Commentators in China are buzzing about the launch of Shanghai's new pilot free trade zone ("FTZ") on 29 September 2013, but is it big news for foreign investors in China's insurance industry?
Certainly, the rules and notices that have been released thus far make encouraging noises about insurance: in the Overall Plan for the China (Shanghai) Pilot Free Trade Zone (the "Master Plan") financial services is one of six industry sectors identified for development in the FTZ. Within the financial services industry, specialist health and medical insurance is further singled out as an area to be opened up there.
CIRC's initial response
The China Insurance Regulatory Commission ("CIRC") has reacted to the launch with a statement of support for the FTZ. In particular, it expressed support for:
- the incorporation of foreign-invested specialist health and medical insurance institutions;
- the establishment of branches of insurance companies carrying out cross-border Renminbi reinsurance;
- research into mechanisms for catastrophe insurance;
- outbound investment from the FTZ;
- the operation of "world famous" insurance intermediaries and reinsurers providing professional technical support services to develop the industry;
- the development of marine insurance;
- insurance innovation and the expansion of liability insurance; and
- improvement of the insurance market system by promoting the establishment of institutions such as reinsurance, fund management and marine insurance pricing centres.
Of these, only the first is mentioned in the Master Plan, which suggests that specialist health and medical insurance will be the first area of insurance to be further opened up to foreign investors in the FTZ.
Removal of 50% ownership restriction and two year representative office requirement for foreign-invested health and medical insurance companies?
Currently, in addition to satisfying a number of requirements in relation to size, corporate governance structures and so on, foreign investors may hold no more than 50% of the equity in a health or medical insurance company in China (the remainder must be held by a Chinese party or parties). Foreign investors must open a non-revenue generating insurance representative office and operate it for at least two years before applying to establish an insurance company in China.
It appears that these restrictions may be lifted on a pilot basis in the FTZ - the Master Plan does not specifically say so but it does state, in general terms, that the FTZ will suspend or lift access restrictions such as investor qualification requirements, restrictions on shareholding percentage and on scope of operation (except in banking institutions and information and communication services).
We expect the CIRC to issue rules clarifying this question over the coming months. This initial lack of clarity is no surprise: it is customary in China for laws, rules and notices to be first couched in general terms, with detailed measures following somewhat later.
Opportunity for faster access to China's health and medical insurance market
While the real benefits of the FTZ will not be clear until more detailed rules are issued, the Master Plan and the CIRC's statement indicate that the new zone will give foreign investors in insurance, and in health and medical insurance in particular, a faster route into China's rapidly expanding insurance market. Given China's aging population and growing need for health and medical insurance, it should present a tremendous opportunity for foreign players in this area.
Click the link here for a more general introduction to FTZ and our current understanding of how it is intended to work.