The Standing Committee of the National People's Congress (NPC), China's top legislative body, gave the green-light to the newly revised version of the Insurance Law Monday, allowing more freedom in the insurance business.
The amended law, scheduled to be enacted in January, marks one of the country's latest law revisions pursuant to its commitments to the World Trade Organization (WTO). The law was amended to ensure fair play and equality between foreign insurers, State-owned companies and joint ventures.
The decision to revise the Insurance Law will better protect the legal rights of insured and insurers, improve the supervision of the insurance market and promote healthy development in the insurance sector, said top legislator Li Peng Monday as the 30th session of the committee closed.
One of the most highlighted revisions is the removal of stiff investment restrictions, long called for by domestic insurers who wanted more leeway to invest their large quantities of idle funds. The restrictions caused an investment bottleneck that dogged the growth of China's insurance sector for decades.
The new amendment makes it clear that insurance funds should not be used to establish enterprises that have nothing to do with the insurance business, but some restrictions have been lifted with the exception of setting up stock houses.
Prior to the move, insurance companies were only allowed to flood their funds into severely restricted channels -- which included deposits, mutual funds and treasury bonds -- in a bid to weed out possible financial risks. But the policy often threatened to choke off sustainable growth, especially as more foreign rivals began to enter the market.
Li Yining and Liu Suinian, both NPC Standing Committee members, said China's insurance industry faces two challenges: the entry of foreign-funded insurance firms into the local market now that China has joined the WTO, and the low interest rate on bank deposits and State treasury bonds.
"Insurance companies cannot make money only through buying State bonds; this won't let them make ends meet. Therefore, insurance companies should find other ways to ensure the safety of their funds,'' they said.
Wang Xujin, director of the Insurance Department under the Beijing University of Technologies and Commerce said: "It will be a timely policy reshuffle to cement domestic insurers' capital bases and long-term growth capabilities.''
Under the new legal framework, insurance players, which were often seen as government affiliates under the planned economy, are also given more freedom in areas such as business-line extensions, new product designs, and premium collection and marketing strategies.
One of the rosiest signs for property insurance firms is that the new law allows them to offer health care and casualty insurance products, a business arena previously reserved only for life insurers.
"The new businesses will greatly diversify our premium sources and speed up our pace to become a national company,'' said Duan Xingwu, assistant president of Huatai Insurance, China's sixth largest property insurer, which is now seeking life-insurance joint ventures.
Feng Xiaozeng, vice-chairman of the China Insurance Regulatory Commission (CIRC), the sector's watchdog, said: "The revised law, which was reshuffled to cope with China's WTO commitments, can play an active role in streamlining the growth of China's insurance sector in the face of new challenges.''
The best evidence in support of Feng's remarks is the abolition of the requirement that all insurers reinsure their policies through China Re, a requirement that went against WTO rules.
And the revised law, coupled with a number of back-up rules and provisions, is set to build up a sound legal framework for a fair, equal and open business climate for China's insurance sector, said Malone Ma, chief representative of US-based Metropolitan Life in Beijing.
"It will speed up the reform of China's budding insurance sector and enable it to reach a world level,'' Malone said.
And more important, the revisions to the law strengthen its ability to shelter the interests of both the insured and investors, according to Feng.
By the end of last year, China harbored 52 insurance companies, including five State-owned, 15 shareholding firms, 19 joint ventures, 13 branch companies. Over 300 intermediary companies were also competing in the market.
The market has witnessed skyrocketing growth: The aggregate premium income in 2001 reached 210.9 billion yuan (US$25.4 billion), 458 times more than that of 1980.
Such growth called attention to the need for revisions to the law. Debuted in 1995, the seven-year-old Insurance Law is not able to efficiently oversee the rapid growth of China's insurance sector. Its inadequacy was further exaggerated by China's WTO accession late last year.
For example, the old insurance law hinders the development of professional and pluralistic insurance agents, and leads to a monopoly for the old insurance businesses. This prevents fair competition in the insurance industry.
For all the insurers competing in the market, the most encouraging news revealed Monday is probably that they are allowed to map out policies and premium rates based on their own market-oriented expertise, a special right once reserved for the CIRC.
According to the old law, insurance rates and items were set up by the CIRC, and there were barriers to the development of business insurance. The new amended law states that insurance rates and items related to the public interest and new forms of business need only be approved by the CIRC.
(China Daily October 29, 2002)
