Laws of the People's Republic of China

Some Opinions of the State Council concerning the Reform and Development of the Insurance Industry

Guo Fa [2006] No. 23

The people's governments of all provinces, autonomous regions and municipalities directly under the Central Government, all ministries and commissions of the State Council and the institutions directly subordinate to the State Council:

Since the reform and opening up, especially the 16th Party Congress, remarkable achievements have been made in the reform and development of the insurance industry in China. The insurance operations have grown rapidly, the service scope has been continuously broadened, the market system has been increasingly perfected, the laws and regulations have been gradually improved, the supervisory level have been continuously enhanced, and the risks have been effectively prevented and avoided, which makes the overall strength obviously reinforce This is playing an important role in promoting the reform, guaranteeing the economy, stabilizing the society, benefiting the people and etc. However, since the insurance industry has a late start, a weak base and a narrow coverage, its functions are not fully exerted, and it does not adapt to the requirements for building a well-off society in an all-round way and constructing a harmonious socialistic society, to establish a sound socialistic market economy, or to the new situations of economic globalization, financial integration and opening up to the external in an all-round way. Now facing the future, the development of insurance industry stands on a new historical starting point with huge development potentiality and space. With the purpose of fully implementing the scientific development view, clarifying the guiding ideology, objectives, tasks, policies and measures for the reform and development of the insurance industry for a period in future, accelerating the reform and development of the insurance industry, and promoting the construction of a socialistic harmonious socialistic society, we hereby propose the following opinions:

I.

Fully recognizing the important significance of accelerating the reform and development of the insurance industry

Insurance has the function of economic compensation, financing and social management. It is a basic means of risk management under market economy conditions, it is also an important part of the financial system and the social security system, and it plays an important role in building a harmonious socialistic society. Accelerating the reform and development of the insurance industry can help respond to the risks of disasters and accidents, and guarantee the safety of the people's lives and properties as well as the stable operation of economy. Every year, the people of China suffer a huge life and property loss due to natural disasters and various traffic products and other accidents. Because of the restrictions in aspects of system, mechanism and etc., only a low proportion of enterprises and families buy insurances, and only a small part of losses from disasters and accidents can be compensated through insurance, which is not beneficial to timely resuming the work and living order and meanwhile increases financial and affair burdens of the government. Accelerating the reform and development of the insurance industry and building a market-based mechanism of compensating losses from disasters and accidents will play an irreplaceable important role improving the disaster prevention and salvation system, enhancing the capabilities of the whole society to prevent risks and promoting the rapid and healthy development of the economy.

Accelerating the reform and development of the insurance industry helps to improve the social security system and meet the masses' multi-level demands for social security. At present, China is within a key period of improving socialistic market economy, the ageing progress of the population speeds up, the people's living standards improve and the demands for social security become increasingly intense. Accelerating the reform and development of the insurance industry and encouraging and inducing the masses to buy insurances of commercial endowment or health, etc. will be of important realistic significance to improving the social security system, enhancing the level of social security of the whole society, enlarging the demands of resident consumptions and realizing social stability and harmony.

Accelerating the reform and development of the insurance industry will help optimize the allocation of financial resources and improve socialistic market economy. The financial system of China develops unevenly with excessive indirect financing, which has infected the efficiency of allocating financial resources and obstructed the diffusion and elimination of financial risks. The beginning 20 years of the present century are an important period of great strategic opportunity for China to speed up its development, so the core function of finance in modern economy is even more prominent. Accelerating the reform and development of the insurance industry, exerting the important functions of insurance in allocating financial resources and promoting the coordinative development of currency market, capital market and insurance market will be of important significance to improve the financial system and the socialistic market economy.

Accelerating the reform and development of the insurance industry is beneficial to social management, innovations in public service and the improvement of the efficiency of government administration. With the deepening of the reform of administration system, the governments must integrate various social resources, make full use of market mechanisms and means, and continuously improve the social management and public services. Accelerating the reform and development of the insurance industry, actively adopting the insurance mechanism in social management, coordinating various interest relations, effectively eliminating social contradictions and disputes and propelling public service innovations will be an important promotion to improving the socialistic economic compensation mechanism, further transforming government functions and enhancing the efficiency of government administration.

II.

The guiding ideology, overall objective and major tasks of accelerating the reform and development of the insurance industry

With the advancement of the economic and social development of China and the continuous improvement of the socialistic market economy, the masses' recognition on insurance has been further deepened, masses' demands for insurance have become increasingly intense, insurance has come to play a more prominent role, and the base and conditions for its development has become increasingly mature. Accelerating the reform and development of the insurance industry has become necessary for promoting the construction of the harmonious socialistic society.

The guiding ideology of accelerating the reform and development of the insurance industry shall be: with Deng Xiaoping Theory and the important thoughts of "Three Represents" as guidelines, adhering to the human-oriented and all-roundly coordinated sustainable scientific development view, being based on the overall situation of reform, development and stability to focus on the resolving of the contradictions between the insurance industry and the economic and social development or the living demands of the people, deepen the reform, speed up the development, try to make it greater and stronger, develop a Chinese-characteristic insurance industry, fully exert the functions of insurance as an economic "roll booster" and social "stabilizer", so as to serve the construction of a well-off society in an all-round way and a harmonious socialistic society.

The overall objective shall be: to build up a modern insurance industry with a sound market system, wide service scope, credible and regulated operation, sufficient repayment capacity and strong synthetical competitive strength, which unifies the development speed, quality and efficiency. Surrounding this objective, the major tasks should be: to broaden insurance service scope, to actively develop the property insurance, life insurance, reinsurance and insurance intermediary market and to improve the insurance market system; to continue to deepen the reform of the system and mechanisms, improve the corporate governance structure, enhance the quality and level of opening to the external, and enhance the international competitive strength and the capacity of maintaining sustainable development; to propel independent innovations, adjust and optimize the structure, to transform the way of growth, and continuously advance the service level; to reinforce the management of the use of insurance funds, enhance the level of using funds, and to providing fund supports for national economic construction; to reinforce and improve the supervision, prevent and avoid risks, and concretely protect the lawful rights and interests of the insured; to improve the regulations and policies, propagandize and permeate insurance knowledge, speed up the establishment of the insurance credit system, impel the honesty and credibility construction, and build a favorable developing environment.

III.

Advancing experiments actively and steadily, and developing multi-form and multi-avenue agricultural insurances.

We shall carefully summarize the experience from experiments, study and make supporting policies, explore to establish an agricultural insurance development mode suitable for the situation of our country, regard agricultural insurance as an innovation to support agriculture, and bring it into the agricultural support and protection system. We shall exert the positivity of the Central Government, local governments, insurance agents, leading enterprises, farmer households and other aspects, exert the function of the agricultural departments in promoting agricultural insurance legislation, inducing farmers to buy insurances, coordinating the relations of all parties concerned, promoting the agricultural insurance development and etc., and we shall enlarge the coverage of agricultural insurance and stepwise establish a agricultural insurance system of multi-form operation and with multi-avenue supports.

We shall clarify the business scope of policy-based agricultural insurance, provide policy support and promote the development of agricultural insurance in our country. We shall change the singular mode of agricultural disaster relief with post-disaster financial subsidies, and stepwise establish an agricultural risk prevention and relief mechanism combining the policy-based agricultural insurance with financial subsidies. We shall explore the methods, breeds and proportions of subsidies provided by the central and local finance to farmers who have bought insurances, provide proper management subsidies to the policy-based agricultural insurance run by insurance agents, and stepwise establish a mechanism of long effect for the development of agricultural insurance. We shall improve the multi-level mechanism for transferring and sharing the risks of great agricultural disasters, and explore an agricultural reinsurance system supported by both central and local finances.

We shall explore and develop various agricultural insurance organizations of mutual or cooperative mechanism, and encourage leading enterprises to imburse farmer households who buy agricultural insurance. We shall support insurance agents to develop agricultural insurance products with moderate security, low premiums and exoteric certificate of insurance, and build up service networks and sales channels suitable for agricultural insurance. We shall support agricultural insurance agents to launch characteristic agricultural and other agriculture-involved insurance business, and advance the lever of agricultural insurance service .

IV.

Make overall plans on developing urban and rural commercial endowment insurance and health insurance, and improve the multi-level social security system.

We shall adapt ourselves to the new situation of improving the socialistic market economy and building a new socialistic countryside, make great efforts to develop commercial endowment insurance and health insurance and other life insurance business to satisfy the demands of urban and rural masses for insurance security.

We shall actively develop insurance businesses of endowment for individuals and entities, encourage and support qualified enterprises to set up multi-level pension plans through commercial insurance and to improve the security for employees. We shall fully exert the professional advantages of insurance institutions in actuarial analysis, investment, account management , pension payment and other aspects ., and encourage them to actively participate in enterprise annuity business, broaden and supplement endowment insurance service scope. We shall endeavor to promote the development of health insurance, and support relevant insurance institutions to invest in medical institutions. We shall make great efforts to develop commercial endowment insurance, health insurance and accidental injury insurance suitable for farmers. We shall establish the contraceptive operation insurance and rural family endowment insurance system for family planning, and shall actively explore effective methods for insurance institutions to take part in new rural cooperative medical care management, and propel the healthy development of new rural cooperative medical care.

V.

Making great efforts to develop liability insurance, and improving production safety security and emergency responding mechanism.

We shall fully exert the important functions of insurance in preventing disasters and reducing and in dealing with disasters and accidents, and bring insurance into the disaster and accident prevention and relief system. We shall continuously intensify the risk management capacities of insurance institutions, utilize the insurance mechanism which unifying pre-insurance prevention and after-the-event compensation, fully exert the incentive and restrictive functions of the insurance premium rate leverage, reinforce before-the-event risk prevention, reduce disasters and accidents and promote t safe production and emergency response management.

We shall adopt methods such as market-oriented operation, policy-based guidance, government propelling, legislative compulsion and etc. to develop the insurance businesses in aspects of safe production liability, construction engineering liability, product liability, public liability, practicing liability, board director's liability, environment pollution liability and etc. We shall carry out experiments of compulsory liability insurance in coal mining and other industries, and after having accumulated enough experience, stepwise extend compulsory liability insurance to the highly dangerous industries, public gathering places, domestic and abroad travel and etc. We shall improve the risk deposit system for safe production in highly dangerous industries, and explore in normative management and operation through professional insurance agents, so as to further improve the compulsory liability insurance system for motor vehicles traffic accidents. We shall establish uniform medical treatment liability insurance after experiments, and propel the insurance industry to take part in "safe construction".

VI.

Propelling independent innovations, advancing the level of service.

We shall improve the insurance innovation mechanism with insurance enterprises as the subjects and market demands as the guidance, and in draught insurance innovation mechanism combining with independent innovation. We shall develop high technological insurance for industries such as aviation, space flight, bio-medicine and etc., and provide risk guaranty for independent innovations. We shall steadily develop consumption credit guaranty insurance for houses and automobiles and etc., and promote the consumption growth. We shall actively propel insurance business in the fields of construction project, project financing and etc., support and develop export credit insurance, so as to promote foreign trade and investment. We shall make great efforts to develop various property and life insurance products that meet the demands of the people of different classes, different occupations and in different areas, optimize product structure and broaden the service scope.

We shall utilize modern information technology to increase the content of science and technology of insurance products, develop new service methods such as online insurance and etc., and advance the service level comprehensively. Enhance the insurance actuarial capacities, and determine the insurance premiums rate scientifically. We shall endeavor to make insurance clauses exoteric and insurance service normative, and we shall reinforce the education and trainings of insurance sales staff so as to advance the sales service level. We shall fully exert the positive functions of insurance intermediary institutions in insurance underwriting, claim handling, risk management, product development, and etc. so as to provide more professional and convenient insurance services. And we shall speed up the development of reinsurance industry reinsurance business, and promote the coordinative development of reinsurance market and direct insurance market. We shall make overall plans on regional development of the insurance industry, and advance the insurance service level in minority areas and under-developed areas.

We shall encourage the development of professional insurance agents in the fields of commercial endowment insurance, health insurance and liability insurance and etc. We shall support the development of qualified insurance agents into insurance share-controlling (group) companies with international competitive strength , through restructuring, merger, or acquisition and etc. Additionally, we shall steadily carry out the experiments in comprehensive operation of insurance agents, explore wider and deeper cooperation between the insurance industry and the banking or securities industry, so that multiple and comprehensive financial and insurance services could be provided.

VII.

Advance the level of utilization of insurance funds, support the construction of national economy, deepen the reform of the insurance fund utilization system, propell the professional, regularized and market-based operation of insurance funds, and advance the level of utilization of insurance funds. Establish an effective risk control and pre-warning mechanism, adopt comprehensive risk management and guarantee the safety of assets.

Insurance asset management companies shall erect the consciousness of long-term investment, and earnestly well manage insurance assets according to the requirement of unifying safety, liquidity and profitability. Qualified insurance asset management companies shall be allowed to stepwise enlarge the scope of asset management, and explore a mechanism for independent trusteeship of insurance funds.

On the premise that the risks are controllable, direct and indirect investment of insurance funds into capital market should be encouraged so as to stepwise increase the investment proportion, steadily enlarge the scale and varieties of asset-backed securities invested with insurance funds and carry out experiments on investing insurance funds into real property and venture capital enterprises. Insurance funds being converted into shares of commercial banks or being invested overseas should be supported. According to the demand of national economy development continuously broaden the channels and scope of utilization of insurance funds, and fully exert the advantages of long term and stability of insurance funds, so as to provide fund supports to national economy construction.

VIII.

Deepen the system reform, advancing the level of opening up and intensifying the capacity of sustainable development.

We shall further improve the management structure of insurance agents, regulate the powers and duties of shareholders' meetings, boards of directors, boards of supervisors and managers, and form a balancing mechanism between the authority institution, the decision-making institution, the supervisory institution and the managers. We shall strengthen the construction of internal control system and the risk management, reinforce the management and control responsibilities of legal entities, improve and fulfill the system of investigating insurance management liability. We shall transform the operation mechanism, establish a scientific assessment system and explore normative stock right-based, option-based and other incentive mechanisms. Furthermore, we shall implement the strategy of revitalizing the industry by depending on talented people, deepen the reform of the system on talented people, optimize the structure of talented people, and construct a high-quality group of talented people.

We shall make overall plans on domestic development and opening up, make full use of two markets and two resources, and enhance the competitive strength and developing capacity of insurance industry under the conditions of all-round opening up . We shall earnestly perform the commitments of China for accession to the WTO, promote Chinese and foreign insurance agents to exploit their respective advantages for mutual benefits, to cooperate with each other for a win-win situation and to develop together. Additionally, we shall support qualified domestic insurance agents to set up business institutions outside the territory of China, to provide insurance services for the strategy of "Going Out". Furthermore, we shall extensively develop international insurance exchanges, and actively participate in making international insurance rules. We shall intensify the cooperation with overseas institutions especially with the insurance supervision institutions of surrounding countries and regions, and reinforce trans-territorial insurance business supervision.

IX.

Strengthen and improve the supervision and management, as well as preventing and eliminating risks.

We shall persist in making the prevention of risks as the lifeline for the healthy development of insurance industry, and continuously improve the modern insurance supervision system supported with repayment capacity, corporate governance structure and market-based acts supervision. We shall also strengthen the supervision and management on repayment capacity, establish a dynamic repayment capacity supervision index system, improve the actuarial system, and unify financial statistical indicators and performance evaluation standards. By referring to the international practices, we shall study and formulate accounting rules in light of the features of the insurance industry, guarantee the accounting data to be true, timely and transparent, and improve the scientificity and sanction of the supervision on repayment capacity. In addition, we shall deeply propel the supervision on the governance structure of insurance agents, regulate connected transactions, reinforce the disclosure of information and improve transparency. At the same time, we shall reinforce the supervision on market-based acts, enhance on-site and off-site inspections, severely investigate and punish the illegal and rule-breaking acts in insurance business, and improve the pertinence and validity of the supervision on market-based acts.

We shall, pursuant to the requirements of being highly standardized and being regularized, intensify insurance market accession and establish a market-based withdrawal mechanism, and shall implement classified supervision, support the superior and restrict the inferior. As well, we shall improve the capital supplement mechanism in the insurance industry, and shall improve the insurance guaranty fund system, and stepwise realize the market-oriented and professional operation. Otherwise, we shall establish and improve the information system for insurance supervision and improve the efficiency of supervision.

We shall regulate the insurance organization forms of self-managed industrial insurance, mutual cooperation insurance and etc., rectify and regulate the conducts of launching insurance by industries or enterprises themselves, and make them subject to uniform insurance supervision. In addition, we shall study and stepwise execute the consolidated supervision over the insurance share-controlling (group) companies, and shall improve the supervision and coordination mechanism between the insurance industry and other financial industries, prevent financial risks from being shifted between different industries and maintain the economic and financial safety of the state.

We shall speed up the construction of the insurance credit system, and cultivate the culture of insurance honesty and credibility. We shall reinforce the honesty and credibility education of practitioners, intensify the mechanism of punishment on dishonesty, and earnestly resolve the problems of misleading acts and difficulties in dealing with compensations. In addition, we shall reinforce the construction of self-disciplinary organizations in the insurance industry, establish a mechanism for rapid settlement of insurance disputes, and earnestly protect the lawful rights and interests of the insured.

X.

Further improve regulations and policies, and construct a good developing environment.

In order to accelerate the reform and development of the insurance industry, we shall persist in exerting the basic functions of the market in the allocation of resources, and on the other hand strengthen the macro-control and policy guidance by the governments, and strengthen the potence in policy supports. We shall, on the basis of the character of different kinds of risks and according to the principle of differentiated treatment, explore proper tax preferences for policy-based insurance business involving national interest and people's livelihood, and encourage the masses and enterprises to buy insurances actively. In addition, we shall, in light of the situation of China and in combination with the taxation reform, improve and promote the taxation policies for development of the insurance industry. Furthermore, we shall continue improving the policies and measures on the practice of insurance sales staff and on guaranty of their interests. We shall establish an insurance system for the risks of huge disasters, which is supported by the state finance, amend and improve the insurance law, accelerate the construction of agricultural insurance laws and regulations. We shall study and propel the legislation in aspects of commercial endowment, health insurance, liability insurance, insurance asset management and etc., and improve the system of insurance regulations and rules. We shall include insurance education into high school and primary school courses, exert the obverse propagandizing and guiding functions of the news media, disseminate insurance knowledge, and enhance people's consciousness on risks and insurance.

All regions and all departments should fully recognize the important significance of accelerating the reform and development of the insurance industry, intensify the communication, coordination and cooperation, endeavor to learn insurance, understand insurance and use insurance, and enhance the capacities of utilizing the insurance mechanism to promote the construction of a harmonious socialistic society. We shall include the insurance industry into the local or industrial development planning for overall consideration, earnestly carry out all the regulations and policies, and create a good environment for the reform and development of the insurance industry. The administrative sectors should persist in exercising the administrative powers according to law, and earnestly maintain the management autonomy as well as other lawful rights and interests of insurance enterprises. The CIRC shall continue enhancing its capacities and level in leading the development of the insurance industry and the prevention of risks, earnestly perform its duties, strengthen classified guidance and propel the fulfillment of policies. Through the common efforts of the whole society, we shall realize the rapid and healthy development of insurance industry, so as to promote the construction of a harmonious socialistic society.

The State Council

June 15, 2006