Regulatory Roundup Part II: Insurance Regulations

Created On:2015-08-21 Written By:Spencer Li, VP Product of Fincera Inc.

Within a week after the State Council issued the Guidelines for the internet finance industry, the China Insurance Regulatory Commission (“CIRC”) issued temporary regulations for online insurance services. These initial rules are rather unrestrictive and basically reiterate that existing laws and requirements regarding insurance services still apply to services provided through online channels.

However, these are temporary rules that will go into effect on October 1st, 2015, and will only be valid for 3 years. It is likely that the CIRC, after observing industry movements and growth, will implement more detailed and permanent rules before this October 1st, 2018, expiration date.

Currently there are 4 different types of insurance organizations licensed and regulated by the CIRC:

1.   insurance companies;
2.   insurance agencies;
3.   insurance brokers; and

4.   claims assessment agencies (middlemen that issue independent opinions for claims disputes between the insurer and the insured)

Under the new rules, these organizations are permitted to provide online insurance services such as policy sales, underwriting, claims processing, and customer service. The role of the third-party web platform is also defined in the rules, and these platforms are only permitted to provide online platform services and support to the licensed insurance organizations and end users. Third-party web platforms cannot directly provide online insurance services unless they are also licensed by the CIRC under one of the four categories mentioned above. It is key to note that third-party platforms do not need to be licensed by the CIRC in order to provide platform services to insurance organizations.

The rules covered 4 main topics of operating requirements and limits of online insurance services, disclosure requirements, operating rules, and regulation enforcement. Nothing terribly exciting since most of these rules are common sense, so I’ll save you from a lengthy regurgitation and deliver the juicy tidbits here:

1.   Insurance companies are permitted to provide a pre-approved list of products and services online in regions where they do not have a physical presence provided that they can provide the entire chain of services from sales to claims processing

2.   Transactions must be conducted via third-party payment accounts

3.   These temporary regulations do not apply to the reinsurance business

The CIRC rules also imply that the sale of life annuities and other insurance investment products are permitted online. With stable returns and the appearance of being a safe investment option backed by large insurance corporations, insurance investment products have been popular option available on large third party platforms such as JD Finance, Tencent’s WeBank, and Ant Financial’s Ant Fortune apps. It will be interesting to see what new investment products insurance companies develop to meet demand coming from these online channels.

By defining a list of approved products and services, the CIRC has laid the groundwork for what could be explosive growth in the online insurance industry in the near future. Nimble insurance organizations may choose to develop and operate their own platforms while the relatively slow-moving insurance giants will provide the market for third-party platforms competing to become the ultimate insurance marketplace.

This will be an interesting sector to follow over the next few quarters, particularly for us at Fincera as we have a licensed insurance agency business that sells vehicle insurance mainly to our leasing customers. As we divest our legacy leasing business, we are also exploring ways of integrating insurance services with our ecommerce platforms in order to take advantage of the opportunities in this new sector.