In October of last year, China announced a new law called the “Interim Measures for the Supervision and Control of the Internet Insurance Business.” This supervisory program is being promulgated under that law. The first area of review is aimed at detecting any clear violations. For instance, the CIRC will identify any unqualified online insurance providers, and any companies with little or none of the required disclosures, including information not disclosed in a timely fashion. In addition, companies that overestimate the results of sales and profits, or illegally promise no investment risk and fixed returns, will be found in violation.
Another area of review will focus on the transfer of risk between internet finance and insurance agencies. Violations in this area include: insurance companies that are associated with unqualified third party platforms and the illegal pooling of money. Other potential violations include insurance agencies failing to perform proper due diligence, or ineffectively supervising third party platforms and their potential wrongdoings. This could lead to the unsuitable use of the capital if, for example, the platform or sales department sells other unrelated investment products.
The program covers two major categories of insurance: life insurance and financial insurance. With regard to life insurance companies, the supervisory scheme focuses on short to medium term management, liquidity risk, mismatch risk, and false description risk. On the financial insurance side, the supervisory scheme emphasizes preventing fake bank deposit documentation and ensuring the adequacy of other related risk management mechanisms.
The risk checking scheme will last for about half a year. The first period of review starts from now and will last until the end of June 2016. Insurance companies, themselves, must conduct a review of their online business operations beginning in 2015 and send their findings to the CIRC. The second period of review will last from July until October, during which time, the local CIRC branches will select some companies and perform direct checks of their business operations. Companies found to be in violation will be asked to reform and may be subject to penalties. The last period of review will begin at the end of October. At this time, companies must issue reports about the reform and the results of the risk checking campaign. In addition, these companies will be able to suggest other potential risks observed in the insurance industry and make any recommendations.
In general, the risk checking campaign will require companies to follow the rules strictly. To date, all effected parties have taken notice of this process and most insurance companies have already started the self-checking process, especially those services that have related P2P platforms.