The China Insurance Regulatory Commission (CIRC)
released the newly amended regulation on the management of
insurance companies Tuesday.
The amendment, an effort by the regulators to catch up with
changes in the insurance market, raises the requirements for risk
control and capital adequacy.
It also encourages a faster pace of innovation and allows
investors to take larger stakes in insurance companies.
"The amendment sets new rules of play and upgrades the
regulatory scheme within the insurance industry," a CIRC spokesman
said Tuesday.
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.
Investors must be educated about the potential risks that come
with investing in insurance companies. Company senior executives
must report their business development plans during applications
for operating licenses, which will assist the regulators with their
final decision.
Meanwhile, the biggest stake a single shareholder can control in
an insurance firm has been doubled from the original 10
percent.
All the changes are positive news for investors and consumers,
according to Tuo Guozhu, a professor at the Capital University of
Economics and Business.
Better investor education and more transparency in policy 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 high returns while ignoring risks, Tuo
said. Some would simply withdraw their investment if they were not
getting the returns they expected, but that erodes the stability of
insurers and affects 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.
(China Daily May 19, 2004)