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Regulatory updates

Source: Asia Insurance Review | Oct 2016

PwC brings you a roundup of key regulatory activities around the region in the recent few months.
 
 
CHINA
Insurance product self-registration platform introduced
The Chinese Insurance Regulator (CIRC) has introduced insurance product self-registration system for non-life insurers. This aims to improve product management, strengthen product innovation capabilities and increase product supervision efficiency in order to protect the interests of consumers. The products can be marketed as soon as they are filed online.
 
   A major objective of the new system is to deter the sale of fake insurance products. Details available to the online customers include the terms and conditions of the insurance product and premium rates. The consumers can also provide feedback on the products via the website.
 
Regulator promotes listings on OTC market for insurers
CIRC will encourage insurance companies to list on the country’s National Equities Exchange and Quotations (NEEQ) board.
 
   The new policy will also permit individuals as distinct from enterprises and institutional investors, to invest in insurance companies listed on NEEQ. This policy will clear the growing backlog of companies waiting for approval from the China Securities Regulatory Commission, to approve their application to go public.
 
   A listing on NEEQ is much easier because of lower requirements for profitability. CIRC released the new policy months after sounding out the insurance industry on the prospect of listing on the third board.
 
CIRC mulls tougher action on risky short-term products
CIRC will clamp down on high-yield, short-term policies that compete with wealth management products, in a bid to reduce risk created by the high liquidity needs of such products. On CIRC’s target would be insurance policies positioned as alternatives to wealth management products sold by banks and other financial firms. 
 
   Such products offer a certain amount of insurance coverage, allowing them to be classified as insurance. But they are more appealing as short-term investment products because they also offer high return rates even if buyers cancel them before they mature. 
 
Regulator to tighten up on insurers’ equity acquisitions
CIRC will limit the funding avenues for insurers which take stakes in other companies, in an effort to crack down on aggressive acquisitions.
 
   The insurers will now need to report any large stakes they hold in other companies and apply for permission before undertaking any significant market transactions which may lead to a takeover of a listed company.
 
   Chinese insurers are currently allowed to invest 30% of their total assets in securities, including listed-company equity.
 
Regulator to tighten controls over insurance products
CIRC will exercise greater control over actuarial practices and impose strict controls over product supervision. If the insurance products are found to be non-compliant with regulations, management and actuaries of the insurance company in question will be held accountable.
 
   The proposed regulations are aimed at resolving the supply-side problems of life insurance. 
 
Mandatory environment insurance part of green finance push
Under new guidelines issued by CIRC and six other central authorities of China, establishing a compulsory environmental pollution liability insurance scheme would be an important requirement for companies operating in environmental high-risk areas. 
 
   The new guidelines promote and support the development of green insurance products and services, the promotion of professional risk management and environmental risk management educational efforts.
 
   With this, China aims to establish a green financing mechanism to support the economy’s transition to sustainable growth. According to estimates, the cost of cleaning up China’s environment and meeting its commitment of achieving peak carbon emissions by around 2030 will amount to over CNY3 trillion (US$450 billion) annually.
 
INDIA
IRDAI mulls similar disclosure rules for listed and unlisted insurers
Insurance Regulatory & Development Authority of India (IRDAI) plans to introduce uniform disclosure norms for both listed and unlisted insurance companies. 
 
   IRDAI has proposed that non-life insurance companies, having completed eight years of operations and life insurers, having operated for 10 years, are required to be publicly listed. 
 
   Insurers that have already exceeded the number of years of operations should take steps to be listed within three years from the date of issue of directions under IRDAI guidelines.
 
Most insurance policies to be in electronic form from 1 Oct 2016
Almost all insurance policies, including motor insurance and overseas travel insurance policies will be issued in electronic form with effect from 1 October this year. The insurance buyers are required to have an e-insurance account (eIA) to buy or renew policies.
 
   This would enable the entire process of buying insurance to become paperless soon. Maintaining and managing policy documents or records across multiple companies will also be done away with, as the policyholder will have access to a single-view platform.
 
IRDAI issues draft outsourcing rules for insurers
IRDAI, has proposed rules for the outsourcing of activities by insurance companies. The objective is to ensure that insurers follow prudent practices in the management of risks arising out of outsourcing with a view to prevent negative systemic impact and to protect the interests of policyholders.
 
   According to the draft regulations, insurers shall adopt a sound and responsive management framework which would include a board-approved comprehensive outsourcing policy. 
 
   Core activities such as underwriting; product design; actuarial functions; reinsurance; investment related functions; fund management including NAV calculations; settlement or repudiation of claims; policyholder grievances redressal; approval of advertisements; appointment of surveyors and loss assessors and compliance with anti-money laundering regulations and know-your-customer standards are prohibited from being outsourced. Insurers are also barred from outsourcing policy servicing and its related activities.
 
Regulator to bar incentives to banks for selling insurance
IRDAI proposes to ban insurance companies from giving incentives and junkets to bank staff for selling insurance policies. The objective is to curb mis-selling of insurance by banks.
 
   The insurance regulator will devise different commission structures for insurance agencies and banks, with incentives to be cut for banks selling insurance.
 
Regulator issues new equity investment rules
IRDAI has tightened equity investment rules for insurers by prescribing that they invest in the equity of listed companies that have paid out at least 10% dividends for at least two consecutive years under the approved investment category.
 
   Also, the regulations require every insurer to have a separate fund manager for debt and equity up to a fund size of INR100 billion (US$1.49 billion). When a fund exceeds INR100 billion, it will need to have a separate fund manager for life, pension, annuity and group fund and unit-linked segregated funds. No fund manager can be common between the different funds.
 
Insurers told to avoid unequal international reinsurance pacts
The Indian insurance regulator has asked insurers to refrain from entering into common reinsurance arrangements on a global basis with foreign entities in cases where they lack sufficient say in vital decisions.
IRDAI has noted that in such arrangements, the Indian entity is unlikely to have much say on matters like the choice of the reinsurer, terms of treaty, the quantum of placement with any reinsurer etc. 
 
KOREA
Insurers to be given more leeway to invest overseas
South Korean insurance companies would be given more freedom to invest in foreign-currency denominated assets. 
 
   At present, local insurers’ investments in foreign currency-denominated assets cannot exceed 30% of the company’s assets. Faced with dwindling profitability of long-term domestic bonds, local insurers have been turning increasingly to overseas investments but they were hampered by the limit.
 
 
PHILIPPINES
Regulator to develop new mortality tables for life sector
Philippines Insurance Commission (IC) has undertaken the 2016 Philippine Intercompany Mortality Study for formation of an updated mortality table. The last such update was carried out 38 years ago.
 
   In light of current underwriting and marketing practices as well as the new regulations, this new study would update the mortality table based on the Philippine industry mortality experience. The table is expected by the first quarter of 2017.
 
Regulator wants insurers to devise anti-fraud plans
All life and non-life insurance companies in Philippines would now be required to formulate and maintain procedures for the monitoring and early detection of insurance fraud. The companies have to file their respective anti-fraud plans with the regulator within one year. 
 
   The “Guidelines in the Development of Anti-Fraud Plan for Insurance Companies” only provide for the minimum requirements for insurance companies in the preparation of a new or revised anti-fraud plan in order to provide flexibility for each company to adopt an anti-fraud plan suitable to its own circumstance.
 
VIETNAM
Regulator stresses need for farm insurance
Vietnamese Insurance companies will need to develop products that would popularise agriculture insurance, especially at a time when natural disasters are significantly affecting production.
 
   According to the Insurance Supervisory Authority of Vietnam, insurance is an excellent financial solution for farmers and it is essential for the agriculture sector to have insurance products.
 
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