Author: Chen Yuyan, Liang Risheng
Author Affilications:Shanghai Landi Law Firm
Insurance Difficult Cases and Compliance Exchange Group
Recently, the China Banking and Insurance Regulatory Commission has frequently made moves for life insurance businesses such as accident insurance and health insurance. As an insurance practitioner, you must keep up with regulatory trends, and we summarize and prompt you in a timely manner. The FNI financial protection team pays attention to the regulatory format of the insurance industry, pushes out in-depth compliance guidelines, and summarizes the difficult points of case handling in combination with practical cases.
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The Measures for the Supervision of Accident Insurance Business focus on interpretation
In order to standardize the competition order of the accident insurance market and safeguard the legitimate rights and interests of insurance consumers, the China Banking and Insurance Regulatory Commission (CBIRC) issued the Measures for the Supervision of Accident Insurance Business (hereinafter referred to as the "Accident Insurance Measures") on October 13, 2021 in response to the problems of some insurance companies' accident insurance products violating insurance principles, abnormally high channel fees, low compensation rates, and irregularities in the exhibition behavior of sales personnel. The "Accident Insurance Measures" mainly regulate from four aspects, such as product management, sales management, information management and disclosure, and supervision and management, and unify the supervision caliber of accident insurance business of property and casualty insurance companies.
The "Accident Insurance Measures" embodies the regulatory position of raising the threshold for accident insurance operations and prohibiting high commissions and brutal competition. Overall, the Accident Insurance Measures require insurance companies to reduce the proportion of accident insurance surcharges and increase the operating costs of insurance companies in information disclosure and sales management, which will make insurance companies that fight price wars regardless of cost face greater compliance pressure.
01 Strengthen actuarial and pricing supervision of accident insurance products
In general, the main factors affecting the rate of life insurance products are the predetermined interest rate, the predetermined loss rate and the scheduled surcharge rate. Article 4 of the Accident Insurance Measures establishes specific regulatory requirements for the above three indicators.
Article 4 of the Accident Insurance Measures: When determining insurance premiums, insurance companies should comply with general actuarial principles and adopt fair and reasonable pricing assumptions.
(1) When determining the accident insurance premium for an insurance period of more than one year, the insurance company shall determine the predetermined interest rate in accordance with the principle of prudence based on the company's historical return on investment experience and reasonable expectations of the future and product characteristics.
(2) Insurance companies shall determine the predetermined incidence rate in accordance with the principle of prudence on the basis of data such as the company's actual experience data and the accident injury experience incidence table publicly released by the industry.
(3) The predetermined surcharge rate for each policy year shall be set by the insurance company independently, but the average surcharge rate shall not exceed the upper limit specified in the table below. The average surcharge rate is the ratio of the sum of the actuarial present value of the predetermined surcharges for each period of the policy to the sum of the actuarial present value of the gross premiums of the policy.
The so-called refers to the annual yield of the insurance policy assumed by the insurance company according to the prediction of the company's future operation when designing insurance products and determining the premium standard. Simply understood, it is the rate of return on the use of funds promised to consumers after the insurance company collects the premium paid by the consumer.
From the perspective of insurance principle, the insurance premium payable by the insurance company in the event of an insured accident includes the principal amount generated by the premium and the interest generated by the principal. Therefore, in the case of the same amount of insurance premiums, if the predetermined interest rate of a product is higher, the lower the premium pricing. Therefore, the CBRC clearly requires that the product design must take the basic data such as the historical return on investment experience data of the insurance company, the reasonable expectation of the future and the characteristics of the product as the actuarial premise, strictly follow the insurance principles, and prudently determine the predetermined interest rate.
In layman's terms, it refers to the predicted probability of the occurrence of an insured accident. It is worth noting that on September 23 this year, the China Association of Actuaries, the China Insurance Industry Association and the China Bank Insurance Information Technology Management Co., Ltd. officially released the "China Insurance Industry Accident Injury Experience Incidence Table (2021)", which provides basic data support for the scientific pricing and product innovation of accident insurance, and the accident probability data released this time will directly impact the pricing basis of some of the original high-priced accident insurance products, further promoting the return of accident insurance premiums to reasonable limits.
It refers to the ratio of the expenses required for the insurance company's operation to the total premium that the insurance company predetermines when determining the premium of the insurance product. In the past, the problem of "high fee and low compensation" often criticized by the accident insurance market is mainly reflected in the phenomenon of abnormally high predetermined surcharge rate, especially in special accident insurance products such as voyage insurance, the commission ratio can even account for more than 50% of the total premiums charged (even 95% in extreme cases), which is obviously unreasonable. To this end, the Accident Insurance Measures clearly stipulate the upper limit of the predetermined surcharge rate to ensure that the actual risk protection obtained by consumers is commensurate with the level of premiums they spend.
In summary, the provisions of the CBIRC on the actuarial issue of the pricing of accident insurance products are essentially adhering to the overall requirements of "following the principles of insurance, accurately grasping the return to the source and preventing risks" stipulated in Article 3 of the Accident Insurance Measures, emphasizing the principle of "fair and reasonable" premium pricing, so that the price of accident insurance fully reflects historical data, industry experience and market supply and demand.
02 Establish a dynamic rate adjustment mechanism linked to the payout rate
Article 8 of the "Accident Insurance Measures": If an insurance company submits an accident insurance product for the record, the application materials submitted shall, in addition to the insurance clauses, insurance rate tables, and actuarial reports, also indicate that the product is expected to be paid to the insurance agent or insurance broker, and the upper limit of the commission expense rate shall be scientifically and reasonably determined according to the actual situation of the product.
If the annual commission expense rate of the product exceeds the upper limit of the average additional expense rate specified in the table above by more than 10 percentage points, the written explanation materials that should be provided shall be provided. Among them, the commission fee shall be paid according to the facts, and the upper limit of the commission fee rate shall not be exceeded in disguise through information technology support and service fees, off-the-books incentive fees, etc.
Article 9 of the Accident Insurance Measures: Insurance companies shall carry out retrospective work on accident insurance business at the end of each year and complete rectification before March 31 of the following year. For accident insurance products with an insurance period of one year or less, indicators such as comprehensive loss rate and expense rate should be retrospectively, and accident insurance products with an insurance period of more than one year should be retroactively attributed to indicators such as incidence rate, expense rate, investment rate and surrender rate.
Article 10 of the Accident Insurance Measures: For accident insurance products with an insurance term of one year or less with an annual accumulated original insurance premium income of more than 5 million yuan for three consecutive years, they shall be resubmitted for approval or filing in accordance with relevant requirements.
Among them, the calculation formula of the comprehensive loss rate after reinsurance is: (post-reinsurance claims expenditure + post-reinsurance reserve for outstanding claims) ÷ (premiums earned after reinsurance).
Before the promulgation of the Accident Insurance Measures, it was not uncommon for accident insurance products to have low payout rates and abnormally high commissions, and insurance companies often attracted intermediary channels to sell accident insurance products for them through commission fees that exceeded reasonable limits, which greatly undermined the order of fair competition in the market. The premiums charged by insurance companies are not essentially used to provide risk protection to insurance consumers, but to pay commissions from insurance intermediary channels. This "sell for sale" business model clearly seriously infringes on the legitimate rights and interests of insurance consumers. Therefore, the CBRC has fully drawn on the experience of the regulatory authorities in developed insurance markets and designed the following regulatory mechanisms:
1. Set a filing system for the upper limit of the commission expense rate
In addition to the upper limit of the predetermined surcharge rate already mentioned above, the CBRC further requires insurance companies to file the upper limit of the annual commission rate of the product with the CBIRC in the product filing.
It is worth noting that Article 8 of the Accident Insurance Measures further requires:
(1) The annual commission expense rate of any channel of the same insurance product shall be independently counted and accounted for. Although the Accident Insurance Measures do not clearly stipulate this requirement, Article 8 stipulates that "the annual commission expense rate of any channel of the product exceeds the upper limit of the average additional expense rate specified in the above table by more than 10 percentage points", which is obviously the proper meaning of "statistics and accounting by channel", and this provision can also prevent insurance companies from deliberately "diluting" and "diluting" the commission rate data of a single channel through the total data.
(2) For any channel of the product, the insurance company should also provide the following documents: first, the reasonableness analysis of the level of commission expenses; second, the commitment to compliance with the law in business operation; and third, the statement of fair competition. The above-mentioned explanatory materials need to be signed by the general manager of the insurance company, that is, to force the insurance company to treat this issue carefully in a way that consolidates the responsibilities of the insurance company's executives.
（3）。 The CBRC further emphasized that commission expenses must be paid on the basis of facts, and the upper limit of the commission expense rate must not be disguised through the common information technology support and service fees and off-the-books incentive fees in practice.
2. Improve the pricing backtracking of accident insurance and strengthen the dynamic adjustment of rates
Article 9 of the Accident Insurance Measures further refines the retrospective requirements for accident insurance products, among which: accident insurance products with an insurance period of one year or less should be retrospectively comprehensive compensation rate, expense rate and other indicators; accident insurance products with an insurance period of more than one year should be retrospectively attributed to the incidence rate, expense rate, investment yield and surrender rate.
At the same time, the insurance company should also compare and analyze the actual operating data obtained retrospectively with the actuarial assumption data such as the original expected rate, and take corresponding rectification measures to gradually achieve the same as the expected data standard and the actual operating situation, so as to ensure a direct correlation between the actual compensation situation and the premium rate.
3. Set a minimum payout system
For short-term accident insurance products with premium income of more than 5 million yuan and an average loss rate of less than 50% for three consecutive years, Article 10 of the Accident Insurance Measures requires insurance companies to adjust the rates and phase out insurance products with low loss rates and obviously unreasonable pricing.
4. Strengthen the supervision of the phenomenon of "high fees and low compensation"
Article 25 of the Accident Insurance Measures further emphasizes the prohibition attitude towards the phenomenon of "high fees and low compensation" in the accident insurance market through the "prohibition list":
1. The product development design is unfair and unreasonable, infringing on the legitimate rights and interests of consumers;
2. Product pricing methods, parameter assumptions, actuarial evaluation, etc. do not conform to general actuarial principles;
3. The rate fluctuation exceeds the rate range in the product approval or filing materials, or significantly deviates from the risk level of the insured;
4. Substantially change the approved or filed insurance terms and insurance rates through special agreements, signing supplementary agreements, etc.;
5.；
6.；
7. Failure to disclose information in accordance with regulations, or the information disclosed is untrue and incomplete;
8. There are prohibited acts provided for in these Measures;
9. Other acts determined by the CBIRC.
In fact, from the list, we can also glimpse the CBIRC's response to the "high fee and low compensation" of the accident insurance market in the new regulations: on the one hand, strengthen the supervision of rates and pricing, ensure that the rate level of accident insurance products is directly linked to the actual compensation situation, and compact the upper limit of the commission ratio; on the other hand, strengthen the information disclosure obligations of insurance companies, combined with dynamic operating data, require insurance companies to adjust product rates in a timely manner.
03 Strengthen product information disclosure
The Accident Insurance Measures further strengthen the information disclosure system for accident insurance products in many aspects, and put forward higher requirements for insurance companies. The CBRC has fully considered the current situation of the accident insurance market, strengthened the disclosure requirements in stages in accordance with the principle of first individual insurance and then group insurance, first pilot and then comprehensive, gradually expanded the scope of insurance types, and refined the data dimension. Moreover, the scope of disclosure should be gradually expanded every year, from specific types of insurance such as aviation insurance, to all-insurance to group accident insurance, and the detailed disclosure of each product. The specific requirements are as follows:
04 Clarify the "negative list" of business behavior
Article 17 of the Accident Insurance Measures lists the prohibited acts of insurance companies when operating accident insurance business:
1.；
2.；
3. Sell accident insurance through institutions without legal qualifications and individuals who have not registered to practice;
4.；
5. Acts that mislead the insured and the insured, such as exaggerating the insurance coverage, concealing the exemption of liability, and making false publicity;
6. Confusing accident insurance and liability insurance, disrupting market order, such as changing the scope of protection through special agreements, or directly paying accident insurance compensation to the accident responsible party without the authorization of the insured or beneficiary;
7.；
8.；
9.；
10. Other violations stipulated by the CBIRC.
05 Other
In addition to the above, the Accident Insurance Measures also have the following provisions that deserve attention:
If an insurance company entrusts an insurance intermediary to carry out accident insurance business in violation of the relevant provisions of the Accident Insurance Measures, the CBRC will investigate and deal with the insurance company and the insurance intermediary at the same time, and maintain a unified discretionary standard for similar business.
。 Although the Accident Insurance Measures will be implemented from 1 January 2022, the Accident Insurance Measures also clearly stipulate that from the date of promulgation of these Measures to 31 December 2021, new accident insurance products submitted for approval or filing must strictly comply with the requirements of the Accident Insurance Measures.
。 For accident insurance products that have been approved or filed for the record before the promulgation of the Accident Insurance Measures, Article 10 (Obligation to Rectify the Rate of Products with an Average Loss Rate of Less than 50% for Three Consecutive Years), Article 21 (Obligation to Notify Information on Rate Adjustment) and Paragraph 6 of Article 25 (Legal Liability for Failure to Fulfill rate Adjustment Obligation) shall be implemented from 1 January 2023, and if they do not meet other requirements, the insurance company shall complete the rectification before June 30, 2022.
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Randy Rong Legal Protection Team
Finance and insurance business is one of Randy's core business areas, aiming to provide high-quality and professional legal services to Chinese and foreign insurance companies, insurance intermediaries (including insurance professional agencies, insurance brokerage agencies, insurance valuation agencies, insurance concurrently operating agencies) and insurance consumers, covering insurance and reinsurance and other professional fields. At present, Randy's insurance legal service team is composed of leading professional lawyers at home and abroad, all from well-known universities and law schools at home and abroad. The team is fluent in a variety of languages, including chinese and English and has extensive experience in legal services, including expert lawyers with complex disciplinary backgrounds, certified public accountants, external valuation consultants and other senior professionals. Most of the lawyers have engaged in practical work in property insurance companies and life insurance companies, and still serve as legal counsel for many insurance companies, and have published dozens of professional papers in influential journals and magazines at home and abroad.
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