As if the existing tech crackdown wasn’t sufficient, China just rolled out an internet insurance rectification plan, which seeks to force insurtech companies into regulatory compliance. Insurance companies have very little time in order to meet the requirements.
What is the new rule all about? On August 11, the China Banking and Insurance Regulatory Commission (CBIRC) stated that it will launch a special rectification of internet insurance chaos, requiring insurance technology companies to end bad practices such as improper marketing and pricing practices and strengthen user privacy protection. The “Notice on Carrying out Special Rectification of Internet Insurance Disorders” lays out its plan to identify weaknesses and violations of China’s internet insurance activities under a tight schedule, wrapping up by the end of October this year.
There’s not much turnaround time. Investigation work is scheduled to be completed by September 20, 2021. Each insurance institution is required to set up a group dedicated to ensuring regulatory compliance and set up a plan to rectify any noncompliance issues by August 15. This means that insurance companies have to inspect themselves, draw up a list of issues, and ensure that they are all corrected. Banking and Insurance Regulatory Bureaus will conduct special inspections where necessary.
Practices requiring rectification include failing to provide sufficient offline service, hosting misleading sales, imposing excessively high service fees, and misusing user information. Procedures, operations, and internal controls all should be improved during this process. According to Wang Lei, director of the Market Analysis Division of the Insurance Intermediary Supervision Department of the CBIRC, there are also cases of illegal insurance businesses, in which internet platforms sell insurance but do not hold insurance business licenses.
The rectification program comes at a time when the Chinese insurtech industry is growing rapidly, with aggressive increases in the scale and reach of digital platforms. As of last year, there were 146 insurance companies engaging in online insurance business. These included 74 property insurance companies and 72 life insurance companies. Annual premiums of online insurance products amounted to 298 billion RMB, comprising 6 percent of total insurance industry premiums. Online health insurance grew the fastest, increasing by 58.8 percent, while annuity insurance grew by 38.8 percent.
Online insurance companies will be expected to comply with existing regulations. A major regulation was issued last year; in December 2020, the CBIRC issued the “Internet Insurance Business Supervision Measures,” which were implemented on February 1, 2021. The measures sought to regulate insurance business and marketing, improve customer service, and protect consumer rights. They also clearly state that insurtech can only be carried out by CBIRC-regulated insurance institutions.
While China tech and fintech investors may cringe from the additional regulatory sting, this new crackdown will have a positive long-term impact on the online insurance industry by protecting consumers and preventing the buildup of excessive risks in the financial/insurance industry. In particular, the existence of unlicensed companies selling insurance is certain to create fallout for both the firm and consumers. China’s experience with unlicensed and/or risky financial firms is extensive; many shadowy firms have arisen and fallen in recent years, generating financial chaos for consumers, investors, and employees. Regulators are not fond of the social unrest caused by poor financial practices.
Unlike the crackdown on the edtech industry, in which the government banned companies that teach school curriculums from making profits, raising capital, or going public, the current rectification of the online insurance industry seems rational, and more likely to generate healthy firms in the future. This did not appear to be a poorly justified decision that would strangle the profits of particular firms, but a means to curb the excessive risks in the insurtech sector.
So, China’s tech crackdown saga goes on. This time, the regulation is less shocking, even if the turnaround time for compliance is short. Hopefully, the end of the regulatory drama is coming soon.