It is common nowadays for international corporations to take out a single master policy covering global risks. However, given the mandatory Chinese regulatory requirement that domestic entities in China must take out insurance with insurance companies registered in China, it is still not entirely clear whether it is valid under Chinese law for foreign legal entities which have subsidiaries in China to take out a single insurance policy issued by a foreign insurer covering all their global subsidiaries (the Global Master Policy).
Article 7 of the PRC Insurance Law provides as a general principle that:-
"Legal entities and other organizations within the territory of the People's Republic of China which need domestic insurance shall take up insurance from insurance companies within the territory of the People's Republic of China.”
- Whilst this legal provision has not yet been considered by the legislative authority or the Supreme People’s Court of China, the China Insurance Regulatory Commission (CIRC)1, in an official reply to one of its local branches, has held that, according to Article 7 of the PRC Insurance Law, an insurance policy must be issued by an insurance company registered in China in the following circumstances:the insurance applicant or the insured is a legal entity / organisation registered in China; and
- the subject matter / insurable interest is within the territory of Mainland China.
On the above basis, it appears quite clear that a foreign entity intending to take out an insurance policy covering only the risks of its Chinese subsidiary must take out such a policy from an insurer registered in China. However, it remains unclear whether the restriction mentioned above also applies to the Global Master Policy which covers not only the risks of the insured's Chinese subsidiaries, but also those of its other subsidiaries all over the world.
In two official replies issued by CIRC in 2003 and 2009 respectively (Bao Jian Ban Han 2003 No.19 and Bao Jian Ban Han 2009 No.124), it was stated that a foreign entity could take up an insurance policy covering the subject risks located in China for its branches and offices within China from a foreign insurer but could not do so for its subsidiaries which are registered in China as independent legal entities.
Another key issue here would be the nature and location of the subject matter/ risk. In an official reply issued by CIRC in 2002 (Bao Jian Ban Han 2002 No. 112), it stated that, amongst other things, there should be no restriction on foreign insurers regarding cross-border transportation insurance and certain comprehensive cross-border subject matters. However, no further explanation has been given regarding what insured subject matter would fall into the category of comprehensive cross-border subject matters.
In conclusion, although neither Chinese Law nor the CIRC regulations explicitly prohibit foreign insurers from issuing a Global Master Policy covering subsidiaries in China, to be on the safe side, we suggest that foreign insurers should arrange for a local / fronting policy to be issued in China either by itself (if it is licensed to do so) or via its local insurer partners when issuing the Global Master Policy. Otherwise, the subsidiary in China may have difficulty in benefiting from the Global Master policy and receiving policy proceeds abroad.
1 CIRC merged with the China Banking Regulatory Commission (CBRC) to become the China Banking and Insurance Regulatory Commission (CBIRC) in April 2018.