REPORT ON EXPERT MEETING ON INSURANCE REGULATION AND SUPERVISION IN CHINA (20-21 JANUARY 2000, BEIJING)

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1 REPORT ON EXPERT MEETING ON INSURANCE REGULATION AND SUPERVISION IN CHINA (20-21 JANUARY 2000, BEIJING) I. Introduction The Expert Meeting on Insurance Regulation and Supervision in China -- the first OECD meeting on financial matters with Chinese officials -- was held in Beijing on January 2000, co-sponsored by the governments of Japan and the United States. Participation was well above our optimistic expectations (85 people in all). On the Chinese side, 26 officials from the China Insurance Regulatory Commission (CIRC) -- of which 17 at director level and above -- attended throughout the meeting; the CIRC chairman (Mr. Ma) hosted a lunch at which he delivered a statement full of praise for the OECD and its work on insurance; and the vice-chairman (Mr. Feng) made an introductory speech and participated actively in the concluding session. In addition, representatives from 12 Chinese insurance companies were permitted to follow the proceedings of the meeting. Participation from OECD countries was also at high level (and particularly active) with a large presence from Belgium, Canada, Germany, Hungary, Japan, Korea, Switzerland, the United Kingdom and the United States. II. Content of the Meeting The discussion was frank but shaped by a cordial atmosphere; At the policy level, the Chinese attitude was strongly affected by the perceived impact of the WTO negotiations and officials took this opportunity to press the point that they will stick to the spirit of the agreements they are discussing bilaterally, especially in respect of national treatment to foreign insurance companies. Several OECD representatives stressed the benefits of a gradual opening of the market for the development of the Chinese economy and for Chinese consumers and business -- a view shared by our Chinese counterparts. Both sides concurred, however, that the establishment of a strong, fair and modern regulatory framework was important for a successful integration of China into the global insurance market. This element of "realism" was no doubt most helpful in shaping the cooperative climate of the meeting. From the technical viewpoint, the discussion was far-ranging, covering virtually all regulatory aspects that are at the forefront of Chinese concerns (competition; solvency regulation and supervision; investment rules; dealing with insurance companies in difficulties; insurance contract law; compulsory insurance) and for which the CIRC is trying to find solutions compatible with market principles but which, at the same time, takes account of the still undeveloped state of the domestic financial system. Considerable appreciation was expressed about the documentation provided by the OECD and country experts -- and it was made clear to us that the staff of the CIRC is going to study it in depth and will come back to us for further analysis. 1

2 Main points of each session are as follows. - Session I Overview of Insurance Market and Regulations The CIRC has provided an overview of Chinese insurance market and regulations. It also has pointed out some current problems such as (i) a limited number of competitive entities, (ii) a high degree of monopoly, (iii) insufficient development of intermediaries, (iv) insufficient development of a reinsurance market, (v) simplistic products and poor service, and (vi) inadequate qualification of people engaged in insurance. - Session II Solvency Management: Rules and Practices The CIRC has briefly explained its regulation on the solvency margin, which is similar to the UK model. It also has made it clear that it will continue to its efforts in establishing an efficient regulatory system. The OECD participants has pointed out the importance of (i) investments regulation in respect of the solvency of insurance companies, and (ii) proper accounting system including that related to technical provisions. - Session III How to Address the Difficulties Under this session, no presentation was made by the CIRC, because it has no experience to address insurers in financial difficulties. The CIRC has shown a strong interest in policyholder protection measures in a general sense such as (i) how to protect general rights of policyholders, and (ii) how to deal with complaints from policyholders. - Session IV Insurance Contract Law and Compulsory Insurance The CIRC has explained the current situation of insurance contact law in China: the Insurance Law of People s Republic of China covers both insurance contract and insurance supervision etc. The importance of (i) clauses protecting the interests of policyholders and (ii) ensuring the implementation of such clauses have been largely agreed on. The CIRC has explained that (i) they have two types of compulsory insurance automobile third party liability insurance (but, by local regulations by local governments) and travelers personal accident insurance -, and (ii) they are considering what kind of professional liability insurance should be treated as compulsory. The OECD participants has highlighted that, in view of the attendant disadvantages, insurance should only be made compulsory if deemed indispensable, for example on the basis of the gravity of risks involved and the frequency with which they are realised. III. Future Co-operation There was broad agreement that the co-operative process should be based on a flexible approach: with regard to special events, they could take the form of workshops, similar to the one just held or smaller meetings, with a limited number of experts, devoted to one or two special topics. The Chinese side will come back to us with proposals in this regard. The CIRC will also make a determination about the specific regulatory issues that would deserve analytical research by the OECD. 2

3 Mr. Feng mentioned a number of topics that are high in their priority list (for example: impact of e- commerce on insurance business; reinsurance; consumer protection; investment rules; regulation of intermediaries) -- issues which are also of major relevance to delegates to the Insurance Committee. Our Chinese counterparts also showed considerable interest in gaining access to the OECD information database on insurance. This is an area in which the OECD expect to make significant progress in the months ahead, on the basis of a project to develop an interactive database on the web which is being supported by voluntary contributions from the government of Japan. Finally, consideration was given to the possibility for a CIRC delegation to attend one of the forthcoming meetings of the Insurance Committee with a view to make a presentation on developments and policy issues in the Chinese insurance market. This would be an excellent opportunity for Member countries to acquire a better understanding of the major (and rapid) changes currently underway in China. IV. Conclusion This was a highly successful meeting that should pave the way for intense co-operation with China in the insurance field -- and would reassert the importance of the outreach activities of the Insurance Committee. 3

4 Expert meeting on Insurance Regulation and Supervision in China January 2000, Beijing chaired by Mrs. Helena Conruyt-Angenent and Mr. Ment Zhaoyi AGENDA Day 1: Thursday 20 January 09:00-09:40 Opening Opening Remarks by -- Mr. Feng Xiaozeng, Vice-chairman, China Insurance Regulatory Commission (CIRC) -- Mrs. Helena Conruyt-Angenent, Chairperson, OECD Insurance Committee -- Mr. Nobuyuki Sugimoto, Minister of Japan to China -- Mr. Tim Fisher, Program Director for International Insurance Development, U.S. Department of Commerce -- Mr. Rinaldo Pecchioli, Deputy Director, Directorate for Financial, Fiscal and Enterprise Affairs, OECD Session I: OVERVIEW OF INSURANCE MARKET AND REGULATIONS This introductory session aims to clarify the current structure and features as well as future prospects of insurance markets and regulations in the OECD Member countries and China. 09:40-10:00 Part A: Introduction to OECD Insurance Activities -- Mr. André Laboul, OECD 10:00-10:30 Part B: Regulatory and Supervisory Framework in OECD Member Countries -- Mr. Hisaya Ishii, OECD 10:30-11:00 Coffee Break 11:00-12:00 Part C: Overview of Insurance Market and Regulations in China -- Mr. Yuan Li, Deputy Director General, Policy and Legal Department, CIRC: Overview of Insurance Market and Regulations in China Discussant 4

5 --Mr. Andrew Kirkland, Manager for Greater China, Royal & Sun Alliance, United Kingdom 12:00-14:00 Lunch hosted by the CIRC Session II: SOLVENCY MANAGEMENT:RULES AND PRACTICES Ensuring financial soundness of insurers is the central concern of the regulatory and supervisory authorities. In this session, participants will explore various rules and measures to monitor and maintain the financial soundness of insurance companies, which may include solvency margin requirements, technical provisions, tariff and product controls, role of actuaries, adequate accounting, as well as the issues related to reinsurance. 14:00-14:20 Part A: Current Situation and Future Prospect in China -- Mr. Zhang Lianghua, Director, Life Insurance Supervisory Department, CIRC: Current Situation and Future Prospect in China in respect of Solvency Management 14:20-15:30 Part B: Solvency Regulation and Supervision in OECD Member countries -- Dr. Helmut Müller, President, Bundesaufsichtsamt für das Versicherungswesen, Germany: Developments in the EU -- Mr. George Reider, National Association of Insurance Commissioners, United States: Solvency Regulation and Supervision in the United States -- Mr. Yasuo Kiga, President, Foundation for the Advancement of Life Insurance around the World, Japan: Solvency Regulation and Supervision in Japan -- Mr. Jong-Moo Choi, General Manager, Samsung Fire & Marine Insurance, Korea: Solvency Regulation and Supervision in Korea Discussants Prof. Gerald Dickinson, City University, United Kingdom Mr. Peter Streit, Member of the Board, Federal Office of Private Insurance, Switzerland 15:30-15:50 Coffee Break 15:50-17:00 Part C: Investments/Technical Provisions -- Prof. Gerald Dickinson, City University, United Kingdom: Investment Regulations -- Mr. Peter Streit, Member of the Board, Federal Office of Private Insurance, Switzerland: Technical Provisions 5

6 Discussants Mr. Volker Henke, Head of Division, Central and East European and Foreign Affairs, German Insurance Association, Germany Mr. Nobuo Hara, Director & General Manager, International Department, Marine & Fire Insurance Association of Japan, Japan Day 2: Friday 21 January Session III: HOW TO ADDRESS THE DIFFICULTIES In spite of all efforts, it is sometimes inevitable for the authorities to face insurance companies in financial difficulties. This session will discuss how the authorities should deal with such companies. In an earlier stage of difficulties, the issues for the authorities may be how to detect the problems and how to rehabilitate the companies. In a later stage, the authorities may focus upon how to protect the policyholders most effectively. 09:00-10:00 Part A: Experience in OECD Member countries -- Mr. Kevin Cronin, President & CEO, International Insurance Council, United States: Early Warning System in the United States -- Mr. Kaoru Saito, Deputy Director, Insurance Supervisory Division, Financial Supervisory Agency, Japan: Policyholders Protection Measures in Japan -- Mr. Ian Kay, Project Manager, CGU plc, United Kingdom: Policyholder Protection Scheme in the United Kingdom Discussants Mr. Sa ndor Dögei, Deputy President, State Supervisory Authority of Insurance, Hungary Mr. Robert Sulzer, Regional Manager North Asia and India, Zurich Financial Services, Switzerland 10:00-10:20 Coffee Break 10:20-11:00 Part B: continued --Mr. Yun-Su Rhee, Deputy Director, Financial Supervisory Commission, Korea: Treatment of Insurance Companies in Difficulties --Mr. Volker Henke, Head of Division, Central and East European and Foreign Affairs, German Insurance Association, Germany: Liquidation of Insolvent Companies 6

7 Discussants Mr. Brant Free, Senior Vice President, International External Affairs, The Chubb Corporation, United States Mr. George Reider, National Association of Insurance Commissioners, United States Session IV: INSURANCE CONTRACT LAW AND COMPULSORY INSURANCE Chinese side would like to deal with issues related to insurance contract law, with a particular emphasis on disclosure. Even in a market-oriented economy, some classes of insurance are made compulsory because of specific reasons. aims to determine which classes of insurance should be made compulsory and how to ensure its enforcement. 11:00-11:15 Part A: Current Situation and Future Prospect in China in respect of Insurance Contract Law -- Mr. Wang Jian, Director General, Policy and Legal Department, CIRC: Current Situation and Future Prospect in China in respect of Insurance Contract Law 11:15-12:20 Part B: Insurance Contract Law --Ms. Pauline Casal, Executive Vice President, Rentenanstalt/Swiss Life, Switzerland: Disclosure when concluding Life Insurance Contract --Mrs. Helena Conruyt-Angenent, Chairperson, OECD Insurance Committee: Insurance Contract Law Discussant Dr. Helmut Müller, President, Bundesaufsichtsamt für das Versicherungswesen, Germany 12:20-14:20 Lunch Break 14:20-14:40 Part C: Current Situation and Future Prospect in China in respect of Compulsory Insurance -- Ms. Ding Xiaoyan, Deputy Director General, Non-life Insurance Supervisory Department, CIRC: Current Situation and Future Prospect in China in respect of Compulsory Insurance 14:40-15:40 Part D: Compulsory Insurance -- Mr. Sa ndor Dögei, Deputy President, State Supervisory Authority of Insurance, Hungary: Motor Vehicle Compulsory Insurance - Experience in Hungary - -- Mr. Hisaya Ishii, OECD: Compulsory Insurance in OECD Member countries 7

8 Discussants Mr. Nobuo Hara, Director & General Manager, International Department, Marine & Fire Insurance Association of Japan, Japan Mr. Howard Margules, President, Lincoln National (China) Inc, United States Mr. George Nichols, President, National Association of Insurance Commissioners, United States 15:40-16:00 Coffee Break Session V: FUTURE CO-OPERATION BETWEEN CHINA AND OECD AND CLOSING REMARKS In this session, participants will discuss possible modalities of future co-operation between China and the OECD. 16:00-16:40 Future Co-operation between China and the OECD Closing Remarks by -- Mrs. Helena Conruyt-Angenent, Chairperson, OECD Insurance Committee -- Mr. Feng Xiaozeng, Vice-chairman, China Insurance Regulatory Commission (CIRC) 8