On July 9, 2014, the Chinese Premier, Li Keqiang, presided over the 54th executive meeting of the State Council of the People’s Republic of China. Among other polices, the meeting reviewed and approved the Several Opinions on Accelerating the Development of the Modern Insurance Service Industry (《国务院关于加快发展现代保险服务业的若干意见》) (2014 Opinions), and published a high-level general summary. The 2014 Opinions are the first policies regarding the insurance industry as a whole approved at State Council level since the Several Opinions on Reform and Development of the Insurance Industry issued in 2006. The 2014 Opinions, which will be published in full at a later date, propose the following five strategic initiatives to accelerate modernization of the insurance industry:
Commercial Insurance to Become a Pillar of the Social Security System
The 2014 Opinions emphasize that commercial insurance should become “an important pillar of the social security system.” This is a significant change from the requirement that commercial insurance “play a supplementary function” to the development of the social security system referenced in The 12th Five-Year Plan of the People’s Republic of China on National Economy and Social Development issued in 2011, and signals increased government expectations of insurers’ participation in tackling critical social issues.
The 2014 Opinions reinforce recent sector-specific policies and legislation regarding the role of commercial health and medical insurance in promoting development of the healthcare services industry. In 2013, the State Council published Several Opinions on Promoting the Development of the Healthcare Service Industry (2013 Healthcare Opinions), which encourage insurers to provide diversified standardized commercial insurance products and services to supplement the existing state-sponsored basic medical insurance scheme. Critical illness insurance for urban and rural residents, long-term nursing insurance, and health and elderly care policies are also emphasized in the 2013 Healthcare Opinions.
The 2014 Opinions specifically “support” qualified insurance companies for purposes of developing commercial pension and health insurance plans, investing in the elderly care industry and generally participating in the integration of the health services industry. The development of diversified medical insurance and sickness insurance is also highlighted.
Catastrophe and Accident Insurance
The 2014 Opinions call for the establishment of a comprehensive catastrophe insurance system based on a commercial insurance platform with government financial backing that comprises a multi-tier risk sharing structure. This program is already being trialed. In June 2014, authorities in Shenzhen (Guangdong Province), implemented a pilot catastrophe insurance program with a multi-tier risk sharing structure. The Shenzhen catastrophe insurance regime comprises: (1) commercial catastrophe insurance purchased by the municipal government; (2) establishment of a catastrophe fund; and (3) commercial catastrophe insurance purchased by individuals. The 2014 Opinions further call for active development of property, engineering, accident and other products relevant to insuring catastrophe risks.
Upgrading Industry Sectors with Support from Commercial Insurers
The 2014 Opinions highlight a broad range of industry sectors that are strategically important for China. They call for insurance companies to provide agricultural insurance products that include appropriate protections, use wording that is easy to understand, and are available for reasonably priced premiums. Additionally, insurance companies are encouraged to support the development of urbanization, major infrastructure construction, “shanty town” renovation, and the long-term stable development of the stock and bond markets. The 2014 Opinions also call for improved underwriting of risks for technology companies and research institutes, the vigorous development of credit insurance for small and micro enterprises and loan guarantee insurance for individual consumers, and the development of export credit insurance and overseas investment insurance.
Using Insurance to Support Public Services
The 2014 Opinions call for commercial insurers to actively explore and promote mechanisms for provision of specialized liability insurance in key public sectors. Insurers are encouraged to conduct pilot programs in sectors that historically have not been subject to compulsory liability insurance requirements, including environmental safety, food safety and comprehensive medical practice insurance.
Deepening Reform and Further Opening Up the Insurance Industry
The 2014 Opinions call for reform of regime for access to and exit from the Chinese insurance market. Emphasis is also placed on the introduction of advanced foreign insurance industry experience and technologies. Additionally, the 2014 Opinions support expansion of export insurance services and accelerated development of reinsurance and insurance intermediary business.
According to China Insurance News (July 11, 2014), the 2014 Opinions aim to create a market environment of fair competition for commercial insurers, which is consistent with the recent trend of opening up the insurance industry to market forces. Foreign investment in Chinese insurance companies is not specifically referenced in the 2014 Opinions, but if the spirit of fair competition prevails, perhaps some changes to restrictive rules can be expected. According to media reports, market share for foreign life insurers has declined to below 5% in 2011 from 8.9% in 2005, and was less than 1% for non-life insurers in 2011. Encouraging strategic foreign investment could help China obtain the experience and technology to enable the Chinese insurance industry to evolve.