China seeks stronger regulation with overhaul of Insurance Law

China's National Financial Regulatory Administration on Friday unveiled a draft revision of the country's Insurance Law for public consultation, proposing stronger oversight of insurers and their shareholders, tighter prudential regulation and enhanced consumer protection amid growing complexity in the insurance sector.

The proposed revisions also aim to strengthen risk-resolution mechanisms, broaden the scope for insurers to deploy funds and raise penalties for violations, as regulators seek to address gaps in the existing legal framework and safeguard the sustained and sound operation of the sector. The deadline for submitting public comments is Oct 3.

The NFRA said China's insurance market has developed rapidly in recent years, even as risks facing the sector have grown increasingly complex and diverse. As a result, shortcomings in the existing Insurance Law have become increasingly evident, making a comprehensive revision necessary to address prominent issues facing the development and regulation of the industry.

The revision focuses on strengthening institutional, conduct-based, functional, penetrating and ongoing supervision, while prioritizing the elimination of regulatory gaps, addressing shortcomings and clarifying regulatory mandates. It also seeks to put people first and improve the effectiveness of financial regulation across the board.

Among the main changes, the draft strengthens look-through supervision of shareholders, bringing both shareholders and actual controllers of insurance institutions within the scope of regulatory oversight.

The draft also seeks to improve the prudential regulatory framework by strengthening requirements for corporate governance, risk management and internal controls, while enhancing solvency regulation, asset-liability management and oversight of the use of insurance funds.

It further proposes improving risk-resolution mechanisms and refining rules governing risk disposal and market exit. Consumer protection would also be strengthened through improvements to insurance contract rules and clearer provisions prohibiting certain practices by insurance institutions.

In addition, the draft would raise the cost of violations by expanding the scope of legal liabilities and increasing the range of applicable fines.

Insurance industry experts said the draft would further broaden the scope for the use of insurance funds and provide insurers with a wider range of asset-allocation and risk-management tools. The changes would help insurers optimize asset allocation, better leverage their role as patient capital, and support the implementation of the country's financial priorities in five major areas, including technology finance, green finance and inclusive finance, while better serving the real economy.

The draft also clarifies shareholders' capital-contribution obligations, reporting obligations for related-party transactions and information-disclosure requirements. It prohibits practices including nominee shareholding arrangements and improper interference in a company's operations and management, while introducing additional regulatory enforcement measures and specific penalties targeting shareholders and actual controllers.

The NFRA said it will fully consider opinions and suggestions from all sectors of society, further revise and improve the relevant legal provisions, and actively work with the legislative authorities on subsequent procedures to facilitate the revision and enactment of the Insurance Law at the earliest possible date.