Development and Regulation of China's Insurance Market

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Development and Regulation of China's Insurance
Market
????????????? China Center for Insurance and Risk
Management

• Bingzheng Chen
• Sharon Tennyson
• Maoqi Wang
• Haizhen Zhou

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(No Transcript)
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Content

• 1. Introduction
• 2. Chinas Insurance Market
• 2.1 Market Size and Development
• 2.2 Insurance Market Structure
• 3. Chinas Insurance Regulatory System
• 4. Evolution of Insurance Regulation and
  Supervision
• 4.1 Capital utilization regulations
• 4.2 Solvency Regulation
• 4.3 The Insurance Protection Fund
• 4.4 Market Surveillance
• 4.5 Disclosure and Consumer Protection
• 5. New Perspectives of Insurance Regulation in
  China

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Introduction

• A fast-developing market
• An opening, modernizing regulatory system
• A special Political-Economic Scheme

• Why is China regulating Insurance Industry like
  this?
• How should we study Chinas Insurance Regulation
• What is the future of Chinas Insurance Regulation

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Chinas Insurance Market

• Rapid Growth Rate
• nominal insurance premiums increased from 460
  million yuan in 1980 to 1.45 trillion yuan in
  2010, an average annual premium growth rate of
  over 30, compared to a nominal GDP growth rate
  of 16.

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Chinas Insurance Market

• Still Un-Developed
• China ranked 61st in insurance density and 39th
  in insurance penetration among world economies in
  2010.

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Chinas Insurance Market
Year Insurance Companies Provincial Subsidiaries Branches HHI of Chinas Non-life Insurance Market HHI of Chinas Life Insurance Market
2001 36 - - 5700 4150
2004 60 - - 3900 3200
2007 102 941 57191 2400 2400
2010 126 1294 68061 1850 1800

• Relatively Concentrated
• In 2010 the non-life insurance HHI was 1850 and
  the HHI for life insurance was 1800. U.S.
  Department of Justice merger guidelines
  categorize markets with HHI greater than 1800 as
  concentrated (DOJ/FTC 1997).

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Chinas Insurance Regulatory System
People's Bank of China
People's Bank of China-Insurance Division
People's Bank of China
Ministry of Finance
China Insurance Regulatory Committee
2009
1979
1952
1949
1995
1998
The Insurance Law of People's Republic of China
The New Insurance Law of People's Republic of
China
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Chinas Insurance Regulatory System
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Evolution of Insurance Regulation and Supervision

• 4.1 Capital utilization regulations

Insurance Law 1995 Only in bank deposits, government bonds, financial bonds and other funds stipulated by the State Council
Temporary Regulations on the Securities Investment Fund of Insurance Companies 1999 Could in security funds, but the proportion and qualification of these investment should be approved by the CIRC.
Temporary Regulations on Securities Investment of Insurance Institutes 2004 Could invest in securities through market subscription and the secondary market transactions.
Administrative Measures on Indirect Investment in Infrastructure Projects Pilot of Insurance Capital 2006 Infrastructure projects. The balance of investment should not exceed5 the total assets in the last quarter of a life insurance company, while 2 for a property insurance company.
Temporary Administrative Measures of Overseas Investment of Insurance Capital 2007 Could make foreign investment with the foreign reserves of its own or purchased from banks.
the Second Revision of the Insurance Law 2009 Insurance companies could invest in real estate.
Temporary Administrative Measures of Utilization of Insurance Capital 2010 Security and security funds investment should not exceed 20 the proportion of real estate investment should not exceed 10 The sum of real estate related securities investment should not exceed 3 the proportion of real estate and real estate related securities investment should not exceed 10, etc.
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Evolution of Insurance Regulation and Supervision

• 4.2 Solvency Regulation

Insurance Law 1995 only basic guidelines regarding minimum solvency requirements for insurance companies
Entry into WTO 2001 A ratio-based solvency monitoring system, specifying the calculation of ratios, and standards for recognizing assets. It also established measures for dealing with distressed or insolvent insurance companies
The Insurance Law modification 2002 Additional strengthening of this system by revising the solvency ratios and requiring insurers to submit a periodic report on solvency ratios
2008 a dynamic risk-based solvency regulatory framework consistent with international standards.
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Evolution of Insurance Regulation and Supervision

• 4.3 The Insurance Protection Fund

2005 China established an insurance guaranty fund (the Insurance Protection Fund, IPF) in January 2005. The fund was initially managed by CIRC under the oversight of an IPF Council consisting of representatives of insurance companies, the Legislative Affairs Office of the State Council, Ministry of Finance, the Peoples Bank of China and others.
2007 China Insurance Protection Fund Ltd. Co. was established.
2008 established rules for the major business operations, governance structure, financing and information sharing activities of the Protection Fund management company.
2011 Xinhua Life Insurance Company, CEO fraud problem, 22 percent of its shares, successful rescue action China United Insurance Company, historical poor performance, 57, not completed yet
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Evolution of Insurance Regulation and Supervision

• The trend of regulatory evolution
• Modernized
• Internationalized
• Consumer-based

the regulators used to be the coaches of the
industry, who are concerned with building the
market but in the new era, insurance regulators
should act more like judges, whose efforts should
change from market construction to market
supervision -- Dingfu Wu, former president of
CIRC, 2010
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New Perspectives of Insurance Reg. in China

• 1. How should we position Chinas Insurance
  Regulator?
• Public Interest Theory (Social Planner)
• Private Interest Theory (Rent Seeking, Capture or
  special interest?)
• 2. Does the Regulator have Institutional
  Weakness?
• Limited Regulatory Capacity
• Limited Accountability
• Limited Commitment
• Limited Fiscal Efficiency

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Thank you!