benefits and prices are difficult to compare, brokers will use e-business to offer more finance management and risk consulting services. This is particularly the case for complex pension products in life insurance, commercial lines insurance and the strong growth market of integrated risk management (IRM) products.

E-business opens up new ways of reducing costs. Simultaneously hardening competition will ensure that these benefits are passed on to the consumer. Developments in e-business also bring new risks, and with them, changing insurance needs. The growing division of labour within the economy will boost demand for liability, marine and credit risk insurance. An additional insurance need is also to be expected in the area of specialised niche providers and start-ups.

More Changes in Personal Injury Litigation

In recent years, we see an increasing number of personal injury litigations being brought in the Court of First Instance. In an attempt to streamline the current process, the Learned Mr. Justice Conrad Seagroatt, who is in charge of the Personal Injury List of the Court of First Instance, introduced Practice Directions to facilitate the early resolution of injured Plaintiffs' claims in September 1998. Over the last two years, the Practice Directions have been tested and revised. In or about June 2000, a new set of draft Practice Directions have been formulated by the Learned Judge and subject to further representations from Personal Injury Practitioners both from the Bar Council and the Law Society, it is anticipated that these new Directions will come into effect in September 2000. The following is a summary of the new procedures to be followed in all personal injury claims to be issued in the Court of First Instance.

Letter Before Action

Prior to the commencement of proceedings, the Plaintiff must send to the proposed defendant(s) and its (their) insurer, if known, a letter before action setting out the Plaintiff's personal particulars, circumstances of the accident, the reason why the Plaintiff is alleging fault, and a full description of his injuries and treatment received. In the event the Plaintiff failed to send such a letter, he or his solicitor will be required to justify the incurring of costs of issuing proceedings prematurely.

The letter before action must be sent no later than 3 months before the commencement of proceedings, and the proposed defendant or its insurer must respond within 21 days. In the absence of a reply, the Plaintiff may commence proceedings without any risk as to costs. However, if a reply is received, the Plaintiff must withhold issuing proceedings to enable the proposed defendant or its insurer to undertake investigations before either admitting or denying liability.

Commencement of Proceedings

At the time of issuing a Writ of Summons for non-fatal accidents, the Plaintiff must also file with the court, where appropriate, the following documents:
(i) Statement of Claim;
(ii) Statement of Damages;
(iii) Medical report(s);
(iv) A Statement of Facts and/or finding of guilt arising from any prosecution. including sketch plan and photograph;
(v) A statement of present earnings;
(vi) A record of earnings for the period of six months immediately before the accident; (vii) The Plaintiff and all witness statements;
(vii) Expert liability report.

The Defendant shall serve with its Defence, where appropriate, the following documents:
(i) Form 2, if the accident relates to an accident at work.
(ii) A statement as to the current whereabouts of the machine/equipment involved;
(iii) Records of service or maintenance of machine or equipment for the period of 12 months prior to the accident;
(iv) Records of Plaintiff's gross and net earnings for the period of 12 months prior to the accident;
(v) The Plaintiff's Inland Revenue Return for the period of two years before the accident;
(vi) Records of current earnings of two comparable workers;
(vii) All witness statements;
(viii) Photographs of relevant machine or equipment;
(ix) Expert liability report.

There must be strict compliance with disclosure of documents set out above.

Checklist Review Hearing

At the same time as a Writ of Summons is filed, the Plaintiff obtains a date for a checklist review hearing before the Personal Injury Master. The purpose of the hearing is to enable parties to seek directions from the court, including order for split trial; further discovery and inspection; interim payment to name a few. In appropriate cases, leave will be given to parties to set case down for trial.

Pre-trial Review Hearing

In complex personal injury claims, subsequent to the checklist review hearing, either the Learned Master upon his or her own motion, or parties upon their application, obtain a pre-trial review hearing date for the purpose of obtaining further directions. All parties to an action must have obtained Counsel's advice on liability, quantum and evidence prior to this hearing.

Trial

Where liability in an action is not in dispute, parties will proceed to assessment of damages by a Master or Judge. In all other contested cases, they will be set down for trial either in the running list or in the fixture list. Paginated bundles of documents for use at the trial must be lodged with the court in good time.

As a Personal Injury practitioner, I personally support the good intentions which are obviously behind the issue of new Practice Directions in ensuring all personal injury claims are to be conducted properly and without undue delay. However, I also foresee the new Directions will inflate costs and create potential for abuse by unmeritorious Plaintiffs. The true effects of the new Practice Directions remain to be seen.

Article from Linda Lee, Solicitor of Deacons