New rules are not making for a rush of new players
n a move closely watched by foreign insurance firms, China enacted a national insurance law last year as the foundation of a national insurance industry. For 30 years after the founding of the People's Republic of China, the country had only one insurer, the State-owned People's Insurance Company of China (PICC), which was renamed People's Insurance (Group) Corp. [PIC] in July. PICC provided only a narrow range of insurance products, covering risks associated with aviation, shipping, and cargo operations.
By 1978, though, the central government began to recognize the connection between its drive to reform and open up China's economy to foreign investment, and the demand for adequate insurance by the increasing numbers of foreign investors and enterprises involved in the country's accelerating growth. As a result, PICC grew rapidly in the 1980s, though it ceded some market share to two new insurance companies, Ping An Insurance Co. in Shenzhen and Shanghai's China Pacific Insurance Co. Foreign insurance firms, too, were eager to enter China's market. And though only two foreign insurance firms currently are licensed to sell insurance in China, by late 1995 some 77 foreign insurance companies from 13 countries had established 119 representative offices throughout the country.
Regulation of this fledgling industry lies with the People's Bank of China (PBOC), which, historically, had very close ties to PICC. Prior to the adoption of the Insurance Law, domestic insurers were supervised under a patchwork of early regulations, while the September 1992 Provisional Measures to Administer Foreign-Invested Insurance Companies (the Shanghai Regulations), issued by the PBOC's branch office in Shanghai, established rules for the entry and operation of foreign insurers. It was under these regulations that the only foreign insurers in China, American International Assurance Co. (AIA) and Tokio Marine & Fire Insurance Co., were issued licenses to sell insurance in the Shanghai region.
The Shanghai Regulations, approved by the State Council, allowed for the licensing of foreign insurance companies in China for the first time since 1949. But neither AIA nor Tokio Marine were allowed to operate outside of Shanghai. Despite this restriction, the Shanghai Regulations paved the way for foreign firms to sell insurance products in a market with a large and comparatively well-off population. By November 1995, according to press reports, AIA was selling 55,000 life insurance policies a month. Working up to the law Central leaders, meanwhile, were at work on a national insurance law. The Insurance Law of the PRC was approved by the Standing Committee of the National People's Congress (NPC) in June 1995; it became effective on October 1 of that year. The new law establishes a legal framework, utilizing internationally recognized definitions, to apply nationwide to this nascent industry.
The drafting process for the Insurance Law was carried out in the early 1990s by a drafting committee consisting of current and former PICC officials-China's experts on insurance matters-including Li Jiahua, counselor to the State Council and an insurance expert with a well-established international reputation. The drafting committee drew upon insurance laws from a number of Western countries and several US states to produce a draft version of a national insurance law that was circulated among foreign insurance companies in 1993. After several revisions, the final draft was submitted to the NPC in early 1995.
The final law accomplishes three major objectives. First, it provides a detailed national framework for the conduct of the insurance business in China where no such framework previously existed. Second, the law explicitly allows the licensing of foreign insurance firms to sell personal and property/casualty insurance in China pursuant to rules that also …