Insurance and reinsurance in China: overview

A Q&A guide to insurance and reinsurance law in China.

The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in China.

To compare answers across multiple jurisdictions visit the Insurance and Reinsurance Country Q&A tool.

This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.

Zhan Hao, AnJie Law Firm
Contents

Market trends and regulatory framework

1. What were the main trends in the insurance and reinsurance markets over the last 12 months?

2015 is the last year for the implementation of the "12th Five-year Plan" which adopted national goals for the economic and social development of China from 2011 to 2015. The "12th Five-year Plan" period has been the most unusual five years for the development of the Chinese insurance industry. The publication of the Several Opinions on Accelerating the Development of Modern Insurance Service Industry (GuoFa [2014] No.29) in 2014 has further put forward a blueprint for the reform and development of the insurance industry. As a result, the development of the insurance industry in 2015 has maintained a strong momentum. In terms of business growth, the year 2015 saw the following increases:

  • • National premium income reaching RMB2.4 trillion with an annual increase of 20%.

  • • Non-life premium income was RMB 799.5 billion, up by 11% compared to 2014.

  • • Life premium income achieved RMB 1.6 trillion, up by 25% compared to 2014.

At the same time, the risks have been controlled effectively as the solvency requirements for insurers are adequate and the insurance market has been stable without huge insurance risks.

In 2015, the reform and innovation continued to deepen in the insurance industry. The insurance regulator's administration was further streamlined, and the regulation power was delegated from the central government to the lower levels. The insurance product's pricing reform was further carried out, leading the market to play a decisive role in resource allocation. The insurance asset management has become market-oriented, and the business scope for insurers has also been expanded. In addition, the Interim Measures for the Regulation of Internet Insurance Business (BaoJianFa [2015] No. 67) have been issued to regulate and push forward the development of the Internet insurance business.

 
2. What is the regulatory framework for insurance/reinsurance activities?

Regulatory framework

Since China is a continental law country, the sources of law are the statutory codes. These include the following:

  • PRC Insurance Law.

  • Judicial explanations issued by the Supreme People's Court.

  • Other relevant laws promulgated by the National People's Congress.

  • Regulations and guidelines issued by the China Insurance Regulatory Commission and other relevant government institutions.

The main aim of insurance regulation is the protection of the insured and beneficiaries under the policy and enhancing the development of the insurance market. CIRC has stressed the importance of compliance with the rules regarding:

  • The market behaviours in the insurance industry.

  • Promotion of insurance policies.

  • The insurer's solvency and capital adequacy ratio.

  • Conduct rules concerning the market behaviour of insurance intermediaries.

Regulatory bodies

In China, the CIRC is the main regulatory body for the insurance and reinsurance market. The following also play important regulatory roles:

  • State Administration for Industry and Commerce (SAIC).

  • The Ministry of Finance of PRC.

  • State Administration of Taxation.

  • The People's Bank of China.

 

Regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

Insurance contract

An insurance contract is defined as an agreement in which an applicant and an insurer set out their respective rights and obligations under the insurance policy (Article 10, Insurance Law). The term "applicant" refers to the party that concludes the insurance contract with the insurer, and that must pay the insurance premium in accordance with the contract. The term "insurer" refers to the insurance company that concludes the insurance contract with the applicant, and is liable for insurance indemnities and benefits in accordance with the contract.

Reinsurance contract

A contract of reinsurance is not defined by the Insurance Law. In practice, a reinsurance contract is deemed to be a special type of insurance contract concluded between the direct insurer and the reinsurer.

 
4. Are all contracts of insurance/reinsurance regulated?

The PRC Insurance Law and related regulations provide that there are two main kinds of insurance contract: life insurance contracts and non-life insurance contracts. Both are regulated by the PRC Insurance Law. Reinsurance contracts are also regulated by the PRC Insurance Law.

Some legal experts categorise insurance contracts differently, distinguishing, for example, between life insurance contracts and property insurance contracts. However, this division has given rise to debate as insurance contracts related to health and injury do not fit well within either category.

Certain types of businesses that may be related to the insurance industry (for instance, work outsourced by insurance companies to businesses that provide data processing services, mail services and employee dispatching (secondment services)) are not considered to be insurance businesses, and are therefore not regulated by the CIRC.

Unlike other jurisdictions, in China the CIRC does not consider extended warranty services (or extended guarantee services) to be insurance activities. As a result, some foreign insurers that do not hold a PRC insurance licence can offer extended warranty services in China.

 

Corporate structure

5. What form of corporate organisation can insurers take?

Insurers can take the form of a limited liability company or a joint stock corporation.

 

Regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated? Are they all regulated in the same way?

All insurers and reinsurers registered in the PRC are regulated by the PRC Insurance Law. However, the CIRC regulations set different operational requirements for insurers and reinsurers. The following conditions must be met when establishing an insurance company (Article 68, of Insurance Law of the PRC):

  • The main shareholders must have:

    • capacity for sustained profitability;

    • good reputation;

    • no record of any major violation of laws or regulations for the past three years;

    • net assets of not less than RMB200 million.

  • The company must have:

    • articles of association which comply with the Insurance law and the Company law of the PRC;

    • a minimum registered capital of RMB50 million, unless otherwise provided by the CIRC;

    • directors, supervisors and senior management personnel with the professional knowledge of their positions and work experience in the business;

    • a sound organisational structure and management system;

    • a place of business that meets the requirements, as well as any other business-related facilities.

  • Any other conditions as specified by laws, administrative regulations or the State Council's insurance regulatory authority.

According to Provisions on the Formation of Reinsurance Companies, Article 2 provides that for the purposes of these Provisions, "reinsurance companies" mean companies formed with the approval of the CIRC and legally registered to specially engage in the reinsurance business. Article 3 provides that the formation of reinsurance companies shall be subject to the approval of the CIRC. By the scope of business, reinsurance companies may be divided into life reinsurance companies, non-life reinsurance companies, and general reinsurance companies.

 
7. Can insurers and reinsurers carry on non-insurance business? Are there any restrictions on their business activities?

Insurers and reinsurers can only carry on non-insurance business if these activities are insurance-related and the entity concerned has received permission from the CIRC.

Insurance. The scope of business of an insurance company can include (Article 95, Insurance Law of the PRC):

  • Personal insurance, which includes life insurance, health insurance, accidental injury insurance and so on.

  • Property insurance, which includes property loss insurance, liability insurance, credit insurance, guarantee insurance and so on.

  • Other relevant insurance businesses approved by the insurance regulatory authority under the State Council.

An insurer is forbidden to concurrently engage in the businesses of both personal insurance and property insurance. However, if it obtains the approval of the insurance regulatory authority under the State Council, an insurance company which operates the property insurance business can operate the short-term health insurance business and the accidental injury insurance business. An insurance company must operate insurance business within the scope of business approved by the insurance regulatory authority under the State Council.

Reinsurance. Subject to approval by the insurance regulatory authority under the State Council, the scope of business of a reinsurance company can include (Article 96, Insurance Law of the PRC):

  • Outward reinsurance in relation to personal or property insurance.

  • Inward reinsurance in relation to personal or property insurance.

 
8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?

At the beginning of 2012, the CIRC issued a regulation on reinsurance business undertaken by property insurance companies, the Management Rules for Reinsurance of Property Insurance Companies. The CIRC does not set a specific limit on the transfer of risk by such companies, but does set conditions on how the transfer of risk is to occur, including risk control, management capacity, file management and so on.

Other types of insurance and reinsurance companies, such as life reinsurance companies, are also restricted regarding the transfer of risk (Insurance Law Provisions on the Formation of Reinsurance Companies and Provisions on the Administration of Reinsurance Business).

 

Operating restrictions

Authorisation or licensing

9. Does the entity or person have to be authorised or licensed?

Insurance/reinsurance providers

Any entity that wants to provide insurance services in the PRC must obtain an insurance licence from the CIRC (Insurance Law).

The applicant must apply in writing to the CIRC for approval of formation preparation. The application must include materials such as:

  • A formation application form.

  • A feasibility study report.

  • A formation preparatory plan.

  • The investor's business licence.

  • The accounting report of the last year that has been audited by an accounting firm.

  • A list of the:

    • person in charge of the formation preparatory group;

    • proposed chairman of the board of directors and managers;

    • investor certificates acknowledging those persons;

    • other materials specified by the CIRC.

The CIRC will then examine the application, and make a decision on whether to approve or disapprove its formation preparation within six months after accepting the application and notify the applicant of its decision in writing. If the CIRC disapproves the application for formation, it must give reasons. The applicant must complete formation within one year of notice of approval.

After completing preparation, the applicant can apply for permission to open business. The CIRC must decide whether to approve or disapprove this application within 60 days after accepting the application and notify the applicant in writing. If approving the application, it must issue an insurance business operation permit. If disapproving the application, it must notify the applicant in writing and give reasons.

China implements a strict supervision system. A company engaged in operating relevant insurance business must apply for an insurance licence. The following insurance institutions within the borders of the PRC must obtain an insurance licence:

  • Insurance holdings companies and insurance group companies operating insurance business.

  • Insurance companies and their branches.

  • Insurance asset management companies and their branches.

  • Insurance agencies, insurance brokerage institutions, insurance assessment institutions and their branches.

  • Concurrent-business insurance agencies.

  • Reinsurance companies and their branches.

  • Other insurance institutions, as determined by the CIRC.

Different types of insurance activity are subject to different licensing requirements regarding:

  • Registered capital.

  • Governance structure.

  • Management.

  • Human resources issues.

  • Shareholders.

In general, the requirements applicable to insurance and reinsurance companies are strict, and it is difficult to establish a new business in this sector.

Individuals cannot undertake insurance activities on their own (Insurance Law). Some, but not all, employees of an insurance entity who will be undertaking insurance work and in specific position must obtain an individual insurance licence.

Insurance/reinsurance intermediaries

Any entity engaged in the marketing of insurance or reinsurance services must be licensed by the CIRC. This includes insurance agents and brokers (see above, Insurance/reinsurance providers).

To form an insurance/reinsurance intermediary, including a specialised insurance agency, an insurance brokerage company, or an insurance assessment (or loss adjustment) institution, it is necessary for the intermediary to satisfy the following conditions (Provisions on the Supervision and Administration of Specialised Insurance Agencies, Provisions on the Supervision of Insurance Brokerage Institutions, Provisions on the Administration of Insurance Assessment Institutions):

  • Its shareholders or promoters must be of good credit standing and have no record of serious breach of the law in the last three years.

  • Its registered capital must reach the minimum requirements set out by PRC Company Law and the relevant Provisions.

  • Its bye-laws must comply with the relevant Provisions.

  • Its chairman of the board of directors, managing directors and senior management must meet the eligibility requirements as provided for by these Provisions.

  • It has a sound organisational set-up and good management rules.

  • It has a fixed domicile suitable for its scale of business.

  • It has computer software and hardware facilities for business operations and financial affairs which meet the needs of its business.

  • Other conditions as set out by laws, administrative regulations, or CIRC provisions.

Insurance salespeople must pass exams set by the CIRC to obtain a qualification certificate. The holder of a qualification certificate must not engage in insurance sales activities unless he has obtained a practice certificate for the insurance salesman that is issued by the insurance company to which he belongs.

Individual loss adjusters must pass exams set by the CIRC. They must then obtain individual licences or practicing certificates. They must work for licensed loss adjustment entities and undertake insurance assessment in the name of entities.

On 19 October 2015, CIRC issued Regulatory Provisions on Insurance Brokerage Agencies. In this new regulation, CIRC stressed the need to regulate operation acts of insurance brokerage agencies, protect the legitimate rights and interests of the insured, maintain market order and promote healthy development of insurance industry.

Other providers of insurance/reinsurance-related activities

Insurance asset management can only be undertaken by licensed insurance companies.

An insurance company can establish an insurance asset management company if it obtains the approval of the insurance regulatory authority under the State Council in conjunction with the securities regulatory authority under the State Council (Article 107, Insurance Law of the PRC). An insurance asset management companies must conduct securities investment activities in accordance with the Securities Law of the People's Republic of China and other relevant laws and administrative regulations. The measures for the administration of insurance asset management companies must be formulated by the insurance regulatory authority under the State Council in conjunction with other relevant departments under the State Council.

 
10. What are the main exemptions or exclusions from authorisation or licensing?

No exemptions or exclusions from licensing are available.

Extended warranty providers do not need an insurance licence as the CIRC does not deem such activities to be insurance activities (see Question 4).

Restrictions on ownership or control

11. Are there any restrictions on the ownership or control of insurance-related entities?

Insurance/reinsurance providers

Licensed domestic insurance companies cannot have more than 25% in registered foreign capital or foreign equity interests (Article 2, Administrative Measures for Equity of Insurance Companies (Measures)).

Domestic entities that want to invest in insurance companies must (Article 13, Measures):

  • Be financially stable and profitable.

  • Be of good standing (that is, with a good record of sincerity and honesty) with a good tax payment history.

  • Have not breached the law or regulations in any significant way in the past three years.

  • Comply with the financial regulator's requirements where the investor is a financial institution.

  • Comply with any other requirements set by the law, administrative regulations and the CIRC.

Foreign financial institutions that want to invest in Chinese insurance companies must (Article 14, Measures):

  • Be financially stable and have made continuous profits for the past three consecutive fiscal years.

  • Have total assets at the end of the most recent year of not less than US$2 billion.

  • Have been given an A-grade or above credit rating by an international credit-rating organisation for the past three years.

  • Have not breached the law or regulations in any significant way in the past three years.

  • Comply with the local financial regulator's requirements.

  • Comply with any other requirements set by the law, administrative regulations and the CIRC.

Shareholders with a more than 15% share ownership, or those with either direct or indirect control of the insurance company's majority shareholder, must also (Article 15, Measures):

  • Be able to continue providing capital, in addition to having made continuous profits for the past three consecutive fiscal years.

  • Have adequate funding. Net assets should not be less than CNY200 million.

  • Have a good reputation with a prominent or leading position in its industry.

The capital contribution made or shares held by a single shareholder (including connected parties) of an insurance company must not exceed 20% of the company's registered capital. The CIRC abides by the principles of "adhering to strategic investment, optimising governance structure, avoiding peer competition, and maintaining a steady development". Subject to approval, the main shareholders that satisfy the provisions of Article 15 of these Measures will not be restricted by the rules regarding shareholding proportion, see above (Article 4, Measures).

On 9 March, 2013, CIRC issued Notice of the China Insurance Regulatory Commission (Notice) on issues concerning Article 4 of the Measures. The new Notice gives hope for those who want to have substantial control over insurance companies.

In the Notice, CIRC stipulates that pursuant to the principles of upholding strategic investment, optimising governance structure, avoiding horizontal competition and maintaining sound development, on approval by the CIRC, a single shareholder (including its affiliated parties) of an insurance company who satisfies the conditions may contribute more than 20% of the total capital of the insurance company or hold more than 20% of its shares, subject to a maximum of 51% (Article 1, Notice).

A shareholder of an insurance company who contributes over 20% (exclusive) of the total capital of the insurance company or holds more than 20% (exclusive) of its shares must meet the requirements on major shareholders as prescribed under Article 15 of the Measures. In addition:

  • It must have total assets of not less than RMB10 billion as at the end of the year.

  • Its net assets shall not be less than 30% of its total assets.

  • Its long-term outward equity investment, including investment in the insurance company, shall not exceed its net assets.

  • It must have been investing in the insurance company for three years or longer; and

  • It must not have committed a violation of the PRC Insurance Law, the Administrative Provisions on Insurance Companies, the Measures, the Administrative Measures for Controlling Shareholders of Insurance Companies and other code of conduct on shareholders of insurance companies (Article 2, Notice).

A single shareholder (including its affiliated parties) of an insurance company established less than three years ago must not contribute more than 20% of the total capital of the insurance company or hold more than 20% of its shares. (Article 3, Notice).

A shareholder of an insurance company must not transfer its equity within three years from the date when its capital contribution or shareholding exceeds 20% (exclusive), except for the lawful compulsory equity transfer such as by court auction or the equity transfer on special approval of the CIRC (Article 4, Notice).

Foreign insurance companies applying to establish a foreign-funded insurance company, which means that accumulated foreign equities in the insurance company is over 25%, must (Article 8, Administration of Foreign-funded Insurance Companies Regulations):

  • Have been in the insurance business for at least 30 years.

  • Have had a representative office in China for at least two years.

  • Have total year-end assets of not less than US$5 billion in the year before the application.

  • Come from a country or region of origin with a good system of insurance regulation. In addition, the foreign insurance company must have been subject to effective regulation by the relevant authorities in its country or region of origin.

  • Have compensation capability in accordance with the standards of its country or region of origin.

  • Obtain agreement to its application from the relevant authorities in its country or region of origin.

  • Meet any other prudential requirements set by the CIRC.

In 2014, CIRC issued the Regulatory Provision over Insurance Company Mergers and Acquisitions. This new Provision changes the old regulation, which only permitted the shareholder to control one insurance company in one insurance business sector. Instead it permits the shareholder to control two insurance companies in the same sector. For instance, a controller can now control two life or property insurance companies at the same time . This new Provision will encourage an active share market for insurance companies in the future.

From 15 April 2014, shareholder investments in insurance companies must come from proprietary funds from legitimate sources rather than bank loans or non-proprietary funds in other forms, unless otherwise provided by the CIRC (Article 7, Measures for the Administration of Equity in Insurance Companies).

Insurance/reinsurance intermediaries

To establish an insurance brokerage, an applicant must (Article 7, Provisions on the Supervision of Insurance Brokerage Institutions):

  • Have shareholders and initiators with good credit ratings, and no record of any material breach of the law in the last three years.

  • Have registered capital that meets the minimum amount as set by PRC Company Law.

  • Ensure that its articles of association comply with relevant law.

  • Ensure that the chairman of the board of directors, executive directors and senior management meet position eligibility requirements set by the Provisions on the Supervision of Insurance Brokerage Institutions.

  • Have a sound organisational structure and well-established management rules.

  • Have a fixed domicile suitable to the business's location and scale.

  • Have computer hardware and software facilities for conducting business, finance and accounting that can meet the needs of its business.

  • Meet other conditions set by the law, administrative regulations and CIRC provisions.

In addition, the minimum registered capital of an insurance brokerage company must be RMB50 million, unless otherwise provided by the CIRC (Article 8, Provisions on the Supervision of Insurance Brokerage Institutions). The registered capital of an insurance brokerage company must be paid-up monetary capital.

The same rules apply to the establishment of insurance agencies (Article 6, Provisions for the Supervision and Administration of Professional Insurance Agencies).

To establish a claim or loss adjustment business, an applicant must meet the same requirements as those set for insurance brokerages and agencies (see above) (Article 8, Provisions on the Supervision and Administration of Claims Adjusters).

 
12. Must owners or controllers be approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?

Insurance/reinsurance providers

Chinese-funded insurance companies. The following requirements apply:

  • Prior approval of the CIRC is required for a change of shareholder(s), where the shareholder(s) hold(s) more than 5% of the capital contributions of the registered capital of a limited liability company, or more than 5% of total shares of a stock corporation (Article 16, Measures).

  • A public or listed insurance company must submit a report to the CIRC for approval where an investor, through securities trading, attains 5% or more of the stock already listed by the company (Article 17, Measures). This must be done within five days of the date that the shares are obtained. If this is not done, the CIRC can require that all shares held by the investor be transferred to the original public or listed company.

  • Where there is a change of shareholder(s) (and that shareholder hold(s) less than 5% of the registered capital), the company must, within 15 days of the signing of the share transfer agreement, notify the CIRC of the change (Article 18, Measures). Public or listed insurance companies do not need to adhere to this rule.

  • Insurance companies that have either obtained the CIRC's approval of a share transfer or that have notified the CIRC of the transfer must also register the change with the relevant Administration of Industry and Commerce within three months of the approval or notification. If they have not done so, they must promptly report this in written form to the CIRC (Article 19, Measures).

  • Insurance companies that refinance after listing on the stock market or making an initial public offering must first obtain an opinion from the CIRC (Article 20, Measures).

Branch of foreign insurance company. A branch must submit a written report to the CIRC if the parent company (Article 22, Administration of Foreign-funded Insurance Companies Regulations):

  • Changes its name, principal officers or place of registration.

  • Changes its capital funding.

  • Changes shareholder(s), where the holding is 10% or more of the total capital or shares.

  • Changes the scope of its business.

  • Is penalised by the relevant authorities in the company's country or region of domicile.

  • Sustains major losses.

  • Divides, merges, dissolves or is shut down or declared bankrupt in accordance with the law.

  • Experiences other certain changes.

Insurance/reinsurance intermediaries

An insurance agent or insurance brokerage must notify the CIRC in writing if any of the following events occur (this must be done within five days of the event's occurrence) (Article 17, Provisions on the Supervision and Administration of Specialised Insurance Agencies and Article 18, Provisions on the Supervision of Insurance Brokerage Institutions):

  • Change of its name or the name of its branches.

  • Change of its domicile or the place of business of its branches.

  • Change of the name of its initiators or major shareholders.

  • Change of its major shareholders.

  • Change of its registered capital.

  • Major change to its equity structure.

  • Modification of its articles of association.

  • Closure of its branches.

Loss adjustment entities must report in writing to the CIRC if any of the following circumstances arise (this must be done within five days of the occurrence) (Article 18, Administrative Provisions on Insurance Assessment Institutions):

  • Change of its name or the name of its branches.

  • Change of its domicile or the place of business of its branches.

  • Change of the names of its initiators, major shareholders or capital contributors.

  • Change of its major shareholders or capital contributors.

  • Material change to its equity structure or proportion of capital contribution.

  • Change of its registered capital or capital contribution.

  • Modification of its articles of association or partnership agreement.

  • The division, merger or dissolution of the entity, or changes to its organisational form.

  • Closure of its branches.

Ongoing requirements for the authorised or licensed entity

13. What are the key ongoing requirements with which the authorised or licensed entity must comply?

Insurance/reinsurance providers

There are some requirements that must be met on an ongoing basis, for example, insurance companies must:

  • Retain actuaries recognised by the CIRC.

  • Set up an actuarial statement system and a regulatory compliance reporting system.

  • Truthfully, accurately and completely disclose:

    • their financial and accounting reports;

    • their risk management status;

    • their insurance product trading information;

    • other major matters according to the provisions of CIRC.

Regulatory approval is required for the issuance of any equity or debt security.

In relation to transactions outside the ordinary course of business, any insurance or reinsurance company that wants to be listed on the PRC stock market must first obtain approval from the CIRC and the China Security Regulatory Commission (CSRC).

In 2011, the CIRC issued the Contemporary Measures for the Administration of Insurance Business Transactions of Insurance Companies, which sets application and approval procedures for insurance transactions. Under the measure, any transaction that is out of the ordinary course of business, even with affiliates, should first be approved by the CIRC. This measure does not apply to transactions entered into by reinsurance entities or insurance intermediaries.

Insurance/reinsurance intermediaries

Among other things, insurance intermediaries must accurately, completely and in a timely manner submit relevant reports, statements, documents, materials and electronic texts about changes to:

  • The name of the agency or any branch office.

  • The domicile of the agency or the business office of any branch office.

  • The name of any promoter or principal shareholder.

  • Any principal shareholder.

  • The registered capital.

  • The equity structure.

  • The bye-laws or cancellation of any branch, and so on.

In addition, insurance intermediaries must, within three months after the end of each accounting year, hire an accounting firm to audit its financial conditions in respect of assets, liabilities, profits, and so on, and submit the audit report to the CIRC.

The CIRC may, for supervisory purposes, arrange for a supervisory interview with the president, executive directors and senior managers of the insurance intermediaries, requiring them to make explanations about the major events arising during the business operations.

Regulatory approval is required for the issuance of any equity or debt security.

An insurance intermediary that wants to be listed on the PRC stock market must first obtain approval from the CIRC and the China Security Regulatory Commission (CSRC).

The Contemporary Measures for the Administration of Insurance Business Transactions of Insurance Companies are not applicable to transactions undertaken by insurance intermediaries (see above).

Penalties for non-compliance with legal and regulatory requirements

14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity?

Insurance/reinsurance providers

General rules. Where an insurance agent or broker violates the laws and administrative regulations on insurance administration and the provisions of the CIRC, the CIRC and the Local Offices will conduct an investigation and impose the following administrative penalties in accordance with the law:

  • Issue a warning.

  • Impose a fine.

  • Confiscate illegal earnings.

  • Restrict business scope.

  • Order them to suspend acceptance of new business.

  • Order them to suspend business for rectification.

  • Revoke their business permit.

  • Remove the representative offices of foreign insurance institutions.

  • Cancel post-holding qualification or practicing qualification, or revoking qualification certificate.

  • Issue an order to remove or replace the chief representatives of representative offices of foreign insurance institutions.

  • Prohibit them from entering into insurance industry.

  • Other administrative penalties specified in laws and administrative regulations.

The penalty imposed depends on the type of breach committed. Serious breaches may incur criminal responsibility, with penalties imposed by the PRC courts.

Customers have some remedies; for example, they can bring a civil claim or file a complaint with the CIRC.

Operating without a licence. If an entity engages in insurance activities without a licence, the CIRC can prohibit it from undertaking any activity and report it to the police. Operation without a licence can be subject to non-criminal penalties and, in serious cases, individuals can be prosecuted for a criminal offence:

  • Non-criminal penalties. Where anyone forms an insurance company or insurance asset management company without approval or illegally operates a commercial insurance business, the CIRC will:

    • ban it;

    • confiscate the illegal gains;

    • impose a fine of not less than the amount of the business but not more than five times the illegal gains on it. If there are no illegal gains or the amount of the gains is less than CNY200,000, a fine of CNY200,000 to CNY1 million is imposed.

  • Criminal penalties. Where anyone engages in insurance activities without a licence, the sanctions depend on whether the circumstances are serious:

    • not serious circumstances: no more than three years in prison or criminal detention, and/or fined from CNY20,000 to CNY20,000;

    • serious circumstances: from three to ten years in prison and fined from CNY50,000 to CNY500,000.

Insurance/reinsurance intermediaries

General rules. Where an insurance entity violates the laws and administrative regulations on insurance administration and the provisions of the CIRC, the CIRC and the Local Offices will conduct an investigation and impose the following administrative penalties in accordance with the law:

  • Issue a warning.

  • Impose a fine.

  • Confiscate illegal earnings.

  • Restrict business scope.

  • Order them to suspend acceptance of new business.

  • Order them to suspend business for rectification.

  • Revoke their business permit.

  • Remove the representative offices of foreign insurance institutions.

  • Cancel post-holding qualification or practicing qualification, or revoking qualification certificate.

  • Issue an order to remove or replace the chief representatives of representative offices of foreign insurance institutions.

  • Prohibit them from entering into insurance industry.

  • Other administrative penalties specified in laws and administrative regulations.

If an insurance loss adjuster breaches the law, the CIRC can:

  • Issue fines.

  • Issue warning notices.

  • Modify the activities that the entity can undertake.

  • Suspend the entity's business and order it to restructure.

  • Revoke the entity's insurance licence.

For insurance agents/brokers and insurance loss adjusters, serious breaches may incur criminal responsibility, with penalties imposed by the PRC courts (see below). Customers have some remedies; for example, they can bring a civil claim or file a complaint with the CIRC.

Operating without a licence. If an entity engages in insurance activities without a licence, the CIRC can prohibit it from undertaking any activity and report it to the police. Operation without a licence can be subject to administrative penalties or prosecuted as a criminal offence:

  • Non-criminal penalties. Where anyone forms a full-time insurance agency or an insurance broker without approval or carries out the insurance agency or brokerage business without an insurance agency or brokerage business operation permit, the CIRC will:

    • ban it;

    • confiscate the illegal gains;

    • impose a fine of no less than the amount of the business but not more than five times the illegal gains on it. If there are no illegal gains or the amount of the gains is less than CNY50,000, a fine of CNY50,000 to CNY300,000 is imposed.

  • Criminal penalties. See above, Insurance/reinsurance providers.

Restrictions on persons to whom services can be marketed or sold

15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold?

There are no restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold.

 

Reinsurance monitoring and disclosure requirements

16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?

There are no specific laws or regulations governing reinsurance contracts in the PRC, and so there are no provisions governing claim control. In practice, parties to reinsurance contracts determine claim control issues between themselves without the intervention of the CIRC. Regarding the monitoring of claim, settlements and underwriting of the direct insurer, it depends on the reinsurance contract between the reinsurer and insurer companies.

 
17. What disclosure/notification obligations does the cedant company have to the reinsurance company?

Legal experts consider a reinsurance contract to be a special type of insurance contract. As a result, the cedant company has the same disclosure obligations to the reinsurance company as an applicant does to an insurance company in an insurance contract.

 

Insurance and reinsurance policies

Content requirements and commonly found clauses

18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses?

Form and content requirements

The PRC Insurance Law does not set specific form and content requirements for insurance policies. In practice, an insurance contract in China consists of an application form, schedule, standard terms and endorsements.

Commonly found clauses

Commonly found clauses usually include coverage, disclosure, warranty, exclusion, indemnity, dispute resolution and subrogation clauses.

 
19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies?

Facultative/treaty reinsurance

Both facultative reinsurance and treaty reinsurance are common in China.

Commonly found clauses

Commonly found clauses usually include coverage, disclosure, warranty, exclusion, indemnity, dispute resolution, subrogation and claim control clauses.

Implied terms

20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)?

The laws generally applicable to insurance and reinsurance contracts are the PRC Insurance Law and the Contract Law, and some of their provisions are implied in policies. For instance, the duty of utmost good faith, protection of the insured and beneficiary (which relates to consumer protection rights), and the doctrine of indemnity are implied into policies.

Customer protections

21. How do customer protections in the general law affect insurance contracts? What customer protections are generally included in insurance policies to supplement this?

Where there is a dispute regarding the meaning of a policy provision, a court or arbitration tribunal will interpret provisions in favour of the insured or beneficiary (Insurance Law).

If an insurer does not explain and remind an applicant about the existence of an exclusion clause, such a clause is invalid (Insurance Law).

Standard policies or terms

22. What are the main standard policies or terms produced by trade associations or relevant authorities?

The Insurance Association of China produces a standard policy for car insurance (this type of insurance makes up 70% of the property insurance market in China).

 

Insurance and reinsurance policy claims

Establishing an insurance claim

23. What must be established to trigger coverage under an insurance policy?

When an insured event occurs, the insured or beneficiary normally has a prescribed period within which it must notify the insurer and provide relevant information regarding the cause of the event and the extent and nature of the loss. Some policies stipulate that the insurer can refuse a claim due to late notice; however, most courts tend to invalidate such provisions.

Third party insurance claims

24. What are the circumstances in which third parties can claim under an insurance policy?

If an insured neglects to submit a claim under a liability insurance policy, or gives express permission to a third party, any third party who has suffered damage at the hands of the insured can submit a direct claim with the insurer.

Time limits

25. Is there a time limit outside of which the insured/reinsured is barred from making a claim?

The statute of limitation for an insurance claim that does not relate to life insurance is two years; for a life insurance claim it is five years (Article 26, Insurance Law). The limitation period starts to run from the time the insured or beneficiary knows or should know of the occurrence of the insured event.

Enforcement

26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

Under no circumstances can the original policyholder enforce a reinsurance contract against the reinsurer.

Remedies

27. What remedies are available for breach of an insurance policy?

Contractual remedies for breach of a policy are limited to direct losses arising from a contract and actions of bad faith are not taken into account. If an insurance company acts in bad faith, a court can order that an insured or beneficiary benefit under the policy and that the insurer pay interest for the loss incurred by the late payment of that benefit. Punitive damages cannot be awarded as a result of the insurer acting in bad faith.

If an insured acts in bad faith (that is, the insured makes a false claim), the insurer's remedies depend on the circumstances:

  • The insured or beneficiary falsely claims an insured incident occurs, and claim indemnity or insurance money from the insurer. In this case, the insurer has the right to:

    • rescind the insurance contract;

    • not return the insurance premium.

  • The insurance applicant or insured intentionally create an insured incident. In this case, the insurer has the right to:

    • rescind the insurance contract;

    • not pay an indemnity or insurance money;

    • not refund insurance premium paid within the last two years.

  • An insured incident occurs, but the insurance applicant, insured or beneficiary fabricates the cause of the incident, or exaggerates the degree of damage by forging or altering the relevant certificates or materials or any other evidence. In this case, the insurer is not liable for paying indemnity or insurance money for the false part of the claim.

If the insured fails to make his premium payments, the result differs depending on the contract terms and the provisions of related laws and regulations:

  • The parties agree that paying the insurance premium can decide the effectiveness of the insurance contract and the beginning of the insurance liability period. In that case, if the insurer misses his or her premium payments, the insurer may not need to pay compensation under the contract.

  • The parties do not agree that non-payment of the premium exempts the insurer from liability. In this case, non-payment of the premium only constitutes a breach of contract and the insurer retains his main obligations under the contract.

In certain personal insurance contracts there is a clause which states that the premium is paid in instalments. In that case, if after paying the first instalment the insured fails to pay the current instalment after 30 days from when the insurer sends a payment notice or 60 days from the date of payment, the contract may provide that it will be suspended or that the insurer can reduce the insured amount accordingly. When an insured incident occurs after the relevant time limit has expired the insurer can deduct the underpaid insurance premium from the insurance money.

Punitive damage claims

28. Are punitive damages insurable? Can punitive damages be reinsured if they are covered by an underlying policy?

The newly enacted Tort Responsibility Law allows for punitive damages to be claimed in product liability cases. In practice, such losses are not insured, although some insurers (mainly Chinese branches of foreign insurance companies) are eager to explore this complex field.

 

Insolvency of insurance and reinsurance providers

29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent?

If a company is not yet insolvent, the CIRC may require the company to submit a plan on the prevention of inadequate solvency and execute it. Where there is any significant solvency risk in a company, the CIRC may require it to make a rectification, or take necessary supervisory measures against it. When an insurance or reinsurance company becomes insolvent, the CIRC can take over its business and restructure it (Insurance Law). When an insurance or reinsurance company applies for bankruptcy, the CIRC orders the transfer of its policies to other insurers.

Certain other protections are available for policyholders, for example, an insurance company must:

  • Draw a guarantee fund at the rate of 20% of its total registered capital, deposit it into a bank designated by the CIRC, and use it for no purpose other than repayment of debts at the time of liquidation of the company.

  • Draw various liability reserve funds according to the principle of protecting the interests of the insureds and guaranteeing solvency.

  • Pay insurance protection funds, which will be managed in a centralised way and used in the following ways:

    • to provide remedies for insurance applicants, insureds or beneficiaries, where an insurance company is cancelled or declared bankrupt;

    • to provide remedies for the insurance company which accepts the life insurance contracts of a bankrupt insurance company, where the company is cancelled or declared bankrupt; or

    • any other circumstance specified by the State Council.

 
30. Can excess insurance policies "drop down" to provide coverage if the primary insurer goes into insolvency?

There is no specific legal provision regulating such a situation. The parties to an excess coverage insurance policy enter into such arrangements at their discretion.

 
31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer?

The PRC Insurance Law does not touch on this issue, but the PRC Enterprise Bankruptcy Law allows the set-off of mutual debts and credits, except in the following situations:

  • Where a person that owes debts to the debtor obtains another person's claims against the debtor after an application for bankruptcy is accepted.

  • Where the creditor who obtains credits from the debtor is indebted to the debtor when he already knows that the debtor is incapable of paying off his debts or has applied for bankruptcy, unless the:

    • law provides differently; or

    • debtor gets into debt because of developments that take place one year before the application for bankruptcy is made.

  • Where a person who owes debts to the debtor obtains claims from the debtor and makes claims against him when the debtor already knows that the debtor is incapable of paying his debts or has applied for bankruptcy, unless the law provides differently or he obtains the claims because of developments that take place one year before the application for bankruptcy is made.

 

Taxation of insurance and reinsurance providers

32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services?

The taxes that insurance and reinsurance entities and insurance intermediaries (including specialised insurance agencies and insurance brokerage) are mainly subject to are income tax and enterprise profit tax at the ordinary rates, as are loss adjustment entities that take the form of limited liability companies or joint stock companies. Loss adjustment entities that take the form of partnerships are subject to income tax and individual profit tax. Individuals who provide insurance and reinsurance-related services are mainly subject to income tax and individual profit tax.

Property insurance contracts, including property, liability, guarantee and credit insurance contracts, are subject to stamp duty. However, personal insurance companies need not be subject to stamp duty.

 

Insurance and reinsurance dispute resolution

33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

For litigation involving marine insurance, the court of first instance is the professional marine court, where the Marine Special Procedure Law is applied. There is no special procedure or venue for other types of insurance litigation.

On 18 December 2012, CIRC and PRC Supreme Court jointly issued a notice to establish a mediation system to insurance litigations in some cities. This system will be conducted by the local courts and insurance associations.

 
34. Are arbitration clauses in insurance and reinsurance agreements enforceable?

Arbitration clauses in insurance and reinsurance agreements are enforceable. Arbitration clauses are appearing with increasing frequency in professional liability, commercial liability, builder's risk, and other casualty insurance policies.

 
35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced?

Any insurance or reinsurance activity that takes place in China is regulated by the Insurance Law, limiting applicable law clauses. If a dispute arises as a result of insurance or reinsurance activity that takes place outside China, but relates to Chinese parties, a foreign law can be chosen as the applicable law.

In the case of litigation, the court venue will be the domicile of the defendant or where the insured subject matter is located. Where the litigation concerns a claim against a transport insurance policy, additional optional court venues can include the point of transport departure or destination, or the place where the transport vehicle is registered.

In relation to arbitration, there is no limit to the choice of venue.

 

Reform

36. What proposals are there for reform of the law, regulation or rules relating to the provision of insurance or reinsurance services?

Current proposals for reform of law and regulation in China are to:

  • Encourage insurance funds to be invested in foreign markets.

  • Encourage co-operation between the insurance, banking and security regulators.

  • Regulate insurance companies on different levels.

  • Protect the insured.

  • Create an insolvency regulation to govern the actions of insurers.

  • Deregulate foreign investment in the insurance sector.

 

Main insurance/reinsurance trade organisations

Insurance Association of China (IAC)

Main activities. The IAC represents the interests of China's insurance industry. It:

  • Speaks out on issues of common interest.

  • Helps to inform the public and participates in debates on public policy issues.

  • Acts as an advocate for high standards of customer service in the insurance industry.

The IAC has four working committees: the Life Insurance Working Committee, the General Insurance Working Committee, the Insurance Agency and Broker Working Committee, and the Actuarial Working Committee.

W www.iachina.cn


Online resources

W www.circ.gov.cn/

Description. The China Insurance Regulatory Commission (CIRC), was established on 18 November 1998 and is authorised by the State Council to conduct administration, supervision and regulation of the Chinese insurance market, and to ensure that the insurance industry operates stably in compliance with law.



Contributor profiles

Zhan Hao

AnJie Law Firm

T +86 10 85675988
F +86 10 85675999
E zhanhao@anjielaw.com
W www.anjielaw.com

Professional qualifications. China, 1995

Areas of practice. Insurance law; competition law; dispute resolution.

Non-professional qualifications. Post-doctoral researcher (Economics), Tehua Research Centre.

Recent transactions

  • Providing legal services for China Property & Casualty Reinsurance Company Ltd in catastrophe bond issuance in US.
  • Providing advice for Ping An Insurance Group to buy Lloyd building and Tower Place in the UK.
  • Providing legal services for domestic insurance organizations and insurance assets management companies with their utilization of insurance funds, investment & financing.
  • Providing legal services to several insurance companies in the Tianjin explosion accident.
  • Handling litigations and arbitrations concerning insurance claim and subrogation in D&O, property insurance, and product liability insurance and so on.

Languages. English and Chinese.

Professional Associations/Memberships.:

  • Arbitrator, China International Economic and Trade Arbitration Commission (CIETAC)

  • Arbitrator, Shanghai International Economic and Trade Arbitration Commission (SHIAC)

  • Arbitrator, Hong Kong International Arbitration Centre (HKIAC)

  • Arbitrator, Kuala Lumpur Regional Center for Arbitration (KLRCA)

  • Arbitrator, American International Commercial Arbitration Court (AICAC)

  • Member, German Institution of Arbitration (DIS)

  • Vice President, Professional Committee of Finance, Security and Insurance under the All China Lawyers Association (ACLA)

  • Commissioner, Legal Advisory Board of All China Federation of Returned Overseas Chinese

  • Professor, Law School of the University of Central Finance and Economics

  • Vice President, Experts Committee of Vehicle Insurance of the Insurance Association of China (IAC)

  • Member, Lawyer Team of the Insurance Association of China (IAC)

Publications.

  • The Hot Issues of China Anti-trust Private Litigation, China Law Press, 2012

  • The New Insurance Law – Interpretation on Practice Highlights and Case Analysis, China Law Press, 2010

  • Practices of Enterprises' M&A under Antitrust Law – Interpretation, Case Analysis & Guidance, China Law Press, 2008

  • The Theory of Chinese Anti-monopoly Law and Practice, Peking University Press (Co-author), Peking University Press, 2008

  • Records on the Course of Case-handling by Chinese Lawyers – Insurance Litigation, China Law Press, 2008

  • A Look at Regulations on Insurance Market from the Perspective of Economic Law, China Legal Publishing House, 2007

  • Essential Principles, Comments & Analysis of Typical Cases in Insurance Law, China Legal Publishing House, 2007

  • Investor Relations of Listed Companies (Co-author), China Law Press, 2007.


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