New Rules for Chinese Insurance
Dallaire, Andre, Risk Management
On October 1, China enacted a new insurance law that is intended to make the country's commercial and personal insurance markets more efficient and effective while assuring greater protection for consumers. The law, which is the latest version of the People's Republic of China Insurance Law of 1995, addresses a range of concerns and includes 172 new and revised articles. But along with greater consumer protection, many of these changes will impose additional operational costs and compliance demands on the insurance industry and, as a result, will be of significant interest to risk managers and multinational companies doing business in China.
Protections for applicants or insureds. The Chinese government has made a number of regulatory changes designed to strengthen consumer protections including:
Good faith principle. The good faith principle, which limits insurers' right to cancel a policy, has been revised. Under the old law, an insurer was granted the right to cancel an insurance contract due to intentional misrepresentation by the applicant or negligence. Now, an insurer has the right to cancel an insurance contract due to intentional misrepresentation by the applicant or gross negligence. The law also establishes time limitations for the insurer to exercise its right of cancellation.
Obligation of explanation. An insurer is now obligated to provide the applicant with a copy of its full standard form of policy together with the application form and explain the contents to the applicant. They will also have to give sufficient caution and draw the attention of the applicant to the clauses in an insurance contract that exempt the insurer from liability and explain the contents of those clauses to the applicant in writing or verbally. If no express explanation is given, the clauses will be considered void.
Claims handling. Tightened claims handling, specification of the procedures related to notice of a claim and for handling a claim as well as specific time frames for claim adjusting and settlement and also mandated by the new regulations.
Operational rules for insurers. Insurance companies conducting business in China now have more freedom to run their operations in the country. The regulations provide broader opportunities for insurers, allowing them to operate other insurance-related businesses approved by the insurance regulatory body under the State Council. …