On April 11th 2018, the Governor of the People's Bank of China ("PBoC"), Yi Gang, announced on the BOAO FORUM FOR ASIA ("BFA") that China would further open up the market of financial service. He also explained the specific measures to be taken to open up the market. Specifically, China is to allow qualified foreign investors to engage in the business of insurance agency and the business of insurance appraisal within a few months. In the meantime, the foreign-owned insurance brokerage companies are to be allowed to expand their business scope as equal to China insurance brokerage companies. It indicates that all the three fields of insurance brokerage, insurance agency and insurance appraisal are to be further liberalized with regard to the foreign investment, which is an extraordinary step of China's policy of opening up the insurance market.
On April 27th, 2018, China Banking and Insurance Regulatory Commission ("CBIRC") issued the Further Implementation on Banking and Insurance Market Opening Measures("银保监会加快落实银行业和保险业对外开放举措")("Implementation on Opening Measures"), promising that the CBIRC will implement the opening measures regarding permitting qualified foreign investors to operate the business of insurance agency and insurance appraisal as soon as possible, and issued the Notice of Liberalization on the Business Scope of Foreign-Owned Insurance Brokerage Companies(《关于放开外资保险经纪公司经营范围的通知》)( No. 19 [2018] of the CBIRC)("Broker Business Scope Notice") to deregulate the restriction on the business scope of foreign-owned brokerage companies so as to make it equal to the business scope of Chinese brokerage companies.
I. CHINA'S POLICY OF OPENING UP THE INSURANCE INTERMEDIARY MARKET IN RECENT YEARS
In January 2017, the Notice on Several Measures for Expanding Opening Up and Vigorously Using Foreign Capital (《关于扩大对外开放积极利用外资若干措施的通知》) issued by the State Council mentioned that the foreign ownership restrictions on the banking financial institutions, securities companies, securities investment fund management companies, futures companies, insurance companies and insurance intermediary institutions would be reduced.
In August 2017, the Notice on Several Measures for Promoting Growth of Foreign Investment(《关于促进外资增长若干措施的通知》) issued by the State Council states that the restrictions on the access to Chinese market of the foreign investors would be reduced. Meanwhile, the opening up of the security market and the insurance market would be accelerated. Also, the timeframe and the approaches to implementing the policy of opening up would be proposed.
In November 2017, the Press Office of the State Council held a briefing session regarding outcome in related to economic issues in the China-US summit conference. The Vice Minister of Finance, Zhu Guangyao, announced that,
(a) the foreign ownership in the life insurance companies established by a single or multiple foreign investors will be permitted to increase to 51% after three years; and
(b) no foreign ownership restrictions will be imposed on life insurance companies established by foreign investors after five years.
On the morning of April 10th 2018, the president of China, Xi Jinping, announced in his speech on the 2018 annual meeting of BFA in Hainan, China that China decided to take a series of significant measures in order to further the policy of opening up, including,
(a) reducing of the restriction on the market access;
(b) working out the measures to liberalize the foreign ownership in the banking, securities, and insurance industries;
(c) expanding the extent of the opening up;
(d) speeding up the opening up of the insurance industry;
(e) loosening up the restrictions on the establishment of foreign-owned financial institutions;
(f) expanding the scope of business which the foreign-owned financial institutions might engaged in; and
(g) improving the communication and cooperation between Chinese and foreign financial markets.
On April 11th 2018, the Governor of the PBoC, Yi Gang, announced on the BFA that the financial market was to be opened up. The specific measures to be taken regarding the insurance industry including,
(a) liberalizing the foreign ownership restriction in the life insurance sector as 51% and fully liberalizing with no more restriction on the foreign ownerships after three years;
(b) permitting qualified foreign investors to operate the business of insurance agency and insurance appraisal;
(c) deregulating the restriction on the business scope of foreign-owned brokerage companies so as to make it equal to the business scope of Chinese brokerage companies; and
(d) removing the requirement a representative office has to be operated for two years before establishing a foreign-owned insurance company.
On April 27th, 2018, the CBIRC issued the Implementation on Opening Measures, promising that the CBIRC will implement following insurance related opening measures as soon as possible:
(a) liberalizing the foreign ownership restriction in the life insurance sector as 51% and fully liberalizing with no more restriction on the foreign ownerships after three years;
(b) deregulating the restriction on the business scope of foreign-owned brokerage companies so as to make it equal to the business scope of Chinese brokerage companies;
(c) permitting qualified foreign investors to operate the business of insurance agency and insurance appraisal; and
(d) issuing the Broker Business Scope Notice so as to make it equal to the business scope of Chinese brokerage companies.
II. HOW THE LIBERALIZATION OF BUSINESS SCOPE RESTRICTION MAY AFFECT THE INSURANCE BROKERAGE MARKET
i. Current Legal Requirements regarding the Access of Foreign Investors to the Insurance Brokerage Market
Currently, the foreign investors are restricted on the market access to the insurance brokerage market from the perspective of the eligibility and the business scope.
A. Eligibility of Accessing to the Insurance Brokerage Market
If the foreign ownership in the insurance brokerage company is less than 25%, according to the Provisions on the Supervision and Administration of Insurance Brokers (Order No. 3 [2018] of the CBIRC) (《保险经纪人监管规定》) ("Broker Provisions"), to operate the insurance brokerage business, the insurance brokerage company shall comply with the following requirements.
(a) The qualifications of shareholders comply with the requirements included in the Broker Provisions;
(b) The registered capital complies with the requirements included in the Article 10 of the Broker Provisions;
(c) The business scope recorded on the business license complies with requirements issued by the CBIRC;
(d) The Articles of Association complies with applicable requirements;
(e) The name of the company complies with the requirements included in the Broker Provisions;
(f) The senior executives complies with the requirements of qualifications issued by the Broker Provisions;
(g) The management structure and internal control system complies with requirements issued by the CBIRC. The business model is reasonable;
(h) The company has a fixed domicile which is suitable for its scale of business;
(i) The company has business and financial information management systems in compliance with requirements issued by the CBIRC;
(j) The company also complies with other requirements as set forth in laws, administrative regulations, and the provisions issued by the CBIRC.
If the foreign ownership in the insurance brokerage company is more than 25%, in addition to the requirements listed above, the foreign investors, as the shareholders, shall also comply with the requirements below,
(a) The investors shall be a foreign insurance company established in one of the WTO member countries with at least thirty years of experience as a business institution;
(b) The investors shall have a representative office operating in China for at least two years;
(c) The value of total asset owned by the investor at the end of the
year before submitting such application shall exceed 200 million USD.
B. Scope of Business
Currently, the business scope of foreign-owned insurance brokerage companies is strictly restricted. According to the Circular on Distributing the Contents Related to Insurance Industry in the Legal Documents of China's Accession to WTO (《关于印发我国加入WTO法律文件有关保险业内容的通知》), the business scope of foreign-owned insurance brokerage companies is restricted as large-scale commercial insurance brokerage, reinsurance brokerage, and the brokerage for international shipping, aviation, and transport insurance, the reinsurances as well as the "blanket policy" brokerage services. The restriction on the business scope is the major difference between the operations of a Chinese insurance brokerage company and a foreign-owned insurance brokerage company.
ii. Updates about the Legal Requirement regarding the Access of Foreign Investors to the Insurance Brokerage Market
Based on the Governor of the PBoC, Yi Gang's announcement on the BFA, on April 27th, 2018, the CBIRC issued the Broker Business Scope Notice. According to this notice, foreign-owned insurance brokerage companies are allowed to engage in following insurance brokerage business: (i) draft insurance plans for insurance applicants, select insurance companies and process insurance application formalities; (ii) assist insured parties or beneficiaries in making claims; (iii) provide disaster prevention or loss prevention or risk evaluation and risk management advisory services to entrusting parties; (iv)other businesses approved by the CBIRC.
iii. How the Liberalization of Business Scope Restriction may affect the Insurance Brokerage Business
At present, the restriction on the business scope of foreign-owned insurance brokerage companies led to a result that the foreign-owned insurance brokerage companies may only provide service to large-scale enterprises. However, the business of insurance brokerage in related to small and medium-sized enterprises as well as individuals accounts for more than eighty percent of the overall business volume of the insurance brokerage. Therefore, the liberalization of the restriction on the business scope indicates that the foreign-invested insurance brokerage companies are going to play a much more active role in China's insurance brokerage market.
The foreign-invested insurance brokerage companies usually have fine capability of risk control, especially in controlling the risk in the property and casualty insurance sector. The foreign-invested insurance brokerage companies usually have very rich experience in the risk assessment before entering into an insurance agreement, the loss prevention after the insurance accident occurs, the service regarding claims settlement, etc. Therefore, the liberalization gives local enterprises and residents more choices.
III. HOW THE LIBERALIZATION OF FOREIGN OWNERSHIP RESTRICTION MAY AFFECT THE INSURANCE AGENCY MARKET
i. Current Legal Requirements regarding the Access of Foreign Investors to the Insurance Agency Market
Currently, the foreign ownership in the insurance agency sector is restricted as no more than 25%. In this situation, according to the Provisions on the Supervision and Administration of Professional Insurance Agency Institutions (Order No. 3 [2015] of the CBIRC) (《保险专业代理机构监管规定》) ("Agency Provisions") as revised in 2015, and the Notice of the China Insurance Regulatory Commission on Cancelling and Adjusting a Group of Administrative Approval Items (No. 78 [2015] of the CBIRC) (《中国保监会关于取消和调整一批行政审批事项的通知》), to operate the full-time insurance agency business, the full-time insurance agent shall comply with the following requirements.
(a) The shareholders or promoters are of good credit standing and have no record of any major violation of laws in the last three years.
(b) The registered capital reaches the minimum amount specified in the Company Law of the People's Republic of China (《中华人民共和国公司法》) and the Agency Provisions.
(c) The Articles of Association complies with applicable requirements;
(d) The chairman of the board of directors or executive director and senior executives are in compliance with the qualifications as set out in the Agency Provisions.
(e) The organizational structure is sound and the internal control system is sufficient and effective.
(f) The company has a fixed domicile which is suitable for its scale of business.
(g) The company has business and finance related software and hardware facilities.
(h) The company also complies with other requirements as set forth in laws, administrative regulations, and the provisions issued by the CBIRC.
Besides, as an exception, according to the Closer Economic Partnership Arrangements ("CEPA") between Mainland and Hong Kong, Macau, qualified Hong Kong or Macau insurance agents may establish insurance agents as wholly owned subsidiaries. Qualified Hong Kong or Macau insurance brokerage companies are also be permitted to establish insurance agents as wholly owned subsidiaries in Guangdong, including Shenzhen.
ii. Updates about the Legal Requirement regarding the Access of Foreign Investors to the Insurance Agency Market
As announced by the Governor of the PBoC, China is going to permit qualified foreign investors to engage in the business of insurance agency in China within a few months. On April 27th, 2018, the CBIRC issued the Implementation on Opening Measures, promising that the CBIRC will implement the opening measures regarding permitting qualified foreign investors to operate insurance agency business as soon as possible.
Although no detailed requirements have been published at present, based on our experience, the two criteria below may be included in the future rules.
(a) The investors may be required to have experience relating to the insurance agency business;
(b) The investors may be required to comply with certain financial and asset-related requirements.
iii. How the Liberalization of Foreign Ownership may affect the Insurance Agency Business
The liberalization of foreign ownership in the insurance agency sector indicates that the organization form of foreign investment in the insurance agency sector will be more flexible. The foreign investors may seek for a controlling position or even establish a wholly foreign owned subsidiary. Further opening up may encourage the competition and reforms in the market. It may also promote the improvement of market efficiency and the protection of customers. It could be expected that the liberalization of foreign ownership in the insurance agency sector may encourage the activities of merger and acquisition regarding insurance agents.
IV. How the Liberalization of Foreign Ownership Restriction may affect the Insurance Appraisal Market
i. Current Legal Requirements regarding the Access of Foreign Investors to the Insurance Appraisal Market
Currently, the foreign ownership in the insurance appraisal sector is restricted as no more than 25%. In this situation, according to the Provisions on the Supervision and Administration of Insurance Appraisal Institutions (Order No. 2 [2018] of the CBIRC) (《保险公估人监管规定》) ("Appraisal Provisions"), and the Asset Appraisal Law of the People's Republic of China (《中华人民共和国资产评估法》)(Order No. 46 of the President), to operate the insurance appraisal business, the insurance appraisal company shall comply with the following requirements and file to the CBIRC or the local bureau of CBIRC.
(a) The qualifications of shareholders or partners comply with the requirements included in the Appraisal Provisions.
(b) Based on the business development plan, the appraisal company shall have the working capital of at least 2 million as a national institution, or 1 million as a regional institution.
(c) The working capital shall be escrowed as required by the CBIRC.
(d) The business scope recorded on the business license complies with the Article 43 of the Appraisal Provisions.
(e) The Articles of Association or the partnership agreement complies with applicable requirements.
(f) The name of the company complies with the requirements included in the Appraisal Provisions.
(g) The chairman of the board of directors or executive director and senior executives are in compliance with the qualifications as set out in the Appraisal Provisions.
(h) The management structure and internal control system complies with requirements issued by the CBIRC. The business model is reasonable.
(i) The company has a fixed domicile which is suitable for its scale of business.
(j) The company has business and financial information management systems in compliance with requirements issued by the CBIRC.
(k) The company shall have a certain number of insurance loss adjustors.
(l) The company also complies with other requirements as set forth in laws, administrative regulations, and the provisions issued by the CBIRC.
ii. Updates about the Legal Requirement regarding the Access of Foreign Investors to the Insurance Appraisal Market
As announced by the Governor of the PBoC, China is going to permit qualified foreign investors to engage in the business of insurance appraisal in China within a few months. On April 27th, 2018, the CBIRC issued the Implementation on Opening Measures, promising that the CBIRC will implement the opening measures regarding permitting qualified foreign investors to operate insurance appraisal business as soon as possible。
Although no detailed requirements have been published at present, based on our experience, the two criteria below may be included in the future rules.
(a) The investors may be required to have experience relating to the insurance appraisal business;
(b) The investors may be required to comply with certain financial and asset-related requirements.
iii. How the Liberalization of Foreign Ownership may affect the Insurance Appraisal Business
The liberalization of foreign ownership in the insurance appraisal sector indicates that the organization form of foreign investment in the insurance appraisal sector will be more flexible. The foreign investors may seek for a controlling position or even establish a wholly foreign owned subsidiary. Further opening up may encourage the competition and reforms in the market. It may also promote the improvement of market efficiency and the protection of customers.
