China: The Function And Regulation Of Credit Insurance In China

Last Updated: 18 April 2016
Article by Zhan Hao

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.

1. Legal compliance

According to Article 95 and Article 77 of the Insurance Law of the People's Republic of China ((hereinafter the "PRC Insurance Law"), credit insurance is one of the products of an insurance company; furthermore, the establishment of an insurance company shall conduct the registration formalities with the administrative authority for industry and commerce by presenting the insurance business license approved by CIRC (China Insurance Regulatory Commission), and obtain a business license.

Therefore, Investors can log in to National Enterprise Credit Information Publicity System on the Internet to make sure if an insurance company has the qualification to operate credit insurance business.

In addition, according to Article 135 of the PRC Insurance Law, credit insurance belongs to "other insurance products" and its premium and insurance clause should be submitted to the insurance regulatory authority for the record rather than approval.

Thus, investors can log in to the official website of CIRC, Insurance Association of China or the insurance company to search the recorded policy clauses and ensure its legal compliance.

2. The validity of an insurance contract after modifying the insurance clauses

In some situations, with requirements of policyholder, the policyholder and insurance company may reach an agreement to modify the insurance clauses in a credit insurance that have already been recorded with CIRC. Will such modifications have any influence on the validity of an insurance contract?

According to Article 2 of Circular on Issues Concerning the Implementation of the Administrative Measures for the Insurance Terms and Premium Rates of Property Insurance Companies [Bao Jian Fa [2010] No.43] issued by CIRC on May 11, 2012, "If an insurance company makes modifications to the insurance liabilities in the insurance clauses that have already been filed for record or makes adjustments to the premium rates beyond the scope filed for record, it shall report such modifications and adjustments to the CIRC for record-filing again. Modifications to the insurance liabilities shall refer to increase, reduction, or exemption of the liabilities of the insurer, the policy holders, the insured, or the rights of the beneficiaries, including but not limited to modifications made to the clauses on insurance liabilities and liability exemption through insurance clauses and insurance policies." Based on the stipulation above, modifying insurance clauses without authorization may lead to violations of regulations.

In contrast, according to Article 52 of Contract Law of the People's Republic of China, "A contract shall be null and void under any of the following circumstances: ......the mandatory provisions of the laws and administrative laws are violated." Since circulars regulated by CIRC is neither a law nor an administrative law, a violation of such circular will not make the insurance contract invalid. In addition, CIRC also replied this issue in the Reply of China Insurance Regulatory Commission on Record Filing of Insurance Clauses [Bao Jian Ban Han [2002] No. 106], "Whether insurance clauses are put on records at financial supervision and regulation department or not will not influence the validity of signed insurance contracts."

Above all, modifying insurance clauses may lead to administrative penalty from CIRC, while it will not affect the validity of the insurance contract.

3. Coverage and exclusions

3.1 Coverage and exclusions in an insurance contract

Insurance liability refers to insurer's liability for compensation of economic losses stipulated in the insurance contract. Coverage refers to the scope of the insured events, which is stipulated within the scope of the insurance contract. For risk-aversion or commercial considerations, insurer may set some stipulations in insurance clauses to avoid liability for some losses of the insured object within the coverage, these stipulations are called exclusions.

Policyholders should pay attention to the coverage and exclusions in an insurance contract.

First, policyholders should study the insurance liabilities. If a loss not within the coverage, insurer will not compensate for it. Second, policyholders should focus on the exclusions in insurance clauses, which are listed as a separate chapter and in bold form. It's vital to figure out if the exclusions stipulated in an insurance product will affect the creditors' benefits or not.

3.2 Statutory exclusions

According to PRC Insurance Law, the insurer shall not be liable for losses when:

3.2.1 the degree of peril is greatly increased due to the assignment of the subject insured;

3.2.2 the degree of peril of the subject insured is greatly increased during the term of the contract, the insures didn't notify the insurer timely in accordance with the contract;

3.2.3 the insured waives the right to indemnity against the third party after the occurrence of an insured incident and before the insurer pays the indemnity;

3.2.4 the policyholder fails to perform his obligation of making an honest disclosure intentionally or out of gross negligence, thereby materially affecting the insurer making a decision whether or not to provide the insurance or whether or not to increase the premium rate, the insurer rescinded the insurance contract;

3.2.5 after being aware of the occurrence of an incident covered by insurance, the policyholder, insured or beneficiary fails to notify the insurer in a timely manner intentionally or out of gross negligence, making it difficult to ascertain the nature, cause, extent of the loss, etc., of the incident covered by insurance (the undeterminable part);

3.2.6 the policyholder or the insured fabricates the occurrence of an incident covered by insurance on purpose;

3.2.7 the policyholder, the insured or the beneficiary, following the occurrence of an incident covered by insurance, fabricates the cause of the occurrence of the such incident or exaggerates the extent of the loss with forged or altered relevant evidence, information or other proofs.

Upon occurrence of any of the foregoing situation, insurance company may refuse payment fully or partly. Therefore, it's vital for creditors to focus on statutory exclusions.

4. Solvency of an insurance company

According to PRC Insurance Law, Article 68 provides a minimum amount of net asset for establishing an insurance company. Article 97, Article 100 and Article 103 require an insurance company to ensure the solvency through drawing a guarantee fund, contributing to an insurance protection fund and arranging reinsurance.

An insurance company can also strengthen solvency by increasing capital, issuing subordinated debt or capital supplement debt, etc. In practice, there were no precedents that an insurance company went into bankruptcy liquidation in PRC.

As a consequence, the solvency of an insurance company is usually guaranteed.

5. Conclusion

During the process of transaction, the significant issue is to focus on the quality of the project itself and control the risk. In addition, relying on the economic strength of an insurance company, as a measure to enhance credit, credit insurance is also a good choice.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Jincheng Tongda & Neal
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Jincheng Tongda & Neal
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions