Many insurers, especially international insurers, who either already have an operation in China or wish to sell their insurance products in China through fronting arrangements, have increasingly felt the effect of the much more stringent filing process following the amendments to the Insurance Law of the People's Republic of China (the "PRC Insurance Law") in 2009. The need to balance the requirements of the regulators, the commercial needs of the Chinese insurance market, and yet ensure precise policy wording (both verbally and legally) has become increasingly complex and difficult.
Some recent experiences of international insurers in product filing include:
- The filing process has become very time-consuming for global programme wordings and "niche" products.
- The China Insurance Regulatory Commission (the CIRC) often requires modification to the international "house-style" insurance product in accordance with the local policy forms which are more familiar to them.
- Terms used in insurance policies must strictly be in accordance with the PRC Insurance Law. "User friendly" terminology such as "you" to replace "policyholder", or "we" to replace "insurer", is not allowed.
The purpose of this Guidance Note is to set out key issues of insurance policy filing in China so that international insurers would have a better idea as what they may need to be aware when filing an insurance product in China.
This Guidance Note will only deal with insurance product filing by property insurance companies in China. Insurance business in China is categorised to "property" and "personal", with the statutory definition being: -
- Property insurance, including property loss insurance, liability insurance and credit insurance; and
- Personal insurance, including life insurance, health insurance and accidental injury insurance.
Part One – General introduction
In accordance with the Chinese laws and regulations, the CIRC regulates the insurance clauses and insurance premium rates of insurance institutions in China. The CIRC, as the administrative body under the direct supervision of the State Council, has extensive authority and powers to regulate insurance business and all insurance-related matters in China.
Policy wordings for personal insurance companies, and for property insurance companies, are administrated and supervised by different departments of the CIRC. With regards to a property insurance company, all of its policy wording will need to be submitted to the Product Division of the Property Insurance Supervisory Department of the CIRC for either approval or filing.
It is worth mentioning that no insurer is allowed to engage concurrently in both property and personal insurance in China (See above statutory definition). However, a property insurance company may engage in short-term healthcare insurance and accidental injury insurance business upon approval by the CIRC. It is therefore possible for a property insurance company to issue such a personal insurance policy. Such personal insurance product issued by a property insurance company must still be submitted to the Product Division of the Property Insurance Supervisory Department for filing (instead of being submitted to the Personal Insurance Supervisory Department).
2) The filing system
All insurance products distributed in China need to be either pre-approved by the CIRC (that is, the CIRC will carry out detailed examination and scrutiny to ensure compliance with laws and regulations before the product is allowed to be distributed and sold) or post-registered with the CIRC (that is, any insurance company is allowed to develop freely new / improved insurance products, and it only needs to register the terms / conditions and premium rates with the CIRC within 10 days after first sale). This is very similar to the US system where insurance products are divided between "file and use" and "use and file".
Under the latest regulations, the only insurance clauses and premium rates which must be approved by the CIRC before use are for:
- products which are statutory or mandatory (e.g. motor liability insurance).
- products which are deemed by the CIRC to be a matter of public interest.
Public interest products currently include non-life investment-linked policies, and credit and guarantee policies with terms of more than one year.
All other insurance products are only required to be filed with the CIRC within 10 days after sale. In practice, since the CIRC has the right to object to a filing application, most insurers adopt a more cautionary approach and choose to file all their products before use.
Part Two - Reform of the law
1) Amendments to PRC Insurance Law
The PRC Insurance Law was promulgated in 1995 and was amended most recently in 2009 in an attempt to protect the interests of policyholders, insureds and beneficiaries. As a result: -
- all insurance policies issued after 1 October 2009 must comply with the terms of the amended PRC Insurance Law.
- all existing wordings were also required to be revised and re-filed with the CIRC.
2) "Administrative Measures regarding Insurance Wordings and Premium Rates of Property Insurance Companies " (which was issued by the CIRC on 5 February 2010) came into effect on 1 April 2010, (the "Administrative Measures"), and the Circular on the Implementation of the Administrative Measures on Insurance Wording and Premium Rates of Property Companies" (which was issued by the CIRC on 11 May 2010) came into effect retrospectively on 1 May 2010.
The Administrative Measures elaborate the regulatory requirements regarding insurance clauses and premium rates as well as the filing procedures.
In accordance with the Administrative Measures, the CIRC has also centralised the administration for policy filing. Previously, for regional insurance products (i.e. insurance products which are only sold in a specific region), the policy filing could be applied to the regional office of the CIRC. Those insurance clauses filed with regional offices of the CIRC ceased to used after 1 April 2010. Since 1 April 2010, all product filing applications are required to be submitted to the CIRC in Beijing.
The Administrative Measures further provide that the insurance trade organisation in China, the Insurance Association of China ("IAC") must perform the self-disciplinary function in relation to insurance clauses and premium rates. The Administrative Measures therefore require the IAC to:
- promote the standardisation and simplicity of insurance wordings, and, the IAC have issued standard model policy clauses which are designed to comply with the amended PRC Insurance Law. Insurers were informally requested to incorporate these model clauses into their policy wordings to be file/re-filed with the CIRC; and
- set up a platform of industry basic data and a database for standard insurance products. Thus, all insurance policy wordings filed with the CIRC will be publicly available on IAC's website (www.iachina.cn), and therefore all products filed by one insurer may be freely copied by all others.
3) "Administrative Measures on Information Companies ("Information Disclosure Measures") (which was issued by CIRC on 12 May 2010) came into effect on 12 June 2010 (the "Information Disclosure Measures")
In accordance with Information Disclosure Measures, a direct insurance company in China is required to publicise the relevant operational information of the company on the company's website so that such information is easily available and accessible to the public. As a result, the policy wording of one insurance company must also be publicly available on its website.
Part Three - General requirements regarding insurance policy wording
1) General requirements
In accordance with the Administrative Measures, the insurance clauses and premium rates of an insurance company must meet the following requirements:
- use clear and concise structure, accurate terms, tight wording and simple language;
- have all components of a contract as set out in the PRC Insurance Law (see Item (2) below) ;
- the insurance clauses must be equitable and must not infringe the lawful rights and interests of the policyholders, insureds and beneficiaries, or violate the public interest;
- premium rates must be designed scientifically and reasonably on the principle of risk and loss, and must not endanger the solvency of the insurance company, or hinder fair market competition;
- specify the conditions for premium rate adjustment, if the premium rates are designed to be subject to variation.
2) Required Components of an insurance contract as set out in the PRC Insurance Law
- Name and legal address of the insurer;
- Name and legal address of the proposer, insured and the beneficiary (in case of personal insurance);
- Subject matter of insurance;
- Insurance liability and exclusions;
- Insurance period and inception of the insurance cover;
- Sum insured;
- Insurance premium and the payment method;
- Method for payment of indemnities or insurance benefits;
- Liability for breach of contract and dispute resolution; and
- Date of conclusion of contract.
3) Structure of the policy
As a general principle, PRC Insurance Law requires a legible structure and simple / accurate presentation of insurance terms and premium rates.
Article 17 of the PRC Insurance Law also states that the insurer must draw the attention of the proposer to the clauses in the insurance contract that exempt the insurer from liability, and must 'expressly explain the contents of such clauses to the proposer in writing or orally'. Accordingly, such clauses will not enter into effect if no such reminder or express explanation is given. The rationale for these general requirements is basically to protect the insured's interests.
In practice, insurers usually adopt the following methods to meet these requirements: -
- Pay attention to the sequence and order of the insurance clauses and locate provisions concerning insurance coverage, exclusions, claims, insured's obligations, discharge of insurance policy and other terms which may affect the insured's interests and benefits in the most prominent places in the policy.
- Highlight the clauses in the insurance policy which exclude any liability of the insurer.
The policy wording to be filed with the CIRC must be in the Chinese language. In practice, foreign-invested insurers may translate their international "house-style" policy into Chinese for the filing purposes, and then issue their customers with the original English wording. If any dispute arises subsequently, the Chinese version filed with CIRC will be considered by the Court as the official version, and therefore prevail over the English version. In this connection, if the policy wording provided to the policyholder is in English, such English version of the policy wording must be as consistent with and as accurately reflect the Chinese version as possible.
5) Governing law clause
All insurance policies issued by an insurer licensed by the CIRC to a policyholder in China must be subject to Chinese law.
6) Dispute resolution clause
Parties to an insurance policy in China must choose either litigation or arbitration as the dispute resolution mechanism at the time of entering into the insurance contract. The CIRC promulgated a Circular in 1999 on the model clauses to be adopted regarding dispute resolution in insurance contracts as follows:
Parties to the insurance contract need to choose either of the following dispute resolution mechanism for settlement of disputes:
- All disputes arising from the performance of this Contract must be resolved by the Parties through negotiation. If a dispute cannot be settled through negotiation, it must be submitted to [to fill in arbitral tribunal concerned] arbitration committee for arbitration;
- All disputes arising from the performance of this Contract must be resolved by the Parties through negotiation. If a dispute cannot be settled through negotiation, it must be submitted to the People's Courts for litigation.
In practice, many insurers have incorporated the model dispute resolution clauses recommended by the CIRC into their own insurance policies.
Part Four – Insurance policy filing process
1) Application documents
The following documents need to be submitted to CIRC when filing an insurance product of a property insurance company:
- A filing form in duplicate;
- The policy wording and premium rates to be applied;
- A statement by the legally responsible person (see further explanation below) from the applicant insurance company;
- Statement by the responsible actuary from the applicant insurance company;
- Electronic version of all materials submitted in the required forms; and
- Such other materials as required by the CIRC.
All endorsements that change the liabilities or rights and / or obligations of the policyholder, insured and beneficiary or the insurer must be re-filed with the CIRC. Endorsements that change premium rates previously filed with the CIRC must be re-filed.
2) Time frame for filing
If the above application materials are satisfactory, the CIRC will duly file the policy wording within 20 working days from receipt of the application materials. If the CIRC considers the materials submitted to be incomplete, it will, within 20 working days from receipt of the submission, inform the insurance company that it needs to supplement or rectify the relevant materials within 10 working days. Upon receipt of the complete set of the filing materials, the CIRC will retain the filing materials in its archives and issue an acknowledgment of receipt to the insurance company.
3) Legally responsible person and responsible actuary
According to the Administrative Measures, each insurer should appoint a legally responsible person and a responsible actuary approved by the CIRC as responsible for ensuring the integrity of policy wordings and premium rates.
A legally responsible person appointed by an insurance company must satisfy each of the following requirements:
- Have a domicile in China;
- Be a formal staff member of the insurance company and hold a position as head of department or above;
- Have a Chinese lawyer qualification certificate or other experience which is sufficient to prove his good legal ability;
- Have more than 3 years' consecutive experience in domestic insurance or legal service;
- Have no record of administrative punishment due to fraud in law practice during the past two years;
- Have no record of criminal punishment.
The Administrative Measures stipulate that the CIRC will set out the qualifications for responsible actuary separately.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.