China 2020: The World's Largest Insurance Market and the Strategy of Foreign Insurers

Authored by Zhan Hao ( and Sharif Hendry ( at AnJie Law Firm.

The Chinese insurance market continues to grow unabated.  While structural changes have seen a drop-off in infrastructure investment and its corresponding high levels of GDP growth, the services sector, and finance in particular, is growing strongly. This shift towards a knowledge based, digital economy is fuelling growth not only in IT, pharmaceuticals and banking, but also insurance .This growth is in line with the government’s plan to target a doubling of the rate of insurance penetration (insurance premiums as a percentage of GDP) from its previous level of around 2.4% to 5% by 2020 . By this point it is expected that insurance premium income will have reached 4.5 trillion RMB, with total industry assets of 25 trillion RMB. If this aim comes to fruition, it would mean the Chinese insurance market usurping the US to become the world’s largest insurance market .


The Ascent of "Insurtech" in China

 Authored by Zhan Hao (, Sharif Hendry(, Yu Dan( and Chen Jun( at AnJie Law Firm.

ZhongAn, a Chinese insurance company selling online insurance products, is representative of a new wave of “insurtech” companies; insurers engaging with online distribution models (or tech companies foraying into insurance) that recognize the gains to be had by entering this emerging market. The China Insurance Regulatory Commission (NDRC) has been forthright in recognizing and encouraging innovation centered on new types of insurance products and online distribution on a national level, and on the back of this favorable regulatory environment, companies and investors are following suit.



A Closer Look at the Chinese Cyber Risk Insurance Industry

Authored by Zhan Hao ( and Sharif Hendry ( at AnJie Law Firm
Recent “ransomware” attacks worldwide, including greater China, have once again brought to the fore the nascent yet potent threat “cyber risks” present as an all-encompassing enterprise risk management challenge to corporations worldwide. Concordantly, the raft of operational consequences that can potentially cascade from an attack, including the liability of directors and officers for errors and omissions, reputational and market valuation knock-on effects, and regulatory compliance issues1, present an ever burgeoning opportunity for insurers to expand further into this potentially lucrative new line of business.


Upcoming Regulations for Investors in Insurance Companies

Authored by Zhan Hao ( and Dong Xin at AnJie Law Firm

In China, amidst fierce competition amongst insurance companies, more and more investors, both domestic and foreign, are striving to enter this market. Relevant regulations concerning investment limits and the qualifications for shareholders to invest in Chinese insurance companies are a continuing focal point for potential investors.



Declarations of Death in Personal Insurance Contract Cases

Authored by Dr. Zhan Hao ( and Kang Xin at AnJie Law Firm.

A declaration of death is a civil declaration that may be granted when a natural person is missing from his or her usual residence and his or her whereabouts have been unknown for the requisite period set by law, and for which an interested person may apply to the people's court. Article 23 of the General Principles of the Civil Law of the People's Republic of China provides that:

"Under any of the following circumstances, an interested person may apply to the people's court for the declaration of a citizen's death: (1) if the citizen's whereabouts have been unknown for four years; or (2) if the citizen's whereabouts have been unknown for two years after the date of an accident in which he was involved."



Presidential Summit Postulates Raising of Insurance Investment Ceiling

Authored by Zhan Hao ( and Sharif Hendry ( at AnJie Law Firm

In the first meeting between Chinese President Xi Jinping and U.S. President Donald Trump at a summit held on 6-7 April 2017, the two leaders set the tone for future cooperation on a wide range of issues, not least market access between the two countries. According to Chinese and US officials, better access for US financial sector investments into China was mooted for inclusion as part of a “100 day plan” to improve trade-ties1. This could have interesting implications for the Chinese insurance industry, and make inward investment by US financial houses an increasingly advantageous proposition.




A Comparative Insight into China's Risk Oriented Solvency System

    Authored by Dr. Zhan Hao ( and Sharif Hendry( at AnJie Law Firm

As of today, the recently adopted ‘China Risk Oriented Solvency System’, also known as “C-ROSS”, is theonly regime by which a Mainland insurer’s capital adequacy is regulated. Following the implementation of China’s 13th Five-Year plan in 2016, the China Insurance Regulatory Commission (CIRC), as the industry’s sole regulator, published an outline of the plan, including several goals relating to the reformation, innovation and regulation of the insurance industry. This draws interesting comparisons with the overseas capital adequacy regimes of other major jurisdictions, notably with Solvency II in the EU. Both these reforms mark a fundamental shift towards a risk-based, market-oriented approach to estimating capital requirements, being geared as they are towards individual insurance entities, rather than the previous "one-model-fits-all" approach.  This is expected to lead to greater market efficiency in managing risk, and enhance consumer protection. For China, it marks a renewed focus on both volume and value for the domestic insurance sector, implicitly recognizing that better risk management includes all drivers of product profitability, including product terms and conditions, guarantees, pricing and underwriting . As a result, the transition towards fully implementing, supervising and enforcing the C-ROSS regime is already having far reaching repercussions.



Authored by Dr. Zhan Hao ( and Wan Jia ( at AnJie Law Firm

The surety bond market has developed significantly for insurers in China since this year, and it has become one of the most important methods for financial guarantee. Due to the lack of clear judicial interpretations issued by the Supreme Court of PRC, however, the applicable laws pertaining to surety bonds issued by insurers in China, and their nature, are still highly controversial. This article seeks to analyze the very specific question of whether the “accessory principal” prescribed by the Guarantee Law of PRC, is applicable to surety bonds issued by the insurers in China. 

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The Function and Regulation of Credit Insurance in China

    Authored by Dr. Zhan Hao ( and Liang Bing ( at AnJie Law Firm

Since the issuance of Several Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry on August 10, 2014, credit insurance has been increasingly applied in insurance practice. However, “credit insurance ” is different from “warranty” in Chinese Guarantee Law,and there is a heated discussion on the nature of a credit insurance.  

In the Chinese P2P or the other transactions, credit insurance is often used to protect creditors’ benefits. In this paper, we are going to discuss the points creditors need to be aware of.

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Extended Warranty, a Service Plan or an Insurance Product?

 Authored by Dr. Zhan Hao ( and Wei Chuankai ( at AnJie Law Firm

An extended warranty is a prolonged warranty offered to customers in addition to the standard warranty on a new item. It is provided for various products, such as automobile, electronic and electrical appliance in household and similar. It has been a popular dispute that whether an extended warranty is an insurance product for a long time.

According to Article 2 of the Insurance Law of the People’s Republic of China, “Insurance” is defined as: “The commercial insurance activities where an insurance applicant pays an insurance premium to an insurer under an insurance contract and the insurer undertakes to pay the insurance proceeds to compensate for the property loss caused by the occurrence of a potential incident specified in the insurance contract or pay the insurance proceeds when the insured dies, becomes disabled or sick or reaches a specified age, time limit or any other condition specified in the contract. ”

China Insurance Regulatory Commission (hereinafter referred to as “CIRC”) did not give more explanation on detailed elements of “Insurance”, but issued other regulations on the implied factors of “Insurance”, which indicates clues on distinction between extended warranty and insurance product. The distinctions between an extended warranty and an insurance product are as follows:

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Insurance Law Changes as Industry Heats Up

 Authored by Dr. Zhan Hao (, Zhang Xin (, and Hong Yanjun ( at AnJie Law Firm

The PRC Insurance Law is being amended again to offer the market more flexibility while tightening supervision. The key changes include greater coverage, consumer protection, funding opportunities and corporate governance.

While far less exploited than other financial sectors in China, the insurance business is growing rapidly – with a capital of Rmb11 trillion ($1.73 trillion) now – in an ever-changing regulatory environment.

To meet the increasing requirements of the industry, the China Insurance Regulatory Commission (CIRC) has decided to adopt the approach of opening up access but strengthening control. In early 2015, the  PRC  Insurance Law abolished the qualification requirements for insurance agency practitioners, as well as the administrative approval process entirely – a significant change. Further amendments, however, are still needed.

On October 14 2015, the Legislative Affairs Office of the State Council published the Decision on Amending the <PRC Insurance Law> (Draft for Comments) (Draft), which contained 24 new articles, deleted one article and revised 54 articles in total. This left nine chapters with 208 articles. The CIRC began working on this in 2014, six years after the last large-scale revision of the Insurance Law. The Draft focuses on regulating the business scope of insurance companies and the use of insurance assets and introduces a new regulatory system for insurance overall. It does not address insurance contracts; the Supreme People’s Court will publish judicial interpretation instead.

The aim is to deregulate, promote innovation and exercise the full potential of the insurance market, as well as to provide a comprehensive regulatory mechanism and enforce stricter penalties for wrongdoing.

Expanded coverage and consumer protection

The Draft has included pensions, internet insurance, catastrophe insurance and insurance trading platforms in its coverage of the industry.

It recognizes that this expanded applicability inevitably requires an emphasis on consumer protection. It adds rules for personal information protection and a cooling-off period for life insurance and stipulates administrative punishments for “misleading solicitation” and “unreasonable refusal to claim”, both of which are major pains for the Chinese insurance business.

Pursuant to the Draft, insurance companies are subject to a fine between Rmb200,000 and Rmb1 million for misleading solicitation and misrepresentation or refusal to pay indemnities or insurance benefits within the time limit as set out in the insurance policy. Business licenses can even be revoked for serious violations – the industry’s strictest provision yet.

Increased use of insurance funds

The Draft further relaxes the operation of insurance-registered capital and offers more financing channels. It specifies that insurance companies no longer need to set aside more capital if their guarantee funds reach Rmb200 million and enables them to offer equity, debt and other financing instruments approved by the CIRC. These changes address the insurance companies’ need for operating capital as well as their challenge of having insufficient funds.

The Draft allows for the investment of insurance funds in equity, asset management businesses and derivatives for risk assessment purposes. In fact, several regulations and documents published by the CIRC have already broadened the scope of investment, but this amendment sets in stone the activities tested in practice.

Finally, the Draft increases risk assessment requirements for utilizing these funds. It clarified the measures the CIRC can take if insurance companies or asset management institutions fail to either adhere to the decision-making process or to apply the necessary risk standards. The fine can be up to five times the illegal gains.

Enhanced corporate governance

Article 137 of the 2015 Insurance Law states the CIRC will develop “a sound system for regulation of the solvency of insurance companies” to be fully implemented next year.

Interestingly, the objective of establishing this system was clarified in the Draft, which highlighted capital classification, testing and assessment standards and a capital replenishment mechanism. The Draft enhances insurance companies’ corporate governance responsibilities and provides stricter rules for shareholders and actual controllers. It specifies that CIRC approval is required to change an insurer’s actual controller that represents over 5% of the capital or equity, in order to prevent unqualified investors in insurance companies from purchasing shares. The CIRC’s stricter criteria for the identity of shareholders is in line with past practice and is especially important now, given the dynamic M&A and investment activity regarding insurance companies’ equity.

The Draft clarifies the measures to be taken by regulators in circumstances involving risks, insolvency and corporate governance violations. It states that the authorities can inspect shareholders and actual controllers of the insurer, as well as their bank accounts and account information. It also lays down the rules for rectification and takeover of insurers by authorities, and enhances the connection between administrative exit and judicial bankruptcy.

Industry boost

Regretfully, the amendments did not touch upon the association between the Chinese and international insurance markets. The Draft did not contain any provisions for overseas investment of insurance funds or for domestic cooperation by foreign insurers.

Market activity and industry products are growing and diversifying at an extremely fast pace. Hot investment areas in recent years include:

•  the establishment of mutual insurance and reinsurance companies;

•  the issuance of insurance catastrophe bonds, insurance firms;

•  subordinate bonds and capital supplementary bonds;

•  employees’ stock ownership plan permits; and

•  internet insurance.

Under these circumstances, the Draft substantially demonstrates the market-oriented, risk-prevention approach set forth by the State Council’s 2015 Opinions on the Reform and Development of the Insurance Industry. The effective implementation of these amendments would significantly boost the insurance industry as well as encourage innovation and investment under the guidance of the new Insurance Law.

Chinese Internet Insurance Business: Where to Go? - Understanding towards the "Interim Measures for the Regulation of Internet Insurance Business" issued by CIRC

 Authored by Dr. Zhan Hao ( and Ms. Yu Dan( at Anjie Law Firm

Internet finance is a hot issue in nowadays China, accompanying with more and more corresponding regulations coming up. In the early July of 2015, the Bank of China and ten other regulators published the “Guiding Opinions on Promoting the Healthy Development of Internet Finance” (hereinafter referring to Guiding Opinion). Following the principles of "legitimate regulation, appropriate regulation, classified regulation, collaborative regulation and innovative regulation",the Guiding Opinion specified the division of responsibilitiesfor Internet payment, online lending, equity crowd-funding, Internet fund sales, Internet insurance, Internet trust and Internet consumer, established regulatory responsibilities, defined business boundaries. It also specified the China Insurance Regulatory Commission’s (hereinafter referring to CIRC) responsibility for Internet insurance business regulation.

On 23rd of July 2015, the CIRC published the “Interim Measures for the Regulation of Internet Insurance Business” (hereinafter referring to Interim Measure), which was the first established regulatory rule under the Guiding Opinion. The Interim Measure provided rules for the operating entity, types of insurance products, geographic range and operating conducts, and would be implemented for three years from October 1, 2015.

The implementation of the Interim Measure demonstrates the insurance regulation institution’s interest in the innovation of Internet insurance and its seriousness about the development of corresponding regulations. In fact, Internet insurance has already been tested before the release of the Interim Measure, but could not have gone too far because of the vacancy of regulation.

With respect to the operating entity of Internet insurance, the Interim Measure makes it crystal clear that insurance companies and insurance institutions are the only approved entities in this business. CIRC had once sought comments from the whole industry in 2014 regarding its “Interim Measure for the Regulation of Internet Insurance Business (Draft for Comments)” (hereinafterreferringto Draft for Comments). Comparing with the Draft for Comments, the Interim Measure specified the definition of professional insurance intermediaries, which refers to a professional insurance agency company, insurance brokerage company or insurance loss adjustor institution whose operating regions are not limited to the province, autonomous region or municipality directly under the Central Government where it is registered.  

Regarding the issue of whether third-party network platforms could operate Internet insurance, in accordance with Article 1, Section 4 of the Interim Measure, third-party network platforms refers to the network platforms, other than proprietary network platforms, that provide network technology supporting and auxiliary services for insurance consumers and insurance institutions during Internet insurance business activities. From this provision, one could conclude that the Interim Measure defines third-party network platform as providing network technology supporting and auxiliary services for insurance consumers and insurance institutions. Pursuant to Article 3 of the Interim Measure, third-party network platforms that intend to carry out the above-mentioned insurance business shall obtain insurance business qualifications. From the above provisions, article 1 and 3 seem to be contradictory. However, our interpretation is that third-party network platform needs to abide by the provision of Article 6; whereas qualification under Article 3 would be required if it aims to conduct insurance businesses. Judging from the unofficial information we have acquired, the qualification under Article 3 refers specifically to the Internet sale, which is different from the qualification for concurrent business agency.From this perspective, there would be no contradiction between Article 1 and 3.

To conclude, the approved Internet insurance operating entities include insurance companies, third-party network platforms with qualification for conducting Internet insurance businesses, and professional insurance agency company, insurance brokerage company or insurance loss adjustor institution whose operating regions are not limited to the province, autonomous region or municipality directly under the Central Government where it is registered.

With respect to the types of Internet insurance products, the Interim Measure does not provide particular rules for the types of Internet insurance products, but instead applied the same rules as for offline insurance products, without the need of separate record-filing. Insurance companies could decide according to their conditions, and would be monitored by the insurance regulatory institutions during the sale and after-sale process accompanying with withdrawal mechanisms to enhance the institutions’ regulation over Internet insurance business.

Considering Internet sale’s particular nature of convenience, efficiency and cross-region, to control risks more effectively, Article 7 of the Interim Measure provided for the range of types of insurance products if one insurance entity aims toexpand the regions of Internet insurance business to provinces, autonomous regions and municipalities directly under the Central Government where it has not set up any branch. The Interim Measure did not provide any standard for the “internal control and management capabilities” as prescribed in this article.

Regarding the operations of Internet insurance business, the Interim Measure provided specific rules for the operations of business with respect to the conditions for operation, information disclosure and rules for operation. The Interim Measure specified the conditions for insurance institutions carrying out Internet insurance business through a third-party network platform. As to the major channel for Internet insurance in future, it needs to be tested by the market after the implementation of the Interim Measure.

According to the Interim Measure, making false statements, advertising past performance in a one-sided or exaggerated manner, promising returns or undertake to bear losses in violation of relevant provisions, and giving other misleading descriptions, are strictly regulated. An insurance institution shall, in eye-catching locations on the relevant network platform for carrying out Internet insurance business, list insurance products, services and other information in clear wording that is easy to understand. With respect to the business rules, a third-party network platform shall, in an eye-catching location, disclose its record-filing information and the information of its partner insurance institution, and issue reminders that insurance services are provided by the insurance institution. To make sure the safety of funds, the Interim Measure provided that an insurance institution shall require an insurance applicant to, in principle, use his/her own account to pay insurance premiums.Insurance premiums paid by insurance applicants shall be paid directly to the special accounts for premium incomes of the relevant insurance institution by way of bank transfer, and the relevant third-party network platform may not collect insurance premiums on behalf of the insurance institution for subsequent transfer. With respect to this provision, certain practices in bancassurance business need to be altered in urgency.

The current rules for Internet insurance is a significant part for the implementation of the “Opinions on the Reform and Development of the Insurance Industry under the State Council”, and also an important innovation. However, the combination of the rules of the “Insurance Law” and virtual network, the innovation and stable operation would be huge challenges for the development of Internet insurance.

Important Amendments to the Insurance Law - Understanding towards the "Decision on Revising the Insurance Law of the People's Republic of China (Draft for Comments)"

 Authored by Dr. Zhan Hao ( at Anjie Law Firm

As a full-ledged industry in most western countries, the insurance business is in rapid growth in nowadays China accompanying with transformation going on in the environment and regulation mechanisms of the insurance industry during recent years. Since the enactment of the Insurance Law of the People’s Republic of China (hereinafter referred to as Insurance Law) in 1995, though it has experienced several amendments, the Insurance Law is crippled to some degree facing with the growing needs of the developing insurance industry. Under these circumstances, the China Insurance Regulatory Commission (hereinafter referred to as CIRC) had started working on the amendment from last year, which was six years after the last large-scale amendment towards Insurance Law.

On the 14th of October 2015, the Legislative Affairs Office of the State Council published the “Decision on Revising the Insurance Law of the People’s Republic of China (Draft for Comments)” (hereinafter referred to as Draft for Comments), seeking public opinions towards the amendments.

Pursuant to the Draft for Comments, the amendment added 24 articles, deleted 1 article and amended 54 articles in total. There are 9 chapters with 208 articles after the amendment. The amendment focuses on the regulation over insurance business, including the business scope of insurance companies, the scope of insurance assets utilization and a new insurance regulation system. With respect to the contents of insurance contract law, the Supreme Court would publish judicial interpretations, instead of enacting amendments to the law.

Following the principle of “let the front, rear the end”, the amendments aim to deregulate, promote innovation and release energy of the insurance market, and will provide with the more complete regulation mechanisms and more severe punishments for wrong-doings at the meantime. The highlights of the amendments are as follows:

1. Expansion of insurance business and consumer protection.

Apart from adding the annuity product to the insurance business, the amendments included the Internet insurance, catastrophe insurance and insurance trading platforms. The amendments are significant in encouraging insurance innovation, enhancing insurance business platform, promoting standard products and the sustainability of the whole insurance industry.

While encouraging the expansion of insurance business, the Draft for Comments includes consumer protection mechanisms as one of its focus. Apart from the concept of consumer protection, adding rules such as personal information protection and cooling-off period for life insurance, the Draft for Comments provides for administrative punishments for “misleading solicitation” and “unreasonable refusal to claim”, which are headaches to the insurance business in China. Pursuant to the Draft for Comments, insurance companies would be subject to a fine between the range of RMB 200,000 and RMB 1,000,000, should they engage in misleading solicitation and misrepresentation, or refuse to pay indemnities or insurance benefits in accordance with the time limit as set out in the insurance policy.If the violations are serious, their insurance business license would be revoked, which is the most stringent regulation than ever before.

2. The utilization of insurance funds.The amendments with respect to the utilization of insurance funds are as follows:

First, the Draft for Comments further deregulates the operation of insurance registered capital, and provides with more channels for financing. It specifies that insurance companies need not set aside more capital, if their guarantee funds reach the level of RMB 200 million. At the meanwhile, it allows the insurance companies to offer equity instruments, debt instruments and other financing instruments approved by the CIRC. These provisions take into account the insurance companies’ capital need in their business operation, and solve the common problem of insufficient funds.

Second, the Draft for Comments broadens the methods for the utilization of insurance funds, allows the investment of insurance funds in equity, asset management business and derivatives for the purpose of risk assessment. In fact, the regulations and other documents published by the CIRC had already broadened the scope of insurance funds investment in practice. The amendment this time brings those activities tested in practice to the level of law regulation and specifies the direction of promoting insurance innovation and deregulation.

At last, the Draft for Comments provides more requirements for the risk assessment in the utilization of insurance funds. Apart from this, it added the regulatory measures the CIRC could take if insurance companies or insurance asset management institutions, in the utilization of insurance funds, fail to conform to the decision-making process, or fail to implement the requirements of risk assessment. The fine would be 5 times in maximum of the illegal gains. These rules are in conformity with the State Council’s regulation instruction, and put finance innovation and strict supervision in good combination.

3. Bringing in the “Second Generation of Solvency Supervision System”, enhancing corporate governance.

The “Second Generation of Solvency Supervision System” (hereinafter referred to as the System) is a system developed by the CIRC representing the risk orientation in PRC. The System has passed the interim period, and would be fully implemented within the whole industry next year.

Unexpectedly, the Draft for Comments included the principle of “forming the insurance company solvency supervision system directed by risk”, which clarifies the status of the System in PRC insurance law. The Draft for Comments provides for the capital classification regime, testing and assessment standards and capital replenishment mechanism, which are the core issues of the System. It enhances the insurance companies’ responsibility in corporate governance, provides for a more stringent rule for shareholder and actual controller, and specifies that changing the actual controller of insurer representing more than 5% of capital or equity shall obtain approval from the CIRC in order to prevent unqualified investors in insurance companies through purchasing equities. Now transactions and investments regarding equities of insurance companies are quite dynamic accompanying with quite a lot mergers and acquisitions in this sector. The law provides for a more stringent rule regarding the identity of shareholders conforms to the past practice of CIRC.

Correspondingly, the Draft for Comments provides for measures the insurance regulation institutions could take if there are huge potential of risks, insolvency and non-conforming corporate governance. It states that regulatory institution could inspect shareholders and actual controllers of insurer, and their bank account and account information. The Draft for Comments specifies the rule for rectification and taking-over of insurers by insurance regulatory institutions, and enhances the connection between the administrative exit and judicial bankruptcy.

Regretfully, the amendments did not touch the connection of Chinese insurance market and international market, or the insurance funds overseas investment, with no provision with respect to foreign insurers’ domestic cooperation, which is a flaw in the amendments of insurance law.

To conclude, the Draft for Comments demonstrates substantially the instruction of “oriented by the market, completing regulation and preventing risks” established by the “Opinions on the Reform and Development of the Insurance Industry under the State Council” in 2015. Should the amendments be enacted and implemented, the insurance industry would be largely boosted and promoted under the guidance of the new Insurance Law.

First published by LexisNexis.

Jurisdiction Issues concerning Insurance Contract Disputes

 Authored by Dr. Zhan Hao ( and Ms. Zhang Wei(


The issuance of Interpretations of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (hereinafter referred to as “Interpretations”) has brought a lot of changes to the civil procedure under Chinese law. One great change to the civil procedure is embodied in the jurisdiction issue. Besides the general provisions concerning jurisdiction issue, special provisions are made as to the jurisdiction of insurance contract disputes.

Brief Interpretation of the China Insurance Regulatory Commission on Relevant Provisions on the Overseas Use of Insurance Funds

Authored by Dr. Zhan Hao ( ) and Ms. Yu Dan ( 


In 2004, with respect to the overseas use of foreign exchange insurance funds, China Insurance Regulatory Commission (hereinafter referred to as the "CIRC") and the People’s Bank of China (hereinafter referred to as the "PBC") made a joint distribution of Interim Measures for the Administration of Overseas Use of Foreign Exchange Insurance Funds (CIRC, PBC Fa [2004]No.9 ),allowing insurance companies to implement overseas investments with their self-owned foreign exchange in the prescribed scope of investment; in 2005, in order to further regulating overseas investments of insurance funds, CIRC issued Rules for the Implementation of Interim Administrative Measures for the Use Overseas of Foreign Exchange Insurance Funds(Bao Jian Fa [2005]No.77), which moderately released the foreign investments channels, and set limits to the relevant scope of investment and investment proportion of  the products.

The 3rd Judicial Interpretation of Insurance Law on Life Insurance has issued to Solicit Advice from Public

Authored by Dr. Zhan Hao ( & Xia Yibin ( at Anjie Law Firm

Recently, the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Insurance Law of the People’s Republic of China (III) (hereinafter referred to as “the 3rd Judicial Interpretation of Insurance Law” or the “Draft”) has promulgated to solicit advice from public. The Draft regulates in detail several commonly occurring issues in judicial practice with respect to life insurance contract, which would be helpful to adjudicate disputes in this regard and have important significance on protecting the parties’ legitimate rights and interests.

The Insurance Law has been amended twice since being enacted in 1995. In 2002, in order to fulfil our country’s commitment for joining the World Trade Organization, the standing committee of the National People’s Congress revised part of the Insurance Law. In 2009, the standing committee of the National People’s Congress revised the Insurance Law again, and significantly altered the provisions relating to insurance industry and insurance contract, especially the part of insurance contract.

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Better Late Than Never: NDRC Publishes Full Decisions on Zhejiang Car Insurance Cartel Case - Analysis of NDRC's Antitrust Law Enforcement Approach

Authored by Michael Gu ( and Shuitian Yu at AnJie Law Firm


Less than 2 weeks after the record fine (USD 200 million) in the Japanese Auto Parts and Bearing Manufacturers case that shocked the auto parts industry [1], on 2 September 2014, the Chinese price monopoly regulator, NDRC released its decisions [2] to impose combined fines of RMB 110 million (USD 17.89 million) on 23 property insurance companies and a local trade association in Zhejiang province for their price fixing in relation to car insurance. Among the companies involved in the case, one company is fully exempted and two other are granted significant reduction of the fines. Investigations into the Zhejiang branches of other nine insurance companies were terminated because those nine companies had not fixed prices or reached monopoly agreements.

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State Council Issues New Guideline To Accelerate Insurance Development

Authored by Dr. Zhan Hao ( and Wu Shanshan from AnJie Law Firm

On August 14, 2014, State Council promulgated Several Guiding Opinions Regarding Accelerating the Development of Modern Insurance Services (“New Guideline”) based on the original version of Guiding Opinions [1] issued by State Council in June 15 2006. The New Guideline is deemed as the essential impetus to PRC insurance industry.

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The Application of Reinstatement Value Insurance

Authored by Dr. Zhan Hao ( and Song Yiqiu from AnJie Law Firm

Reinstatement Value Insurance is applied more and more in PRC insurance market. However, the Insurance Law of the People’s Republic of China does not specifically define the Reinstatement Value or how to apply the Reinstatement Value Insurance. This article pertains to briefly analyze the application of Reinstatement Value Insurance.

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China Insurance Regulatory Commission Sets up a New Internal Committee Responsible for Approving the Establishment of Chinese Insurance Entities

Authored by Dr. Zhan Hao (; Tong Kun (; Cheng Yanan (

On July 25, 2013, China Insurance Regulatory Commission (“CIRC”) revealed on its official website a notice related to the establishment of the Chinese Insurance Entities Access Examination Committee (the “Committee”).

According to this notice, CIRC has set up the Committee as its internal committee for the purpose of improving the insurance market’s entry and exit mechanisms and enhancing the quality and transparence of the examination process. The CIRC has also stipulated the working rules of the Committee.

The Committee is considered a mechanism of collective deliberation among the departments of CIRC, and is responsible for approving the establishment of Chinese insurance entities. Except for those applications not accepted, suspended or withdrawn by applicants, all of the valid applications for establishing a Chinese insurance entity shall go through the Committee’s deliberation process. The Committee will decide on the fate of the application through a vote, which will express an opinion on whether to approve the application or not.

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Supreme Court Issues the Second Judicial Interpretation of PRC Insurance Law

Authored by Dr. Zhan Hao (, Hu Guangjian (

After fundamental amendments in 2009, the Insurance Law of the People’s Republic of China (“Insurance Law”) better regulates the promising and fast-developing Chinese insurance industry as the main legal framework, and plays a positive role in maintaining the stability of the financial order (protecting the interests of applicants, the insured and beneficiaries) while promoting the healthy development of the Chinese insurance business. Nevertheless, the internal structure and external environment of the insurance business have undergone many changes since the 2009 Insurance Law amendments. Some fresh problems have emerged, such as the inception of the insurance liability, performance standards for the duty of explicit explanation of the clause exempting the insurers’ liability, the scope and extent for the duty of disclosure of the applicant, etc. Given the complexity of these problems and the discrepancies in understanding the Insurance Law, the judgment criteria for the aforementioned issues vary from court to court. If such problems cannot be solved promptly, judicial authority could be undermined, and the development of the insurance business could be adversely affected.

Under such circumstances, the Interpretation II of the Supreme People’s Court on Several Issues Concerning the Application of the Insurance Law of the People’s Republic of China (“Interpretation II”) was enacted by the Supreme People’s Court (“Supreme Court”). It aims to lay down some definite and feasible rules concerning the application of the general provisions in the Insurance Law.

From my point of view, particular attention should be given to the following significant portions of the judicial interpretation:

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Another Kind of Compulsory Insurance?

Authored by Dr. Zhan Hao (, Huang Zaizai (, Xu Wei (, Han Rubing

The environment problem has been an important issue for Chinese government.  Surveys and conversations on China’s vibrant social-networking services show increasing public concerns over environmental pollution. Recently, the episodes related to PM 2.5 and Beijing Cough are the obvious instances. Under this backdrop, we discuss the development of environmental pollution liability insurance in China.

In 2007, the State Environmental Protection Administration (the name has been changed to Ministry of Environmental Protection of the People’s Republic of China(“MEP” since 2008),) and the China Insurance Regulatory Commission (“CIRC”) jointly issued a guide on environmental pollution liability insurance, Guidelines on Environmental Pollution Liability Insurance (MEP Issued [2007] No.189, “2007 No.189 Guidelines”). In 2007 No. 189 Guidelines, MEP and CIRC jointly encouraged local government to promote the environmental pollution liability insurance system in their own administrative regions.  It said an environmental pollution liability insurance system suitable for the national conditions of China should be preliminarily established during the period of the 11th Five-Year Plan, which is from 2006 to 2010.  Pilot and demonstration projects thereof should be carried out in major industries and regions to preliminarily establish the directory of covered enterprises or facilities of key industries based on the degree of environmental risks and the standard of compensation. 

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Investing Using Insurance Proceeds

Authored by Dr. Zhan Hao (

During the last two years, the China Insurance Regulatory Commission (CIRC) has issued several new policies for insurance proceeds investment, but the distribution is unclear at this stage, leaving insurance companies seeking guidance.

Declining profits in the insurance business is the leading incentive for CIRC to issue new investment policies for insurance proceeds. According to reports for the first three quarters of 2012, three of the four major listed insurance companies in China faced declining performances and suffered huge losses. In the third quarter, the loss of China Life Insurance Company stood at Rmb 2.207 billion ($3.54 million) and its net profit in the first three quarters declined by 56% year-on-year. The situation of China Pacific Insurance was similar, as its net profit of the third quarter was around Rmb 0.5 billion, down by 58.7% year-on-year. For New China Life Insurance, the net profit of the third quarter also declined by 15% year-on-year.

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CIRC and Supreme Court Launch ADR System for Insurance Disputes

Authored by Dr. Zhan Hao (, Huang Zaizai (, Xu Wei (, Chen Xingfa (, Han Rubing

At the beginning of 2013, CIRC (China Insurance Regulatory Commission) and PRC Supreme Court jointly issued a notice to establish the collaboration system to link insurance litigation to mediation in some areas.

The Notice stipulates that in the experimental areas, local courts shall publish the panel list of mediation entities and mediators, and ensure the parties of litigations to choose the mediation entities and mediators at their discretion during the course of litigations. To enhance the mediation, the Notice specifically requires the local with capacity could set the special mediation office for the use of insurance dispute mediation.

Insurance Association of China and its local branches (the local association of insurance) are responsible for the setup of the insurance mediation entities, and training for mediators.

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Authored by Dr. Zhan Hao (

With an increase of the aggregate amount of insurance funds and adjustments of regulatory ideas of the insurance regulator, private equity investment and real estate investment by insurance funds have become heated topics in the relevant industries. In September, 2009, China Insurance Regulatory Commission (hereinafter referred to as CIRC) promulgated Interim Measures on Real Estate Investment by Insurance Funds and Interim Measures on Private Equity Investment by Insurance Funds (hereinafter referred to as IMPEIIF),triggering considerate discussion among real estate industry, various private equity funds, industrial funds, and venture capital funds who were all looking to opportunities.

However, in the following two years, as the two Interim Measures were too principle and there has been lack of implementation rules, we can rarely find a case where insurance funds have been made successful investment in real estate and private equity.

On July 16th,2012, CIRC promulgated Circular Regarding Private Equity and real estate Investment by Insurance Funds (No.592012by CIRC, (hereinafter referred to as the Circular ),making adjustments to and clarifying policies for private equity investment by insurance funds. The Circular also refined the two Interim Measures in the interest of insurance funds which could hardly wait for setting sail.

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Authored by Dr. Zhan Hao (

Recently, a series of regulatory exposure drafts on application of insurance funds have been made by CIRC. Rule 11 of Interim Measures on Insurance Funds Trusteeship (Exposure Draft) states, unless otherwise stipulated by CIRC, the following relationships must not exist between trustee and trustor, trustee and overseas escrow agent: (1) one party directly or indirectly holds over 10% stocks of the other party; (2) a third party holds over 10% stocks of the two parties respectively. CIRC has been adhered to its concept of regulation, prohibiting the above-mentioned two equity-relations between trustee and trustor to guarantee the trustor’s independence.

In Current China, regulations regarding insurance assets trusteeship have raised widespread concern. Financial institutions as insurance assets management companies and other non-insurance assets managements companies show a keen interest in the issue and a series of relevant discussions are aroused.

Unclear Definition

Generally, trusteeship refers to an intermediary service, that is, some professional institutions, such as commercial bank, act as a third party, in accordance with relevant laws, regulations and  trusteeship contract, to undertake activities as accountant opening, custody of assets, settlement and delivery, assets estimate, accounting, investment supervision and etc, so as to protect the interests of the asset holders.

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Draft of the New Rules on Administration of Representative Offices of Foreign Insurance Institutions is Inviting Public Comments


On 22nd March 2011, the CIRC released a draft of the new Rules on Administration of Representative Offices of Foreign Insurance Related Institutions(“New Draft Rule”). This New Draft Rule shall replace the Rules on Administration of Representative Offices of Foreign Insurance Institutions (Baojianhuiling [2006]No.6) published on 1st September 2006 (“Rule of Baojianfa [2006] No.6”) and the Interpretations of the CIRC on Rules on Administration of Representative Offices of Foreign Insurance Institutions (Baojianfa [2008]No.101) published on 25th November 2008. Foreign insurance institutions should pay attention to this New Draft Rule because it significantly raised the threshold for foreign insurance institutions entering into Chinese insurance market.

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Time Limits in Property Insurance Litigation in the People's Republic of China

This article is written by  Kate Chan, the Senior Foreign Counsel of Grandall Legal Group with Contribution from Dr. Zhan Hao.

This article summarises the time limits that are relevant to the exercise of rights and defences by property insurers in claim-related disputes and in the claim process generally. 

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Grandall was awarded the "Insurance Law Firm of the Year"

On 24th February 2011, one of the world most influential legal services ranking organisation Chambers & Partner held its second Chambers China Awards in Beijing and Grandall Legal Group was awarded the Insurance Law Firm of the Year. The award which honours the work of law firms in China consists of 20 categories and 18 of which were practice specific. It has been a tremendous encouragement for the members of the Insurance Law Department to have received the same award for 2 consecutive years which reflects the excellent work and continuous effort of the Department. Dr Zhan Hao, the head of the Insurance Law Department and Executive Partner of Grandall (Beijing) received the award on behalf of the firm.

Think again before going to China

 Great news for Chinese insurance industry is from CIRC’s Chairman Mr. Wu Dingfu. In a recent press conference in January 2011, Mr Wu introduced the situation of the development of the Chinese insurance market, during his speech he said, in the last 5 years, the insurance premium income of the country has increased 24.2% per year on average and has reached 720.12 billion yuan, the income from investment has been over 6% per year on average. China has become the most important newly developing country for the insurance industry where the number of insurance companies had increased by 53 since 2005 and there are now a total of 146 insurance companies in China.

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Overall review of 2010 Chinese insurance industry from a legal perspective

When most Chinese regard the effect of the global financial crisis has faded, 2010 was a significant year for the Chinese insurance industry; eventful and full of challenges.

In 2010, the Chinese insurance market remains the sixth largest insurance market in the world with respect to its premium income. The value of the country’s insurance assets is over 4,000 billion RMB. Compared with the situation in 1980, when the Chinese insurance market was a completely monopolized market, there was only one insurer and the total premium income at the time was 0.46 billion RMB, the insurance industry now plays an inseparable role in the Chinese society, and causes an essentially important impact on the Chinese economy.

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CIRC may Loosen Assumed Interest Rate Control on Traditional Life Insurance

Questions and Answers about Measures on Equity of Insurance Company

On 4th May 2010, a new regulation was in the spotlight, which was seen as the most important regulation published this year. After three rounds of public discussions, the official Measures on Equity of Insurance Company (hereinafter referred to as the “New Measures”) was promulgated and will take effect on 10th June 2010. It will replace the Interim regulation on investing in insurance company (Baojianfa [2000] No. 49) published on 1st April 2000 and the Notice of Regulating Domestic Insurance Company on Attracting Foreign Investment (Baojianfa [2001] No. 126) published on 19th June 2001. This article aims at picking up some representative questions and presenting answers based on our understanding.

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Grandall Legal Group: Best Insurance Law Firm of the Year

The first Chambers Asia Award: China held at the China World Hotel, Beijing on 6th May 2010. Grandall Legal Group was nominated for three awards – “Capital Markets Law Firm of the Year”, “Competition/Antitrust Law Firm of the Year” and “Insurance Law Firm of the Year”, and was finally honored with “Insurance Law Firm of the Year”.

The UK-based Chambers and Partners publishes a series of guides to the legal profession and is recognized as one of the most prestigious organizations in the analysis of the international legal market. In assessing the reputations and expertise of business lawyers across China, Chambers conducts extensive interviews with clients. The Chambers Asia Award: China honored the work of law firms in China. All 16 awards recognized a law firm's pre-eminence in key practice areas. They also reflect notable achievements over the past 12 months including outstanding work, impressive strategic growth and excellence in client service. This is the first time that Chambers and Partners gave awards for Chinese market, so it drew great attention of all Chinese lawyers.

“A key player within this field, this firm works with major Chinese insurance companies. It has specialist expertise within all areas of insurance, and retains an impeccable reputation for its high-quality work.”

                                                                                       – Chambers and Partners Asia Award: China


Protection on Creditors of Subordinate Debts of Insurance Companies

Subordinate debt is an agreed unsecured debt between raiser and creditor(s) who has lower priority than other creditors, yet has higher priority over the raiser’s equity capitals.

Subordinate debt fund can be counted as Tier-II capitals in measuring an insurance company’s solvency status. Thus raising subordinate debt fund has become an important means of replenishing capitals by insurance companies. It is governed by CIRC’s Interim Measures on Management of Subordinate Term Debt of Insurance Company.

Subordinate debt has inherent risk. Creditors of insurance company’s subordinate debt can seek protection by virtue of the following methods:

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An Analysis of the Impacts on Foreign Investments by New Measures on Insurance Group Companies

As Chinese financial integration progress intensifies, increasing number of Chinese insurance companies are not content with limiting themselves to insurance business only. Rather, they have started to diversify their range of operations. By the end of 31 March 2010, China already has seven insurance group companies as well as one insurance holding company, with their combined total assets, net assets and premiums constituting 75% plus of the whole industry.

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Regulation on the Basic Service of the Personal Insurance Business Published

In February, CIRC released the Regulation on the Basic Service of the Personal Insurance Business (“the Regulation”).


The insurance industry, especially personal insurance business is experiencing a rapid and healthy development in the recent years. However, the phenomenon that the insurance companies give much weigh on the underwriting rather than the indemnity, has become more and more severe. This phenomenon has impeded the further development of the industry. In order to solve such problem, some local bureau of CIRC drafted related regulations, which have received positive effects, but the differences among the regions also incur problems for insurance companies to establish uniform internal regulations. The promulgation of the Regulation is CIRC’s response to such problems.

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Investment in Stock Market by Insurance Funds (2)

Procedures for Stock Market Investment by Insurance Funds

For the qualified insurance companies and insurance asset management companies proposing to undertake equity investment in the public market, the following 2 steps shall be carried out initially: (1) entrusting the insurance funds in custody of a bank; (2) obtaining seats in the exchange market.

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CIRC Published Revised Administrative Measures for Insurance Clauses and Premium of Property Insurance Company

Recently, CIRC revised the old Administrative Measures for Insurance Clauses and Premium of Property Insurance Company 2005 and published a new one (“New Administrative Measures”). The new one will be effected since 1st April of this year.

The New Administrative Measures were revised to be in line with the new Insurance Law which was published and effected last year and were mainly revised from three aspects: (1) completing filing system of insurance clauses and premium; (2) enhancing the management of compliance chief officer and actuary chief officer; (3) strengthening supervision of insurance companies in line with new Insurance Law. Specifically speaking, the New Administrative Measures put focus on the following points.

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Brief Summary of Circumstances of Terminating an Insurance Contract by Insurance Companies

Where the law stipulates or conditions that the parties to a contract agree on are met, an insurance contract may be rescinded if the parties to the contract reach a consensus through consultation or either a party to the contract executes the termination right to cancel the insurance contract. Usually, without consent of insurance companies, the insured may cancel the insurance policy unilaterally at any time. That because the insureds buy an insurance product is to protect them from unknown risks, so they have right to choose how and when to protect themselves. The Insurance Law (2009) stipulates that otherwise stipulated by other laws and regulations, or agreed by both parties in insurance contract, after the formation of insurance contract, the insurance contract may be rescinded by the insured. On the contrary, to protect the interest of insureds, the Insurance law (2009) generally prohibits the insurer to terminate the contract casually. Only under some special circumstances, the insurer may be allowed to cancel the insurance contract. Here we simply give a brief summary of those circumstances.

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Investment in Stock Market by Insurance Funds (1)

According to the Administration of Stock Investments by Insurance Institutional Investors Tentative Procedure (hereinafter referred to as “Tentative Procedure”),as the “insurance institutional investors”, qualified insurance companies and insurance asset management companies are entitled to invest in stocks. Insurance companies include the insurance group companies and the insurance holding company. The difference of qualification requirements for insurance companies and insurance asset management companies [1] is, if the insurance asset management companies satisfy article 5 of the Tentative Procedure, they can invest in stocks directly without CIRC’s approval and if the insurance companies satisfy article 7 of the Tentative Procedure and get approval from CIRC, they can invest in stocks directly as well.

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The Issuing of Subordinated Debt of Insurance Companies in China

As we all know, capital is crucial for insurance company. Only with enough funds can an insurance company have ability to cover the exposures. With adequate capital, an insurance company may better develop the business, i.e. release more ads, or establish more branches, to make more profits. It is possible that during the operation, an insurance company has no sufficient capital to support its business, and under such circumstance, the insurance company will need to raise funds to replenish its capital.

Generally speaking, there are four ways for an insurance company to supplement its capital:1. IPO or Seasoned Equity Offering; 2. getting additional investment by current shareholders; 3.getting money from private offer; and 4. allotting subordinated debt. For Chinese insurance companies, the first three ways may encounter hurdles or difficulties in practice. First of all, IPO is not easy for insurance companies, because many of them, especially small and medium-sized insurance companies, may not be able to meet the high standard of IPO. Secondly, current shareholders may be more willing to use financial vehicle, rather than funds of their own, to run the insurance company. It might be very difficult to raise money from current shareholders. Lastly, due to the financial crises, many institutions have insufficient funds to make the investment. Then issuing subordinated debt becomes a practical option for many insurance companies. According to the CIRC, 10 insurance companies were approved in 2009 to issue subordinated debt. The total amount of debt reaches RMB 18 billion.

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Corporate Governance Structure of Insurance Companies

The shareholders’ qualification and the appointment qualification of directors, supervisors and senior management personnel of an insurance company shall, in accordance with the Provision on the Qualifications of Directors, Supervisors and Senior Managers of Insurance Companies newly revised by CIRC on January 8th, 2010 and Administration of Insurance Companies Regulation newly revised by CIRC on September 25th, 2009 and other regulations, be submitted to CIRC for examination and approval thereof. If they fail to perform their duties or there are significant negligence of duty, CIRC may order the insurance company to replace such personnel or cancel their appointment qualifications.

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2010 Shall Be An IPO Starting Year For Insurance Companies

During Christmas holiday of 2009, China Pacific Insurance (Group) Co., Ltd was listed in the Stock Exchange of Hong Kong Limited, with the stock code”02601” and the stock name of “CPIC”. It became the forth insurance companies which were listed in foreign Stock Exchange in China. The other three are PICC, China Life and Ping An Insurance. The IPO of CPIC gives more hopes for insurance companies to IPO in 2010. PICC just finished the reform to establish a joint stock system for enterprises and its CEO Wu Yan said in public that PICC will choose appropriate time to be listed in A share in future. Besides, China Reinsurance (Group) Corporation, Tian Ping Insurance Company, New China Life Insurance Company all show their ambitious to IPO. For many insurance companies, 2010 will be a starting year for them to IPO.

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CIRC Published New Measures for Administrative Reconsideration of CIRC

Considering new problems generated in recent years, CIRC revised current Measures for Administrative Reconsideration of CIRC (hereinafter as “Old Measures”), and published the new one (hereinafter as “New Measures”). The New Measures has changed some significant aspects of procedures of administrative reconsideration and it will be effected from 1st of March.

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Revised Provision On The Qualifications Of Directors, Supervisors And Senior Managers Of Insurance Companies Published

The new revised Provision on the Qualifications of Directors, Supervisors and Senior Managers of Insurance Companies was published by CIRC and it will be effected on 1st of April. It could be seen as a storm of supervision blowing from CIRC at the beginning of the year. This provision adjusts the scope and manners of CIRC’s qualification management system, strengthens the qualification of directors, supervisors and senior managers, and improves the long lasting supervision regulation.

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The First Chinese Seller/Buyer Warranty And Indemnity Insurance Policy Is Underway

The Seller/Buyer Warranty and Indemnity Insurance is a new type of insurance in the global insurance market. The Purpose of this insurance is to against the risks involved in the M&A process, especially those risks generated by the misrepresentation of the parties. The insured target of the Seller/Buyer Warranty and Indemnity Insurance is the representation and warranty provision in the M&A contract.

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Legal Case Study:Sufficient Explanation Obligation on Exemption Clauses for Insurance Companies

Exemption clauses are restrictions on the insurer’s insurance liability, and define the scope within which an insurer bears no liability to compensate or pay the insurance proceeds. Article 19 of new Insurance Law provides that the insurer shall, when concluding an insurance contract, provide on the application form, insurance policy document or other insurance certificate a reminder sufficient to draw the attention of the proposer to the exemption clauses in the insurance contract and shall expressly explain the contents of such clauses to the proposer in writing or orally. If no such reminder or express explanation is given, such clauses shall not enter into effect. The old Insurance Law provided a similar provision on this issue, but less practicable. This provision, in practical, has become an ultimate weapon to insurance companies. As of the occurrence of accident which is included in exemption clauses, lots insureds use this provision to claim their rights. They claim that the insurance company did not give them sufficient notice to draw their attention to the exemption clauses. The court, in practical, also adopts strict interpretation on these clauses to insurance companies.

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Establishing Representative Office of Insurance Company in China (2)

Governmental supervision of financial industry is very strict in China. For CIRC’s examination of the foreign investors who want to establish representative office in its jurisdiction, the following documents shall be presented in front of CIRC: 

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Will It Be A Death Sentence For Small Insurance Intermediaries?

The new Notification issued by CIRC may sentence the death of lots of small and medium- size insurance intermediaries.

On the last day of 2009, CIRC promulgated the Notification on Implementing the Supervision Regulation on Corporate Insurance Agency, the Supervision Regulation on Insurance Brokerage and the Supervision Regulation on Insurance Adjustment Institution (hereinafter referred to as three supervision regulations). According to this notification, the capital of all insurance intermediaries must reach the threshold provided on the three supervision regulations before October 1st, 2012.

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Establishing Representative Office of Insurance Company in China (1)

As to a foreign insurance company, if it wants to invest in Chinese insurance market or run business pertaining to insurance within China, it can (1) cooperate with a Chinese insurance company by executing strategic cooperation agreement, under which both parties agree to do extensive cooperation in the field of underwriting reinsurance, developing new insurance products, exclusively choosing the other as the potential partner, providing training and technique assistance to the Chinese insurance company;(2) establish a consultant company in China, through which the foreign insurance company can provide some counseling;(3) establish a foreign founded insurance company ( the foreigner’s shares shall exceed 25%) or purchase the equity of a Chinese insurance company ( the foreigner’s shares shall exceed 25%) or establish a branch of the foreign insurance company in China.

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Relevant Accounting Rules on Insurance Contract Published

On December 22, 2009, the Ministry of Finance and CIRC jointly published Relevant Accounting Rules on Insurance Contract (“the Rule”). The long awaited rule finally lifted its veil at the end of this year.

Government officials from Ministry of Finance and CIRC commented on the rule. According to the officials, the rule is designed to eliminate the discrepancies existing in the accounting standards of A-share annual report and H-share annual report. All insurance companies are required to follow the rule in creating the 2009 financial report.

The rule mainly covers three components: split-up of mixed insurance contract, major risk evaluation and calculation of reserves of insurance contract.

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Defining 'Gross Negligence': Will Insurers Be Left Exposed?

Gross negligence is a familiar concept in insurance policies sold in the Chinese market, particularly property policies. The all-risk policy issued by the People's Insurance Company of China and the contractual liability insurance provided by newcomers to the industry, including the policies offered by foreign insurers, exclude accidents resulting from the insured's gross negligence. Although this position seems clear in principle, it can be harder to determine in practice, as the fire at China Central Television (CCTV) has demonstrated.

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Analyzing Insurable Interest and Subrogation

In many high-value insurance cases, two key issues to consider are (i) whether the applicant or policyholder has an insurable interest in the object of the contract, and (ii) how the insurer applies its subrogation rights after compensation is paid to the insured party.

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Insurance Companies Await Regulator's Rules on Private Equity

Industry experts expect the China Insurance Regulatory Commission to announce the Detailed Rules for Investment in Unlisted Companies' Equity by Insurance Companies and the Detailed Rules for Investment in Real Estate by Insurance Companies in October 2009. It has already published five sets of rules concerning insurance funds' investment channels and their investment in infrastructure projects, which were issued on April 7 2009.

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Accesses for Foreign Insurance Company's Equity Investment in Chinese Insurance Company

With the rapid development of Chinese insurance market and the trend of the financial deregulation, more and more foreign financial institutions want to invest in Chinese insurance companies. How to invest in a Chinese insurance company are concerns of many of my foreign clients. As you know, there are two basic accesses for foreign financial institutions to invest in Chinese insurance company, one is to establish a “foreign funded” insurance company with its Chinese partners in China, the other is to purchase a Chinese insurance company’s equities. This article focuses on the second one.

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Can Foreign Insurance Company Sell Policy to Chinese Residents Overseas

These days, more and more Chinese people prefer buying policy issued by foreign insurance companies. Compared to the current under-developed situation of Chinese insurance industry, many Chinese Insured think that foreign insurance companies may offer services that more mature and cover more aspects. Driven by the high profit Chinese insurance market may generate, many foreign insurance companies tries to market their insurance products in China. However, there are real barriers and potential legal risks to foreign insurance companies when they are engaging in marketing their products in China.

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Regulations of Corporate Governance Structure of Insurance Companies

The regulation of corporate governance structures is the latest and most important development to the international regulation. For the purpose to strengthen the insurance industry in China and in the light of international experience, China Insurance Regulatory Commission (CIRC) promulgated the Guiding Opinion on Regulating the Insurance Company Corporate Governance Structure ( Trial Implementation) (Guiding Opinion on 5 January 2006. This Guiding Opinion is applicable to shareholding insurance companies. Other insurance companies and insurance asset management companies may also refer to this Guiding Opinion for implementation. The main contents of this Guiding Opinion are as follows: 1),strengthen majority shareholder obligations; 2), strengthen Board of Directors construction functions; 3),ensure Supervisory Board Function;4) regulate management level operation; 5),strengthen affiliated transaction and information disclosure management; and 6) corporate governance structure supervision and administration.

Majority shareholder having significant influence on an insurance company’s operation and management must have excellent financial conditions and continuous investment capabilities, must support the insurance company in improving its solvency, and must not use its special positions to damage the lawful rights and interest of the insurance company, the insured, the minority shareholders and other interest parties.

Where the insurance company’s shareholders are in an affiliate relationship with one another, they must take the initiative to report this to the Board of Directors. The insurance company must report its shareholders’ affiliated relationship to CIRC on a timely basis.

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The Appointment Qualification for the Senior Management Personnel in Insurance Institutions

Often within my usual work I have to review some Partnership Agreements and Cooperation Agreements between my Chinese clients and their foreign investors. A reoccurring problem that worries my clients and their foreign investors, which results in me having to explain the Chinese regulations, is that in their Partnership Agreement the foreign investors want to send their personnel to assume positions at the Chinese Insurance Company they have invested in. In my personnel opinion, it is not an extreme request for them to administrate or manage the insurance institution to some extent. This said, it still has to be made clear that there are some limitations and qualification requirements, imposed by (CIRC), for the personnel to hold certain positions in Insurance Institutions. In relation to this problem, there are some provisions promulgated by CIRC for reference, such as the Administration of Appointment Qualification for Directors and Senior Management Personnel of Insurance Companies Provisions, the Administration of Appointment Qualification for Senior Management Personnel of Insurance Companies Provisions, and some Amendment Decisions.

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CIRC's New Opinion Speed Up the Medical System Reform

Recently, for the purpose of coordinating with the Medical System Reform in China, China Insurance Regulatory Commission (CIRC) issued the Opinions on Implementing the Medical Reform and Actively Engaging in Establishment of the Multilayer Medical Guarantee System (hereinafter referred to as Opinions) on June 11, 2009. For the first time this has stipulated eight requirements for the commercial insurance institutions that are engaged in various medical guarantees administrative services.

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Consumption Credit Insurance: now in Beijing

The new insurance product: consumption credit insurance for individuals will be issued first time in Beijing.

Based on individual credit, clients will be granted small amount of loan from banks in 3 to 4 days without any guarantors and mortgages. Ping An Insurance Limited has received the permission to issue this consumption credit insurance in over 20 areas, such as Beijing, Tianjin and Zhejiang Province.

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A Domestic Insurer, a Chinese Manufacture, a Foreign Element?

With foreign investors testing ingenious ways in which to circumvent the regulatory burdens and scrutiny associated with a foreign owned Chinese insurance company, an interesting question has come to light; is it possible for an insurance policy between a domestic insurer and a Chinese manufacture to have a foreign element. The foundation of this question is rooted in the uncertainty surrounding the enforcement and validity of an arbitration clause designating a foreign jurisdiction for a case which is purely domestic (China).


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Development on Liability Insurance of Travel Agencies

Travel agencies legitimately established in mainland should buy compulsory travel agency liability insurance. This is one article in draft of the Administrative Measures for Liability Insurance of Travel Agencies (Draft for Comment) promulgated by National Tourism Administration of PRC and China Insurance Regulatory Commission for public comments.

According to the draft regulation, the compulsory travel agency liability insurance should cover the compensation liability incurred by the travel agency during the trip because of the death and injury of the clients and their property damages. It should also cover travel agency’s liability to the people they employed when they are injured or their property is damaged. The insurance should cover liability caused by travel agency’s negligence or fault; by accidents and based on what the People’s Court or arbitration institution held on the judgment.


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Foreign-invested Insurance Companies in China

According to relevant provisions under Chinese Law, a “foreign-invested insurance company” may take the following forms;

1) A joint venture insurance company in China established by a foreign insurance company and a Chinese company or enterprise;
2) A foreign insurance company solely owned and operated by a foreign insurance company;
3) A branch company of a foreign insurance company in China.

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Procedures for the Establishment of Foreign Insurance Companies' Representative Offices in China

A representative office in China of a foreign insurance company is in fact not a true commercial presence in China because a representative office and its employees are only allowed to conduct non-business activities in Chinese insurance market such as liaison, market research and are prevented from conducting or engaging in any business activities and providing insurance services. On the other hand, if an insurance company has a commercial presence in China, this means it can provide insurance services in China. But establishing a commercial presence such as foreign invested insurance company by a foreign insurance in China shall be subject to have a representative office in China for over two years. Therefore, setting up a representative office in China is the first step for a foreign insurance company who want to establish a commercial presence in China.


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Major Hurdles Of Foreign Owned Insurance Businesses in China

The insurance market in China is growing at an unprecedented rate. Cultural norms towards insurance have begun to change regardless of the intangible nature of insurance and a substantial portion of this growth has arrived through foreign investment. Foreign investors continue to increase their share of the Chinese market regardless of the current economic downturn. Compared with other financial sectors, the insurance market is the most accessible in China, however, such investors will ultimately face fresh challenges from the banking sector due to the present state of credit markets and the regulatory environment surrounding Chinese insurance businesses is uninviting. In order for potential investors to gauge prospective returns, one must hold an understanding of the hurdles associated with such forms of investment on the Mainland of China. The following will attempt to outline some of the major hurdles faced by current and prospective investors in China’s insurance market. By no means is this account to be exhaustive, rather its purpose is to provide general insight and awareness. Given the importance of due-diligence, considering the past errs within the market, current and prospective investors must be aware of the current regulatory environment.

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The CIRC and Its Local Offices: Functions and Responsibilities

Last week, I received an email from an American attorney, whose client encountered some problems concerning their insurance policy, a policy purchased from two Chinese Insurance Companies. In his email, he informed me that after the occurrence of an accident which was suppose to be covered in the insurance policy, the Chinese Insurance Companies refused to compensate his client. The insurer and the insured had different understandings of the policy clause. He wanted to know whether his client could seek help from the CIRC and if so, how they should go about doing so in China. In his email, some provisions in the Guideline of the Management of the Insurance Company issued by CIRC were quoted to inform me the CIRC functioned similar to the SEC in the US. I informed him the CIRC could not help, his client should bring this case to court or if there is an arbitration clause in the policy, the dispute could be arbitrated in the arbitration commission agreed by the parties.


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Institutional defects of China divided operation

1. The dilemma in the contractual cooperation between banks and insurance companies

Generally speaking, the mode of mixed operation is still under exploration and the driving force mainly originates from the spontaneous market.

The cooperation between banks and the insurance sector remains on the level of contractual agreement between insurance companies and banks. Such cooperation only involves certain activities in which banks conduct the following for insurance companies; charging insurance premiums, disbursing insurance amounts and selling insurance products.

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Chinese Banks Attempt to Invest in the Insurance Industry

Recently, in the Fifth High-Level Forum of China's Financial Reform, supervisory and regulatory officials from departments such as the CIRC, CSRC, CBRC, People's Bank of China and Ministry of Finance, indicated the CIRC and CBRC have reached consensus on a pilot investment project. The project will concern investment in the insurance industry by 4 large banks allowing for some breakthrough in the Mixed Management of Banking Industry in China.


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Expanding Investment Channels for Chinese Insurance Funds

According to the Administration of Stock Investments by Insurance Institutional Investors Tentative Procedures issued by the CIRC on December 24th 2004, institutional insurance investors may engage in or entrust a qualified institution to engage in the trading of stocks, convertible corporate bonds and a range of other securities.


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China CIRC Strengthens the Board of Directors System of Insurance Companies

Last year, China Insurance Regulatory Commission (CIRC) promulgated the Guidelines on the Operation of the Board of Directors of Insurance Companies (hereafter refers to the Guidelines) whose provisions are, comparing with the Guiding Opinion on Regulating the Corporate Governance of Insurance Companies promulgated in 2006, more specific in many aspects such as the qualification of directors, the operation of directors board and its professional committee, secretary and assistant institutions of the directors board, corporate governance report, etc. The Guidelines, together with the Interim Measures for the regulation of Insurance Companies' Independent Directors and the Interim Measures for the regulation of Affiliate Transaction of Insurance Companies, composes the primary system of the board of directors of insurance companies.


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A Brief Introduction to the Settlement of Marine Insurance Disputes in China

The settlement of Marine insurance disputes in China is unique and different from that in other countries in respect of jurisdiction, application of law and the mode of resolution.

The Application of Law in Marine Insurance Disputes

In respect of the application of substantive law. Marine insurance disputes mainly refer to The Insurance Law of the PRC and The Maritime Code of the PRC. The first is a general law and the second is a special law within the Chinese legal system. In other words, The Maritime Code of the PRC shall prevail if both laws are applied. The Contract Law of the PRC and The General Principles of Civil Law of the PRC may also be applied if neither the Insurance or Maritime law can be applied. The Maritime Code of the PRC and The Insurance Law of the PRC came into effect in 1993 and 1995 respectively. Both laws were created by reference to the relevant laws and legislation of foreign countries. In particular the relevant marine and insurance provisions of Britain, the USA and Germany, played a dominant role.

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Marine Insurance in China----a very brief glance

Marine insurance also referred to as waterborne insurance is an agreement where one party undertakes the payment of premium and the other undertakes to indemnify the assured to the extent of all losses, damages and costs that arise from maritime peril and contingency; unless specified otherwise in the agreement. Marine insurance has become one of the most important forms of insurance and is one of the oldest forms of insurance policy which continues to develop from its original form. The long history, and its specialty focus make Marine insurance a relatively independent insurance system.


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The Conundrums of Foreign Investment in Chinese Insurance Companies

Due to its dramatically quick development and tremendous prospects, the Chinese insurance market has attracted a huge flow of foreign investment, most of which focuses within insurance companies.

According to the Chinese commitment to WTO, the insurance industry is the first financial field to be opened to foreign investment. At the present time, as far as the establishment of a foreign-funded insurance company is concerned, some foreign investors are still puzzled by conundrums.

In the regulation of administration of foreign-funded insurance company, Article 8 stipulates the establishment requirements: "A foreign insurance company that applies for establishing a foreign-funded insurance company shall meet the following conditions:

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The Incontestability Clause in China and the Draft Insurance Law of the PRC

During the course of the draft of Insurance Law of PRC, the presence of an "Incontestability" clause has come under fierce debate.Last night, I received a call from a CIRC (China Insurance Regulatory Committee) official, who asked my opinion on the highly debated clause.


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Potential Development for the Directors and Officers' Liability Insurance in China

Today D&O is a promising insurance product in China. My views are based on the newly revised Chinese Company Law and Securities Law of 2005. Section 3 of Article 113 of the 2005 Company Law stipulates "Directors shall be responsible for resolutions passed by the board of directors. If a resolution of the board violates the law, administrative regulations or the articles of association of the company and thus causes serious losses to the company, the directors who participated in the adoption of such a resolution shall be liable for compensation to the company. However, if a director is proved to have expressed his objection to such a resolution when it was put to the vote and his objection was recorded in the minutes of the meeting, he may be exempted from such liability".

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Chinese Directors and Officers' Liability Insurance in Dilemma in the Past

Directors and Officers' Liability Insurance (D&O) is popular throughout Europe and North America and has been used for the sole benefit of directors and officers. Overall the foundation of the popularity is quite diverse. In my opinion, the most important is that such insurance will assist a company in attracting and retaining qualified directors and officers.

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Chinese Environmental Impairment Liability Insurance at a Slow Pace

Environmental Impairment Liability Insurance (EIL insurance) is a new insurance product in China. Earlier in the history of the coverage, the insured facing an EIL loss often sought indemnification through their Commercial General Liability (CGL) policy. With the increase in EIL claims, both in frequency and severity, CGL writers, never intending the scope of their coverage to extend to EIL, quickly addressed the coverage question by excluding EIL from their CGL policies.

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The New PRC Insurance Law - Improvement and Limitation

At the end of February 2009, the legislative institution in Beijing promulgated the revised insurance law of People’s Republic of China. This new insurance law will be enforced in October 2009.

When the first insurance law was promulgated in 1995, the Chinese insurance market was largely monopolized, controlled by one state-owned insurer. In regard to public opinion, most Chinese considered insurance as something novel. Today, although far from mature, the Chinese insurance market is too large to neglect. For example, the market is composed of 100 insurance companies and over 2000 intermediate insurance companies, including domestic companies, subsidiaries of foreign companies and joint ventures.

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Health Insurance and Health Care in China

The development and history of health insurance in China, it is not a simple story.For many years, the Chinese medical service has been controlled by state-owned hospitals; private hospitals and pharmacies could not compete with the public medical system. As a result, the majority of citizens received their medical service through the public system and the need for health insurance products was extremely limited. Even many years after the promulgation of the Chinese Insurance Law, China lacked formal health insurance products.

After 2000, health insurance became popularized in the Chinese insurance market. The popularity was due to the reform of the medical system; which required the majority of city residents and those in the countryside to afford medical costs by themselves. Hence a demand and need for health insurance arrived in short time. 

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Insurance Funds in China Expand toward Equity Investments

Recently it was reported in the financial news that the China Insurance Regulatory Commission of the State Council (CIRC) had allocated RMB200 billion to carry out a pilot investment program for funds held by insurance companies. The RMB200 billion has been equally invested across infrastructure projects and other equity investments.


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Are Extended Warranties/Extended Service Contract Considered Insurance?

Within China’s emerging legal system the question of whether an extended warranty (extended service contract ) will be subject to increased regulation under the Insurance law of China remains unanswered.

For those who are interested in undertaking a venture of this nature within the Chinese market the answer is of fundamental importance. From an entrepreneurial stance, treating the contract as a non-insurance contract will optimize business efficacy, allowing potential investors ease of market access. It would not appear practical to subject such contracts to the rigors of insurance law. On the contrary, Consumer advocates often propose and lobby for such contractual agreements to be subject to the extensive regulation surrounding insurance contracts in order to protect consumer welfare. The basis of these arguments is premised upon an extended warranty being in the interest of the contracting company and not the consumer. Such groups often argue extended warranties (extended service contract) are simply an additional mean in which to profit from an existing product.

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Aviation Passenger Accident Insurance in China: History, Change and Administration. A Continuing Quest for Perfection

Aviation Passenger Accident Insurance (APAI) in China originated in the Interim Provisions on the Compensation for the Personal Injury of Domestic Aviation Transport Passengers in 1998. In reviewing the supervision and management of APAI by the China Insurance Regulatory Commission (CIRC), we may divide the history into three stages.

During the first stage (1998-2002), APAI applied uniform provisions issued by the People’s Bank of China. At this time the CIRC was required to focus on organizing spot inspections and the strengthening of punishments concerning the violation of laws and regulations effecting control and regulation of APAI market order. The focus was a product of troubling issues, such as: the compulsive sale of APAI with tickets or other relevant insurance; counterfeit policies; and the embezzlement of premiums by agents or staff of insurance companies.

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CIRC Compliance Guidelines: Implementation for Chinese Insurance Companies

In the Chinese insurance market, it is common practice for a company to try to strengthen its supervision capabilities. In the past, special emphasis has been placed on supervision within departments – however, this is often inefficient. Therefore, financial regulatory institutions are beginning to focus on preventing risk by promoting internal supervisory mechanisms and the principle of compliance management.

Since Ping An Insurance Group initiated the establishment of the “Law & Compliance Department” in 2004 and theChina Insurance Regulatory Commission (CIRC) issued the Guidelines of Standardizing Governance Structure of Insurance Companies in January 2006 which state that insurance companies are required to establish a mechanism of compliance management to strengthen the inspection and evaluation of compliance, other domestic insurance companies have followed suit. In 2007, CIRC issued the formal Guidelines for the Compliance Management of Insurance Companies (hereafter Compliance Guidelines) which provide direct policy guidelines for the establishment of departments of compliance.

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Just Move, A Big Step-comments on the draft of new insurance law of China

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.

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Who "Directs" the Directors of Chinese Insurance Companies

On July 8th 2008, the China Insurance Regulatory Commission (CIRC) promulgated the Guidelines on the Operation of the Board of Directors of Insurance Companies (the Guidelines) whose provisions are, compared with the Guiding Opinion on Regulating the Corporate Governance of Insurance Companies promulgated in 2006, more specific in many aspects such as in the qualification of directors, the operation of directors board and its professional committee, secretary and assistant institutions of the directors board and corporate governance reports. The Guidelines, together with the Interim Measures for the regulation of Insurance Companies' Independent Directors and the Interim Measures for the regulation of Affiliate Transaction of Insurance Companies, compose the primary system regulating the board of directors of insurance companies.

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Bad Faith and China's Insurance Market: A Classic Example

The issue of “bad faith” has plagued the insurance market in China and has proven to be a major hurdle in the Chinese insurance market’s development. Below is a case which provides insight into the presence of bad faith at the local level.

In February 2009, a defendant (the insured) was sentenced to eight months imprisonment for refusing to transfer insurance proceeds to the injured party. The ruling was given by Haidian local court, Beijing, China.

In 2007, a car accident occurred in Beijing, involving the defendant and claimant, Mr. Sun. The claimant sued the defendant in a Chinese local court and the Chinese court issued a judgment in favor of claimant; ruling the defendant assumed full responsibility and should indemnify the claimant for the loss of 43,000 RMB ( approximately 6,300 USD).

The defendant received the proceeds form his insurer, resulting from the car accident, however, he refused to pay the proceeds to claimant. Furthermore, to escape enforcement of the judgment, the defendant fraudulently transferred property titles in his name, including the title to a car.

The enforcement department of the local Chinese court stated the actions of the defendant violate the Criminal Law of the People’s Republic of China. The case was then transferred to the Criminal Division in the court.

The case provides an example of the problem of “bad faith” within the Chinese insurance market. As many Chinese Insurance lawyers would agree, the issue surrounding and the problems arising from “bad faith” in the Chinese insurance market must be resolved. A suitable start would involve the Chinese courts strengthening enforcement of their judgments which would discourage immoral behavior.


Chinese Insurance Law Legislation needs Improvement for Adequate Governance

The first Insurance Law in China came into force in 1995 and was amended in 2002. There have been no other additional changes or modifications to the Insurance Law. Although the Chinese Supreme Court has drafted an Explanation to the Enforcement of the Insurance Law, these rules have yet to be utilized in practice. Thus, it is clear that the rules and regulations governing insurance in China has failed to keep pace with the rapid development in the market.  

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The Chinese Insurance Market is Developing at a Rapid Pace

China has experienced unprecedented growth in the insurance field. The total amount of premiums reached 100,611,940,000 USD in 2007. The total amount of premiums reached 80,672,020,000 USD in 2006 ranking it eleventh out of all countries in the world. Moreover, the total financial holdings of insurance companies in 2007 amounted to 414,756,056,000 USD, one-third larger than total holdings in 2005. Presently, there are more than 100 insurance companies in China, and more than 3000 insurance intermediary companies which include businesses specializing in broker, agency, and loss adjuster services.

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Chinese Insurance Market has Urgent Need for Professional Lawyers

China has one of the fastest growing insurance markets in the world. The number of professional insurance lawyers cannot meet the demand in the market due to the limited history of both the legal and insurance industry within China.

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