On 22 July 2015, the China Insurance Regulatory Commission (“CIRC“) released the Interim Measures for Regulating the Internet Insurance Business (the “Internet Insurance Measures“), which will take effect from 1 October 2015. The Internet Insurance Measures are China’s first comprehensive rules to regulate the emerging internet insurance business.
1. Foreign insurers equally allowed to engage in internet insurance business
Under the Internet Insurance Measures, “Internet insurance business” means business whereby insurance institutions enter into insurance contracts or provide insurance services based on internet and mobile communication technologies, through its own website or a third party internet platform. Based on this definition, the Internet Insurance Measures do not seem to differentiate between domestic and foreign invested insurance companies, as long as you are properly licensed by the CIRC. In other words, for those who maintain a licensed insurance operation in China, they may well be allowed to carry out a web-based insurance business in the country.
2. New opportunity to expand geographic coverage to provinces in which the insurer does not have a licensed presence
Traditionally, in China, before an insurance company is allowed to do business in a province outside its home jurisdiction, it must apply to CIRC to set up a new branch in such province. Typically for each additional province, the insurance company must increase its registered capital (i.e., equity capital) by RMB 20 million or USD 3.5 million, assuming the company only maintains the minimum required registered capital of RMB 200 million (or USD 35 million). This process is also time-consuming – it may take months.
For selected insurance products, the Internet Insurance Measures now offers the opportunity for insurers to expand their operations to provinces where they have not yet established a licensed branch office. Such insurance products include:
2.1 Accidental personal injury insurance, fixed-term life insurance and ordinary life-long life insurance;
2.2 Home property insurance, liability insurance, credit insurance and guarantee insurance, for which the policy holder or the insured is an individual;
2.3 Property insurance for which the entire process of sale, underwriting, and claim can be independently and completely concluded online; and
2.4 other insurance products specified by the CIRC.
3. Typical insurance businesses conducted online
In connection with issuance of this new rule, CIRC officials commented that there is no difference in the nature of insurance products sold online and those traditionally purchased offline. Customers may also process their insurance claims online.
According to the Internet Insurance Measures, the internet business may be conducted either (a) through the insurer’s own website (the “Self-Owned Website Model“), or (b) a website/platform owned and managed by a third-party operator, who will provide internet technical support (the “Third-Party Platform Model“).
Regardless of the model chosen, core insurance business must be carried out by a licensed insurance institution. For instance, under the Self-Owned Website Model, such website must be established and managed by the head office of the licensed insurer. In the case of Third-Party Platform Model, again only the insurance companies are allowed to sell insurance products or process claims on such platform. This is consistent with the general regulatory position that only licensed insurance players are allowed to do insurance business.
4. Possible requirement for ICP license or record-filing
Internet insurance business potentially implicates two regulated areas: insurance and internet. For companies doing business online, depending on nature of their business, they would normally be required to obtain an internet content provider (“ICP“) license or record-filing with the Ministry of Industry and Information Technology or its local counterparts (“MIIT“). ICP license is practically closed to foreign invested companies in China.
Based on our research regarding the foreign invested insurance companies that have already started their internet insurance business and our no-name phone inquiries with MIIT, it seems that operation of internet insurance business only requires a record-filing, which is a lot easier than an ICP license and frequently granted to foreign invested companies. However, since the provisions under this new Internet Insurance Measures still put ICP license granting as a possible requirement, we cannot rule out the possibility that an ICP license will be required for certain categories of internet insurance business, where the foreign investment may face relevant restrictions.
5. Additional requirements for operation of internet insurance business
The Internet Insurance Measures have provided disclosure requirements in relation to products offered online. It also imposes technical IT requirements for insurance companies engaged in online business. Fortunately, the rules do not seem to expressly require an insurance company to apply for an approval from the CIRC before it may commence internet business.