On the 9th of June 2017, the China Insurance Regulatory Commission (CIRC) published its Compulsory Environmental Pollution Insurance Rules – Discussion Paper (Paper). The Paper invites comments and submissions to CIRC prior to 10th July 2017. Key points of the Paper are:

1. Scope

The Paper defines compulsory environmental pollution insurance (CEPI) as that compulsory insurance which should be taken out by those entities the production activities of which carry a high risk of causing environmental pollution (High-Risk Entities), with consequent compensation liability being borne by those High-Risk Entities. All High-Risk Entities should take out CEPI cover, with such cover being underwritten by China commercial insurers or mutual insurers.

2. CEPI Policies

(1) Coverage

Coverage under CEPI policies extends to 1) third party personal injury; 2) third party property losses; 3) ecological damage; and 4) costs incurred in provision of emergency services and environmental clean-up.

(2) Policy Terms & Premium Rates

CEPI Policy terms and basic premium rates shall be unified and standard. Further, all CEPI Policy terms and premium rates shall be reviewed and approved by CIRC prior to release of such policies onto the market.

(3) Policy Reporting & Filing

Upon execution of a CEPI policy by a High-Risk Entity,the underwriting insurer shall provide written notice of the existence of such CEPI policy to that local branch of the China Environmental Protection Agency located where the insured High-Risk Entity has its domicile ("EPA Branch").

Upon the lapsing of a CEPI policy, the insurer shall physically recover such policy and shall notify the EPA Branch of such lapsing.

(4) Risk Investigation

A CEPI policy shall contain terms requiring the adoption of emergency environmental remediation measures by the insured.

(5) Policy Term

All CEPI Policies shall be annual policies. Upon the expiration of a CEPI policy, the insured shall renew the policy in a timely fashion.

3. Insureds & Underwriters

(1) Insureds

High-Risk Entities insured under CEPI policies may take out the cover in their own right, or may be insured under a wider group policy.

(2) Underwriters

No underwriter, without proper and reasonable cause, shall refuse application for CEPI cover by any High-Risk Entity. All underwriters of CEPI cover shall develop environmental risk assessment systems, and shall produce policy-tailored environmental risk assessment reports. These reports shall be incorporated, as attachments, into the terms of each CEPI policy.

4. Indemnification Obligations

(1) Coverage Triggers

In the event of loss caused by an insured under a CEPI policy during the term of that policy, then provided the party suffering loss or damage lodges a claim with the insured either during the term of the CEPI policy or within 3 years of the expiration of such CEPI policy, and the insured accepts liability for such loss or damage, the insurer shall pay such claim to the limit allowed.

(2) Payment of Benefits

The insurer may elect either 1) to pay benefits under the CEPI policy to the insured; or 2) to pay the CEPI policy benefits directly to parties suffering loss.

5. Legal Liability

In circumstances where a High-Risk Entity has not taken out, or renewed, CEPI cover as prescribed in these rules, then the EPA Branch shall have the right to require that such cover is taken out, and fine the High-Risk Entity RMB 30,000 (thirty thousand RMB)