New insurance legislation seeks to tighten regulation, overhaul sector
The mainland has passed legislation that introduces sweeping changes aimed at overhauling the insurance sector, which is troubled by claim disputes.
The new legislation gives the China Insurance Regulatory Commission (CIRC) greater power in regulating insurers' capital level, management compensation, and investment of insurance premiums.
Analysts widely expect the tightened governance to provide consumers greater protection in claims disputes and bring the regulatory regime up to international practices, but will inevitably spark a vicious round of consolidation in the crowded sector.
The legislation was passed by the National People's Congress Standing Committee over the weekend and will take effect on October 1.
It means tighter regulation for more than 100 insurers, as well as more than 2,000 specialised insurance intermediary agencies, and about 15,000 agents, according to the CIRC.
Under the new rules, insurance contracts will have state the responsibilities of insurers and the insured, coverage of claims, timeframe and procedures of filing and settling claims.
One piece of good news for the insured is inclusion of an unprecedented provision - an incontestable clause - that forbids insurers from abusing their rights in rescinding contracts and shrugging off claims.
The CIRC will have greater powers in governing insurers, which are required to have net assets of at least 200 million yuan (HK$226.72 million) and whose shareholders need to have no malpractice records within the previous three years.
The regulator will have the right to regulate the distribution of insurance companies' profits to their shareholders and the salaries and integrity of management.
'The new legislation aims at giving greater protection to the insured,' the central government said on its website.
The CIRC will keep a closer eye on vulnerable insurers, particularly amid the global financial crisis.
If necessary, the regulator will require underperforming insurers to inject more capital into their operations, divest themselves of non-performing assets and reinsurance business, and place distressed operators into receivership.
To widen the choice of investments for insurers, the legislation mandates for the first time a broader variety of investment tools such as real estate, stocks and equity-linked funds.
The ratio of real estate in investment portfolios will be defined in further legislation.
To conform with the World Trade Organisation practice, some requirements on reinsurance were cancelled.
Mainland insurers are required to have net assets of at least, in yuan: yuan200m