A strategy for opening up the Chinese insurance industry
Section III: Strategy papers

Research and Education Strategy

Objective: 

The goals of this strategy are: 1) to promote the establishment of a national research center and strength academic research on insurance;  and 2) to strengthen the nationwide education program.

A.     Identification of Problems 

A few Chinese universities have recently established insurance departments. For example, the Chubb Group of Insurance Companies and Shanghai University of Finance and Economics established the Chubb School of Insurance in 1995. Beijing University established its insurance department in late 1990s. In general, however, China still lacks academic research and education on insurance. China does not have a national insurance research center that can offer long-run technical assistance to both policy makers and the insurance industry. Additionally, China still lacks public education programs that are needed to educate the Chinese public about insurance.

1.      Strengthen Academic Rresearch 

(1)   Establish a national insurance research center 

CIRC should promote the establishment of a national research center as one of its key strategies for developing and opening up the Chinese insurance industry. 

The insurance industry and CIRC would benefit from the establishment of a research center in several ways. Such a center would encourage collaboration on research projects, as well as:

• Provide an umbrella organization to attract research funding (including international funding);

• Assist universities in establishing research priorities;

• Enhance the visibility of research efforts in particular areas;

• Facilitate interaction between researchers and insurance industry officials;

• Provide a means for researchers to offer policy suggestions to policy makers; and

• Provide a focal point for cooperation between Chinese researchers and international institutions.

The research center could be supported in part by CIRC and other government agencies. It should also seek funding from domestic and foreign insurance companies and other interested parties.
 

Possible domestic funding sources:

• Domestic insurance companies

• Local governments

• CIRC

• Other government agencies such as the Ministry of Health and the Ministry of Labor

• SOEs

Possible international funding sources:

• Foreign insurance companies

• International insurance associations

• International organizations

• International insurance institutions

Possible projects for the research center in the short-run:

• Study of foreign countries’ regulatory models

• International trade policy (specifically insurance policy)

• China’s insurance market

• Web site development

• Joint research with international insurance institutions

(2)   Support university research programs  

Some universities have already established joint research programs with foreign insurance companies. CIRC should encourage this cooperation and offer more support. 

In northern China, CIRC can give more support to Beijing University and Renmin University. In southern China, CIRC should make Fudan and Shanghai Universities priorities since the insurance industry is centralized in Shanghai. 

• CIRC can support the university programs by:

• Helping them develop visiting scholar programs

• Making institutional visits

• Encouraging local & overseas industry visits

• Facilitating teaching materials exchanges

• Providing technical support

• Facilitating technical exchange

• Developing a publication exchange

• Establishing a student exchange program through which students would have the opportunity to work in foreign insurance institutions

Other possible support for university insurance programs might come from:

• Domestic and foreign insurance companies

• International insurance associations

• International organizations

(3)   Immediate programs  

If China joins the WTO this year as expected, it will have to make substantial changes to its insurance regulations, particularly those regulations governing access to the market by foreign insurers. Accordingly, CIRC should hold at least one seminar in the near future to begin preparing for these changes. The seminar might be titled: “Experts Meeting on Insurance Regulation and Supervision in China.” It should focus on:

• International regulatory trends

• International laws and WTO agreements

• China’s insurance policy reform model

2.      Strengthen Education Programs  

CIRC should be concerned with both public education and industry training.

(1)   Public education  

As previously noted, the media should be used to educate the public about insurance. CIRC should use TV, the Internet and newspapers in its education campaign, and it should tailor its education messages to different consumer groups based on their social class, age and work situations.

(2) Industry training  

China still does not have enough trained insurance professionals. CIRC should issue a provisional regulation on insurance agent qualifications in the near future. However, if such a regulation is issued, CIRC will need to help the domestic industry strengthen its training programs. 

The training programs can be co-organized by CIRC, industry associations, and individual companies. The programs might include presentations by university experts, international insurance associations, and CIRC officials. 

The training programs should cover:

• Insurance theory (property, life and marine)

• Insurance finance

• Insurance accounting

• Risk management

• Reinsurance

• Actuarial

• Law

• International insurance case studies

 Summary of key recommendations:    

• Establish a national insurance research center

• Support university research programs.

• Hold a Seminar: "Experts Meeting on Insurance Regulation and Supervision in China."

• Strengthen public education programs.

• Strengthen industry training programs.

A Strategy for opening up China's insurance industry
Section III: Strategy papers

Implementation Strategy  

Objective:  

If China joins the WTO this year, the central government will have to change its current insurance policy. From this standpoint, the implementation of new liberalization policies is a major near-term mission for CIRC that will require a well coordinated plan. 

Key Players: 

• The key players include:

• The central government, including the State Council and the NPC Standing Committee.

• CIRC

• Local governments

• The Ministry of Health and the Ministry of Labor

• The domestic insurance industry

• Domestic interest groups

Actions 

1. CIRC should adopt regulatory reforms. 

CIRC’s main actions should include: 

a)      Improving its transparency level.

CIRC can establish and use its web site and newsletter to publish its policies and relevant regulatory documents. In terms of licensing, CIRC should clarify its regulations that apply to foreign insurers.

  b)      Accelerating internal reforms

CIRC should improve its efficiency and reduce illegal insurance operations.

c)      Establishing an administrative enforcement mechanism.

CIRC should also take action to establish an administrative enforcement mechanism. CIRC should cooperate with local governments to establish local insurance regulatory bodies. (CIRC already has administrative power to govern local insurance regulatory agencies.)

2. The central government should coordinate the implementation process. 

CIRC should push the central government agencies, specifically the NPC Standing Committee and State Council, to coordinate the whole implementation process. 

a)      Establish a working group to carry out policy implementation.

In the long run, a working group that involves officials from all relevant agencies will be needed if reforms are to be successfully implemented 

b)      Implement policy enforcement measures.

CIRC should push the central government to use its powers to ensure that policy enforcement measures are properly implemented. For example, insurance policy can be addressed in NPC's documents, and central government agencies can issue various policy statements.

3. The private sector should establish enforcement mechanisms.

CIRC should encourage the domestic industry and other interest groups to police themselves.

a)      Establish a national association.

A national association can help CIRC explain the liberalization policies to individual companies and strengthen insurance companies' abilities to regulate themselves. In addition, insurance associations can establish strong relations with foreign insurance companies. (See international strategy paper.)

b)      Improve public education level.

The insurance industry (both domestic and foreign insurers) should contribute to education programs. First, the industry should educate its employees in order to improve the quality of insurance professionals. Second, it is critical to educate insurance consumers.

Summary of key recommendations    

For CIRC: 1) accelerate reforms; 2) improve transparency; 3) establish administrative enforcement mechanisms.

For the State Council and the NPC Standing Committee: 1) establish a working group; 2) use policy enforcement measures.

For industry: 1) establish a national association; 2) improve public education level.

A Strategy for Opening China's Insurance Industry
Section III: Strategy Papers  

International Strategy

Objectives:  

This strategy is designed to: 1) increase foreign governments’ and business groups’ understanding of China’s insurance sector reforms; 2) build good relations between CIRC and foreign governments and industry associations; 3) provide recommendations for future international negotiations.

A.     International Media Campaign  

Once China decides to open its insurance market, it should generate an international media campaign to announce its policies and let the world know that foreigners are welcome in its insurance market. It should: 

• Hold a press conference to announce its policy reforms.

• Publish articles and op-ed pieces in the China Daily and other major international newspapers. Since most foreign insurers who want to enter the Chinese market are either American or European, CIRC should also try to place op-eds in U.S. and European papers (see exhibit 22 for sample op-ed pieces).

• Hold seminars for potential foreign investors.

• Use the Internet. As mentioned above in the domestic media strategy section of this paper, CIRC can establish its own web site and use this web site to provide information to the international community.

B.     Building International Relations  

Opening up the Chinese insurance industry does not simply mean just letting foreign insurers into the market. Opening up means that China would like to cooperate with foreign countries and insurance industries to develop the Chinese insurance market. Therefore, it is critical for CIRC to build good relations with foreign insurers and governments so that exploration of common interests will be possible.

1. Building Good Relations with Foreign Governments  

Governments usually play a role in assisting business. They negotiate trade issues and present business interests in the international arena. Accordingly, CIRC will need to maintain good relations with foreign governments. 

First, CIRC should cooperate with other Chinese government agencies, such as the Ministry of Foreign Affairs (MOFA) and MOFTEC in order to build good relations with foreign nations. It is especially important to gain support from the United States and European countries, since they can bring years of valuable industry experience to China. 

Second, CIRC should establish stable long-term relations with foreign government agencies that regulate the insurance sector. CIRC is a new regulatory body. It can learn from its foreign counterparts if it establishes good relations with them.

2. Building Good Relations with the International Insurance Community

In most Western countries, there is a special business to government relationship that does not exist in China. In these countries, particularly in the U.S., business has more power and often influences the policy decision making process. Accordingly, industry associations play an important role in the West. They keep in close contact with government offices, special interest groups, professional organizations, the news media and other opinion leaders. CIRC can learn from these associations and should strive to establish good relations with them. 

First, CIRC should encourage the Chinese insurance associations to establish ties with international insurance associations, including: 

The United States:

• National Association of Insurance Commissioners (NAIC)36

• National Association of Mutual Insurance Companies (NAMIC) 37

• Health Insurance Association of American 38

• American Insurance Association39

Canada:

• Canadian Life and Health Insurance Association Inc.40

Malaysia:

•  Life Insurance Association of Malaysia41

Korea

• Korea Non-Life Insurance Association42

Second, CIRC should encourage Chinese insurers to establish a long-term joint program with foreign insurance companies and associations. These programs might include:

• International seminars

• International insurance fairs

• Information exchange programs

• Informal dispute settlement meetings

C.     International Negotiation Strategy  

In negotiating its bilateral agreements for WTO accession, China has already agreed to allow more foreign participation in its insurance sector. However, China has not yet concluded its bilateral negotiations, and if China joins the WTO, it will participate in the next round of trade negotiations. China will need to be prepared to hold the line and not offer any new concessions in the near future.

1. Guidelines for future negotiations

China has already agreed to significant insurance industry liberalizations and will need time to fully implement these commitments (as well as allow the domestic industry to adjust) before it makes new concessions. Chinese negotiators should study other developing countries’ GATS commitments on insurance before entering into negotiations. Principles or guidelines for the liberalization of China’s insurance sector should include:  

• GATS rules: The GATS offers flexibility for individual countries to negotiate special commitments, limited national treatment etc. It also offers special treatment for developing countries. At present, China is pursuing its WTO membership, but this does not mean that China should accept everything its counterparts want.  
• National treatment: Currently, China’s insurance law is somewhat contradictory. On the one hand, it places a number of limitations on the allowable business scope and geographic locations for foreign insurers. On the other hand, foreign insurance companies in China are enjoying super-national treatment, such as preferential taxation. China should abolish super-national treatment and also eliminate many of the limitations on foreign insurers.
• China’s economic development. China has already made significant concessions in its bilateral agreement with the United States. Given that the Chinese insurance industry is still in its early development stages, new commitments should be made very carefully.

2. Bilateral negotiation strategy

In future bilateral negotiations, CIRC can take following actions:

• Study other countries' insurance policies and international agreements in order to prepare for future negotiations.
• Show economic and industry data to support CIRC’s arguments.
• Approach negotiations on a case-by-case basis, using different strategies for different negotiations as appropriate. Such an approach will help CIRC control the speed of required liberalizations.
• Cooperate with MOFTEC. MOFTEC is China’s lead negotiator on all trade issues, including insurance issues. CIRC can offer evidence, industry data, research, and studies to assist MOFTEC. Moreover, CIRC can make its opinions clear to MOFTEC in order to promote its interests.
• Use the power of the media to support China’s negotiating interests.

3.  Prepare for WTO Negotiations on Services  

Last December, WTO member countries failed to launch a new round of trade negotiations. However, services (including insurance) will still be on the next round agenda as part of the built-in agenda. If China joins the WTO this year, it will need to participate in these negotiations.  

In order to prepare for WTO negotiations, CIRC should first develop a long-term action plan, which includes study of international trade agreements and insurance policies. In fact, CIRC should direct its Department of Policies and Regulations, Division of Policy Study, to immediately establish a working group that includes participation of universities and foreign insurance companies.  

The overall strategy for future WTO negotiations should include:

• Forming alliances with other developing countries. Most developing countries, such as India and Malaysia, confront challenges similar to China’s. Alliances can help ensure that these challenges are adequately addressed within the context of WTO negotiations.
• Using WTO principles to pursue special treatment for the developing countries. Special treatment might include 1) extending transition periods for developing countries to implement WTO agreements; 2) expanding technical cooperation.

Summary of key recommendations  

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