Hong Kong's Insurance Authority has proposed raising the maximum levy on large long-term insurance policies by as much as tenfold, lifting the per-policy cap to HK$500 or HK$1,000 from HK$100 as the regulator tries to close a budget gap.

The consultation, launched on Nov. 4 and open for comments until Dec. 3, would leave the 0.1% levy rate unchanged and affect only policies with premiums above HK$100,000, according to a report by Insurance Business Asia. The higher caps would apply from premiums of HK$500,000 or HK$1 million respectively. The regulator has not said which policies would fall under each cap.

For investors and wealthy clients in Asia, the change lands on the part of the market that has driven Hong Kong's insurance boom: high-premium savings and whole life products sold to affluent buyers, including mainland visitors and premium-financed clients. The sums per policy are small. The signal is larger: the regulator wants the biggest policies and the biggest insurers to carry more of its costs.

A regulator running a deficit

The proposal follows the Insurance Authority's 2026-27 budget, which a Financial Services Branch paper presented to the Legislative Council's financial affairs panel in March. The paper projected income of HK$589.6 million against operating expenditure of HK$655.4 million, leaving a deficit of HK$65.8 million, up from a revised HK$38.7 million in 2025-26.

Staff costs make up most of the spending, at HK$466.6 million. The authority imposed a headcount freeze for the year, but staff costs are still set to rise 7.5% because of hires made in 2025-26 and a budgeted 3.5% pay adjustment. The government said it noted the freeze and urged the regulator to look at ways to improve its long-term financial sustainability.

Cash reserves are not yet a problem. The paper projected HK$518.6 million at March 31, 2027, above the HK$327.7 million needed to cover six months of operating costs. The trend runs the wrong way, though: the revised reserve projection for 2025-26 stood at HK$570.2 million.

The paper also pointed to a structural issue. Because levies are capped, the authority said, there is a notable gap between growth in market premiums and growth in its levy income. Most of its money comes from levies and fees, estimated at HK$572.8 million in 2026-27.

An Insurance Authority spokesperson told Insurance Business Asia that the review follows the original design of its funding mechanism while "limiting the impact on policy holders" and the industry's international competitiveness.

Insurers' annual fees would also rise

The levy is paid by policyholders and collected by insurers. Policyholders started paying it at 0.04% of premiums on Jan. 1, 2018, according to the government's 2017 announcement of the rules, with the rate rising in steps to 0.1%. Since April 1, 2021, it has been capped at HK$100 for long-term policies and HK$5,000 for general policies. Captive, reinsurance, and marine, aviation and goods-in-transit business are exempt.

The consultation also targets insurers directly. The cap on the variable part of the annual fee for authorized long-term insurers would rise to HK$28 million from HK$7 million, and the rate would go up to 0.0042% of insurance liabilities from 0.0039%, Insurance Business Asia reported. The changes would require amendments to the Insurance (Authorization and Annual Fees) Regulation and the Insurance (Levy) Order.

Life insurers have had a strong run. Total gross premiums rose 35.5% to HK$573.6 billion in the first half of 2026, according to data the authority released on Oct. 23, as cited by Insurance Business Asia. That boom has helped large groups such as AIA, though its new business value fell in the third quarter.

Premium financing under scrutiny

The fee review comes as the regulator looks more closely at premium financing, in which clients borrow from banks to pay for large policies. Premium-financed sales made up about 36% of new business premiums in the first half of 2026, up 15 percentage points from a year earlier, The Standard reported in August.

The authority warned at the time that leverage makes such policies more sensitive to interest rates and raises the risk of lapses. It said sales pitches built on short-term high yields could breach the principle of fair treatment of customers, and it planned joint inspections with the Hong Kong Monetary Authority in the second half of the year.

At an October briefing, Marty Lui, the authority's executive director of long-term business, said some insurers had "promoted it too aggressively," according to Insurance Business Asia. The regulator expects to finish its inspection by the end of 2026.

Comments on the levy and fee proposals are due by Dec. 3.