Ten New Policies for Insurance Emphasize Strict Regulation (AI Translation)

【周刊提前读】保险新“国十条”突出“强监管” 高质量发展寻路

The Chinese insurance industry is undergoing significant regulatory changes with the introduction of a new set of "Ten National Guidelines" issued by the State Council on September 11, 2024. These guidelines focus on enhanced regulation, risk prevention, and high-quality development [para. 1]. This is the third such directive following similar policies introduced in 2006 and 2014, which previously influenced the industry's growth and regulatory environment significantly [para. 2].

The earlier versions of these guidelines contributed to a notable expansion in the number of insurance institutions and the scale of total assets. However, this growth accompanied challenges such as issues in corporate governance and fund utilization [para. 3]. Over time, the inadequacies in regulatory measures also became evident [para. 4]. Unlike its predecessors, the new guidelines shift the focus more towards stringent financial regulation and risk prevention rather than mere accelerated development [para. 5].

One of the crucial aspects of the insurance industry’s market-oriented reforms over the past decade, particularly in life insurance, has not been successful. Although life insurance reached a substantial scale of 29 trillion yuan by June 2024, the regulatory approach did not fully implement "liberalizing the front end while controlling the back end" [para. 6]. As a result, since 2019, there have been direct regulatory controls like the imposition of upper limits on the predetermined interest rates for life insurance products [para. 7].

The introduction of the new guidelines reiterates the importance of improving market exit mechanisms and clearly states that insurance institutions with high risks and unsustainable operations will face license revocation and bankruptcy liquidation according to the law [para. 8]. This is a key measure to prevent moral hazards within the industry [para. 9]. Additionally, the guidelines address other significant issues, including researching and improving a policy payout mechanism linked to risk [para. 9].

The new guidelines stipulate stringent regulation across various fronts, including market entry, continuous supervision of insurance institutions, and severe rectifications for illegal and non-compliant behaviors [para. 10]. As of 2017, regulatory authorities focused on rectifying the industry’s risks and tightening regulations on market entry and shareholder qualifications [para. 11]. Between 2011 and 2017, several new insurance companies were approved under lax regulations, leading to many risks that are now coming to the forefront [para. 12].

Since 2017, only a handful of new insurance institutions with special missions have been approved to operate [para. 13]. The adjustments have seen capital increases mainly from local state-owned assets, indicating a shift away from private enterprises and even central state-owned enterprises in some cases [para. 14]. The new guidelines emphasize a blacklist-based approach for shareholders with significant legal or regulatory violations to intensify efforts in purging major illegal stakeholders [para. 15].

Moreover, efforts into regional and hierarchical optimization of institutions have led to a significant reduction of insurance branches, with over 1,000 closures in 2021 alone [para. 16]. Strict scrutiny of executive qualifications has resulted in a shortage of qualified general managers for many insurance companies [para. 17].

Corporate governance and the utilization of insurance funds continue to be priorities under the stringent supervision [para. 19]. For instance, a new pricing mechanism linked to market interest rates was introduced in August 2024 to allow for more flexible adjustments in insurance products [para. 20]. The guidelines also propose a differentiated regulatory system for insurance companies based on their risk ratings, ensuring higher oversight for high-risk entities [para. 21].

Risk prevention remains a crucial goal, and new measures have been suggested to address both asset and liability aspects. These include counter-cyclical regulation and improved asset risk classification [para. 24]. Establishing clear guidelines for the Insurance Security Fund and devising a risk-linked policy payout mechanism are also recommended [para. 25].

In conclusion, the new "Ten National Guidelines" emphasize stringent regulation, comprehensive risk prevention, and a shift towards high-quality development within the insurance sector [para. 31]. With enhanced oversight and clear policy directions, these guidelines aim to address existing challenges and promote sustainable growth in the industry.