作者：袁敏 林喆 金杜律师事务所金融资本部

On 11 April, 2018, People’s Bank of China (“PBC”) Governor Yi Gang announced specific measures to further open up the domestic financial market at the Boao Forum for Asia (“BFA”). China will allow qualified foreign investors to engage in the business of insurance agency and the business of insurance appraisal in a few months. In the meantime, foreign-owned insurance brokerage companies are to be allowed to expand their business scope to equal their Chinese peers. These indicate that all three fields, namely insurance brokerage, insurance agency, and insurance appraisal, will open up to foreign investment. The extent and pace of liberalization will be beyond expectation. On 27 April, 2018, the China Banking and Insurance Regulatory Commission (“CBIRC”) issued Measures to Accelerate the Opening-up of the Banking and Insurance Industries, saying the CBIRC will speed up the implementation of the measures to allow qualified foreign investors to run insurance agencies or offer insurance appraisal services in China, and issued the Notice on Expanding the Business Scope for Foreign-funded Insurance Brokerages to allow foreign-funded insurance brokerages to cover the same business scope as their Chinese peers.

Recent progress in expanding foreign access to the insurance intermediary market

In January 2017, the Notice on Several Measures to Expand Opening-Up and Vigorously Use Foreign Capital issued by the State Council mentioned that the foreign ownership restrictions on the banking financial institutions, securities companies, securities investment fund management companies, futures companies, insurance companies and insurance intermediary institutions would be eased.

In August 2017, the Notice on Several Measures to Promote Growth of Foreign Investment issued by the State Council states that the restrictions on foreign access to the Chinese market would be reduced. Meanwhile, the opening-up of the securities market and the insurance market would be accelerated. Also, the timeframe and the approaches to implementing the policy of opening-up would be proposed.

In November 2017, the Press Office of the State Council held a briefing session regarding the outcome of the China-US summit conference in terms of economic issues. Vice Finance Minister Zhu Guangyao announced that:

  • foreign ownership of life insurance companies by a single or multiple foreign investors will be permitted to increase to 51% after three years; and
  • restrictions on foreign ownership of life insurance companies will be lifted altogether after five years.

On 10 April, 2018, Chinese President Xi Jinping announced at the 2018 annual meeting of BFA that China has decided to take a series of significant measures to further the policy of opening-up, which include:

  • reducing the restrictions on market access;
  • working out the measures to ease restrictions on foreign ownership in the banking, securities, and insurance industries;
  • expanding the extent of opening-up;
  • speeding up the opening-up of the insurance industry;
  • loosening up the restrictions on the establishment of foreign-owned financial institutions;
  • expanding the scope of business open to foreign-owned financial institutions; and
  • improving the communication and cooperation between Chinese and foreign financial markets.

On 11 April, 2018, PBC Governor Yi Gang announced at the BFA that the financial market was being opened up. The specific measures to be taken in the insurance industry include:

  • restrictions on foreign ownership of life insurance companies shall be raised to 51% now and be lifted altogether in three years;
  • permitting qualified foreign investors to operate the business of insurance agency and insurance appraisal;
  • lifting the restrictions on the business scope of foreign-owned brokerage companies so as to make it equal to that of Chinese brokerage companies; and
  • removing the stipulation that a representative office has to be operated for two years before a foreign-owned insurance company can be established.
  • On 27 April, 2018, the CBIRC issued the Measures to Accelerate the Opening-up of the Banking and Insurance Industries, saying that the CBIRC will implement the following opening-up measures as soon as possible:restrictions on foreign ownership of life insurance companies shall be raised to 51% now and be lifted altogether in three years;
  • removing the stipulation nationwide that a representative office has to be operated for two years before a foreign-owned insurance company can be established.
  • permitting qualified foreign investors to operate the business of insurance agency and insurance appraisal; and
  • issuing the Notice on Lifting Restrictions on Business Scope of Foreign Brokerage Companies, which lifts the restrictions on the business scope of foreign-owned brokerage companies so as to make it equal to that of its Chinese peers;

The impact of opening-up measures on the insurance brokerage industry

  1. Current regulation on foreign access to the insurance brokerage market

Currently, restrictions on foreign access to the insurance brokerage market are concentrated on two aspects: qualifications for market access; and the scope of business.

  1. Qualifications for market access

If foreign ownership of an insurance brokerage company is less than 25%, according to the Provisions on the Supervision of Insurance Brokers (Order No. 3 [2018] of the CBIRC)(“Broker Provisions”), to operate the insurance brokerage business, the insurance brokerage company shall comply with the following requirements:

  • The qualifications of shareholders comply with the requirements included in the Broker Provisions;
  • The registered capital complies with the requirements included in the Article 10 of the Broker Provisions;
  • The business scope recorded on the business license complies with requirements issued by the CBIRC;
  • The Articles of Association complies with applicable requirements;
  • The name of the company complies with the requirements included in the Broker Provisions;
  • The senior executives meet the requirements of qualifications issued by the Broker Provisions;
  • The management structure and internal control system comply with requirements issued by the CBIRC. The business model is reasonable and feasible;
  • The company has a fixed domicile which is suitable for its scale of business;
  • The company has business and financial information management systems in compliance with requirements issued by the CBIRC;
  • The company complies with other requirements as set forth in laws, administrative regulations, and the provisions issued by the CBIRC.

If foreign ownership of an insurance brokerage company is more than 25%, in addition to the requirements listed above, the company’s foreign shareholders shall also comply with the requirements below:

  • The investor shall be a foreign insurance company established in one of the WTO member countries and has at least thirty years of experience in setting up business institutions;
  • The investors shall have a representative office operating in China for two straight years;
  • The value of total asset owned by the investor at the end of the year before submitting such application shall exceed USD 200 million.
    1. Scope of Business

Currently, the business scope of foreign-owned insurance brokerage companies is strictly restricted. According to the Circular on Distributing the Contents Related to Insurance Industry in the Legal Documents of China’s Accession to WTO, the business scope of foreign-owned insurance brokerage companies is restricted to large-scale commercial insurance brokerage, reinsurance brokerage, and the brokerage for international shipping, aviation, and transport insurance, the reinsurances as well as the “blanket policy” brokerage services. The restriction on the business scope is the major difference between the operations of a Chinese insurance brokerage company and a foreign-owned one.

  1. Latest progress in foreign access to the insurance brokerage market

Based on PBC Governor Yi Gang’s announcement at the BFA on 27 April 27, 2018, the CBIRC issued the Notice on Expanding the Business Scope for Foreign-funded Insurance Brokerages. According to this notice, foreign-owned insurance brokerage companies are allowed to engage in the following insurance brokerage businesses: (i) draft insurance plans for insurance applicants, select insurance companies and process insurance application formalities; (ii) assist insured parties or beneficiaries in making claims; (iii) provide disaster prevention or loss prevention or risk evaluation and risk management advisory services to entrusting parties; (iv) other businesses approved by the CBIRC.

  • The impact of broader business scope on the insurance brokerage business

Different from Chinese-funded insurance brokerage companies, foreign-owned insurance brokerage companies are allowed to provide service to large-scale enterprises, but not to small and medium-sized enterprises (SMEs) and individuals. However, insurance services offered to SMEs and individuals account for more than 80 percent of the market’s overall business volume.

Therefore, easing the restrictions on the business scope indicates that foreign-invested insurance brokerage companies are going to play a more active role in China’s insurance brokerage market. Foreign-invested insurance brokerage companies usually have an advantage in the area of risk control, especially in controlling the risk in the property and casualty insurance sector. Foreign-invested insurance brokerage companies usually have rich experience in risk assessment before entering into an insurance agreement, loss prevention after signing the agreement, and claim settlement after loss occured, etc. Therefore, lifting the restrictions gives local enterprises and residents more options in choosing insurance products.

The impact of opening-up measures on insurance agencies

  1. Current regulation on foreign access to the insurance agency business

Currently, foreign ownership in the insurance agency sector is restricted to no more than 25%. In this situation, according to the Provisions on the Supervision of Professional Insurance Agency Institutions (“Agency Provisions”) revised in 2015 and the Notice of the CIRC on Cancelling and Adjusting a Batch of Administrative Approval Items (No. 78 [2015] of the CBIRC), to operate the professional insurance agency business, the professional insurance agent shall comply with the following requirements:

  • The shareholders or promoters are of good credit standing and have no record of any major violation of laws in the last three years.
  • The registered capital reaches the minimum amount specified in the Company Law of the People’s Republic of China and the Agency Provisions.
  • The Articles of Association complies with applicable requirements;
  • The chairman of the board of directors, the executive directors, and the senior executives meet the qualifications set out in the Agency Provisions.
  • The organizational structure is sound and the internal control system is sufficient and effective.
  • The company has a fixed domicile which is suitable for its scale of business.
  • The company has business and finance related software and hardware facilities suitable for its business operation.
  • The company complies with other requirements set forth in laws, administrative regulations, and the provisions issued by the CBIRC.

As an exception, according to the Closer Economic Partnership Arrangements (“CEPA”) between Chinese Mainland and Hong Kong, Macau, qualified Hong Kong or Macau insurance agent companies may establish wholly-owned insurance agent companies in Chinese mainland. Qualified Hong Kong or Macau insurance brokerage companies are be permitted to establish wholly-owned insurance agent companies in Guangdong Province (including Shenzhen).

  1. Latest progress in foreign access to the insurance agency business

As announced by PBC Governor Yi Gang, China is going to permit qualified foreign investors to engage in the business of insurance agency in China within a few months. On 27 April, 2018, the CBIRC issued Measures to Accelerate the Opening-up of the Banking and Insurance Industries, saying the CBIRC will speed up the implementation of the measures to allow qualified foreign investors to operate insurance agency business in China.

So far, the CBIRC has not issued any requirements on the qualifications of foreign shareholders with a 25% shareholding. However, based on our experience, the two criteria below may be included in the future.

  • The investors shall have experience in the insurance agency business;
  • The investors shall comply with certain financial and asset-related requirements.
  • The impact of higher foreign shareholding ratios on the insurance agency business

Eased restrictions on foreign ownership in the insurance agency sector indicate that the organization form of foreign investment in the insurance agency sector will be more flexible. Foreign investors may seek for a controlling position or even establish a wholly foreign-owned subsidiary. Further opening-up may encourage competition and reforms in the market. It may also promote market efficiency and protection for clients. It could be expected that the liberalization of foreign ownership in the insurance agency sector may encourage M&A between insurance agent companies.

The impact of opening-up measures on the insurance appraisal market

  1. Current regulation on foreign access to the insurance appraisal market

Currently, foreign ownership in the insurance appraisal sector is restricted to no more than 25%. In this situation, according to the Provisions on the Supervision of Insurance Appraisal Institutions (Order No. 2 [2018] of the CBIRC) (“Appraisal Provisions”), and the Asset Appraisal Law of the People’s Republic of China (Order No. 46 of the President), to operate the insurance appraisal business, insurance appraisal companies shall comply with the following requirements and file to the CBIRC or the local bureau of CBIRC.

  • The qualifications of shareholders or partners comply with the requirements included in the Appraisal Provisions.
  • Based on the business development plan, the appraisal company shall have a working capital of at least RMB 2 million as a national institution, or RMB 1 million as a regional institution.
  • The working capital shall be escrowed as required by the CBIRC.
  • The business scope recorded on the business license complies with Article 43 of the Appraisal Provisions.
  • The Articles of Association or the partnership agreement complies with applicable requirements.
  • The name of the company complies with the requirements included in the Appraisal Provisions.
  • The chairman of the board of directors or executive directors and senior executives meet the qualifications set out in the Appraisal Provisions.
  • The management structure and internal control system comply with requirements issued by the CBIRC. The business model is reasonable and feasible.
  • The company has a fixed domicile which is suitable for its scale of business.
  • The company has business and financial information management systems in compliance with requirements issued by the CBIRC.
  • The company shall have a certain number of insurance loss adjustors.
  • The company complies with other requirements as set forth in laws, administrative regulations, and the provisions issued by the CBIRC.
  1. Latest progress in regulation on foreign access to the insurance appraisal market

As announced by PBC Governor Yi Gang, China is going to permit qualified foreign investors to engage in the business of insurance appraisal in China within a few months. On 27 April, 2018, the CBIRC issued Measures to Accelerate the Opening-up of the Banking and Insurance Industries, saying the CBIRC will speed up the implementation of the measures to allow qualified foreign investors to offer insurance appraisal services in China.

So far, the CBIRC has not issued any requirements on the qualifications of foreign shareholders with a 25% shareholding. However, based on our experience, the two criteria below may be included in the future:

  • (a) The investors shall have experience in the insurance appraisal business;(b) The investors shall comply with certain financial and asset-related requirements. The impact of higher foreign shareholding ratios on the insurance appraisal business

Looser restrictions on foreign shareholding means foreign investments in the insurance appraisal sector can pursue more flexible organizational forms, i.e. they can seek a controlling position in a joint venture or even establish a wholly foreign owned subsidiary. Further opening-up would strengthen competition and promote reform in the market. It would also improve market efficiency and help protect consumer benefits.