The China Insurance Regulatory Commission (the CIRC) has issued a circular on Strengthening the Administration of Guarantee Insurance Business on Internet Platforms《关于加强互联网平台保证保险业务管理的通知》(the Circular) on 29 January 2016. The Circular is aimed at tackling the problems relating to guarantee insurance business on Internet platforms, focusing on requirements such as the selection of Internet platform, information disclosure and internal controls.
Guarantee insurance business on Internet platforms has become prevalent in the recent years. Generally, it is an arrangement under which an insurer relies on the intermediation of an Internet lending platform to arrange guarantee insurance policies. Under such policies, the policyholders are the lenders on the platform, and the insureds are the borrowers.
Against this backdrop, the CIRC has commenced a comprehensive risk investigation to understand the potential risks related to management, internal controls and contingency plans of insurance companies operating such business. On this basis, the CIRC has issued the Circular in order to strengthen the management of guarantee insurance business on Internet platform and to facilitate its sustainable development. The Circular proposes regulating the following key aspects of guarantee insurance business on Internet platforms:
- Insurance companies are required to strictly observe the solvency requirements and to take into account the restrictions under the Solvency II regime, and ensure that their insurance business scale are commensurate with their capital strength;
- Insurance companies are required to carefully choose Internet platforms for cooperation, and not to cooperate with any Internet platform that commits any acts harmful to national interests or public interests (e.g., providing credit enhancement services, setting up capital pools, or illegal fundraising, etc.). At the same time, insurance companies shall also strictly examine policyholders' eligibilities;
- It is imperative for the insurers to ensure that there are contractual obligations on their Internet platform partners to make clear and sufficient disclosure of information on the platforms regarding the policy provisions, the policy disclaimers and the profile of the insurers;
- Insurance companies shall establish a strict risk control mechanism, strengthen the internal control system and its management, and ensure effective connectivity of their information systems with those of the relevant Internet platforms and financial institutions;
- Insurance companies shall carry out stress tests and improve contingency plan regularly, as well as to handle emergencies properly; and
- Insurance companies are required to establish a quarterly submission system for the guarantee insurance business on Internet platforms.
The publication of the Circular has clarified the operational requirements for carrying out guarantee insurance business on Internet platform for insurance companies and raised their awareness on compliance and vigilance. This can create a sound environment for the innovative insurance industry, which is progressively developing their business under the emerging fintech environment.
Over the past 2 years, we have seen more insurance companies providing guarantee insurance services through P2P Internet platforms. The new Circular will have an impact on the P2P Internet platforms and will impose a higher standard on insurance companies with clients on such platforms. Overall, insurance companies have expressed optimism over their collaboration P2P platform, and it is envisaged that the new circular will standardize the selection of P2P platforms by insurance companies and their cooperation will become more developed in the near future.