2023 Insurance Law Practice Overview of China
Over the past decade, China’s insurance industry has grown rapidly and held the second-largest premium market share worldwide for many years, contributing steadily to the global insurance market. In 2022, despite the repeated impact of the pandemic and the turbulent capital markets, China’s insurance industry has been put to the test and has seen new developments with the introduction of various favorable policies, such as the start of pension insurance and green insurance and the continued “popularity” of D&O liability insurance.
Based on data released by China Banking and Insurance Regulatory Commission (CBIRC) on its official website on 11 January 2023, as of November 2022, the insurance companies’ original insurance premium income reached 635 billion USD with an increase of 4.95% year-on-year. year; the claims and benefits paid out were 192 billion USD with a decrease of 0.60% year-on-year; the total assets of the insurance industry reached 3.9 trillion USD; the net assets of the insurance industry reached 398 billion USD.
II. THE LAUNCH OF THE PERSONAL PENSION SYSTEM
As China’s aging process accelerates, new countermeasures to address the issue of elderly support are being introduced. 2022 is the starting year for the development of China’s personal pension system. In April, the General Office of the State Council was released The Opinions on Promoting the Development of Personal Pensions, announcing for the first time a complete institutional framework. Subsequently, the State Administration of Taxation, the CBIRC and other government agencies have issued supporting pilot rules to aid the personal pension system from the perspective of personal tax incentives and pension insurance products.
For example, the CBIRC issued The Notice on the Launch of Pilot Commercial Pension Business of Pension Insurance Companies In December, allowing four pension insurance companies to launch pilot business in ten provinces (cities), including Beijing, where pension insurance companies can provide one-stop services such as account management, pension planning, fund management and risk management to their clients.
In the meantime, the insurance industry has an inherent advantage in the personal pension track. Insurance funds have the characteristics of large scale, long term and stability. Insurance companies usually manage the incremental funds generated by pension products through their asset management subsidiaries. The insurance asset management companies can overcome market volatility to a certain extent and achieve investment returns in terms of liability-side demand and absolute returns, which are well compatible with the features of long-term funds like pensions. Therefore, insurance asset management products are an indispensable support for improving the personal pension financial system.
III. THE DEVELOPMENT OF GREEN INSURANCE
In 2022, the CBIRC issued The Guidelines on Green Finance for the Banking and Insurance Industry and The Notice on the Statistical System of Green Insurance Business, defining “green insurance” for the first time at the institutional level. It requires the insurance institutions to focus on environmental, social, and governance (ESG) risks in the areas of organizational management, system building, internal control management and information disclosure. Moreover, insurance institutions should use the results of ESG assessment as an important basis for cost management and investment decisions, and apply differential rates according to the risk profile of their clients.
IV. CONTINUED POPULARITY OF D&O LIABILITY INSURANCE
In the past three years, D&O liability insurance in the A-share market continues to be popular. According to the incomplete statistics from a China Securities Journal reporter, a total of 337 A-share listed companies announced the purchase of D&O liability insurance in 2022, and the number of insured companies rose 36% year-on-year.
The high increase in the insured rate is partly due to the representative litigation system created by the revised PRC Securities Law, which opened the door to A-share securities class actions and significantly increased the litigation risk for A-share listed companies and their directors and officers. The judicial practice of class action litigations such as the Kangmei Pharmaceuticals case, the Luckin Coffee case, the Feilo Acoustics case and the Huifeng Joint Stock case, has taken the liability risks of directors and officers to reality.
On the other hand, as the regulatory authorities continue to increase their efforts to investigate and punish information disclosure irregularities, in the first 11 months of 2022, 56 listed companies have been investigated by the China Securities Regulatory Commission (CSRC) for alleged information disclosure violations , a number that is 65% higher than the same period last year. Furthermore, the revised PRC Securities Law also strengthens the regulatory constraints on the “controlling minority” by expanding the scope of people who have disclosure obligations and strengthening the directors’ and officers’ disclosure obligations. There has been a steep increase in civil litigation cases involving misrepresentation or illegal information disclosure, and there is a positive correlation between litigation risk and demand for D&O liability insurance.
In addition, the number of A-share D&O liability insurance claims and potential claims has increased noticeably in 2022. Given the long-tail nature of D&O liability insurance claims, it is expected that more potential claims may be converted into actual claims in 2023. With the rise in litigation risk faced by listed companies and the increase in D&O liability insurance claims, the increase in D&O liability insurance premiums is an inevitable trend.
In the meantime, due to the Covid-19 pandemic and geopolitical turmoil, the Chinese insurance market also felt the unprecedented pressure during the past year, and those factors brought more insurance disputes, in the sectors such as business interruption insurance, credit and warranty insurance, profession liability insurance, even co-insurance and reinsurance.
Generally speaking, Chinese insurance market and regulation are undergoing the tremendous changes. With the slackening of China’s epidemic prevention policy and the recovery of the national economy at the end of 2022, it is predicted that China’s insurance and legal service market will face more opportunities and challenges in 2023.