The Development and Regulation of China's Insurance Market: History and Perspectives

• Author: Sharon Tennyson,Maoqi Wang,Haizhen Zhou,Bingzheng Chen
• Date: 01 September 2014
• Published date: 01 September 2014
• DOI: http://doi.org/10.1111/rmir.12012

Risk Management and Insurance Review

C

Risk Management and Insurance Review, 2013, Vol.17, No. 2, 241-263

DOI: 10.1111/rmir.12012

PERSPECTIVES

THE DEVELOPMENT AND REGULATION OF CHINA’S

INSURANCE MARKET:HISTORY AND PERSPECTIVES

Bingzheng Chen

Sharon Tennyson

Maoqi Wang

Haizhen Zhou

ABSTRACT

China’s private insurance market has been developing rapidly since the 1980s.

Regulation of the market has developed in tandem with its growth. This article

provides a systematic overview of China’s insurance regulatory system and

the evolving process of insurance supervision and regulation. The nature and

direction of regulatorychanges are evaluated in light of theories of public reform

and the special character of China among developing economies.

INTRODUCTION

Although China’s modern commercial insurance market has a history of over 200 years,

due to the socialist planned economy the domestic insurance industry was effectively

closed from 1958 through 1979. On November 19, 1979, the People’s Bank of China held

the National Insurance WorkingConference in Beijing and made the decision to reestab-

lish the domestic insurance business. From 1980 onward, China’s insurance industry

has developed rapidly, becoming one of the fastest growing industries in the economic

system and one whose importance continues to rise. Nominal premium income has

grown at an average rate of over 30 percent per year,and China’s insurance market now

ranks as the sixth largest in the world.1

This article was subject to double-blind peer review.

Bingzheng Chen is a Professor in the Department of Finance, School of Economics and Manage-

ment, Tsinghua University, Beijing, China. Sharon Tennyson is a Professorin the Department of

Policy Analysis and Management, Cornell University, Ithaca, NY 14853; phone: (607) 255-2619;

e-mail: sharon.tennyson@cornell.edu. Maoqi Wang is a Ph.D candidate in the Department of

Finance, School of Economics and Management, Tsinghua University, Beijing, China. Haizhen

Zhou is an Associate Professor, School of Finance, Zhejiang University of Finance & Economics.

The authors are thankful to the referees for the invaluable suggestions that improved this article

tremendously.

1Insurance premium growth calculated from China’s Insurance Yearbook. The ranking of China’s

insurance market is measured by total premiums in U.S. dollars obtained from SwissRe Sigma

(2012.02). That report ranked China sixth in the world, after the United States, Japan, Great

Britain, France, and Germany,in 2011.

241

242 RISK MANAGEMENT AND INSURANCE REVIEW

Concomitant with the development of the private insurance industry, China had to

develop a modern insurance regulatory system. In 1995, the promulgation of the Insur-

ance Law of People’s Republic of China (the Insurance Law) marked a critical step in the

standardization of China’s insurance regulation. To implement the Insurance Law, the

People’s Bank of China established an Insurance Division responsible for the supervi-

sion of domestic insurance companies. In 1998, insurance regulation was separated from

banking and securities regulation through establishment of the China Insurance Regu-

latory Commission (CIRC). This marked the beginning of a comprehensive insurance

regulatory system in the country.

This insurance regulatory system is still young and evolving. As the insurance mar-

ket has matured, new regulatory issues have emerged and created the need for

regulatory changes. Prior to 1995, the regulatory emphasis was on market behav-

ior, with solvency supervision receiving little emphasis. With China’s entry into the

World Trade Organization (WTO) and the opening of the insurance market to for-

eign capital in 2000, solvency regulation began to be the core focus of regulatory over-

sight. The modification of the Insurance Law in 2009 strengthened information disclo-

sures, standardized contracts and procedures, and expanded the rights of consumers

in order to increase the transparency of insurance transactions and enhance market

functioning.

Regulatory philosophy has evolved as well. Until recently, the role of China’s insurance

regulators was seen to be primarily the promotion and development of the domestic

insurance industry. As problems associated with the rapid development of insurance

markets have become apparent, regulatory focus has changed to that of creating a fair

and orderly market environment. This change is evidenced by the remarks of Mr. Wu

Dingfu—the chairman of the CIRC—in 2010, who stated that “the regulators used to

be the coaches of the industry, who are concerned with building the market; but in the

new era, insurance regulators should act more like judges, whose efforts should change

from market construction to market supervision.”2In keeping with this evolution, the

2009 modification to the Insurance Law and recent department rules issued by the CIRC

focus on improving supervision of both solvency and market conduct. Increasingly, it

is recognized that prudential supervision and consumer protections work together to

maintain confidence in insurance markets and to promote the healthy development of

the industry.

This article provides an account of China’s insurance market development, with spe-

cial emphasis on developments in insurance law, regulation, and supervision over

the past decade. The current insurance market situation and problems are discussed,

and the outlook for market development and regulation in China is also consid-

ered. The next section of the article describes the development of China’s insurance

market, and following that “China’s Insurance Regulatory System” describes China’s

insurance regulatory system. The evolution of insurance regulation in recent years

is discussed in the section “Evolution of Insurance Regulation and Supervision,”

and the final section provides the authors’ perspectives on insurance regulation in

China.

2An interview of Mr. WuDingfu, Chairman of the CIRC. “China Finance,” 2010.06.