Legal Update: China’s Third National Ten Policies on the Insurance Industry

Introduction
On 11 September 2024, the State Council issued Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Insurance Industry (referred to as the Several Opinions), marking the third "National Ten Policies" for the insurance industry. This key policy document outlines a strategic vision for the next decade to strengthen regulatory oversight, promote product innovation and ensure the long-term stability of China's insurance sector. Two significant milestones are set: to develop a high-quality insurance framework with expanded coverage and improved service standards by 2029, and to cultivate a globally competitive insurance market with a diverse range of products and robust regulatory mechanisms by 2035. The document also emphasises aligning the insurance industry with national strategies, thereby strengthening its role in supporting the real economy and public welfare.

Regulatory Reform, Risk Prevention, and Corporate Governance
The Several Opinions place a profound emphasis on regulatory reform and risk prevention, recognising these as fundamental to achieving high-quality development. Central to these reforms is the implementation of stricter market entry criteria, ensuring that only financially stable institutions with robust governance structures are permitted to operate within the market.

Ongoing supervision of insurance companies is another critical aspect of the policy. The Several Opinions mandate rigorous and continuous monitoring, particularly targeting shareholders with excessive leverage or involvement in non-insurance activities. To mitigate potential risks, a blacklist mechanism will be introduced to effectively prevent such shareholders from acquiring controlling positions in insurance entities. This measure is designed to prevent conflicts of interest and maintain the financial health of insurance companies.

The policy also introduces a risk-based supervisory framework to optimise the allocation of supervisory resources. High-risk institutions will be subject to more intensive scrutiny, ensuring that potential vulnerabilities are addressed proactively, while lower-risk companies will benefit from streamlined supervision. This strategic allocation will improve the overall effectiveness of the regulatory effort.

Enhanced corporate governance is also a cornerstone of the Several Opinions. The document outlines stringent measures to improve transparency and accountability of senior management and shareholders. Penalties for regulatory violations, including disqualification from the industry and compensation clawbacks, are established to enforce compliance and deter misconduct. In addition, the policy advocates for a dynamic risk management framework that encompasses solvency, asset allocation, and capital management. By introducing a dynamic adjustment mechanism for premium rates and liabilities, the policy ensures the financial resilience of insurance companies in the face of economic fluctuations.

Product Innovation and Service Expansion
Innovation in insurance products is a key focus of the Several Opinions. The policy encourages the development of commercial pension insurance and individual pension products, which are essential components of the third pillar of the pension system. These products are designed to meet the growing demand for diversified retirement solutions and provide individuals with more robust and flexible options for long-term financial security.

Health insurance is another area slated for significant enhancement. The Several Opinions advocate for the integration of new medical technologies, drugs, and equipment into health insurance coverage. This initiative aims to improve accessibility to advanced healthcare services, thereby increasing the overall quality of life for the public.

Catastrophe insurance is also set to expand, with the policy focusing on improving coverage and response mechanisms for natural disasters. Given the increasing frequency and severity of such events, comprehensive catastrophe insurance is crucial for mitigating economic losses and ensuring community resilience. Agricultural insurance is another area which will receive targeted improvements to broaden and enhance coverage for agricultural infrastructure and rural regions. This expansion aims to bolster the resilience of rural communities against economic and environmental shocks, ensuring that farmers and agricultural enterprises are better protected.

Furthermore, reforms in motor insurance, particularly for new energy vehicles, reflect China's commitment to sustainable transportation and environmental protection. These reforms are designed to support the transition to greener vehicles, aligning insurance products with national sustainability goals.

Finally, the promotion of inclusive insurance products seeks to extend coverage to underserved groups, including low-income individuals and new urban residents. By improving accessibility and affordability, the insurance sector can provide broader societal benefits and contribute to social equity.

Investment in the Real Economy and ESG Integration
The Several Opinions underscore the strategic importance of using insurance capital to support national economic priorities. Insurance companies are encouraged to invest in emerging industries such as renewable energy, advanced manufacturing, and modern infrastructure. These investments are intended to provide long-term, stable funding that in line with China’s development objectives, thereby acting as a stabilising force within the economy.

Environmental, Social, and Governance (ESG) principles are integral to the policy’s vision for sustainable development. The Several Opinions advocate for the development of green insurance products that support environmental sustainability and carbon reduction initiatives. By encouraging insurers to underwrite environmentally friendly projects and invest in renewable energy and green infrastructure sectors, the policy aligns the insurance industry with China’s broader goals of achieving carbon neutrality and sustainable growth.

Technological Integration and Digital Transformation
Digital transformation is an important component of the Several Opinions, recognising the critical role of technology in improving operational efficiency and customer service in the insurance sector. The policy encourages the adoption of advanced technologies such as artificial intelligence, big data, and cloud computing. These technologies are expected to revolutionise various aspects of insurance operations, including underwriting, claims handling, and customer service, making these processes more efficient and accurate.

A significant initiative outlined in the policy is the development of a unified health insurance data platform. This platform aims to facilitate seamless information sharing between medical insurance and commercial health insurance systems.

The push for digitalisation includes optimising of risk assessment processes to ensure that insurance products are accurately priced and aligned with the actual risks they cover. This not only strengthens the financial stability of insurance companies but also ensures that consumers receive fair and appropriately priced insurance products.

Conclusion
The Several Opinions represent a comprehensive and strategic overhaul of China’s insurance sector, setting the stage for transformative growth over the next decade. By prioritising regulatory reform, product innovation, and the integration of ESG principles, this policy document lays a solid foundation for the future of the industry. Insurance companies must adapt to the evolving regulatory landscape, embrace technological advances, and strengthen governance practices to remain competitive and stable.

 

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