In January 2014, China’s insurance and banking regulators (the China Insurance Regulatory Commission and the China Banking Regulatory Commission respectively) jointly issued the Circular on Further Regulating the Sales Behaviour of Bancassurance Business (in Chinese: 中国保监会、中国银监会关于进一步规范商业银行代理保险业务销售行为的通知). It sets out rules for commercial banks and insurance companies in relation to the sale of insurance products through banks. The circular takes effect on 1 April 2014.
Bancassurance is a major channel for insurance sales in China, and life insurance sales, in particular.
The new circular is aimed mainly aimed at enhancing consumer protection – a response to reports of poor sales practices. It also actively requires the promotion of protection products – a response to the fact that, to date, most insurance policies sold through banks in China are investment products.
The new circular repeats the existing rule that, in principle, banks may, in any given year, offer products from no more than three insurers. Given that limit, China’s banks have tended to cooperate with China’s larger insurers. That has left foreign insurers ill-placed to take advantage of the wide national reach of China’s largest banks.
Key points of the circular:
- Insurers and banks must develop and promote protection and long-term savings products
Banks must ensure that at least 20% of their bancassurance premium income comes from accident, health, term life, whole life, 10+year annuity/endowment, property, guarantee and credit products. Regulators may “take corrective measures” if that 20% requirement is not fulfilled.
- Banks must be selective when choosing partner insurers
Banks are required to be cautious about selecting insurers as bancassurance partners. They must first consider an insurer’s performance as a bancassurance agent in terms of its products, business structure and business consistency over a 13 month period.
- Maximum 3 insurers per bank
Banks should, unless they have approval from the CBRC, cooperate with no more than three insurance companies to sell insurance products.
- Products must be appropriate for the purchaser
Banks must analyse customers’ appetite and tolerance for risk and sell to them only appropriate products.
Where lower-income or elderly customers wish to purchase fixed-income products, banks must transfer policy materials to insurance companies for underwriting and policy issue. Insurers may issue only policies that are appropriate for the customer in question.
Non-guaranteed interest products with high premiums and/or long contribution periods (eg where the period of the policy or the age of the customer exceed 60 years) should be issued only after the customer has confirmed his/her understanding of its terms.
- Policies must contain cooling-off periods and risk notice
Insurance policies for more than a year must expressly and conspicuously provide for a 15-day cooling off period (currently, the required cool-off period is 10 days). Investment-linked policies must contain the clear warning that the policy is an investment-linked policy and that income from it is not guaranteed.
- Sales personnel must be properly managed
Banks must have a sales management system with appropriate technological and background support to allow proper risk control.
Sales personnel must work under clear instructions from the bank and must require customers to complete application forms themselves; a sales person may only do so on a customer’s behalf if he/she has the customer’s written or (recorded) verbal authorization to do so.
Where premiums are to be paid by way of deduction from a customer’s bank account, the customer must agree when and how much will be deducted and from which account, and invoices or receipts send to customers when deductions are made.
- CBRC and CIRC to share information
The banking and insurance regulators will establish an information system to allow them to share information about bancassurance.