China's insurance regulator has rejected scepticism about health insurance sold in the country, calling for a proper understanding of insurance products.

The China Insurance Regulatory Commission (CIRC) also on Friday pledged to introduce measures to better regulate and standardize health insurance, a sector with huge market potential given the rising medical costs faced by Chinese people.

This was the first official response from the regulator following media reports about a legal dispute over illness insurance.

This has fuelled scepticism among consumers that health insurance policies, particularly those covering major illnesses such as hepatitis and cancer, do not cover what they promise to.

A widespread anonymous email, which claimed that major illness insurance policies being sold in China covered only death instead of illnesses, added to the public's worries.

"This is not true, or at least inaccurate," Wang Zhichao, a director at the CIRC, told reporters.

China Life Insurance Co, the largest Chinese life insurer, has paid out 5.3 billion yuan (US$654 million) in claims for just two major illness over the last few years, accounting for 23.24 percent of its total claims for that period, the official said.

Other sources said some 90 percent of illness insurance payouts by a number of insurers were paid out because of illnesses rather than because of death.

"The basis for the pricing of major illness insurance is still based on the number of illnesses, not on the mortality rate," Wang said.

Health insurers around the world face the challenge of balancing the rising demand for medical care and keeping costs under control, the official said.

In China, health insurers face the task of making a profit under the added threat of fraud, which analysts say is difficult to avoid given a lack of monitoring systems.

More than 90 Chinese insurers, including four specialized health insurers, sell health insurance.
 
They have marketed nearly 800 health insurance products, including 199 designed for major illnesses.
 
But losses at some Chinese insurance companies have been as high as 200 percent in recent years, meaning they paid out 2 yuan (24 US cents) over every 1 yuan (12 US cents) of premiums they collected.

"In the future we need to make an effort to more clearly define major illness insurance, the types of illnesses and remedies that are covered," Wang said. "This is something the entire industry needs to do." 

(China Daily March 18, 2006)