Commissioner of Insurance Richard Yuen says he takes a serious view of price undercutting and fraud because they can undermine an insurer's financial stability and put policyholders at risk.

In the March issue of I Lens, Mr Yuen said if he sees the need, he will bring the matter to the highest level of an insurer, including the board of its head office or holding company.

"As a regulator, the Office of Commissioner of Insurance has a responsibility to remind an insurer's directors of their fiduciary duty to the shareholders and stakeholders and that they are ultimately responsible - and held accountable - for taking preventive and precautionary action against any acts that may potentially cause financial damage to the company."

Price competition

The general insurance market continued to struggle with the challenge of intense price competition last year, Mr Yuen said. However, it is incumbent on directors and senior management of an insurer to ensure that they adopt a sustainable pricing policy.

"What it means is that the premium charged must be sufficient to cover the risk, and supported by professional actuarial review of historical and projected claim ratio; and that if the policy is negotiated through insurance brokers, the premium asked is independently checked and verified," he said.

"We should always bear in mind that it is the insurers themselves who underwrite the risk, not brokers."

For those insurers relying on intermediaries for their major source of business, directors and senior management must ensure that they adopt a prudent commission system and have a robust internal control system to detect any irregularity or suspicious behaviour of their intermediaries.