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JT&N’s PRC Insurance Highlights News Alert (April 2021)

2021-04-07/ARTICLES/ Elsie SHIYU Hualiang(George)余华良

1. Decision on Amending the Implementing Rules for the Administrative Regulations on Foreign-invested Insurance Companies

On March 19, 2021, CBIRC published the Decision on Amending the Implementing Rules for the Administrative Regulations on Foreign-invested Insurance Companies (the “Amended Implementing Rules”) which took effect on the same day.  The Amended Implementing Rules were intended to implement the relevant opening-up measures for the financial sectors and the relevant amendments to the Administrative Regulations on Foreign-invested Insurance Companies, and have clarified the market access requirements for foreign insurance group companies and foreign financial institutions, and removed the provisions related to the 51% foreign ownership cap on life insurance companies that had been abolished.

A foreign insurance group company refers to a company that has been registered in accordance with the law in its home country and exercises control, joint control and significant influence over one or more insurance companies within the group.  According to the Amended Implementing Rules, the qualification requirements for foreign insurance group companies to apply to establish an insurance company are as follows:

1)having total assets of no less than USD5 billion as of the year end prior to the application;

2)the home regulator of the applicant agrees to the application;

3)its home country or region has a sound system for insurance regulation, and the applicant or its main insurance subsidiaries are under the effective supervision of its home regulator;

4)the foreign insurance group or its main insurance subsidiaries meet the solvency requirements of their home countries or regions; and

5) any other prudent conditions required by CBIRC.

Main insurance subsidiaries refer to one or more insurance companies that are controlled or jointly controlled by an insurance group company, that are among the largest in terms of total assets as of the year end before the application, and that account for no less than an aggregate of 60% of the consolidated insurance assets of the insurance group.

A foreign insurance group company applying to establish an insurance company should submit the following documents: 

1)application letter signed by the legal representative of the applicant.  In the case of a joint venture insurance company, the legal representatives of the parties to the joint venture should jointly sign the application letter;

2)the foreign applicant’s business license issued by the authorities of its home country or region;

3)a solvency certificate and a regulatory opinion on the application, issued by the home regulator of the applicant or the home regulators of its main insurance subsidiaries;

4)the foreign applicant’s articles of association and annual reports for the most recent three years;

5)the Chinese domestic applicants’ materials in the case of establishing a Chinese-foreign joint venture insurance company;

6)feasibility study report and preparation plan for the proposed insurance company;

7)name list, resumes, and qualification-related materials of the persons responsible for the preparatory work; and

8)other materials required by CBIRC.

When a foreign-invested insurance company changes its shareholders, the proposed acquirer or successor that is a foreign insurance company or foreign insurance group company should meet the qualification requirements for establishing a foreign-invested insurance company.

A foreign financial institution refers to a financial institution registered outside of China and approved or licensed by the financial regulator of its home country or region.  If a foreign financial institution other than an insurance company or insurance group becomes a shareholder of a foreign-invested insurance company, the provisions of the Administrative Measures on Equities of Insurance Companies should apply.

If foreign insurance companies and foreign insurance group companies, as shareholders of insurance companies registered in China, wish to establish an insurance group company, the regulatory rules on insurance group companies will apply.  Where the insurance group company rules are silent, the Administrative Regulations on Foreign-invested Insurance Companies and their Implementing Rules should apply as a reference.

投资外资保险公司,影响或者可能影响国家安全的,应当依法进行外商投资安全审查。

If an investment in a foreign-invested insurance company affects or may affect national security, a foreign investment security review should be conducted.

2. Measures for the Security Review of Foreign Investment

On December 19, 2020, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) promulgated the Measures for the Security Review of Foreign Investment, which took effect on January 18, 2021.  The Measures are formulated in accordance with the Foreign Investment Law and the National Security Law and require security review to be conducted on foreign investments that have or may have an impact on national security.

Responsible Authority.  A Working Mechanism Office is to be established under NDRC, jointly led by NDRC and MOFCOM, to undertake the day-to-day work of security review on foreign investments.

Scope of security review.  The following foreign investments should undergo security review:

1)investments in the military industry and military related industries relating to national defense security, and investments in areas surrounding military installations and military facilities;

2)investments in important areas relating to national security and involving important agricultural products, important energy and resources, important equipment manufacturing, important infrastructure, important transportation services, important cultural products and services, important information technology and Internet products and services, important financial services and key technologies and etc., and obtaining actual control over the invested enterprise.

Filings for security review.  Foreign investors and relevant parties (together as the “Parties”) within the PRC should proactively make a filing for foreign investments that fall within the scope of security review.  If the Parties make such an investment without a filing, the Working Mechanism Office can demand the Parties to file within a certain time limit.  If the parties refuse to file, the Working Mechanism Office can demand the parties to dispose of the equity or assets within a certain time limit and take other necessary measures to reverse the investment and eliminate the impact on national security.  Where the relevant authorities, enterprises, social groups and the public, etc. believe a foreign investment has or may have an impact on national security, they can propose a security review by the Working Mechanism Office.

Procedures of security review.  There are three stages of security review: 

1)Stage 1: Preliminary Review.  After receiving the filing materials, the Working Mechanism Office will conduct a preliminary review and determine whether to start a security review within 15 working days;

2)Stage 2: General Review. General review should be completed within 30 working days after its start.  After general review, if the foreign investment is deemed to have no impact on national security, the Working Mechanism Office should make a decision that the investment has passed the security review; if the foreign investment is deemed to have or may have impact on national security, then the next stage of review should follow.

3)Stage 3: Special Review.  Special review should be completed within 60 working days after its start.

If the investment passes the security review after special review, the Parties can implement the investment.  If the impact on national security can be eliminated by imposing additional conditions and the Parties agree in writing to accept such additional conditions, the Working Mechanism Office may make a conditional decision that the investment passes the security review.  The Parties must make the investment in accordance with the additional conditions.  Investments that have an impact on national security are prohibited.

During the security review, the Parties are not allowed to implement the investments, but they can modify the investment plans or cancel the investments.

3. Draft Circular on Further Regulating Online Life Insurance Business

On January 11, 2021, the Life Insurance Department of CBIRC published the draft Circular on Further Regulating Online Life Insurance Business to solicit comments from the industry.  If officially issued, the Circular would require all insurance companies that have conducted online life insurance business to comply with the Circular by January 1, 2022, and would also adopt a pricing review mechanism for the online life insurance business effective on the same date.

Online life insurance business means that an insurance company, through its self-owned online platform or entrusting a national insurance intermediary to use the intermediary’s self-owned online platform, publicly markets and sells life insurance products that are exclusive for online channel (the “Exclusive Products”), enters into insurance contracts and provides insurance services.  The scope of Exclusive Products is limited to accidental insurance, health insurance (excluding health care insurance), term life insurance, general life insurance that has a term of no less than ten years, general annuity insurance that has a term of no less than ten years, and other life insurance products as agreed by CBIRC.

1. Access requirements 

To conduct online life insurance business, an insurance company should meet the following conditions:

1)having a comprehensive solvency ratio of no less than 120% and a core solvency ratio of no less than 75% during each of the four quarters before the application;

2)having an integrated risk rating of no less than Class B during each of the four quarters before the application;

3)the liability reserve coverage ratio during each of the four quarters before the application being greater than 100% (for life insurance companies), or no adverse development being identified as a result of the liability reserve review during each of the four quarters before the application (for P&C insurance companies);

4)having a corporate governance rating of no less than Grade C (pass) during the prior year;

5)other conditions prescribed by CBIRC.

2. Business operation conditions

Business and finance systems.  The insurance company should maintain an independent and stable business system and a financial system that can meet the needs of online life insurance business. 

Independent account.  The insurance company should establish a bank account for the exclusive use for online life insurance business, and conduct independent accounting for online life insurance business.

Online operation capabilities.  The insurance company should have the following online operation capabilities:

1)Online application.  The insurance company should be able to display online all insurance application materials to consumers, obtain necessary application information remotely, and achieve the basic functions such as address and identity confirmation for the applicants and insureds.

2)Online underwriting review.  The underwriting review process should be automated in principle, and insurance companies are encouraged to explore differentiated and smart underwriting review methods.

3)Online underwriting decision.  The insurance company should be able to support online application confirmation, online premium payment and receipt, and online surrender during the cooling-off period, and should issue legally valid electronic policies.

4)Online services.  The insurance company should make available online all customer counter services including consultation, search, preservation, surrender, claim, complaints and etc., and ensure that services are continuously provided at the standards not lower than those for the products available for sale during the term of insurance policies.

3. Additional requirements for certain products

When submitting online health insurance (other than health care insurance) for approval or filing, among other things, the insurance company should not be subject to regulatory measures due to administrative penalties arising out of online insurance business operation and review in the previous year.

When submitting general life insurance or general annuity insurance that has a term of no less than ten years for approval or filing, among other things, the insurance company should meet the following conditions:

1)having a comprehensive solvency ratio of no less than 150% and a core solvency ratio of no less than 100% during each of the four quarters before the application;

2)having comprehensive solvency surplus of more than RMB5 billion during each of the four quarters;

3)having an integrated risk rating of no less than Class A during each of the four quarters (or at least six quarters in two years) before the application;

4)not being subject to regulatory measures due to online insurance business operation and review in the previous year;

5)having a corporate governance rating of no less than Grade B (sound) during the prior year;

6)other conditions prescribed by CBIRC.

4. Pricing review mechanism 

The insurance company’s chief actuary assumes direct responsibility for review of online life insurance business.  Insurance companies should conduct pricing review of qualified online life insurance products at the end of each quarter, focusing on key indicators such as claim payout rate, incidence rate, expense rate, surrender rate and investment return rate, review deviations between actual results and actuarial assumptions, and proactively make necessary adjustment and reports.

As to the pricing review mechanism, based on different situations, CBIRC will initiate inquiry, investigation, inspection and other regulatory procedures against illegal and non-compliant issues, and under special circumstances may also notify the board of directors of the relevant risks, publicly inform the whole industry, and at the same time pursue the direct liability of the chief actuary as well as the management liability of the main person in charge of the company and the person in charge of the online channel.

5. Disclosure and announcement

The online insurance regulatory information system is the system for online life insurance business filings and information disclosure.  Insurance companies that conduct online life insurance business should submit a business status report as of December 31 of each year and complete online life insurance business and information disclosure filing no later than March 20 in the next year.

If the insurance company adjusts its scope of online life insurance business, it should make an announcement for no less than 10 consecutive days in advance on its self-owned platform and sales intermediary’s platforms and sales webpages of relevant products, the announcement should include the decision and reason for adjustment, the service guarantee measures and etc.  The adjustment should be completed before April 1 of each year.  If the scope of online life insurance business is narrowed, the insurance company should also notify relevant policyholders through effective methods.

4. Draft Administrative Measures on the Employment Qualifications of Directors, Supervisors and Senior Management Personnel of Insurance Companies

On February 25, 2021, CBIRC published the draft Administrative Measures on the Employment Qualifications of Directors, Supervisors and Senior Management Personnel of Insurance Companies for public comments until March 26, 2021. 

The Draft has made the following important adjustments to the currently effective measures:

1)Deputy general managers and assistant general managers of branches (other than provincial branches) and central sub-branches, and managers of sub-branches and sales offices will no longer be considered senior management personnel.

2)Directors, supervisors and senior management personnel should meet the following basic conditions: (i) having full civil capacity; (ii) being honest, trustworthy and law-abiding; (iii) having necessary knowledge, experience and ability to perform their duties, and having the time and conditions necessary to perform their duties normally in China; (iv) having the independence required of directors, supervisors and senior management personnel; and (v) having a college diploma or above or a bachelor's degree or above.

3)Certain qualification requirements have been revised.  For example, secretaries of the board of directors should have five years of financial work experience or more than eight years of economic work experience, and financial responsible persons and chief actuaries will not be required to have residence in the PRC.

4)Directors, supervisors and senior management personnel will not be required to take mandatory exams before applying for approval of their qualifications, but CBIRC still has the right to test their knowledge about insurance laws, regulations and related subjects.

5)If a director, supervisor or senior management member has obtained approval of his/her qualifications, and there is not a gap of over one year before taking a new post, he/she will not need to apply for a qualification approval again when: (i) he/she moves to or concurrently serves as a senior management member at the same or subordinate level in the same insurance company; (ii) a director or supervisor becomes a director (other than chairman) or supervisor in another insurance company of the same type (P&C, life, or reinsurance companies); or (iii) he/she moves to a senior management position at the same or subordinate level in another insurance company of the same type.  However, if the new post at the same level of entity is the chairman or the general manager, or the qualification requirements for the new post are stricter than those of the original post, the candidate must apply to CBIRC for approval again.  The gap should be calculated from the day immediately after the departure from the original post to the date of the appointment to the new post.

6)An interim responsible person can serve for a period of six months instead of the current three months, and can be replaced by the insurance company for one time during the six month period.

5. Draft Code of Corporate Governance for Banking and Insurance Institutions

On January 29, 2021, CBIRC published the draft Code of Corporate Governance for Banking and Insurance Institutions for public comments until March 1, 2021.  If adopted, the Code will supersede the Guiding Opinions on Regulating Governance Structure of Insurance Companies (Trial) and the Guidelines for Corporate Governance of Commercial Banks.  

For banking and insurance institutions organized as limited liability companies, the Code should apply as a reference, and if special provisions are included in the Company Law and other laws and regulations, such provisions should prevail.  Wholly-owned banking and insurance institutions are not required to apply certain provisions of the Code.  If special provisions are included in the laws, regulations or regulatory rules for foreign-invested banking and insurance institutions, such provisions should prevail. 

The Code echoes the G20/OECD corporate governance principles, such as focusing on  protecting the rights and interests of small and medium shareholders, requiring directors to treat all shareholders equally, requiring the board of directors to implement high ethical and moral standards, focusing on protecting the legitimate rights and interests of stakeholders, and encouraging and supporting employees’ participation in corporate governance.

The Code provides that banking and insurance institutions should establish a corporate governance structure consisting of the general meeting of shareholders, board of directors, board of supervisors, senior management and etc. in accordance with the Company Law and other laws and regulations.  The Code clarifies the responsibility boundaries and performance requirements of each governance body, and requires banking and insurance institutions to improve risk controls, checks and balances, incentives and restraints, etc.

The Code provides that the articles of association of banking and insurance institutions should require their major shareholders to provide a long-term written commitment to supplemental capital contributions; banking and insurance institutions should support the establishment of a mechanism for and promote communications and negotiations among shareholders in relation to the exercise of their rights.

6. Draft Measures for Appraising Performance of Banking and Insurance Institutions’ Directors and Supervisors(Trial)

On January 29, 2021, CBIRC published the draft Measures for Appraising Performance of Banking and Insurance Institutions’ Directors and Supervisors (Trial) for public comments until March 1, 2021.  If adopted, they will supersede the Measures for Appraising Performance of Commercial Banks’ Directors (Trial).  If special provisions are included in  laws, regulations or rules for foreign-invested insurance companies and banks, such provisions should prevail.

Responsibilities clarified.  According to the draft, that the board of supervisors should bear the ultimate responsibility for appraising the performance of directors and supervisors, and the board of directors and senior management should provide support and cooperation, and such appraisal will be included as part of the regulatory assessment of corporate governance.

Performance indicators clarified.  The Draft clarifies the basic responsibilities and specific obligations of directors and supervisors of banking and insurance institutions, and requires directors and supervisors to sign a written commitment to diligence, truthfully disclose their own jobs and part-time jobs, and represent that they have no conflict of interest with the banking and insurance institutions, before taking office.  Directors and supervisors should promptly disclose their affiliated relationships and changes, etc., and should abstain when so obligated.  Independent directors and external supervisors should work in banking and insurance institutions for no less than 15 working days every year, the chairmen of risk management committee, audit committee and affiliated transaction control committee of the board of directors should work for no less than 20 working days.  Directors and supervisors should personally attend more than two thirds of the on-site meetings of the board of directors and the board of supervisors every year; employee directors and employee supervisors should regularly report their work to the employee (representative) congress and accept supervision actively. The Draft also emphasizes the differentiated performance requirements, and requires the performance appraisal to cover the following five aspects of their performance: duty of loyalty, duty of care, professionalism, independence and ethical standards, compliance.

Rules, procedures, methods and standards for appraisal.  Banking and insurance institutions should formulate and improve their performance appraisal rules and report to CBIRC and its local bureaus; the board of directors should be responsible for establishing and improving the records of director performance, and the board of supervisors should be responsible for establishing and improving the records of supervisor performance and performance appraisal of directors and supervisors. 

Performance appraisal results are divided into three categories: competent, basically competent and incompetent.  The board of directors and the board of supervisors should conduct talks with the directors and supervisors who are appraised as “basically competent” and demand improvement within a specified time period.  The board of directors and the board of supervisors should hold accountable the directors and supervisors who are appraised as “incompetent”; they may resign voluntarily or be removed in accordance with relevant procedures and with a report to regulatory departments, and their remuneration for directorship and supervisorship may be reduced accordingly.

Banking and insurance institutions may employ an independent third party to assist with the performance appraisal.  Banking and insurance institutions whose corporate governance regulatory assessment result is below Grade D for two consecutive years should employ an independent third party.

Supervision strengthened.  Banking and insurance institutions should provide suggestions for future work or opinions on disciplines according to performance appraisal results, and hold accountable the directors and supervisors who have violated laws and regulations.  Banking and insurance institutions should report the performance appraisal work and results to CBIRC or its local bureaus before April 30 of each year.

7. Circular on Issuing the Guiding Opinions on Establishing and Improving the Performance Pay Clawback Mechanism for Banking and Insurance Institutions

On January 28, 2021, CBIRC issued the Circular on Issuing the Guiding Opinions on Establishing and Improving the Performance Pay Clawback Mechanism for Banking and Insurance Institutions, which took effect immediately.  

Banking and insurance institutions should establish and improve a performance pay clawback mechanism, covering topics including circumstances triggering clawback, clawback proportion, working procedures, responsible departments, dispute resolution, internal supervision and accountability, etc.  Key post holders refer to persons who have direct or significant impacts on the operational risks of banking and insurance institutions.  Banking and insurance institutions should determine the scope of its key post holders in light of their own institutional types and characteristics, market size and risk control capabilities, etc.  Persons who have departed or retired should also be subject to the mechanism, directors and supervisors who receive performance pay from banking and insurance institutions are subject to the mechanism as a reference.

Banking and insurance institutions falling under any of the following circumstances may claw back all performance pay and other incentive remuneration over-granted to its senior executives and key post holders:

1)financial statements are restated and result in major adjustment of the financial information on which the performance pay is based;

2)performance appraisal result is fake or falsified;

3)unauthorized payment of performance pay or unauthorized increase of incentive remuneration items in violation of compensation management procedures; or

4)other remuneration payments in violation of rules or based on false information.

Banking and insurance institutions falling under any of the following circumstances should claw back all performance pay granted to senior executives and key post holders who are held primarily liable and part of the performance pay granted to other persons liable within the corresponding period of time:

1)key regulatory indicators are far below the standards or deviate from a reasonable range;

2)it is subject to takeover or other risk response measures taken by CBIRC and its local bureaus or any other financial regulators;

3)a serious risk event occurs which has a bad impact on the order of financial markets; or

4)any other circumstances that cause a significant damage to the banking or insurance institution’s property, reputation, etc.

The board of directors should review the performance pay clawback status at least once a year, and assume the ultimate responsibility for compensation management.  CBIRC and its local bureaus may include the performance pay clawback system in the regulatory rating and regulatory assessment of corporate governance.

8. Administrative Measures on Solvency of Insurance Companies

On January 15, 2021, CBIRC promulgated the amended Administrative Measures on Solvency of Insurance Companies, which became effective on March 1, 2021, in order to accord with the C-ROSS system.

Solvency regulatory indicators.  Solvency regulatory indicators include: core solvency ratio (ratio of core capital to minimum capital), comprehensive solvency ratio (ratio of actual capital to minimum capital) and integrated risk rating.  A company is considered to be solvency compliant if it has a core solvency ratio of no less than 50%, a comprehensive solvency ratio of no less than 50% and an integrated risk rating of no less than B.

Core capital refers to the capital that can assume losses during its continuous operation and its liquidation process; actual capital refers to the financial resources that can assume losses during its continuous operation or its liquidation process; minimum capital refers to the required amount of capital for the prudential regulation purpose, which will ensure that the insurance company will have appropriate financial resources to mitigate the adverse effects from risks that can be quantified into capital requirements.

Solvency data examination.  CBIRC and its local bureaus will, on a quarterly basis, examine the quarterly solvency reports and other solvency information and data submitted/disclosed by insurance companies.  Such examination will focus on insurance companies whose core solvency ratio is lower than 60% or comprehensive solvency ratio is lower than 120%.

Regulatory measures.  CBIRC should take the following regulatory measures against insurance companies whose core solvency ratios are lower than 50% or comprehensive solvency ratios are lower than 100%: supervisory talk; requesting plans for preventing solvency deterioration or for improving risk management; restricting remuneration of directors, supervisors and senior management members; and restricting profit distribution to shareholders.  CBIRC may, at its own discretion and considering the specific reasons for the decline in solvency, also take other measures such as requiring a capital increase, restricting business scope or growth, requiring adjustment to its investment and etc.

9. Reform Plan for the Supervisory Responsibilities for Life Insurance Companies

On January 8, 2021, CBIRC published the Reform Plan for the Supervisory Responsibilities for Life Insurance Companies, which took effect on February 1, 2021.   On July 16, 2020, CBIRC published the Reform Plan for the Supervisory Responsibilities for P&C Insurance Companies and Reinsurance Companies, which took effect on August 1, 2020.

The Plan divides 91 life insurance companies into two groups, one group consisting of 39 companies to be supervised directly by CBIRC, and the other group consisting of 52 companies to be supervised by CBIRC local bureaus.  CBIRC will coordinate overall regulatory policies and be responsible for the preparatory establishment, commencement of operations, dissolution, bankruptcy, merger and division of all life insurance companies, the establishment of overseas insurance institutions, the approval and filing of life insurance products and relevant administrative licensing matters of life insurance companies under CBIRC’s direct supervision.  CBIRC local bureaus are responsible for the relevant licensing matters of those life insurance companies under their supervision.  In case of a change of domicile, the local bureau at the existing domicile should consult the opinion of the local bureau at the new domicile; the opinions of CBIRC local bureaus supervising the life insurance company should be consulted for the approval of establishment and cancellation of provincial branches within its jurisdiction.

10. Interim Measures for Regulatory Rating of Insurance Asset Management Companies

On January 5, 2021, CBIRC promulgated the Interim Measures for Regulatory Rating of Insurance Asset Management Companies.  During the trial implementation period until December 31, 2021, no regulatory measure will be taken as a result of the regulatory rating results.  The Measures will come into full effect from January 1, 2022. 

There are 5 regulatory rating indicators with a total score of 100 points, including corporate governance and internal control with a score of 20, asset management ability with a score of 30, comprehensive risk management with a score of 25, trading and operational safeguards with a score of 15, and information disclosure with a score of 10.

The regulator will treat insurance asset management companies with different categories of rating results differently in terms of market access, regulatory measures and regulatory resource allocation.  The regulatory rating results are divided into four categories, namely A, B, C and D, as detailed below: 

1)rating score of no less than 85 will fall in Class A, to which the regulator will provide appropriate support in terms of market access, business scope, product innovation, etc.;

2)those with a rating score from 70 (inclusive) to 85 will fall in Class B, for which the regulator can carry out on-site inspections at its discretion and urge them to continuously improve their risk management;

3)those with a rating score from 60 (inclusive) to 70 will fall in Class C, for which the regulator will intensify on-site inspections, urge them to continuously strengthen risk management, and restrict their high-risk business when necessary;

those with a score of less than 60 will fall in Class D, for which the regulator will restrict high-risk business, urge them to take measures to improve their operating status and reduce risks, and take regulatory measures such as restricting their business scope and ordering them to cease accepting new business.

The regulatory rating results are only for the internal use of the regulatory authorities and should not be released to the public.  Insurance asset management companies should not use the regulatory rating results for advertising, publicity, marketing or other commercial purposes.

11. Circular on Matters Concerning Short-term Health Insurance Business

On January 11, 2021, CBIRC issued the Circular on Matters Concerning Short-term Health Insurance Business.  Short-term health insurance refers to health insurance having a term of no more than one year without guaranteed renewal, but does not include group insurance.  Sales of those short-term insurance products already filed or approved but inconsistent with the requirements set forth in the Circular should be ceased by May 1, 2021.

1)Clear explanation re no guaranteed renewal

According to the Circular, if an insurance company develops a short-term health insurance product that contains a renewable term, such clause should be worded as “non-guaranteed renewal”.  Such non-guaranteed renewal clause should include at least the following texts: “The insurance period of this product is one year (or not more than one year).  At the end of the insurance period, the policyholder should re-apply to the insurer for this product, and after obtaining the insurer’s consent, pay the premiums and obtain a new insurance contract.” 

According to the Circular, neither the terms and conditions nor the marketing materials of the short-term health insurance may use the terms “automatic renewal”, “renewal commitment”, “life-long insurance indemnity” or other terms that may cause confusion as to whether such health insurance is long-term or short-term.

2)No bundle sale 

According to the Circular, if the short-term insurance product is designed as main coverage, the insurer should not force the policyholders to purchase other products at the same time.  If the short-term insurance product is designed as additional coverage, the insurer should clearly inform policyholders of the conditions of the main coverage, and let the policyholders decide whether to purchase the bundle; in addition, the insurer should not include in the terms and conditions of the additional coverage limitations on the policyholder’s right to solely terminate the additional coverage.

3)Disclosure requirements

The insurer should disclose the combined loss ratio of its individual short-term health insurance business on the company's official website once every half year.  The half year combined loss ratio should be disclosed no later than the end of July each year; and the annual combined loss ratio should be disclosed no later than the end of February in the following year.  Combined loss ratio is calculated as follows: combined loss ratio = (post-reinsurance claims expense + post-reinsurance outstanding claims reserve carryover difference) ÷ post-reinsurance earned premiums.  

The insurer should annually disclose which short-term health insurance products ceased to be available for sale in the most recent three years and the number of policies in effect for each short-term insurance product no later than March 31 of each year.

4)Not being subject to certain cease-to-sell requirement

According to CBIRC’s Notice on Strengthening the Supervision of Life Insurance Products, insurers should actively cease the sale of individual insurance products that counts for less than RMB1 million annual premiums and less than 5,000 policies, unless such individual insurance product has been used for less than 1 year.  However, according to the Circular, such requirement does not apply to short-term health insurance business.

12. Regulatory Measures for Informatization Work of Insurance Intermediaries

On January 5, 2021, CBIRC promulgated the Regulatory Measures for Informatization Work of Insurance intermediaries, which took effect on February 1, 2021 and supersedes the Circular on Strengthening Informatization of Insurance Intermediaries.  The Measures apply to insurance intermediary companies (including part-time insurance agency companies).  Insurance intermediary companies failing to meet the requirements for informatization work under the Measures will not be permitted to conduct insurance intermediary business. 

Requirements on IT systems.  Insurance intermediaries should ensure complete management and control over their information systems and data.  The Measures specify requirements on insurance intermediaries’ information systems for business management, financial management and staff management, including data exchange among business, finance and staff management systems, system connection and data exchange with cooperating insurance companies, and data exchange with the regulatory information system for insurance intermediaries, etc.

Cybersecurity tiered protection and information security.  Insurance intermediaries should reasonably determine the security tier of their information systems, and obtain the corresponding cybersecurity tiered protection certification.  Insurance intermediaries should take protection measures for important data.  Collecting, processing and applying the data involving personal information should adhere to the national standards for personal information security.

Staffing.  The legal representatives or main responsible persons of insurance intermediaries should be primarily responsible for the informatization work of such institutions.  Insurance intermediaries should designate a senior management member to coordinate the informatization work of the legal person entities and their branches.  The legal person entities should set up a special department or informatization management positions, and have at least one full-time staff member to be responsible for informatization.  The branches should have full-time staff members to assist the legal person entities with informatization.

Segregation from related enterprises.  Insurance intermediaries should segregate their important informatization mechanisms, facilities and related management from those of related enterprises.  If insurance intermediaries outsource informatization work to related enterprises, such insurance intermediaries should implement effective management in accordance with the outsourcing requirements.  Insurance intermediaries can share the same set of information systems with their related enterprises while ensuring data security and independency.

Outsourcing requirements.  Insurance intermediaries can develop information systems independently or by way of outsourcing including joint development, customized development, outsourced development and purchase of cloud services.  Insurance intermediaries should, in any event, be responsible for information security management.  If insurance intermediaries outsource informatization work to equity related enterprises, such insurance intermediaries should implement effective management in accordance with the outsourcing requirements.

Reports on informatization work status.  Institutions applying to conduct insurance intermediary business should submit reports on their informatization work status to their local CBIRC bureaus including purchase contracts for information systems or certificates for intellectual property.  Institutions conducting insurance intermediary business should conduct self-review and complete rectification within 1 year after the effective date (i.e. before February 1, 2022), and submit reports on their informatization work status to their local CBIRC bureaus after completing rectification.

13. Draft Administrative Measures on Licenses of Banking and Insurance Institutions

On January 22, 2021, CBIRC published the draft Administrative Measures on Licenses for Banking and Insurance Institutions to solicit public comments until February 21, 2021.  If adopted, the draft Measures will supersede the Administrative Measures for Insurance Licenses and the Administrative Measures for Financial Licenses.

Compared to the current rules, the draft Measures have reflected the following main changes:

The draft Measures have integrated and re-classified the licenses that CBIRC grants to banking and insurance institutions into the following three categories:

1)financial licenses: applicable to banking institutions and their branches and non-bank financial institutions and their branches;

2)insurance licenses: applicable to insurance group (holding) companies, insurance companies, insurance asset management companies and other insurance institutions, and their branches; and

3)insurance intermediary licenses: applicable to insurance intermediary institutions.

CBIRC will be responsible for the issuance and management of licenses for the banking and insurance institutions under its direct supervision, and the local bureaus of CBIRC will be responsible for the issuance and management of licenses for those banking and insurance institutions within their jurisdictions.

When obtaining new licenses or renewing licenses, banking and insurance institutions should make an announcement within 30 business days via newspapers and periodicals, their own  official websites and etc.

Banking and insurance institutions should display the licenses and information about their business scope, business area and main responsible person at a prominent place on their business premises.  If the institutions carry out business through an online platform, they should display such information conspicuously on the relevant webpages. 

14. Administrative Measures for Reputational Risk Management of Banking and Insurance Institutions (Trial)

On February 8, 2021, CBIRC promulgated the Administrative Measures for Reputational Risk Management of Banking and Insurance Institutions (Trial), which took effect immediately.  The Measures have superseded the Guidelines for Reputational Risks Management of Commercial Banks and the Guidelines for Reputational Risks Management of Insurance Companies.

Banking and insurance institutions should formulate reputational risk management policies.  The board of directors, board of supervisors and senior management personnel of banking and insurance institutions should take the ultimate responsibility, supervision responsibility and management responsibility, respectively, and the chairman or the main responsible person should be the first responsible person.  Banking and insurance institutions should establish or designate a department as their own reputational risk management department, and should conduct reputational risk management assessment at least once a year. 

Banking and insurance institutions should carry out the reputational risk management on a whole process and day-to-day basis and effectively perform seven steps for ex-ante assessment, response during the event and ex-post review: ex-ante assessment, risk monitoring, risk event classification, response handling, reporting, evaluation and accountability, and follow-on assessment.  Banking and insurance institutions should include reputational risk scenarios in their stress testing systems and internal audits.

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