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State regulation of China's insurance market PDF

State regulation of China's insurance market

China's fast-growing insurance market is characterized by many hidden risks. To protect the interests of policyholders, great attention is paid to monitoring the performance of the insurer's obligations. Article 10 of the law of the people's Republic of China "on insurance" States that the insurance contract is concluded "on an honest, voluntary and mutually beneficial basis." In order to make maximum use of this provision of the law, insurance companies are prohibited from instructing insurance agents not approved by the People's Bank of China to carry out their activities. The same applies to insurance brokers.

Fast and correct consideration of claims for damages as a result of an insured event is one of the most serious problems. The greatest number of abuses by insurers is found in the field of consideration of claims for damages. Often, insurers, delaying decisions on specific insurance cases, seek consent from customers to reduce the compensation paid. This is especially common in weak companies with low profit margins. This situation has arisen in China, where over the past few years there has been a rapid decline in the size of the insurance premium, accompanied by an increase in the number of claims of fraud by insurers in the payment of insurance compensation. A partial solution to the problem was found by creating appropriate legislative conditions to speed up the process of consideration of insurance claims. In accordance with article 59 and article 60 Of the law of the people's Republic of China "on insurance" payment of insurance compensation or the sum insured must be made within the terms stipulated by the insurance contract.

Within 60 days after the receipt of the application for the insured event and the provision of relevant documents from the policyholder or beneficiary, the insurance company must make payments. If the insurance company cannot determine the final amount of the insurance benefit, it must pay the minimum amount. After determining the final amount, the insurer must make the appropriate surcharge.

Payment under the liability insurance contract must be made no later than 10 days from the date of receipt of the application from the policyholder and agreement on the amount of compensation. An insurer that does not comply with these articles shall pay, in addition to the insurance indemnity, economic damage incurred by the policyholder or the beneficiary due to the delay of the insurer.

The legal certificate certifying the right of insurance organizations to carry out insurance is a license.

The licensing mechanism provides for the issuance of a certificate of registration of an insurance company as a legal entity and a license to carry out insurance activities.

The license consists of the original and the copy on which the name of the insurance organization, its organizational and legal form, the size of the registered capital necessary for implementation of insurance activity, the head, his deputies and the main experts, a subject of activity date of issue, validity period is specified.

The license is issued for a period of 3 years. In case of its loss, the insurance company must, within 15 days from the moment of detection of the loss, declare the withdrawal of the license in the Newspapers determined by the People's Bank of China or its branches, and again apply for a license with a written request and the people's Bank of China.

When issuing and changing a license, the people's Bank of China imposes certain fees on insurance companies.

The liability of the insurance company for each risk shall not exceed 10 % of the paid-up share capital and the accumulated reserve Fund. In case of excess of the cost of risk over the established standard, the insurance company shall conclude a co-insurance contract with insurance companies for an amount 20 % higher than the established standard of its own deduction, and transfer the remaining part of the risk to reinsurance.

If co-insurance or reinsurance of risks is required, insurance companies should first contact national insurers. If the latter do not accept the risks or conditions, the risks may be transferred to foreign insurance or reinsurance companies.

Much attention is paid to the control over the asset management of insurance companies. Assets of the insurance company is the monetary capital, consisting of the guarantee capital, paid-up authorised capital, insurance reserves, funds generated from the profit from insurance activities (a Fund of public savings Fund public benefit Fund insurance companies).

In accordance with the requirements of the DFCR to ensure financial stability, insurance companies are required to make a contribution to the insurance guarantee Fund.

Insurance companies operating throughout the country must Deposit guarantee capital with the Head Department of the People's Bank of China. Insurance companies operating in a certain territory of the country must Deposit guarantee capital in the branches of the People's Bank of China in the provinces, Autonomous regions, cities of Central subordination, cities of separate planning, where they are registered.

The guarantee capital may be used by insurance companies only with the permission of the People's Bank of China.

In order to fulfill obligations under insurance contracts, all insurance companies are obliged to form insurance reserves, including:

– provision of liability do not run-out period (the amount of the premium reserve for life insurance);

- loss reserves;

- provision for claimed but not settled losses;

- provision for losses incurred but not settled.

Under personal insurance, all premiums collected under existing contracts must be allocated to the contribution reserve.

Of the profits received after taxes, insurance companies must deduct 10 % to the public savings Fund and 5-10 % - to the public benefit Fund of companies. Insurance companies are exempt from deductions from profits to the public savings Fund when the share of its funds in the registered capital of companies exceeds 50 %.

Funds of public accumulation of insurance companies are used to cover their losses, expansion of activity or increase of authorized capital. At the same time, the increase in the amount of shareholders ' deposits is due to the preservation of their previous shares. However, when the funds of the public savings Fund are invested in the authorized capital, the remaining part of the funds of this Fund should not be less than 25 % of the registered authorized capital. In addition, the funds of this Fund can be invested in guarantee capital or placed in commercial banks that have a good reputation.

Of the profits, insurance companies must deduct 1 % to the insurance Fund. Deductions cease when the funds of this Fund reach 10 % of the company's capital.

The funds of this Fund are held in special accounts with the People's Bank of China or a commercial Bank designated by the People's Bank of China.

After the allocation of funds from the profits to mandatory funds, the General meeting of shareholders may decide to allocate any additional amounts to the public benefit Fund, which is used to improve the welfare of employees of the insurance company.

Despite the increase in the total premium, the financial capabilities of insurers are still much weaker than foreign competitors. The lack of capital hinders the independent development of Chinese insurance companies. The main way for Chinese insurers to capitalize is through the stock exchange. However, only relatively small insurance companies with a joint-stock form can use this way. Large, usually state-owned insurance organizations (such as China Life and People's Insurance Company) have yet to go through the stage of reorganization and change of ownership.

The need for state supervision of insurance activities is due to the interest of the state in the development of insurance as a source of significant investment.

The investment policy of insurance companies in China, as well as in the world – is subject to the regulation of the Supervisory authority. The current development of China's financial services market limits opportunities for innovative strategies. Regulators take a conservative approach and try to limit opportunities for speculation. Article 104 of the law of the PRC" on insurance "States:" an insurance company must make conservative, stable and safe investments that ensure the maintenance and increase of the company's assets." Therefore, the investment of the insurance company in China is limited to the following areas:

- investments in banks;

- government bonds;

- other forms of investment determined by the state Council of China.

 

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