Chinese insurance regulator CIRC has issued a warning about online mutual insurance funds, as a number of such schemes has appeared over the Internet. In particular, the regulator said that such plans are fraught with risk.
CIRC warned consumers to be aware of non-insurance entities promoting insurance “mutuals” or “alliances” on online platforms. Such mutual-help schemes involve a pool of members who pay a small premium to join the pool and are promised significant payout amounts if the event (eg. critical illness, accident etc) for which they subscribe to the pool happens to them. Marketing is carried out largely on social media such as WeChat.
The regulator singled out a service called Quark Alliance offered on the Baobaoji platform run by a Shanghai-based company which does not have an insurance licence. Quark Alliance recently launched a product called “Driving Risk Mutual-Help Plan”. Members pay a fee of CNY9 (US$1.40) for motor cover. If a member is involved in a motor accident, he or she can expect to receive compensation of up to CNY800,000 after deducting third-party claims.
CIRC in a statement said that Quark Alliance “could be involved in offering motor insurance to the public and running an unlicensed insurance operation; could be harming the interests of consumers because the safety of its capital and its compensation capability are suspect and could be collecting funds from the public illegally; and is disrupting order in the motor insurance market and engaging in regulatory arbitrage”.
A CIRC official told the local media that such mutual-help plans are not supervised by the regulator. Some modes of operations are not sustainable and it is difficult to guarantee that commitments made or funds paid to such entities would be honoured. In addition, the privacy and security of personal information could be at risk.
Apart from motor accidents, mutual-help pools have been created to cover cancer and major illnesses.