Premium Levy: What Is It, and How Is It Calculated?

In 2018, the Insurance Authority in Hong Kong introduced the premium levy on insurance policies. In this article, you will learn what the premium levy is, why it’s collected, what the levy rate and caps are, and how to calculate your premium levy this year.

What is a premium levy?

In order to understand the premium levy, let us first get acquainted with Hong Kong’s Insurance Authority (IA). The Insurance Authority is an independent body whose role is to regulate the insurance business, ensure the stability of the industry, and protect and educate policyholders. In order for the IA to maintain financial independence from the government, it must generate funds to cover its operating expenses. The IA obtains these funds by collecting fees from insurers and brokers as well as the premium levy from policyholders.

In accordance with the Insurance Ordinance (Cap. 41), the Insurance Authority started collecting a levy on insurance premiums from policyholders on January 1, 2018. To minimize the impact on policyholders and facilitate smooth adaptation of the ordinance, the IA first introduced the levy rate at 0.04%, gradually increasing it over four phases, until it reached the target levy of 0.1% on April 1, 2021. The premium levy in Hong Kong is currently 0.1%.

What is the premium levy rate? Is there a cap?

All life insurance and general insurance policies, including medical insurance, are subject to the premium levy, with some exceptions, such as reinsurance business, policies underwritten by authorized captive insurers, and aviation, marine and goods-in-transit insurance.

The levy rate has been 0.1% since April 2021. The cap on the levy payable depends on the type of insurance. For life insurance, the cap is HK$100. For general insurance, the cap is HK$5,000. The levy cap is applied per policy, per policy year.

To summarize:

• Levy rate: 0.1% (since April 2021)
• Levy cap, life or long-term insurance: HK$100
• Levy cap, general insurance: HK$5,000

Another way to look at it: A policyholder pays the levy cap for a given policy for the policy year if:

• Their life insurance premium amount is equal to or greater than HK$100,000
• Their general insurance premium amount is equal to or greater than HK$5,000,000

Note that group life insurance with medical coverage provided by employers is capped according to the "general insurance" category.

How is the levy calculated?

The levy payable is the lower of: The premium amount paid in that policy year, multiplied by the 0.1% levy rate The levy cap (HK$100 for life insurance, HK$5,000 for general insurance)

Please see the examples below.

Example 1: Levy payable is less than the cap

John has individual medical insurance. His monthly premium is HK$600, which means he pays HK$7,200 in health insurance premiums in the policy year (HK$600 * 12 months = $7,200).

The levy payable is the lower of:

• HK$7.20 (premium amount paid * 0.1% levy rate) = (HK$7,200 * 0.001)
• HK$5,000 (levy cap for general insurance)

Therefore, John’s premium levy is HK$7.20 for this policy year, and the total amount he must pay s $7207.20 (premium + levy).

Example 2: Levy payable exceeds the cap

Vanessa has a life insurance policy. Her annual premium is HK$150,000.

The levy payable is the lower of:

• HK$150 (premium amount paid * 0.1% levy rate) = (HK$150,000 * 0.001)
• HK$100 (levy cap for life insurance)

Because the levy calculated exceeds the levy cap, Vanessa’s premium levy is HK$100 for that policy year, and the total amount she must pay is $150,100 (premium + levy).

The examples above should give you a good idea of what premium levy you can expect to pay. Remember that if you have more than one insurance policy, the levy cap would be applied per policy, per policy year. To find out the exact amount of premium levy you must pay, it’s best to contact your insurance broker or insurance company.

How do I pay the premium levy?

The policyholder pays the levy together with their premium to the insurer. The insurer then remits the levy to the Insurance Authority within the remittance period.

The insurer is also required to submit an audited annual remittance report to the Authority. This protects the policyholder from paying excessive levies to the insurer. If an insurer is found to be retaining any part of the levies from policyholders, the IA may impose on them a pecuniary penalty of up to HK$10,000.