The Chinese legislator recently published the draft of the Chinese Insurance Law (revised). The draft is inherently different from the present Insurance Law of the People’s Republic of China. Therefore, the draft should be deemed as new rather than revised.

The current Insurance Law has aroused fierce and serious criticism since its promulgation in 1995 and subsequent revision in 2002. Those who are insured, insurers, brokers, agents, loss adjusters and regulators are not satisfied with the current regulatory position surrounding the Insurance Law. The reasons which stem from this dissatisfaction are multiple.
 

First, Chinese Insurance Law simply transplanted terminology, principles, stipulations and rules in bulk from English and German insurance law. This transplant, inside the system of Chinese Insurance Law, has resulted in contradictions and inconsistencies; the law fails to reflect the true position in China.

Secondly, some influential insurance principles and terminology are not recognized by Chinese Insurance Law. For instance, utmost good faith is recommended by Chinese academic circle, though cannot be found within the law. Warranty clauses are often used in policies, though only within Chinese Marine Law is there a stipulation regarding warranty clauses, not in Insurance Law. Thus in some no-marine insurance disputes, courts have intended to classify such clauses as void.

Third, a considerable level of the contents is outdated and impractical. For example, insurable interest is an important issue for all kinds of insurance. In Chinese Insurance Law, there are no differentiated regulations with respect to life insurance and property insurance, resulting in plenty of dispute.

Lastly, compared with the dramatic change and achievement in the Chinese insurance market, contents related to insurance regulation are inadequate. The integration tendency of different financial services, the diversification of insurance capital investment and the corporate governance of insurance companies are not reflected in the law.

Although the draft needs a long process to become enforceable, many experts praise it warmly, especially insurance lawyers.

The draft has revised quite a few definitions which are fundamental to insurance contracts, including insurable interest, insurance target, and insurance value.

The draft also attempts to clarify the present insurance law to prevent future confusion and unrest. The interpretation rule of insurance contract is a harsh topic in China due to the confused content within the Chinese Insurance Law. The draft resolves this problem to a limited degree, and aid’s as a transparent guide for judges.

Of particular interest is the ability for Chinese and foreign invested insurance companies and joint ventures to increase available investment opportunities. For example, in the past investment was largely limited to banks and accredited financial institutions. Under the draft, investment opportunities will expand to include real estate, infrastructure and company equity. Furthermore, with the requisite approval of the CIRC such insurance companies will also be permitted to invest abroad.

Perhaps it is too early to make comments on this NEW LAW. When it will be promulgated is another huge question and four years ago, the Supreme Court published the Draft of the Explanation of Insurance Law, it is still in draft form to date.