Since the end of 2017, the China Insurance Regulatory Committee has taken numerous regulatory measures to address disorder in the insurance market, some of which have brought certain domestic life insurers to task. The measures are notable, as they underline a renewed emphasis on controlling financial risks, which is of utmost concern for the government.
Following the resumption of bilateral trade treaty talks between China and the United States, a 100-day plan was mooted which promised to improve trade ties going forward. One area of focus in this regard has been the foreign ownership limits that apply to inbound investment in Chinese financial services groups, including those pertaining to the country's insurance industry. This policy shift has given rise to expectations that further foreign investment in the insurance industry will increase significantly.
China's shift towards a knowledge-based digital economy is fuelling growth in the insurance sector, which aligns with the government's plan to double the rate of insurance penetration by 2020. By this date, insurance premium income is expected to have reached Rmb4.5 trillion. If this aim is achieved, China will have usurped the United States to become the world's largest insurance market, which bodes well for overseas insurers looking to participate in the domestic market.
A new wave of 'insurtech' companies (ie, insurers engaging with online distribution models and tech companies foraying into insurance) are recognising the gains to be made by entering into this emerging market. However, these developments by no means spell the end of the larger, more traditional Chinese insurers, which are adapting their longer-term business development strategies in response.
Recent ransomware attacks across the globe have once again brought to the fore the all-encompassing enterprise risk management challenge that cyber-risks present to corporations. The raft of operational consequences of such an attack present an ever-burgeoning opportunity for insurers to expand further into this potentially lucrative new line of business. This is particularly pertinent in China, where there has been a shift towards increasing digitisation and automation in various high-tech industries.
The regulations concerning investment limits and the required qualifications for shareholders that want to invest in Chinese insurers continue to be a focal point for potential investors. The China Insurance Regulatory Commission recently published the Administrative Measures for Equities of Insurance Companies (Draft for Comments), which make fundamental changes to the existing regulatory framework.
At present, the recently adopted China Risk-Oriented Solvency System (C-ROSS) is the only regime which regulates mainland insurers' capital adequacy. By appropriating the most useful features of existing global regimes, C-ROSS has formulated a risk-based supervision regime that is on a par with global standards, yet remains tailored to the specifics of the Chinese insurance market.
When declarations of death are sought for insured persons, two issues arise: whether the declaration relates to accidental death; and whether it falls within the insurance period. The popular viewpoint is that a declaration of death is regarded as resulting from an accident, in which case the insurer must provide compensation. While the declaration may be dated after the period of cover under the insurance contract, this does not absolve the insurer of responsibility to compensate the claimant.
At the first meeting between Chinese President Xi Jinping and US President Donald Trump, the two leaders set the tone for future cooperation on a wide range of issues, not least market access between the two countries. According to Chinese and US officials, better access for US financial sector investments into China was mooted for inclusion as part of a 100-day plan to improve trade ties. This could have notable implications for the Chinese insurance industry.
The China Insurance Regulatory Commission (CIRC) recently penalised two insurers for illegal practices with regard to the use of insurance funds. The penalties came just a few days after the CIRC chair stated that the regulator will continue to put significant pressure on companies and maintain close control over disorderly expansion and radical investment in order to eliminate potential risks. Companies that refuse to rectify their actions will be subject to the CIRC's strictest penalties.
China's surety bond market underwent significant development in 2016 and surety bonds have become one of the most important methods for securing a financial guarantee. However, due to a lack of clear Supreme Court guidance on the matter, the laws that apply to surety bonds issued by insurers in China are still the subject of much debate. One key issue is whether the Guarantee Law's accessory principle applies to surety bonds issued by insurers in China.
Article 21 of the Insurance Law sets out the duty of an insured party to notify its insurer of an accident in a timely manner. However, the vagueness of the article has led to issues regarding its interpretation, including the definition of 'timely manner' and whether insurers are still liable in the event that an insured party fails to issue a timely notification.
Foreign insurance policies have attracted many mainland China residents, but they are not without risks. The China Insurance Regulatory Commission – which prohibits insurers from conducting illegal insurance activities and organisations or individuals from conducting illegal intermediary insurance activities without its approval – recently issued significant supervisory measures in relation to the potential risks and effects of such policies.
The China Insurance Regulatory Commission recently issued an alert to notify mainland Chinese residents of the risks arising from the purchase of insurance policies in Hong Kong. This marks the third time this year that the authorities have publicly taken a negative attitude towards the purchase of foreign insurance policies.
Credit insurance has become increasingly popular in China over the past few years. However, credit insurance differs from warranties under Chinese law and questions have been raised as to its scope and function. In peer-to-peer and other transactions, it is often used to protect creditors' benefits. Creditors should be aware of certain legal points relating to credit insurance before taking out a policy.
Numerous financing products have become available to high-net-worth individuals in order to meet their wealth management needs. One of the most popular of these is the insurance trust, which creatively combines features of a trust and life insurance. Insurance trusts can preserve assets and control risks – the fundamental function of insurance – while also allowing the assets to be managed according to clients' instructions.
The Hubei Administration for Industry and Commerce has fined 12 insurers for concluding an illegal co-insurance agreement. The antitrust agency found their co-insurance agreement for construction project personal accident insurance to violate the Anti-monopoly Law prohibition against monopolistic agreements. The insurers were fined Rmb4.69 million in total.
The Legislative Affairs Office of the State Council recently published the draft Decision on Revising the Insurance Law for public comment. The proposed amendments aim to deregulate certain aspects of the industry, promote innovation and energise the insurance market, and will provide more comprehensive regulatory mechanisms and more severe penalties for wrongdoing.
Overseas use of foreign exchange insurance funds is governed by the China Insurance Regulatory Commission (CIRC). The CIRC's latest regulations include the Interim Measures for the Administration of Overseas Investment with Insurance Funds, as well as detailed implementation rules. These have significantly expanded the scope and range of products for investment in foreign markets.
The Supreme People's Court Interpretations on the Application of the Civil Procedure Law introduced many changes to Chinese civil procedure. One major change relates to the issue of jurisdiction. Aside from the general provisions on jurisdiction, special provisions have been introduced regarding jurisdiction in insurance contract disputes.