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.

 The three supervision regulations were revised in 2009, in order to coordinate with the enforcement of the new Insurance Law. The most important revision is that the requirement for the registered capital is substantially raised. For corporate insurance agencies, the registered capital was raised from RMB 0.5 million to RMB 2 million. What is more, for those corporate insurance agencies who want to do the business outside the province, autonomous region or municipality directly under the central government where they registered, their capital must reach RMB 10 million. For insurance brokerage, the registered capital should reach RMB 10 million, twice as much as provided on the old regulation rule. For insurance adjustment institutions, the registered capital raised from 0.5 million to 2 million. The new standards have taken effect on October 1st, 2009. However, the three supervision regulations did not specify whether and when the insurance institutions established before October 1st, 2009 should also meet the same benchmark.

CIRC’s new notification has released clear signal for those intermediaries established before October 1st, 2009 that they must increase their registered capital to meet the requirement in the next 2 years.

The purpose of this notification is to keep the orders of the insurance intermediary market and protect the rights of the insured. However, this requirement is not easy to reach for many small and medium size intermediaries. When the intermediaries can not meet the requirements of CIRC, they will have to withdraw from the insurance market.

There are two ways for the insurance intermediaries to increase their registered capital. One is to seek some financing. However, due to the financial crises, few enterprises have funds to invest in the insurance intermediaries, especially when such intermediaries are hard to be listed in the Chinese GEM. The other way for the intermediaries is to subordinate to big insurance group or giant insurance companies, which means the intermediaries may have to give up the license and the independence. Nevertheless, most insurance groups or giant insurance companies are reluctant to accept the small intermediaries. They are afraid that the culture or business model of such small intermediary is in tension with their own.

It can be predicted that before October 1st, 2012, the insurance intermediaries market may experience an earthquake.