Pursuance to Measures on Compulsory Motor Vehicle Accident Liability Insurance (《机动车交通事故责 任强制保险条例》), only domestic Chinese property and casualty insurance companies, approved by CIRC, are qualified to carry out the business of offering compulsory motor third party liability (MTPL) insurance. Foreign invested insurers are prohibited from entering into this market though they may underwrite optional commercial auto insurance. The prohibition on foreign invested insurers’ access to MTPL business limits their ability to develop downstream commercial networks capable of reaching individual clients, since the majority of clients would not normally use two insurers (one for compulsory insurance and one for vehicle insurance) to cover the same vehicle.
In practice, we have seen several alternative structures that were developed for foreign invested insurers to become indirectly involved in the MTPL business. One commonly used structure is through strategic cooperation between Chinese insurers who are qualified to underwrite MTPL insurance policies and foreign invested insurers. Under this cooperation model, Chinese insurers are only responsible for the issuance of MTPL insurance policies while foreign invested insurers will act as the client facing primary contact, carrying out the sales of the MTPL and other optional policies, providing after sale services, settling claims etc.
Another often used structure is for foreign insurers to acquire a minority equity stake of less than 25 per cent in Chinese non-life insurers which are qualified to carry out MTPL business so that the foreign insurers may earn dividends generated from such non-life Chinese insurers’ MTPL business. However, as foreign invested insurers are not permitted to conduct MTPL business, foreign insurers under this shareholding structure may not acquire more than a 25 per cent equity stake in Chinese non-life insurers, otherwise such insurers will be considered as foreign invested insurers which will then trigger the prohibition under the current legal regime.