Insurance rules finally catching up
By Sun Min (China Daily)
Updated: 2004-05-19 08:36

The China Insurance Regulatory Commission (CIRC) released the newly amended regulation on the management of insurance companies yesterday.

The amendment, an effort by the regulators to catch up with changes in the insurance market, heightens the requirement for risk control and payment ability of insurers during business expansion.

It also encourages a faster pace of innovation and allows investors to take a bigger ratio of stakes in insurance firms.

"The amendment is aimed at setting new rules of play and upgrading the regulatory scheme within the insurance industry," a CIRC spokesman said yesterday.

It will push insurance companies to transform management ideologies and improve their services, while better protecting the interests of consumers, he said.

The original regulation, enacted in 2000, has been quickly outstripped by the rapidly expanding market. Increased competition created the need for more market-driven rules and raised the requirements for information disclosure and risk control, according to experts.

The new rules put more emphasis on the payment ability and capital adequacy of insurers.

The CIRC is also obliged to educate investors of the potential risks that come with investing in insurance companies. And company senior executives must report their business development plans during applications for operating licences, which will assist the regulators with their final decision.

Meanwhile, the biggest ratio a single shareholder can control in an insurance firm has been doubled from the original 10 per cent.

All the changes are positive news for investors and consumers, according to Tuo Guozhu, a professor with the Capital University of Economics and Business.

Better investor education and more transparency policies and management will help investors gain a better understanding of the insurance industry and be informed of potential risks.

Many small investors were not familiar with the business in the past and simply expected good investment returns while ignoring risks, Tuo said.

Therefore, some would simply withdraw their investment if they were not getting the returns they expected.

But that erodes the stability of insurers and affect their normal operations.

On the other hand, more emphasis on the capital strength of insurers will also help maintain the financial soundness of companies during their business expansions and guarantee fund adequacy for insurance payments.

China's insurance assets exceeded 1 trillion yuan (US$120.7 billion) by the end of April, according to CIRC's latest statistics.