Insurance & Reinsurance 2023 Comparisons

Sources of insurance and reinsurance law include the Insurance Law, the judicial explanations issued by the Supreme People’s Court, and rules and guidelines issued by the China Banking and Insurance Regulatory Commission (CBIRC).

Although China is not a common law country, the guiding judicial cases of the people’s courts, especially the Supreme People’s Court, could be taken as reference in other cases held before the courts.

Insurance and reinsurance companies in China are subject to the regulatory supervision of the CBIRC as of 2018, after the combination and reorganisation of the former China Banking Regulatory Commission and China Insurance Regulatory Commission. Main legislation includes the Insurance Law and other rules as indicated in 1.1 Sources of Insurance and Reinsurance Law.

Both qualified Chinese domestic insurance companies and foreign-invested insurance companies may write insurance and reinsurance business.

Chinese domestic insurance companies, where the shareholdings of all foreign investors are no more than 25% (according to the Insurance Law, amended in 2015), must have registered capital of no less than CNY200 million. For foreign-invested insurance companies, according to the newly revised Administrative Regulations of the People’s Republic of China on Foreign-funded Insurance Companies (Amended in 2019), their foreign shareholders must have a total capital of no less than USD5 billion.

Different types of insurers, such as life insurers, property and casualty insurers, reinsurers, foreign-funded insurers and domestic insurers, are subject to different detailed rules under the Insurance Law.

For instance, life insurance companies must comply with the rules and regulations promulgated by the CBIRC, including:

• the Administrative Measures for the Disclosure of Information on Personal Insurance Products;
• the Provisions on Basic Services for Life Insurance Business;
• the Administrative Measures for the Telemarketing Business of Personal Insurance Products;
• the Administrative Provisions on Authenticity Management of Personal Insurance Customer Information; and
• the Administrative Provisions on Insurance Terms and Insurance Rates of Life Insurance Companies.

A property and casualty insurance company must comply with rules and regulations including:

• the Measures for Graded Disposal of Property Insurance Disasters and Accidents;
• the Administrative Measures for the Insurance Clauses and Insurance Rates of Property Insurance Companies; and
• the Guidelines on Development of Insurance Products by Property Insurance Companies.

Reinsurers should comply with rules and regulations that include:

• the Administrative Provisions on Reinsurance Business; and
• the Provisions on the Establishment of Reinsurance Companies.

Foreign investment insurance companies are subject to, inter alia:

• the Administrative Regulations on Foreign-funded Insurance Companies; and
• the Implementation Rules for the Regulations of the People’s Republic of China on Foreign-funded Insurance Companies (Amended in 2021).

The writing of insurance contracts is regulated by the Insurance Law of the People’s Republic of China (PRC) and related rules. Article 18 of the Insurance Law specifies the required items of an insurance contract, including:

• the insurer;
• the policyholder;
• the insured party;
• the beneficiary of a life insurance;
• the subject matter of insurance;
• insurance liabilities; and
• exclusion of liability.

Article 19 of the Insurance Law provides certain circumstances under which the clauses in an insurance contract may be deemed invalid.

Certain insurance clauses and premium rates of insurance policies which relate to social and public interests, mandatory insurance, newly developed insurance policies of life insurance, etc, should be subject to the approval of the CBIRC. Other types of insurance policies should be filed with the insurance regulatory authorities, for their records. Detailed rules include:

• the “Negative List” for Life Insurance Products (2021 edition);
• the Notice of the CBIRC General Office on Launching the Special Campaign to Regulate the Chaos in the Personal Insurance Market;
• the Guidelines on Development of Insurance Products by Property Insurance Companies (2016); and
• the Administrative Methods on Insurance Contract Terms and Insurance Rates of Life Insurance Companies (Amended in 2015).

Premium will be subject to value-added tax (VAT) with the applicable rate of 6% and other related ancillary taxes, including urban maintenance and construction tax, and education surcharges. Stamp duty may also apply for property and casualty insurance contracts. Insurance and reinsurance companies will also generally be subject to enterprise income tax of 25% in respect of their profits.

An overseas-based insurer or reinsurer that has not completed the registration process within China cannot directly write business in China. However, such a foreign insurance company could write reinsurance of a Chinese domestic insurer.

Fronting is not expressly permitted. According to Articles 19 and 21 of the Administrative Provisions on the Reinsurance Business (2021), except for aviation and spaceflight insurance, nuclear insurance, oil insurance and credit insurance, where a direct insurance company cedes out a direct insurance business for property insurance by means of proportional reinsurance, for each risk unit the total proportion ceded by it to the same reinsurer must not exceed 80% of the insured amount or the limit of liability under the direct insurance contract undertaken by the cedant.

Additionally, an insurer that carries out an overseas ceding business must establish a monitoring system for such business, analyse the credit risks and liquidity risks of the reinsurance business ceded overseas every half-year, and propose countermeasures in a timely manner so as to ensure the safety of reinsurance transactions. The analysis report must be reviewed and confirmed by the general manager of the company and must be properly kept.

China has been, and continues to be, a fundamental driving force of mergers and acquisitions (M&A) activity in the insurance sector in Asia. This is both from the perspective of inbound foreign investment looking to buy into a share of the ever-growing premiums in China, and from outbound investment as Chinese insurers look to acquire regional businesses.

For Chinese domestic insurance companies, pursuant to the Administrative Measures on Equity of Insurance Companies (2018), shareholders of Chinese domestic insurance companies are classified into four categories, as follows:

• financial Type I shareholders;
• financial Type II shareholders;
• strategic shareholders; and
• controlling shareholders.

Each are subject to further specific requirements. For instance, controlling shareholders (holding one third or more of the shares or having a controlling impact) must have total assets of not less than CNY10 billion, net assets of the most recent year of not less than 30% of the total assets, and satisfy certain other requirements. The Administrative Measures on Equity of Insurance Companies also provide that the shareholding of a single shareholder must not exceed one third of the registered capital of the insurance company.

As regards foreign-funded insurance companies, China is actively encouraging foreign investment into the Chinese insurance sector, evidenced by a series of relaxation legislation and policies issued by the authorities. Foreign investments into any life/non-life insurance sectors, insurance asset management sectors and insurance intermediary sectors are no longer subject to any foreign ownership restrictions, though regulatory approvals/filings and qualifications are still required. The foreign ownership restriction for life insurance companies in China was officially lifted by the CBIRC with effect from 1 January 2020 (having been brought forward from 2021).

Qualification requirements imposed on foreign investors have also largely been removed or amended to speed up foreign investment in the Chinese insurance sector. Highlights include removing the qualification requirements on foreign investors, which required a track record of having engaged in the insurance business for at least 30 years and having established an insurance representative office for at least two years.

Further, qualified foreign financial institutions and insurance groups, not limited to foreign insurance companies, are now permitted to invest in insurance companies in China.

In addition, specific requirements imposed on branches set up by a foreign-invested insurance company (insurance FIE) have been removed. Insurance FIEs are now subject to the same treatment as domestic insurance companies for branch opening.

The main distributors of insurance and reinsurance, and their products, include agents, brokers, bancassurance, direct sales, and internet sales.

Insurance agents, including professional insurance agencies, concurrent-business agencies and individual agents, are regulated by the Regulatory Provisions on Insurance Agency Persons promulgated by the CBIRC, effective from 12 November 2020. National professional insurance agencies should have a paid-in registered capital of at least CNY50 million and provincial capital of at least CNY20 million, subject to the approval of the CBIRC.

Insurance brokers are regulated by the Regulatory Provisions on Insurance Brokerages (2018). National professional insurance brokers should have a paid-in registered capital of at least CNY50 million and provincial capital of at least CNY10 million, subject to the approval of the CBIRC.

Bancassurance is regulated by the Administrative Measures on Insurance Agency Business of Commercial Banks (2019).

In addition, there are specific rules regarding distance selling or online sales of insurance, such as the Administrative Measures for the Telemarketing Business of Personal Insurance Products, and the Interim Measures for the Regulation of Internet Insurance Businesses (2015).

In the case of online insurance sales, the head office of an insurance company must establish a uniform and centralised business platform and process flow, to conduct a centralised operation and uniform management of its internet insurance business. No employees of an insurance company may develop an internet insurance business in their own name.

When concluding an insurance contract, the insurance applicant must make an honest disclosure when the insurer enquires about the subject matter insured or relevant circumstances concerning the insured. The insurer shall have the right to rescind the insurance contract if the applicant fails, intentionally or through gross negligence, to perform their obligation to make an honest disclosure, thereby materially affecting the decision of the insurer about whether to provide the insurance or whether to increase the premium rate.

The insurer should take the initiative to seek information relevant to the conclusion of the insurance contract as the insured is obliged to disclose information only when inquired of by the insurer. For those clauses in the insurance contract that exempt the insurer from liability, the insurer must provide sufficient warning and explanations to the insurance applicant regarding those clauses in the insurance contract.

These rules are generally the same for consumer contracts and commercial contracts.

If an insurance applicant intentionally fails to perform their obligation to make an honest disclosure, the insurer shall bear no insurance liability in respect of the insured incident occurring prior to the rescission of the contract, and the paid premiums are not refundable.

If an applicant fails to perform their obligation to make an honest disclosure out of gross negligence, which has a material effect on the occurrence of an incident covered by the insurance, the insurer shall, with respect to the incidents occurring prior to the rescission of the contract, bear no insurance liability, but must return the paid premiums.

If an insurer enters into an insurance contract with an applicant knowing that the applicant has failed to disclose a material fact, the insurer may not rescind the contract. If an insured incident occurs, the insurer shall bear the insurance liability.

Insurance intermediaries include insurance brokerage companies, insurance agencies and insurance assessment institutions.

Insurance brokers provide intermediary services to insurance applicants and insurance companies to execute insurance contracts based on the interests of insurance applicants. An insurance agency is authorised by an insurance company to conduct insurance business on its behalf.

An insurance assessment institution refers to an institution that accepts entrustment and specialises in such business as assessment, inspection, appraisal and loss adjustment of the subject matter insured, and insured accidents. Such institution receives remuneration as agreed.

The insurance contract is generally in writing and the insurer must issue an insurance policy, an insurance contract or any other insurance certificate to the insurance applicant in a timely manner.

The insured should have an insurable interest. A life insurance policyholder shall, at the conclusion of the insurance contract, have insurance interests in the insured party.

The subject matter of insurance for a life insurance policy is the life expectancy and physical body of a human being.

An insured party in a property insurance policy shall, at the time of occurrence of an insured event, have insurance interests in the subject matter of insurance. The subject matter of insurance of a property insurance policy is the property and its relevant interests.

Pursuant to Article 18 of the Insurance Law, an insurance contract must contain the following content:

• the name and address of the insurer;
• the names and addresses of the insurance applicant and the insured, and the name and address of the beneficiary in the case of life insurance;
• the scope of insured matters;
• insurance liability and liability exemption;
• the period of insurance and commencement date of insurance liability;
• the amount insured;
• the premium and payment method;
• the method for paying indemnity or insurance benefits;
• liabilities for breaches of contract and the dispute resolution method; and
• the date of the conclusion of the contract.

The insurance applicant and the insurer may agree upon other particulars related to insurance in the insurance contract.

In a life insurance contract, a beneficiary is generally designated by the insured party or the policyholder to have the right to make insurance claims, and may sometimes also be referred to in property and casualty contracts. The policyholder or the insured party may be the beneficiary.

The beneficiary of a life insurance policy must be designated by the insured party or the policyholder. The appointment of a beneficiary by a policyholder shall be subject to consent of the insured party. A policyholder who enters into a life insurance contract for their employees may not designate any person other than the insured party and their immediate relatives as the beneficiary. Where an insured is a person without capacity or with limited capacity for civil conduct, their guardian may designate the beneficiary.

There are policyholder protection schemes in China as regards consumer contracts. The explanation of standard clauses in an insurance contract shall be preferential to the policyholder or the insured in the case of any differing understanding of such clauses.

For reinsurance contracts, according to Article 29 of the Insurance Law, the insured party or the beneficiary of the original insurance policy may not directly make a claim for compensation or payment of insurance monies from the reinsurer.

China promulgated the Administrative Measures on Insurance Protection Funds in 2008 (recently amended in 2022), and established the China Insurance Security Fund Company in 2008 for providing relief to policyholders and companies, and for disposing of insurance industry risks.

The former China Insurance Regulatory Commission promulgated the Mutual Insurance Organisation Regulatory Interim Methods in 2015 to govern and regulate the development of mutual insurance organisations. In 2020, the China Belt and Road Reinsurance Pool was established.

No regulations on industry loss warranty contracts and insurance-linked securities are applicable.

No related information has been provided.

Generally speaking, consumers and the insured party are more favoured, and particular rules are applied in respect of the interpretation of an insurance contract. Article 30 of the Insurance Law stipulates that where there is a dispute over a contract clause between an insurer and the policyholder, where the insured party or beneficiary of an insurance contract concluded by adopting the standard clauses provided by the insurer and there are two or more interpretations of a contract clause, the court or arbitration agency shall adopt the interpretation which is in the interest of the insured party and the beneficiary.

Extraneous evidence may be permitted by the courts, such as evidence regarding the negotiations, the circumstances in which the contract took place, or the “usual practice” or understanding in relation to such contracts or particular terms therein.

From an enquiry perspective, information disclosed by an insured may be identified as warranties of the insured. According to Article 16 of the Insurance Law, where an insurer enquires about the subject matter of insurance or the relevant information of the insured party for the purpose of conclusion of an insurance contract, the policyholder must provide truthful information.

Breach of warranties of the insured, intentionally or due to gross negligence, may lead to the cancellation of the insurance contract by the insurer and refusal to make compensation or payments. However, if the insured can prove that the breach of warranties has no causation with the occurrence of the loss, the insurer may still be obliged to make compensation or payments.

Normally, no conditions precedent would be expressly described as such in an insurance contract. However, there may be claim procedure clauses, which require an applicant, an insured or a beneficiary to notify the insurer of the occurrence of an insured accident in a timely manner.

Where an insured accident is not notified of in a timely manner, intentionally or due to gross negligence, with the result that it is difficult for the insurer to determine the nature, cause and extent of the loss, etc, of the accident, the insurer shall not bear the obligation of indemnity or payment of insurance benefits for the part unable to be determined – except for those insured accidents whose occurrence the insurer knows of through other channels, or should know of in a timely manner.

Disputes over coverage under an insurance contract are typically addressed based on the insurance contract and related facts. For consumer contracts, the interpretation rules in cases of disputes would generally be favourable to the consumers, as indicated in 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence. The insured or policyholder may not claim directly against the reinsurer.

The limitation period is three years for non-life insurance claims under the Civil Code and five years for life insurance claims under the Insurance Law.

A third party that is not a contractual party to an insurance agreement is generally not entitled to bring a direct action against an insurer. However, for liability insurance, Article 65 of the Insurance Law provides that an insurer must, at the request of an insured party, make direct compensation of insurance monies to a third party for damages caused by the insured party of a liability insurance policy to the third party, where the compensation liability of the insured party towards the third party is determined. Where the insured party does not make such request, the third party shall have the right to directly request the insurer to make compensation of insurance monies in respect of the portion of the compensation it should receive.

In China, disputes are mainly resolved by mediation, arbitration or the courts. For a foreign-related contract, the parties may choose a foreign law as the governing law pursuant to the Law on the Application of Laws to Foreign-related Civil Relations, or choose foreign courts or international arbitrations to resolve disputes.

The litigation process is as follows.

• First-instance court proceedings – these may be conducted in either a so-called common proceeding or a summary proceeding:
1. a common proceeding should be completed within six months following the registration, and this duration may be prolonged for another six months where the case is complicated; and
2. a summary proceeding should be completed within three months, or otherwise should be converted into a common proceeding.
• Appellate proceedings – the time limit for filing an appeal is 15 days for a domestic party and 30 days for a party from a foreign country. An appellate review should generally be completed and a final judgment made within three months after the appeal. This period may be prolonged for complicated appeals.

Judgments can normally be enforced in China. The time limit for an application to enforce a judgment is two years. Where a party fails to perform the judgment within the designated period, the judicial enforcement officials may take compulsory measures to enforce it.

The recognition and enforcement of a foreign judgment in Chinese courts is conducted in accordance with applicable international treaties or conventions, or in accordance with the principle of reciprocity. A party can submit an application directly to an intermediate people’s court, which has jurisdiction for recognition and enforcement. Cases of recognition and enforcement of foreign judgments made in foreign countries such as Singapore and the USA have occurred in China.

Where there is a valid arbitration clause in a commercial insurance or reinsurance contract, it is enforceable. An arbitration agreement must include the following content:

• the expression of an application for arbitration;
• issues for arbitration; and
• the chosen arbitration commission.

An arbitral award may generally be enforced. However, within six months of the date of receipt of the award, any party to the arbitration may petition the intermediate people’s court where the arbitration commission is located to vacate the award upon the following circumstances:

• there was no arbitration agreement between the parties;
• the matters in question fall outside the arbitration agreement or beyond the power of the arbitration commission;
• the composition of the members of the arbitral tribunal or the procedure of the arbitration violated required legal procedure;
• the evidence on which the award was based had been forged;
• the counterparty concealed evidence that could materially affect fair arbitration; or
• the arbitrators solicited or accepted bribes, committed illegalities for personal gain or perverted the law.

China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. An award by a non-Chinese arbitral tribunal could be submitted to the intermediate people’s court with territorial jurisdiction over the target party, or where the party’s property is located, to be enforced.

There are generally two types of alternative dispute resolution under the Civil Procedure Law (as amended in 2021), including mediation and arbitration.

In 2016, the Supreme People’s Court and the CIRC (the former CBIRC) co-issued the Opinion on Fully Promoting to Establish the Connection Scheme between Litigation and Mediation for Insurance Disputes, to establish the multiple dispute resolution mechanisms for insurance disputes within the whole of China.

In 2021, the CBIRC and the Supreme People’s Court launched an online litigation and mediation connection system to promote using mediation to resolve insurance disputes based on the previous offline litigation and mediation connection system.

No different rules apply to consumer contracts or reinsurance contracts in this regard.

In accordance with Article 23 of the Insurance Law, the insurer must pay the insured party or the beneficiary for losses due to delay of settling claims.

Where an insurer refuses to perform its obligation to make compensation or pay insurance benefits as agreed upon in an insurance contract, it may be ordered by the insurance regulatory authorities to make correction, and be subject to a fine ranging from CNY50,000 to CNY300,000.

Where the case is serious, then the scope of business of the insurance company may be restricted, the insurance company may be ordered to stop accepting new business, or the business permit of the insurance company may be revoked.

There is an automatic right of subrogation of the insurer upon payment of an indemnity by the insurer. According to Articles 60 and 62 of the Insurance Law, where the occurrence of an insured event is due to damage to the subject matter of insurance made by a third party, the insurer may, with effect from the date of making compensation of insurance monies to the insured party, exercise subrogation rights within the scope of the compensation amount to claim for compensation from the third party.

However, an insurer may not exercise subrogation rights to claim for compensation from the family member of the insured party or its member, except for an insured event which is caused intentionally by a family member of the insured party or its member.

Insurtech in China has recently entered a state of rapid development. By the end of May 2021, there were 238 insurtech companies in China, and insurance companies are investing more and more in this technology.

The scope of insurtech in China includes:

• cloud computing;
• big data;
• the internet of things;
• artificial intelligence;
• the internet of cars;
• wearable devices; and
• genetic diagnostics.

Huize, Waterdrop, and Yuanxin Technology represent the leading insurtech companies in China.

The CBIRC supports and encourages the development of insurtech, and indicates that insurtech – as an important means to reduce the operational risks of scientific and technological startups and optimise the allocation of financial resources – is efficient for the transformation of major scientific and technological achievements and for surmounting the threshold for large-scale production and application. The CBIRC also indicated intensifying the support of relevant policies and continuing to promote the relevant work of technological innovation in the financial industry and the capital market.

In addition, to further strengthen the risk supervision of information technology outsourcing of banking and insurance institutions, the CBIRC issued the Regulation Measures for the Risk Supervision of Information Technology Outsourcing of Banking and Insurance Institutions in January 2022, which put forward specific regulatory requirements and regulatory measures on information technology outsourcing of insurance institutions.

Cybersecurity has been a major issue – particularly regarding, for instance, blackmail software. The CBIRC, together with the Ministry of Industry and Information Technology (MIIT), have encouraged and promoted cybersecurity insurance.

The risk of personal information disclosure is also interwoven with cybersecurity and national security. As processors of personal information, insurance companies should disclose their personal information processing rules in line with the principles of openness and transparency, while managing and using customer information in accordance with the principles of legality, reasonableness, security, and confidentiality, and preventing leakage of customer information.

The in-depth application of innovative technologies in the insurance industry has also led to corresponding technical risks. For example, in the areas of cloud computing and big data, traditional customer information security problems may be even more prominent. In the future, the insurance industry will also be challenged by the risk of equipment hijacking and remote control when autonomous driving is implemented.

Certain new products and solutions are being developed to solve emerging risks, such as cybersecurity insurance and data security insurance. The Shanghai Municipal Financial Regulatory Bureau released the first Cybersecurity Insurance Service Standard in China in September 2022.

At present, the insurance industry in China is forming a relatively complete big data ecosystem that covers insurance companies, third-party insurance platforms, brokers, agents, business partners, related data and technical support parties. In implementing the requirements of the Personal Information Protection Law, privacy computing may become an important tool.

Following the COVID-19 epidemic, and under the guidance of the CBIRC, Chinese insurers helped Chinese enterprises through difficulties with practices including premium reduction, delay of payment of premium, extension of insurance periods and prompt compensation. The Ministry of Commerce and China Export and Credit Insurance Corporation promulgated a policy to support foreign trade companies in coping with the impact of COVID-19 by means of short-term export credit insurance.

However, recent significant changes can be seen with the COVID-19 epidemic prevention policy in China, and despite the number of infected patients it is expected that China will embrace a full opening-up in 2023. Whether these changes will have a specific impact on the insurance industry remains to be seen.

In July 2021, the CBIRC promulgated the Measures for Regulatory Evaluation of Protection of Consumer Rights and Interests by Banking or Insurance Institutions. In May 2022, the CBIRC drafted the Administrative Measures for the Protection of Consumer Rights and Interests of Banking and Insurance Institutions (Draft for Comments) and sought public comments. In the future, Chinese regulatory authorities will likely continue to strengthen the supervision of the protection of consumer rights and interests in the insurance industry.

In October 2022, the CBIRC revised the Measures for the Administration of Insurance Protection Funds which changed the fixed rate system of insurance protection funds into a risk-oriented rate system, and clarified the relevant financial requirements for insurance protection funds.