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May 2019

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Regulatory updates

Source: Asia Insurance Review | Jul 2017

Regulation

PwC brings you a roundup of key regulatory activities around the region in the last few months.
 
 
CHINA
Guidelines on insurance companies’ constitution
CIRC has issued new guidelines to bridge the gaps in the relationships between the activities of insurance companies, their directors and shareholders.
 
   The new guidelines require insurance companies to:
  • clearly state shareholders’ rights and obligations;
  • improve rules at shareholders’ meetings and board meetings;
  • improve the voting system for shareholders and directors;
  • improve rules relating to independent directors;
  • stipulate special corporate governance matters.
 
   In addition, insurers have to stipulate in their constitution, the system for substituting the company chairman, CEO and other principal officers, as well as set out the alternate system for them.
 
   Insurers also have to state the procedures they would adopt to address any failure in their corporate governance system, including the procedures for requesting CIRC’s assistance in situations of failure which their internal systems are unable to rectify.
 
Errant senior insurance executives to be blacklisted
CIRC will blacklist senior management of insurance companies which violate regulations. CIRC will amend its regulations governing the qualifications of an insurance company’s board of directors, supervisors and senior management executives. This would increase the responsibility of insurance companies in ensuring appropriate appointment of senior management and improve procedures for scrutinising the qualifications of top executives.
 
   CIRC will also establish a ranking system for insurers’ management personnel, and strengthen supervision over the mobility and performance of senior management. It will tighten its reporting system for disciplinary action against errant management executives. 
 
Sale of universal life products as riders banned
CIRC has banned life insurers from selling universal life insurance as a rider or an add-on to regular life policies.
 
   The regulator has asked insurers to ensure that existing products with such riders are removed from the market by 30 September 2017.
 
   The new rules are likely to have a major impact on the sector as several listed life insurers have been combining universal life policies as a rider to traditional long-term policies to promote sales. 
 
   CIRC’s goal is to ensure that life insurance policies provide protection and it encourages insurers to offer pure term life, whole-life, medical insurance, customised group life insurance and long-term annuities. 
 
   The regulator also said life insurance products must be clearly named and words like “wealth management” or “investment plan” are to be banned from product names and marketing collaterals. 
 
More stringent entry barriers for credit insurers
CIRC has proposed to tighten credit insurance business. Henceforth, only insurance companies with a comprehensive solvency ratio of at least 150% and a core solvency ratio of at least 75% will be allowed to undertake such business.
 
   The proposed rules are meant to cover the whole range of credit insurance business. Previously issued guidelines were only in respect of online credit transactions and for fundraising-related transactions.
 
   Under the proposed rules, insurers will be barred from providing credit insurance in four kinds of situations:
  • bundled assets, securitised assets, trust assets, debt transfer instruments;
  • corporate debt;
  • repackaged non-performing debt of financial institutions;
  • other assets prohibited by the CIRC.
 
   Insurers will also be prohibited from providing credit cover for the fundraising activities of their parent company or subsidiaries.
 
Risk assessment guidelines issued covering chemicals sector
CIRC has released guidelines for insurers on how to assess risk in chemical industry, including raw materials and the manufacturing process.
 
   The aim of the guidelines, which are the first ever for the Chinese insurance industry, is to promote the development of environmental pollution liability insurance.
 
   The Standards will help insurance companies in their pre-underwriting risk assessment work. A five-level ranking system is to be used with categories which include: lowest risk, low risk, medium risk, high risk and highest risk.
 
   Environmental pollution liability insurance has been slow to take off in China because of a lack of a supporting framework, the low cost of non-compliance with environmental rules and lack of accountability for polluters.
 

 
INDIA
Panel formed to revise fire and allied policy covers
IRDAI has proposed changes to fire and allied policy covers in a bid to increase insurance penetration in dwellings, offices, hotels and shops that are susceptible to big economic losses from natural calamities. 
 
   The seven-member working group set up by IRDAI will examine the current product structure under Standard Fire and Special Perils Policy (SFSP) and study the need and scope for changes in it. The group will suggest standard and simple policy wordings, add-on covers, clauses, endorsements to be adopted by the general insurers. 
 
   The panel will also make recommendations for a more relevant regulatory framework, including assessment of risk, pricing, reserving, accounting, etc, for both long-term and short-term policies.
 
IRDAI-appointed panel to review reinsurance regulatory framework
IRDAI has appointed a 17-member committee to review the existing regulatory framework for reinsurance.
 
   The committee will study international regulatory frameworks and practices relating to reinsurance pools, Alternative Risk Transfer (ART) and other such mechanisms, and make appropriate recommendations.
 
   The committee has also been asked to devise formats for reports and returns required to be submitted to IRDAI. Amendments to the insurance law in 2015 have introduced huge changes to the reinsurance sector by allowing foreign reinsurers and Lloyd’s to set up branches in the country.
 
New rules expand business scope of insurance web aggregators
New web aggregator rules issued by IRDAI will now allow all kinds of insurance products to be sold on the aggregators’ portals, as well as make doing business on the platforms easier in several other respects.
 
   Previously, unit linked insurance plans (ULIPs) were not allowed to be shown on web aggregators. This bar has now been removed, giving online sale of ULIPs a boost. In the non-life space – for products such as health insurance, motor insurance and home insurance – it has now been clarified that web aggregators are entitled to renewal commissions as well.
 
   However, for life insurance policies, renewal commissions are still not allowed as they are long-term contracts. So, when they sell a life insurance policy, web aggregators are entitled to first-year commissions only.
 
   In the interests of consumers, the new guidelines for the web aggregators state that no insurance web aggregators should promote or push a particular product of a particular company either through their websites or through distance marketing. Further, the product has to be sold based on the need analysis of the 
prospect.
 
Regulator plans tighter rules for insurance brokers
In a bid to streamline the broking sector, IRDAI has proposed a host of stringent measures, including doubling the capital requirements, after almost 13 years since broking was allowed in the insurance industry.
 
   The new capital requirement for insurance brokers would now be INR10 million, INR40 million and INR50 million (US$155,000, $621,000 and $776,000) for direct, reinsurance and composite brokers, respectively. 
 
   The draft rules also suggest there should be cooling off period of two years in case a foreign investor exits an Indian insurance broking venture and wants to reinvest in another insurance broking company.
 
   Currently, there are over 500 brokers channelling over INR250 billion (US$3.9 billion) worth of business, or 20-25% of the total premiums in the Indian non-life sector.
 
   IRDAI has proposed several other significant measures for regulating insurance brokers. These include allowing brokers to provide risk management services and the submission of an annual certificate regarding remuneration and other payments that are in excess of stipulated limits by an insurer’s CEO and CFO as well as the broker’s CEO and CFO. A 
 

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