Introduction
Foreign insurance policies – advertised as having "lower premiums, higher yields, and less exclusions" – have attracted many mainland China residents. The China Insurance Regulatory Commission (CIRC) prohibits insurers from conducting illegal insurance activities and organisations or individuals from conducting illegal intermediary insurance activities without its approval. The State Administration of Foreign Exchange (SAFE) recently provided a new interpretation of the conditions for the purchasing of foreign insurance policies by Chinese residents and in April and May 2016 the CIRC issued significant supervisory measures in relation to the potential risks and effects of such policies.
This update discusses the new CIRC supervisory measures.
The CIRC issued the Reminder of Risks Recently Arising out of the Purchase of Foreign Insurance Products by Chinese Residents (enacted on April 22 2016) to serve as a warning of the risks associated with foreign insurance policies (for further details please see "CIRC issues Risk Alert on Purchase of Insurance Policies by Domestic Residents in Hong Kong"). It also issued the Notice of Strengthening Supervision against the Illegal Sale of Foreign Insurance Products (Bao Jian Shou Xian, 2016, 46) to reinforce its supervisory measures in regards to the purchase of such policies outside China by Chinese residents.
Risk warnings
Foreign insurance policies unprotected by Chinese law
To purchase Hong Kong insurance policies, Chinese residents should sign relevant contracts in Hong Kong. In such cases, the policies will be governed by Hong Kong law. If Chinese residents purchase Hong Kong insurance policies in mainland China, such policies will be protected neither by Chinese law nor Hong Kong law.
Uncertainty of exchange rates, foreign exchange policies and yield rates
Foreign insurance policies are usually settled in foreign currencies and insurance applicants will bear the entire exchange rate risk. In addition, life insurance policies and investment return insurance policies are capital item transactions with foreign exchange limitations imposed on them by SAFE. Thus, it is not guaranteed that insurance premiums will be paid and benefits will be received on time. The uncertain yield rate of foreign investment return insurance policies is also a concern.
Contractual disputes
As a result of discrepancies in the regulatory meaning and wording of insurance clauses, foreign insurance clauses can be ambiguous. As a result, foreign insurance policies will likely trigger disputes between contracting parties.
Reinforcement of supervisory measures
The Notice of Strengthening Supervision against the Illegal Sale of Foreign Insurance Products reinforces the following supervisory measures pertaining to insurance intermediaries:
- Further measures have been introduced to support the crackdown on and punishment of organisations (eg, consulting companies, financial management companies and insurance intermediaries) and relevant individuals that receive benefits from foreign organisations and:
- facilitate foreign insurance transactions that are introduced in China and signed outside China; or
- promote, advertise, arrange or solicit investment in foreign insurance policies within China.
- The accountability of insurers and intermediaries assisting in the illegal sale of foreign insurance policies has been strengthened.
- All CIRC branches must establish a supervisory cooperation system and promptly report their investigation results to the CIRC, which will execute measures against the illegal sale of foreign insurance policies.
- All CIRC branches must coordinate with local authorities – such as public security departments, industry and commerce bureaus, People's Bank of China branches and SAFE – to govern and tackle illegal acts together.
In light of the CIRC's Reminder of Risks Recently Arising out of the Purchase of Foreign Insurance Products by Chinese Residents and Notice of Strengthening Supervision against the Illegal Sale of Foreign Insurance Products, domestic organisations (eg, consulting companies, financial management companies and insurance intermediaries) and relevant individuals should refrain from activities such as holding financial management conferences or giving talks that:
- promote, advertise, arrange or solicit investment in foreign insurance policies in China; or
- assist in the illegal sale of foreign insurance policies on behalf of foreign insurers that are not permitted by the CIRC to conduct insurance activities in China.
Chinese residents should recognise the potential risks associated with foreign insurance policies and avoid purchasing such policies to protect their interests and rights.
For further information on this topic please contact Hao Zhan at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.?
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