In an effort to improve the administration of insurance provisions and premium rates of life insurance companies, the China Insurance Regulatory Commission ("CIRC") issued the "Administration Rules governing Life Insurance Companies' Insurance Provisions and Premium Rates" (the "Administration Measures") on December 30, 2011. The CIRC also issued a "Notice regarding Several Issues on the Administration Rules Governing Life Insurance Companies' Insurance Provisions and Premium Rates" (the "Implementing Notice", together with the "Administration Measures", collectively the "Administration Rules") on January 4, 2012.
The Administration Measures are divided into seven chapters and 57 clauses and were officially implemented as of the date on which the Administration Measures were issued.
The key developments under the Administration Rules are summarized below:
In terms of insurance coverage type, personal insurance products are generally divided into three categories: (1) life insurance, (2) health insurance, and (3) accident and injury insurance. Annuity insurance is typically regarded as a sub-category of life insurance. However, the Administration Rules emphasize the role of annuity insurance, thus giving it a status that is on par with life, health and accident and injury insurance. This re-categorization can be seen as a positive signal that life insurance companies are encouraged to develop more annuity insurance products.
Specifically, in the case of pension annuity insurance, the Administration Rules require that the following must be satisfied: (1) the threshold age at which the insured will be paid survival benefits should not be less than the mandatory retirement age, and (2) the regular survival benefit payment should be made at least once a year.
The Implementing Notice clarifies that the annuity insurance may cover both the death benefit and total disability benefit and that the death benefit should not be more than the greater of (1) the premium that has been paid and (2) the cash value of the policy.
The Administration Rules require that the insurance provisions and premium rates of the following insurance products be submitted to CIRC for approval: (1) life insurance products other than ordinary life insurance, dividend sharing life insurance, universal life insurance, and investment-linked life insurance; (2) annuity insurance products other than ordinary annuity insurance, dividend sharing annuity insurance, universal annuity insurance and investment-linked annuity insurance; (3) unqualified group dividend sharing life insurance products and group dividend sharing annuity insurance products (that have been developed without reference to certain required insurance circulars); and (4) other insurance required for approval by CIRC.
According to the Administration Rules, the timeline for the filing of insurance provisions and premium rates has been extended from "7 days after sales of insurance products" to "10 days after the life insurance company uses such insurance provisions and premium rate." If a life insurance company decides to stop using certain insurance provisions and premium rates on a nationwide basis (i.e., to stop selling such insurance products), the company must report the termination to CIRC within 10 days, along with a letter setting forth the reason for the termination and its proposed services after the termination.
In accordance with the Implementing Notice, an endowment insurance product should comply with the following requirements:
- The first payment of the survival benefits must be made three years after the policy's effective date.
- The insured term should be no less than five years.
- In case of the investment-linked endowment insurance, or universal endowment insurance, if the insured is an adult, the death benefit at the start of the policy should not be less than 105 percent of the premium that has been paid or 105 percent of the policy's account value. In case of other types of endowment insurance, if the insured is an adult, the death benefit at the start of the policy should not be less than 105 percent of the premium that has been paid.
- The death insurance must cover insurance liabilities for death caused by illness and accidents.
The Implementing Notice also clarifies that the insurer is NOT permitted to issue group endowment insurance products.
Supervision of Premium Rates
The Administration Rules also further strengthen the supervision of premium rates of personal insurance products. Specifically, the product actuary report must contain the sources of data and the pricing basis, the pricing method and assumption, and the statutory reserve fund calculation method (and sensitivity analysis of the variation on profit test parameters and major insurance parameters if the insured term is more than one year). If the insured term is more than one year, the insurance company must submit to CIRC, among other required documents, an electronic version of profit test models for approval or filing.
Qualifications of Person-in-charge of Legal Affairs (Chinese: 法律责任人)
The Administration Rules set forth more rigorous qualification requirements for the person-in-charge of the legal affairs of a life insurance company. The particulars are summarized below.
Click here to view table
The newly issued Administration Rules are widely expected to help diversify available insurance products and diminish misleading sales or other malpractice on the part of insurance companies. However, it remains to be seen how the Administration Rules will be enforced and whether they will produce the expected positive effects on the insurance market.