On October 28, 2002, the China Insurance Regulatory Commission ("CIRC") unveiled the new Insurance Law (promulgated by the National People's Congress) effective from January 1, 2003. The new law makes several important adjustments to China's insurance sector, and enables market-based solutions to certain issues. The new law addresses government regulation of the insurance sector, as opposed to regulating insurance contract clauses. The new law shifts to more market-oriented and policy-based regulations. For example, the CIRC will carefully monitor the solvency capability of insurance companies according to specially formulated benchmarking standards. The amended law partially lifts restrictions against insurance enterprises and their business operations. The new law makes clear that administration of the insurance industry is vested solely in the CIRC. Under prior law, regulators set insurance clauses and insurance premium rates for most insurance products. The amended law stipulates that only clauses and premiums for policy-mandated insurance and new types of life insurance products need prior approval from insurance regulatory authorities. Clauses and rates for other types of insurance products are to be reported to the CIRC for filing on the record. The new law also allows property insurance companies to engage in cross-class operations in short-term health insurance and accidental injury insurance businesses, subject to regulatory approval. The new law places no restrictions on the number of insurance companies that an incorporated agency may serve. The amended Insurance Law stipulates that insurance funds shall not be used to establish securities business organizations or to establish enterprises beyond the realm of insurance. The State Council may stipulate appropriate investment vehicles for insurance funds. There are some unclear areas in the new Insurance Law, and the CIRC is expected to engage in rulemaking on penalty provisions, administrative regulations for insurance companies, and application of insurance guarantee funds.
