The China Insurance Regulatory Commission (CIRC) released the newly amended regulation on the management of insurance companies Tuesday.
The amendment, an effort by the regulators to catch up with changes in the insurance market, raises the requirements for risk control and capital adequacy.
It also encourages a faster pace of innovation and allows investors to take larger stakes in insurance companies.
"The amendment sets new rules of play and upgrades the regulatory scheme within the insurance industry," a CIRC spokesman said Tuesday.
It will push insurance companies to transform management ideologies and improve their services while better protecting the interests of consumers, he said.
The original regulation, enacted in 2000, has been quickly outstripped by the rapidly expanding market. Increased competition created the need for more market-driven rules and raised the requirements for information disclosure and risk control, according to experts.
The new rules put more emphasis on the payment ability and capital adequacy of insurers.
Investors must be educated about the potential risks that come with investing in insurance companies. Company senior executives must report their business development plans during applications for operating licenses, which will assist the regulators with their final decision.
Meanwhile, the biggest stake a single shareholder can control in an insurance firm has been doubled from the original 10 percent.
All the changes are positive news for investors and consumers, according to Tuo Guozhu, a professor at the Capital University of Economics and Business.
Better investor education and more transparency in policy and management will help investors gain a better understanding of the insurance industry and be informed of potential risks.
Many small investors were not familiar with the business in the past and simply expected high returns while ignoring risks, Tuo said. Some would simply withdraw their investment if they were not getting the returns they expected, but that erodes the stability of insurers and affects their normal operations.
On the other hand, more emphasis on the capital strength of insurers will also help maintain the financial soundness of companies during their business expansions and guarantee fund adequacy for insurance payments.
China's insurance assets exceeded 1 trillion yuan (US$120.7 billion) by the end of April, according to CIRC.
(China Daily May 19, 2004)
