Further Opening-up of the Insurance Market for Foreign Investors in China

On 27 April 2018, Willis Insurance Brokers Co., Ltd, a subsidiary of the London-based Willis Towers Watson Group, obtained a new License for Insurance Brokerage Business with an expanded business scope from the Shanghai Bureau of the China Insurance Regulatory Commission, which made it the first fully-licensed foreign-invested insurance brokerage firm in China. The firm’s business was previously confined to large-scale enterprises, but now it can serve companies of all sizes, as well as individuals. Given the fact that in the current Chinese insurance market, the insurance services offered to small and medium sized enterprises and individuals account for more than 80 percent of the market’s overall business volume, this permitted expansion is definitively a development milestone for Willis Towers Watson on the Chinese market.

The aforesaid issuing date of the first new license seemed to be an arranged date. On the same day, the China Bank and Insurance Regulatory Commission (the “CBIRC”) released the “Notice of the CBIRC on Expanding the Business Scope of Foreign-invested Insurance Brokerage Companies” (the “Insurance Brokerage Companies Notice”) and more as a strategic roadmap the “Initiative of CBIRC to Expedite the Market Opening-up for the Banking and Insurance Industries” (the “Market Opening-up Initiative”).

The Initiative kicked off a series of legislative developments in FDI rules for the insurance sector, which echoed the insurance-related measures announced by the People's Bank of China (the “PBOC”) Governor Mr. Gang Yi in his landmark speech earlier that month about the further opening of the Chinese financial services market, including its insurance sector, to foreign operators.

Insurance Brokerage Companies Notice

With the implementation of the Notice as of 27 April 2018, the limitations on the authorized scope of business of foreign-invested insurance brokerage companies in China have been abolished. This has allowed foreign-invested insurance brokerage companies to enjoy the same authorized scope of business as enjoyed by its Chinese peers.

The authorized scope of insurance brokerage business provided by the Insurance Brokerage Companies Notice include i) draft insurance plans for insurance applicants, select insurance companies and process insurance application formalities; ii) assist insured parties or beneficiaries in making claims; iii) provide disaster prevention, loss prevention or risk evaluation and risk management advisory services to entrusting parties; iv) other activities approved by the CBIRC.

With the restriction on the authorized scope of business being lifted, foreign insurance brokerage companies see the burgeoning opportunities to expand their presence in China. In doing so they will bring more global expertise in areas such as risk control and loss prevention to China’s developing insurance market.

Proposed Draft of Amendment to Regulations on Foreign-invested Insurance Companies

On 30 May 2018, the CBIRC issued the Decision on Amending the Administrative Regulations of the People's Republic of China on Foreign-invested Insurance Companies (Proposed Draft) (the "Proposed Draft") and the Implementing Rules of the Administrative Regulations of the People's Republic of China on Foreign-invested Insurance Companies (Draft for Comment) (the "Draft for Comment") to seek public opinions (the deadlines for these were 14 June 2018 and 29 June 2018 respectively).

The Proposed Draft repeals the existing requirement which stipulates a foreign insurance company needs to operate a representative office in China for at least 2 years, before being eligible to set up a foreign-invested insurance company, contained in the current Item 2 of Article 8.

The Draft for Comment provides the legal base for the alleviated limitation for foreign equity holding in joint-venture life insurance companies, for the first time allowing a foreign company to be a majority shareholder in such a joint venture.

However, it is also stipulated that a foreign-invested insurance company shall have at least one major shareholder that is an existing insurance company. Furthermore, major shareholders of a foreign-invested insurance company are prohibited from transferring the equities they hold within five years from the acquisition of them.

Insurance Agency Business Notice and Loss Adjustment Business Notice

On 28 June 2018, the CBIRC issued the Notice on Permitting Foreign Investors to Operate Insurance Agency Business in China (the “Insurance Agency Notice”) and the Notice on Permitting Foreign Investors to Operate Loss Adjustment Business in China (the “Loss Adjustment Business Notice”).

These two notices do not set any restriction on foreign ownership, which indicates that (subject to the approval by the CBIRC) the set up of a wholly foreign-owned insurance agency or loss adjustment agency is allowed.

Operators qualified to apply for the setup of an insurance agency or a loss adjustment agency in China include foreign insurance agencies which have continuously operated insurance agency business outside China for over 3 years and foreign-invested insurance companies which have continuously operated insurance business in China for over 3 years. The “market access criteria” and the “business scope” of foreign-invested insurance agencies would be governed by the rules that also apply to the Chinese-invested peers.

These revised laws mark a breakthrough for the foreign investment in the insurance agency and loss adjustment sectors in China.

2018 Negative List

Under the 2018 version of the Special Management Measures for the Market Entry of Foreign Investment (Negative List) jointly promulgated by the National Development and Reform Commission and the Ministry of Commerce (MOFCOM), the cap on foreign shareholding in companies in life insurance joint ventures is raised to 51 per cent effective as of July 28 2018, with the foreign investment restrictions to be removed entirely in 2021.

To speed up the opening of the insurance sector, the Chinese government wants to create a supportive legal environment for the foreign companies to compete on an equal footing with domestic companies. Will these new rules be a complete game-changer for China’s insurance industry? For now, it remains too early to tell.

_{This article was published in Insurance Day Magazine and has been reproduced with their permission, please click here for more information.}

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