China UnionPay, the country’s dominant credit card issuer said in February that it would clamp down on mainland Chinese spending thousands of dollars on insurance policies abroad.
The company said it would be enforcing an existing US$5,000-per-transaction ceiling on the amount mainland Chinese customers can spend with its credit cards on overseas insurance products that are similar to savings products. The new enforcement started on 4 February.
The news roiled the insurance market, particularly in Hong Kong where thousands of mainland Chinese make major insurance purchases. The news also battered insurance stocks in the territory. New insurance policies sold to mainland visitors in Hong Kong rose by 25% year over year in the first three quarters of 2015, to HK$21.1 billion (US$2.7 billion), representing 21.7% of the total sold in the city, according to the Office of the Commissioner of Insurance in Hong Kong.
Not a new rule
Aware of the ripples which UnionPay’s move had started, the State Administration of Foreign Exchange (SAFE) clarified in a statement on 5 February that there had been no change in rules that place insurers outside mainland China in the “limited” merchants category, and subject to a US$5,000-limit on purchases.
The rule exists but had not been complied with by some insurers outside China, SAFE indicated in a statement, and that led to UnionPay taking enforcement action.
SAFE clarified that it had placed insurers in the “limited” merchants category in line with the nation’s capital account controls. However, having given consideration that mainland Chinese, while overseas, would buy a “reasonable amount” of insurance that would be of a small sum, it had capped the payment ceiling for such purchases at $5,000.
Recently, China UnionPay had carried out a review of purchases made with its cards overseas and found that some insurance companies outside mainland China had failed to observe the “limited merchants” procedures, said SAFE. China UnionPay had therefore informed the insurers to comply with requirements.
Regulator will closely monitor transactions
The rule also applies to the purchases of insurance products outside mainland China with international credit cards like Visa and MasterCard, reported Bloomberg.
The regulator said that it will “closely monitor” cardholders and insurers in cases where cards have been swiped multiple times.
This particular clause in the statement appears aimed at market analysts’ comments that the $5,000 restriction only applies to the amount per transaction, instead of the number of transactions per day. This would mean that insurance, involving premium payments higher than $5,000 can still be bought with debit or credit cards by increasing the number of transactions.
Using UnionPay credit and debits cards enabled hundreds of thousands of Chinese to get around the nation’s controls that limit citizens to converting no more than $50,000 per year and sending it abroad.