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.