On November 14, 2020, the China Banking and Insurance Regulatory Commission (CBIRC) officially promulgated the Measures on Internet Insurance Business (in Chinese:《互联网保险业务监管办法》, the New Measures), which will introduce significant changes to the existing regime on internet insurance business activities. The New Measures will take effect from February 1, 2021.
The New Measures have been long awaited by the market as the existing primary rules regulating internet insurance business activities, i.e. the Interim Measures on Internet Insurance Business (in Chinese: 《互联网保险业务监管暂行办法》) (the Interim Measures) which were promulgated in 2015, no longer reflect the latest developments and trends of the rapidly developing internet insurance business market in China. In response to market needs, the CBIRC initiated a revision to the existing legal regime years ago. This was followed with two rounds of draft papers on the New Measures that were issued for public consultation.
The highlights of the New Measures are summarised below.
Revised definition of “internet insurance business”
Under the Interim Measures, internet insurance business is expressly permitted to be conducted either via a self-owned online platform operated by the qualified insurance institution (Self-Owned Platform) or via an online platform operated by a qualified third party. However, under the New Measures, “internet insurance business” has been defined as “insurance business activities conducted by insurance institutions by relying on internet to enter into insurance contracts and provide insurance services”. As a result, online platforms operated by qualified third parties are no longer included within the New Measures.
In the CBIRC’s official response to Q&As on the New Measures, it was explicitly stated that “Self-Owned Platforms will be the only carriers for Qualified Operators [defined below] to operate internet insurance businesses”. In other words, the operation of internet insurance via online platforms operated by third parties will no longer be allowed after the New Measures take effect.
In addition to the revised definition and scope of “internet insurance business”, the New Measures also provide a clear description of the activities contemplated by such “internet insurance business” (the Regulated Activities) which will be regulated by the New Measures. The activities are:
- Qualified Operators distributing insurance products or providing insurance brokerage services via the internet by offering Self-Owned Platforms (e.g. self-service terminal equipment etc.) to customers;
- customers obtaining insurance product information independently from the selling pages of such Self-Owned Platforms; and
- customers completing insurance policy applications independently on such Self-Owned Platforms.
It is worth noting that, if insurance distribution and/or brokerage activities involve a mix of online Regulated Activities and offline activities, both the New Measures (regulating the online Regulated Activities) and the existing CBIRC regulations (regulating offline activities) shall apply. If there is a conflict or inconsistency as a result of the application of the New Measures and the existing CBIRC regulations, the regulations that are more favourable to the customer shall prevail and apply.
Qualified entities to conduct “internet insurance business”
The New Measures emphasise that only licensed insurance institutions (Qualified Operators) are allowed to conduct internet insurance business. Qualified Operators include: (i) insurance companies, and (ii) the following insurance intermediaries:
- insurance agency companies (i.e. specialised insurance agency companies), banks engaging in sideline insurance agency business, and approved internet companies holding an insurance agency licence);
- insurance brokerage companies ; and
- insurance loss adjustors.
Individual insurance agents and other types of sideline insurance agents remain prohibited from conducting internet insurance business.
The operation of internet insurance business by Qualified Operators falls strictly within the permitted scope of business set out in their respective insurance agency licences or filing forms. In addition, Qualified Operators are required to obtain and maintain the requisite internet service filings with the competent telecommunication authority and must satisfy several other qualification requirements for internet operation in respect of themselves and their Self-Owned Platforms, e.g. onshore-based network access, segregation of the information systems, comprehensive internet safety protection mechanisms, classified internet security mechanisms, legitimate distribution models and sound management systems.
During the operation cycle of conducting internet insurance business, Qualified Operators are subject to various compliance rules, which include without limitation, information disclosure during the distribution process, requirements on marketing and promotion, client suitability identification, restrictions on automatic renewal, traceable management during the entire distribution process, management of individual insurance practitioners, cyber security and client information protection and anti-money laundering.
In addition to the general regulatory requirements listed above, the New Measures further divide the Qualified Operators into the following four categories, each of which category is then subject to a different set of compliance rules that must be adhered to by the relevant Qualified Operator:
- licensed internet insurance companies;
- insurance companies;
- insurance intermediaries; and
- internet companies engaging insurance agency services (subject to an insurance agency licence).
Based on the Qualified Operator’s respective operation features, the applicable compliance rules relate to and include, without limitation, business commissions, client management and after-sales service, internal systems establishment and risk control.
Types of insurance products to be distributed via the internet
One of the advantages of conducting internet insurance business under the New Measures is that 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.
Historically, only limited types of insurance products were allowed to be distributed online. This is no longer the case under the New Measures. Having replaced the existing “positive list” of insurance products that are permitted to be distributed online, the New Measures generally provide that insurance products with “simple forms, simple terms, clear responsibilities and effective after-sales services” can be distributed online. According to the New Measures, it is expected that the CBIRC may publish further guidance and details in relation to this at a later stage.
Transition to the New Measures
The New Measures provide for a transitional period for insurance institutions to transition from the Interim Measures to the New Measures.
For insurance institutions that have been engaged in internet insurance business activities pursuant to the Interim Measures, the New Measures provide for a transition period of up to six months from its effective date to enable those entities to comply with the New Measures. A transition period of up to 12 months is also provided for in the New Measures to enable insurance institutions to complete the certification of their respective Self-Owned Platforms in accordance with the requirements set out in the New Measures.