October 16, 2019

CBIRC Circular Identifies Problems with Life & Health Products

On 19 September 2019, the China Banking & Insurance Regulatory Commission ('CBIRC') publicly circulated ('Circular') a list of endemic problems CBIRC had identified during the course of its recent investigation and supervision of certain life and health insurance products ('Product Defects') manufactured by certain named insurance companies ('Monitored Insurers'). The Circular requires the Monitored Insurers to make conscientious rectification of the Product Defects, and to strive assiduously to improve their internal product management processes.

The Circular states that the Product Defects are largely centred around the manner in which Monitored Insurers go about registering and filing their new insurance products with CBIRC ('Registration'). Specifically identified Product Defects include (i) the large number of new Products which, after successful Registration, are then not released into the market at all, or, if released, achieve dismally low sales numbers; (ii) the significant number of material errors and omissions in documentation filed with CBIRC as part of a Product's Registration process; (iii) glaring inconsistencies between the purported level of coverage offered by a Product and such Product's actual coverage limits; (iv) disguised weakening of a Product's actual cover; (v) Product coverage exclusions which defy common-sense; (vi) unconscionable methods of calculating a Product's premium; and (vii) service-fee-to-premium ratios for certain health insurance Products which exceed those ratios allowable under CBIRC regulation (i.e. service fees are too high).

The Circular states that CBIRC will continue to monitor, stringently, any Product Defects, and that CBIRC demands that Monitored Insurers clean up their acts and dramatically improve their Product design, development and Registration processes. The Circular warns all Insurers that any further identification of Product Defects by CBIRC will lead to CBIRC (i) taking administrative action against the breaching Insurer; (ii) sanctioning and penalising the breaching Insurer; and (iii) pursuing actions against such breaching Insurer's individual employees responsible for the Product Defects.