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The pulse of Hong Kong.

As Hong Kong prepares to cross over from British to Chinese rule, risk managers must act reasonably in managing the risks that come as a result of the transition set for 1997. "For the underwriter and risk manager in Hong Kong perhaps the run up to 1997 is more unsettling than post-1997," said Robert Thomas, regional president, Southeast Asia, AIU Hong Kong Ltd. "The major challenge will be to adequately engineer and survey the risks in a rapidly changing environment."

The major shift that may occur relates to Hong Kong's traditional role as Asia's regional headquarters - partially due to the advancement of other Southeast Asian economies as well as the change to Chinese rule. There will be a shift in preferred regional office locations away from Hong Kong to Singapore and Kuala Lumpur. This loss, however, should be offset by Hong Kong's growing role as the window to Southern China Territories of the special economic zones, Guangzhou, Shanghai and others.

Two theories are currently in the making: the greater Hong Kong theory and the brain drain theory. The greater Hong Kong Theory suggests a reverse takeover by Hong Kong incorporating the dynamic provinces of Southern China, not in political areas but through economic means - such as the current and expected flow of investments through Hong Kong into Southern China. The brain drain refers to an exodus of talented people that has caused major inflation and disruption of services.

To mitigate the negative impact of the brain drain, Mr. Thomas said, companies have accelerated automation, improved salary and benefit packages and more enthusiastically supported overseas training. "There are many in Hong Kong who believe the push towards a market-driven economy will be difficult to stop because the source of this momentum is from the grass roots deep in the provinces," said Mr. Thomas.

Mr. Thomas explained that the background on the changeover to Chinese rule began in December 1984 when the Sino-British declaration was signed and the critical characteristics of the future political, economic and social structures of Hong Kong were established. In essence the joint declaration promised two things: that Hong Kong post-1997 will enjoy a high degree of autonomy, and secondly, that the existing economic system and life-style will be permitted for 50 years after July 1, 1997. Hence there is in China the "one country, two systems" policy.

Special Administrative Region Hong Kong as a Special Administrative Region will operate as a semi-independent state within the People's Republic of China. The government of Hong Kong will be accountable to both Beijing and a variety of local consultative bodies; it is expected that Beijing would control all issues that have either strategic or political implications.

"In many ways, the challenges that face the Hong Kong insurance market are very similar to those in other parts of the world," said Mr. Thomas. "Hong Kong's current insurance market is crowded with more than 200 carriers. The market as a whole is losing money on employee compensation and automobile lines of insurance." However, over the last two years, the market has been undergoing a tightening of legislation; an increased power of intervention granted to the commissioner; a revocation of privileges granted to companies; an introduction of rigorous reporting requirements to the office of the insurance commissioner; and an introduction of "self-regulation" with respect to claims handling and agent management and licensing.

While there will be a withdrawal of licensed carriers due to pressures from the more empowered Hong Kong insurance commissioner, Mr. Thomas said, there will also be an increase in mainland Chinese carriers as Chinese influence and investment grow in the territory.
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Title Annotation:Third Asia-Pacific Risk Management Conference
Author:Oshins, Alice H.
Publication:Risk Management
Date:Dec 1, 1992
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