Welcome to the latest edition of JT&N’s Insurance News Alert, reporting recent regulatory developments in the PRC insurance sector. We welcome your comments, questions and feedback. To contact us please email: jtninsurance@jtn.com
1. Draft Insurance Law Amendment Open for Comment
On October 22, the Legislative Affairs Office of the State Council of China released for public comment the draft amendment to the “Insurance Law of the People’s Republic of China” (中华人民共和国保险法) with a public comment period that will close on November 14 of this year. Broadly speaking, the scope of this draft amendment is significantly more extensive than the most recent prior amendment to the Insurance Law that was released in April 2015. Whereas the April amendment only affected 13 articles, the new draft amendment involves the addition of 24 new articles, the revision of 54 existing articles, and the repeal of one article. Among other things, the new draft amendment strengthens consumer protection, broadens channels of investment for insurance funds, and institutionalizes the China Risk Oriented Solvency System (“C-ROSS”). With respect to consumer protection, the new draft amendment increases penalties for misrepresentations or violations of the obligation to pay indemnities or insurance benefits and provides expanded guidance on personal data protection. With respect to insurance fund investment, the new draft amendment permits insurance funds to invest in equity and insurance asset management products, as well as financial derivatives that are acquired for the purpose of risk management.
2. New Internet Insurance Rule Takes Effect
On July 22, CIRC released the “Interim Measures for Regulating the Internet Insurance Business” (互联网保险业务监管暂行办法), which became effective as of October 1 of this year. The new Internet insurance rule supersedes the “Measures for Administration of Internet Insurance Business of Insurance Agencies and Insurance Brokerage Companies (for Trial Implementation)” (保险代理、经纪公司互联网保险业务监管办法(试行)), which were issued by CIRC on September 20, 2011. As compared with the prior rule, the new rule not only applies to insurance agencies and brokerage companies, but also to insurance companies, claims adjusters, and third-party network platforms that provide technical support. The new rule provides detailed instructions on qualification requirements, disclosure requirements, and penalties for misconduct. Additionally, the new rule permits a PRC domiciled home office to conduct online insurance operations for certain products on a nationwide basis.
3. Draft Insurance Informatization Rule Open for Comment
On October 9, CIRC released for public comment the draft “Provisions for Supervision of Informatization of Insurance Institutions” (保险机构信息化监管规定) with a public comment period that will close on November 15 of this year (extended beyond the original October 31 deadline). When enacted, the draft rule would regulate the use of information technology in the insurance sector, superseding the “Guidance on Administration of Informatization Work in Insurance Companies (for Trial Implementation)” (保险公司信息化工作管理指引(试行)), which was issued by CIRC in 2009. The draft rule proposes a number of significant changes to insurance industry informatization regulation, including broadened applicability, new corporate governance obligations, reporting requirements, and technology standards, as well as mandating the establishment of a senior-level “Chief Information Officer” to oversee company informatization plans and operations.
4. Mandatory Reinsurance Registration Rule to Take Effect January 1, 2016
Reinsurers and reinsurance brokers will soon need to complete registration in the CIRC registration system in order to continue their reinsurance business in mainland China. The “Circular on the Implementation of the Reinsurance Registration Administration” (关于实施再保险登记管理有关事项的通知) which was promulgated by CIRC on March 5, 2015, and will become effective on January 1, 2016, is aimed at further standardizing reinsurance credit risk management and strengthening supervision over reinsurers and reinsurance brokers. The registration process will consist of an initial registration and quarterly update registrations. PRC insurance companies will be prohibited from engaging in business with unregistered reinsurers or reinsurance brokers. The qualification requirements and registration procedures for domestic and foreign reinsurers or reinsurance brokers are almost identical, except that foreign reinsurers or reinsurance brokers will additionally require the recommendation of a reinsurer or reinsurance broker that has already been registered in CIRC’s new system.
5. Insurance Intermediary Market Reform Opinion Released
On September 17, CIRC released the “Opinion on Deepening the Reform of Insurance Intermediary Market” (关于深化保险中介市场改革的意见). Pursuant to CIRC rules, “insurance intermediaries” are understood to include both insurance agencies and brokerage companies, as well claims adjusters. Although this opinion provides non-binding guidelines and principles, it is understood to reflect the current attitude of CIRC and is indicative of the likely direction of future regulatory activity. According to the opinion, CIRC will adjust its market access policies providing, for example, for lowering registered capital threshold requirements. Additionally, the opinion indicates that CIRC will further open the PRC intermediary market to foreign insurance agencies and adjustors, and expand the permitted scope of operations of foreign insurance brokerage companies. The opinion also states that CIRC will encourage M&A and reorganizations between intermediaries, and support them in efforts to raise funds and trade equities in the capital markets.
6. Non-insurance Financial Products Sale Rule Amended
On October 24, CIRC released the amendment to the “Circular on Strictly Regulating the Sale of Non-insurance Financial Products” (关于严格规范非保险金融产品销售的通知), which was promulgated November 15, 2014. The amendment makes it clear that insurance companies and professional insurance intermediaries are prohibited from selling non-insurance financial products other than those approved by the relevant financial regulators, including those that are only subject to registration requirement. The amendment also provides that the rule applies to the sale of non-insurance financial products through the Internet as well. Furthermore, insurance companies and professional insurance intermediaries that conduct business through third-party Internet platforms must disclose at conspicuous position in order to prevent consumers from confusing the different responsible parties.
7. Agency and Broker Rule Amendments Released
On October 30, CIRC released amendments to the “Provisions for the Supervision and Administration of Professional Insurance Agencies” (保险专业代理机构监管规定) and the “Provisions for the Supervision and Administration of Insurance Brokerage Companies” (保险经纪机构监管规定). The amendments have removed a series of administrative approval requirements, including those for branch establishment, change of organizational form, merger, division and dissolution, and only require insurance agencies and brokerage companies to report to CIRC within five days subsequent to the occurrence of such events. In addition, the qualification requirements for senior managers have been revised. However, the minimum registered capital remains unchanged.
8. CIRC Regulates PE Funds Established with Insurance Funds
On September 10, CIRC released the “Circular on Matters Relating to the Establishment of Insurance Private Equity Funds” (关于设立保险私募基金有关事项的通知), which became effective on the same day. In the “Interim Measures on Equity Investment of Insurance Funds” (保险资金投资股权暂行办法) issued in 2009, CIRC had earlier provided approval for insurance company investment in the private equity market. The new circular applies to PE funds established with insurance funds, except for those in which the insurance asset management institution and its associated insurance institutions hold less than 30% of the shares of the fund manager, which are still governed by the 2009 circular. The new circular permits the establishment of venture capital funds with insurance funds, which had previously been forbidden under the 2009 circular. The new circular also sets out, among other things, the permissible categories of PE funds, sectors of investment, qualification requirements for fund managers, and the registration procedures.