China issues online insurance regulation amid boom in internet platforms

China’s banking and insurance regulator CBIRC revised its “Rules on Internet Insurance Business” to address issues in the marketplace amid a sharp surge in companies seeking to join the online insurance sector.

In 2020, a total of 7,741 enterprises involved with online insurance registered (opens a new window) with Chinese authorities, representing a rise of 93% compared to the previous year, according to data from Qichacha, a data and analytics firm.

Not only new companies are registering to operate in China’s online insurance market, but traditional insurers are also gearing up their digital capabilities. Similarly to elsewhere in the world, the pandemic has disrupted offline channels in China as tight pandemic controls restricted agents' offline customer visits. 

In a December 2020 speech, Guo Shuqing, Chairman of the CBIRC pointed out that digitalisation remarkably expanded insurance coverage in China. In the first half of 2020, internet life insurance premium grew by 12.2% year on year, internet property insurance companies' premium grew by 44.2%.

Market observers believe that China’s insurance sector has great growth potential since insurance penetration is still significantly lower than in countries like the US or the UK. As online insurance is bound to continue growing fast, the China Banking and Insurance Regulatory Commission (CBIRC) has issued new rules to rein in risks accumulated in the country’s booming online insurance sector.

The CBIRC explained (opens a new window)that “the fast development in the online insurance sector has exposed certain problems,” and that “the rules are to effectively defuse the risks and protect the interest of consumers.” 

Guo noted that some tech companies used their market advantage to improperly collect, use and even sell user data. Without users’ authorization, those activities seriously violate business interests and individual privacy, and the Chinese government has made efforts to plug the holes, he said. The government has also strengthened international coordination for cross-border data flow through the Global Data Security Initiative, which calls for “respect of sovereignty, jurisdiction and data security management rights”. Guo believes that this “will enhance cross-border coordination to jointly promote a more open, fair and non-discriminatory business environment.”

“The new rules stipulate more clearly that the internet insurance business shall only be carried out by CBIRC-regulated insurance institutions via the insurance institution’s self-owned and self-managed internet insurance platform. They clearly state prohibited activities for non-licensed institutions and draw a line between regulated and non-regulated online insurance activities. This was necessary to address issues that occurred when third party non-regulated internet firms cooperated with insurance institutions and participated in the internet insurance business cycle.” Sharon Shi, Assistant Vice President, Compliance & Operation - Lockton Greater China

Key points of the new regulatory framework (opens a new window) include:

  • The rules clarify policies and rules that apply to the internet insurance business;

  • Stress the principle of a licensed operation;

  • Stipulate management requirements and standards for business activities;

  • Standardize after-sales service requirements;

  • Stipulate "special business rules" for internet insurance companies, insurance companies, insurance intermediaries as well as insurance agency business conducted by internet firms;

  • Promote the integration of insurance with new technologies including big data and the blockchain.

The rules aim to standardize the industry, mitigate risks, protect the rights and interests of policyholders, and improve the role of the insurance industry in the real economy. Insurance buyers are expected to benefit through clarification of the nature of the internet insurance business, a strengthening of the principle of licensed operations and the standardization of insurance marketing behaviour and after-sales services. As part of the new measures, “qualified operators” may, subject to certain requirements, distribute various types of insurance products outside of their place of domicile without needing to establish a local presence or being subject to geographic restrictions.

China’s regulatory authorities are keen to further develop digital technology in the insurance sector. While the revised rules that took effect in February 2021 target risk issues in the online insurance sector they also spur the adoption of innovation. The measures are likely to provide favourable conditions for the development of internet insurance and lay a solid foundation for accelerating the digitalization and online transformation of the insurance industry.

Already in 2019 the Bank of China’s Insurance IT arm launched an insurance blockchain (opens a new window) with multiple partners. The industry-level project currently stores electronic policies on the blockchain for transparency and efficiency. The platform stores policy information in one place, streamlining the reconciliation process and protecting the data from tampering.

As a result of the new rules, insurance institutions that intend to conduct internet insurance business in China may need to increase their IT resources and investments to fulfil some of the requirements.

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