The insurance regulator CIRC is leaving no stone unturned in its continued drive to reduce risk in the insurance industry since an outcry in February against “financial crocodiles” in the stock market.
The CIRC’s latest move in tightening supervision over insurers was a call to set up a unified insurance risk platform, to prevent the concentration and expansion of risk related to consumers.
To address risk, the CIRC issued its directive on 13 September, titled “Opinion on Strengthening the Work on Insurance Risk related to Consumers”. The regulator will work with insurance companies on building up a national database containing tips on insurance consumer risk, and on the organisation, coordination, and supervision of work related to consumer risk for the insurance industry.
Before this, on 30 August, the CIRC and 30 other government agencies and regulators signed a memorandum of understanding (MoU) to jointly clamp down on illegal activities in the insurance sector.
Errant insurers will face restrictions in establishing insurance, banking, and securities subsidiaries or branches for their wrongdoings and will be curbed in participating in government procurement exercises and getting government subsidies, according to the MoU.
In addition, with effect from 1 October, insurers will be barred from selling add-on universal products as well as insurance products which allow withdrawals or redemptions within the first five years of purchase. Where annual payments are to be made after the first five years, the amount cannot exceed 20% of the total premiums paid to date.
These prohibitions are set out in a regulation issued in May 2017 by the CIRC regarding the development and design of life insurance policies. Industry players say that the regulation will have a big impact on sales at the beginning of 2018 and on the banassurance channel.
Greater share ownership transparency
CIRC is also strengthening its supervision over the shareholding structure of insurance companies and is requiring greater transparency of share ownership or controlling interests. Inspections will be stepped up to detect connected party dealings. Insurers will be asked to reveal their ultimate controlling shareholder. A proposed regulation on this, currently in draft form, has already affected acquisitions in the insurance sector.
For instance, Bohai Financial Investment Holding has announced that it is dropping its plans to acquire a 14.77% stake in Hua An P&C Insurance. The abandonment of the proposed deal is the first by an insurance company since the CIRC circulated its draft guidelines in July this year that would tighten up rules related to shareholders of insurance companies.
CIRC deems the various measures it is taking necessary as it says that the insurance industry faces multiple risks in areas ranging from product mix, asset-liability matching, solvency, corporate governance, investments, and reputation.
Notably, Mr Xiang Junbo, who was CIRC Chairman, was detained by the authorities in May, removed from his position, and is being investigated for suspected corruption. A