In China, substantive issues of insurance disputes are mainly governed by the following laws and interpretations:

• the Insurance Law of the People’s Republic of China (hereinafter referred to as the “Insurance Law”) (revised in 2015);
• Judicial Interpretations on Several Issues Concerning the Application of the Insurance Law issued by the Supreme People’s Court (hereinafter referred to as the “Interpretations of the Insurance Law”);
• the Civil Code of the People’s Republic of China (hereinafter referred to as the “Civil Code”) and its related Interpretations promulgated by the Supreme People’s Court, which mainly governs the general rules and regulations not specified in the Insurance Law and issues regarding the reinsurance;
• other relevant laws promulgated by the National People’s Congress (for instance, the Maritime Law of the People’s Republic of China is applicable to marine cargo insurance and marine hull insurance); and
• regulations and guidelines issued by the National Administration of Financial Regulation (NAFR) and other relevant authorities.

Additionally, procedural issues are mainly governed by the Civil Procedural Law of the People’s Republic of China (the forthcoming version, effective on 01/01/2024) (hereinafter referred to as the “Civil Procedural Law”) and its relevant Interpretation promulgated by the Supreme People’s Court. For specific industries, respective laws apply, for instance, with respect to marine insurance disputes, the Special Maritime Procedure Law of the People’s Republic of China applies.

In addition to the aforementioned core laws and interpretations, administrative regulations formulated by the National Administration of Financial Regulation (NAFR) also govern insurance and reinsurance, although administrative regulations come second to laws in terms of legal hierarchy. The development and revolution of the NAFR are illustrated as follows:

• In April 2018, the China Insurance Regulatory Commission (CIRC) and the China Banking Regulatory Commission officially merged to form the China Banking and Insurance Regulatory Commission (CBIRC). The functions of the CIRC were inherited by the CBIRC.
• In March 2023, the State Council Institutional Reform Proposal came into effect and approved the NAFR as an institution under direct oversight of the State Council. The duties of the People’s Bank of China in routine regulation of financial holding companies and other financial groups and protection of financial consumers, as well as the duties of the China Securities Regulatory Commission in protecting investors are assigned to the National Administration of Financial Regulation. With this transition, the CBIRC ceases to exist.

Moreover, the Insurance Association of China (IAC) also promulgates regulatory documents that govern the industry standards, technical and service norms, trade rules and regulations. However, as a national self-regulatory and non-profit organisation, the regulatory documents issued by the IAC have a much lower hierarchy.

All licensed insurers and reinsurers (whether domestic or foreign) approved by the NAFR are entitled to write insurance and reinsurance business. From the perspective of NAFR regulations, there is no significant difference between the requirements for writing consumer insurance, SME insurance and corporate insurance.

In terms of paid-in capital, both foreign-invested insurers (insurers with a 25% or more (up to 100%) equity interest held by foreign investors are regarded as “foreign-invested insurers”, while others are regulated as “domestic insurers”) and domestic insurers must have a paid-in capital of at least RMB200 million or its equivalent in a foreign currency. In terms of solvency, all foreign-invested insurers and domestic insurers need to meet the following solvency requirements:

• its core solvency rate being no less than 50%;
• its comprehensive solvency rate being no less than 100%; and
• its risk rating being at B or above.

All licensed insurers and insurance activities are governed by the Insurance Law, Interpretations of the Insurance Law and regulations in relation to solvency, related-party transactions, corporate governance, etc. However, different types of insurers are subject to different regulations when writing insurance business.

We have not observed specific regulations regarding the underwriting of excess layers, however, we understand that excess layer insurance is defined as an insurance product rather than a reinsurance product therefore the regulations relating to insurance products should apply.

Insurance companies can be authorised to collect the following taxes and surcharges on behalf of tax authorities:

• VAT (currently 6%);
• urban maintenance and construction tax (7% for a taxpayer in a city; 5% for a taxpayer in a county town or town; 1% for a taxpayer living in a place other than a city, county-level town, or town); and
• education and local education surcharges payable by individual insurance agents for providing insurance agency services to insurance companies (3%).

Property insurance contracts, including property, liability, guarantee and credit insurance contracts, are subject to stamp duty (0.3% of the insured amount). Personal insurance companies are not subject to stamp duty.

Insurers and reinsurers are subject to enterprise income tax of 25%.

All entities engaged in insurance business must be authorised or licensed by the NAFR. There are three forms of foreign-funded insurance companies through which overseas-based insurers or reinsurers conduct business in China:

• equity joint venture insurance companies;
• wholly foreign-owned insurance companies; and
• branches within China of foreign insurance companies.

Since 2019, as China has continued to ease market access restrictions on foreign-funded insurance companies, revising the Detailed Rules for the Implementation of the Regulation of the People’s Republic of China on the Administration of Foreign-Funded Insurance Companies, rules on foreign insurers subsidiaries establishment and management have been abolished. The requirements that a foreign insurance company must have engaged in insurance business for more than 30 years and have maintained a representative office in China for at least two years before it can establish a foreign-funded insurance company in China have been removed. As of 1 January 2020, the foreign investment ratio restriction for Sino-foreign equity joint venture life insurance companies has been officially lifted, and equity joint venture life insurance companies may be wholly owned by overseas equity.

The solvency of a subsidiary of a foreign reinsurance company shall satisfy the requirements of relevant systems issued by the NAFR such as the rules for the supervision of solvency of insurance companies. The premiums retained by a subsidiary of a foreign reinsurance company shall be subject to a quota directly authorised by its home office. The NAFR will carry out examination and approval of the applications for administrative licensing pursuant to the laws and regulations.

Fronting is not strictly prohibited. There are no specific regulations on fronting, except for some restrictions on reinsurance. To ensure compliance with Chinese law, in a broad sense, with respect to all insurance business of a cedant, the cedant must retain a portion of the risk itself and may not cede all risks to the reinsurer. In respect of each risk unit, according to Article 19 of the Regulations on the Administration of Reinsurance Business, when a cedant cedes a direct property insurance business by way of proportional reinsurance (except for aerospace, nuclear, petroleum, and credit insurance), the total proportion of each risk unit to be ceded to the same reinsurer shall not exceed 80% of the insured amount or of the limit of liability of the insurance contract underwritten by the cedant.

Due to the scarcity of insurance licenses and the special nature of the insurance business, mergers and acquisitions relating to insurance companies are active in the capital market. There are two types of mergers and acquisitions of insurance companies: increase in registered capital and transfer of equity. Increase in registered capital is mainly for the purpose of improving the solvency of insurance companies to support business development. Since the implementation of the Solvency Supervision Rules for Insurance Companies (II), the solvency adequacy ratio of insurance companies has generally declined, and a number of small- and medium-sized insurance companies have increased their registered capital in the past one to two years to meet the solvency supervisory requirements. After the insurance regulator lifted the restriction on the proportion of shares held by foreign shareholders in insurance companies, foreign participation in capital increases and equity transfers in PRC insurance companies has gradually become more active.

Insurance products are commonly distributed through:

• an individual employed or engaged by insurer;
• an insurance agency, including professional insurance agency and sideline insurance agency (such as bancassurance);
• an insurance broker; or
• online platforms or over the telephone.

Individuals selling insurance products must be registered through an insurer or an insurance agency/broker; individuals who are not registered are not allowed to carry out insurance business.

To carry out insurance business, insurance intermediaries must obtain an insurance agent license or an insurance broker license from the insurance regulator. An insurance agent is the agent of the insurer and represents the interests of the insurer by introducing insurance products for the latter, while an insurance broker is the agent of the insurance applicant, insured and beneficiary (currently, there are different opinions in judicial practice; some courts consider it as providing intermediary services, while other courts deem it as the agent of the insurance applicant, insured and beneficiary).

Online sales of insurance products are mainly subject to the Measures for the Regulation of Internet Insurance Businesses. Telesales are regulated by the Measures for the Telemarketing Business of Personal Insurance Products and Notice on Regulating the Order of Telemarketing to Prohibit Phone Harassment by Property Insurance Companies, etc.

In relation to the distribution of reinsurance products, market practice shows that reinsurance contracts are usually concluded through reinsurance brokers or on the basis of a pre-existing partnership between the cedant and the reinsurer.

In China, there is no legal distinction in the obligation of providing truthful information between consumer contracts and commercial contracts, and the insurance applicant bears such an obligation as opposed to the insured regardless of the nature of the contract. Where an insurer makes enquiries regarding the subject matter of insurance or the relevant information of the insured party for the purpose of concluding an insurance contract, the insurance applicant must provide truthful information to the extent that satisfies its lawful disclosure obligation. Such disclosure by the insurance applicant, however, shall be limited to the scope and contents enquired by the insurer.

However, in marine insurance cases, the insured is obligated to disclose to the insurer, before the contract is concluded, every material circumstance that is known to them, and the insured is deemed in possession of the knowledge of every circumstance that, in the ordinary course of business, they ought to know.

Consequences if a party fails to perform the obligation of providing truthful information include:

• Where the insurance applicant, intentionally or due to gross negligence, failed to perform the obligation of providing truthful information, thus affecting the insurer’s decision on underwriting or increasing the premium rate, the insurer shall have the right to rescind the contract.
• Where an insurance applicant failed to perform such obligation intentionally, the insurer shall not be liable to make compensation or payment of insurance monies for an insured event that has occurred before rescission of the contract, and the premium shall not be refunded.
• Where an insurance applicant failed to perform such obligation due to gross negligence which has a serious impact on the occurrence of an insured event, the insurer shall not be liable to make compensation or payment of insurance monies for the insured event that has occurred before rescission of the contract, but the premium shall be refunded.
• Where an insurer is aware, at the time of conclusion of the contract, that the insurance applicant has not provided truthful information, the insurer shall not rescind the contract; upon occurrence of an insured event, the insurer shall be liable to make compensation or payment of insurance monies.

There are two kinds of intermediaries involved in the negotiation of an insurance contract in China: insurance brokers and insurance agents.

The Insurance Brokers

Insurance brokers refer to organisations which, based on the interests of insurance applicants, provide intermediary services for execution of insurance contracts between insurance applicants and insurance companies and collect commissions, including insurance broker companies and their branches. Insurance broker services include:

• drafting insurance plans;
• processing insurance application formalities and assisting in claims for insurance applicants and/or the insureds;
• providing disaster prevention or loss prevention;
• risk evaluation and risk management advisory services to entrusting parties; and
• engaging in reinsurance brokerage businesses, etc.

Insurance Agents

Insurance agents refer to organisations or individuals that are entrusted by an insurance company and collect commissions from the insurance company to handle the insurance business on an agency basis within the scope authorised by the insurance company, including specialised insurance agencies, sideline insurance agencies and individual insurance agents.

The insurance contract should be executed in writing. Where an insurance contract is concluded, the insurer shall promptly issue an insurance policy document or any other insurance certificate to the insurance applicant, which states the contents of the contract agreed between the contracting parties. The contracting parties may also agree on adopting another written format recording the contents of the contract.

Except where engagement of insurance is mandated by laws and administrative regulations, conclusion of an insurance contract shall be voluntary, and the rights and obligations of the parties shall be determined by parties’ mutual agreement pursuant to the principle of fairness.

A life insurance applicant shall, at the time of conclusion of the insurance contract, have insurance interests in the insured party.

An insured party in a property insurance policy shall, at the time of occurrence of an insured event, have insurance interests in the subject matter of insurance.

An insurance contract shall contain information regarding the following:

• name and address of the insurer;

• name and address of the insurance applicant and the insured party, and name and address of the life insurance beneficiary;

• subject matter of insurance;
• insurance liabilities and exclusion of liability;
• insurance period and date of commencement of insurance liabilities;
• sum insured;
• premium and payment method;
• method of indemnification or payment of insurance monies;
• default liability and dispute resolution method; and
• date of conclusion of the contract.

The insurance applicant and the insurer are at liberty to incorporate other matters pertaining to the insurance into the contract. The insurance clauses and premium rates of insurance policies that relate to social and public interests, insurance policies of mandatory insurance implemented pursuant to the law and newly-developed insurance policies of life insurance, etc, shall be subject to approval of the NAFR.

In China, insurance activities typically come under (i) personal insurance, including life insurance, health insurance, accident insurance, etc; or (ii) property insurance, including property damage insurance, liability insurance, credit insurance, guarantee insurance, etc.

As defined in the Insurance Law, the term “beneficiary” specifically applies to personal insurance activities. In this context, the beneficiary is an individual designated by either the insured party or the insurance applicant, and this designated beneficiary has the right to make insurance claims.

The beneficiary of a life insurance policy can be one or several persons, and both the insured party and the insurance applicant are eligible. The appointment of a beneficiary by an insurance applicant shall be subject to consent of the insured party. An insurance applicant who takes up life insurance for their employee(s) shall not designate any person as the beneficiary other than the insured themselves and their immediate relatives. Where an insured party is a person without capacity or with limited capacity for civil conduct, their legal guardian may step in and designate the beneficiary.

Consumer protection is one of the most important aspects of PRC insurance regulation. To further improve the protection of consumer rights and interests, the CBIRC issued the Administrative Measures for the Protection of Consumers’ Rights and Interests by Banking and Insurance Institutions, effective 1 March 2023. It is worth noting that the official version of the document explicitly excludes reinsurance companies from the scope of the subject of the regulation as compared to the draft. 

Consumer Contracts

Generally speaking, in China, laws and regulations relating to insurance contracts slightly favours the insured. As noted in 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence, the insurance contract is subject to the contra proferentem rule, meaning that any ambiguity in a policy shall be interpreted in the interest of the insured party and the beneficiary. Upon conclusion of the insurance contract, the insurance applicant has the right to rescind the contract – a right the insurer does not enjoy except in certain circumstances prescribed by law or by contract; eg, where the insurance applicant failed to perform the obligation of providing truthful information as noted in 6.2 Failure to Comply With Obligations of an Insurance Contract, or the insurance applicant or the insured party intentionally creates or falsely claims an insured event, etc.

Reinsurance Contracts

Widely applied principles in reinsurance activities are outlined below.

Back-to-back interpretation principle

A reinsurance contract is always concluded as a back-to-back contract to ensure consistency with the insurance contract; ie, the understanding and interpretation of a reinsurance contract shall be equivalent to the original insurance contract. The reinsurance policy usually includes incorporation clauses, such as “subject to the same terms and conditions as the original policy”.

“Following the fortunes” principle

The principle of “following the fortunes” shall apply to indemnity refunding; ie, the claim settlement decision made by the ceding company shall automatically apply to the reinsurer provided that the ceding company determines the loss with due diligence in accordance with the insurance clauses.

“Utmost good faith” principle

All parties to a reinsurance contract shall engage in reinsurance business under the principle of “utmost good faith”, which implies a higher standard of honesty than that usually required in commercial contracts.

ART transactions are relatively uncommon in China; in practice, the more prevalent approaches involve insurance-linked securities and captive insurance.

Catastrophe Bonds

These are the most common insurance-linked securities. Chinese insurance companies have issued catastrophe bonds overseas. The CBIRC issued the Notice on Matters Concerning Domestic Insurance Companies Issuing Catastrophe Bonds in the Hong Kong Market to support domestic insurance companies in issuing catastrophe bonds in the Hong Kong market. According to this Notice, the issuance of catastrophe bonds will involve reinsurance arrangements (contracts) between domestic insurance companies and their special-purpose insurance companies established in Hong Kong. However, catastrophe bonds themselves are not recognised as insurance or reinsurance contracts by regulators.

Captive Insurance Company

Insurance products issued by captive insurance companies are recognised as insurance contracts. According to the Notice on Issues Concerning the Supervision of Captive Insurance Companies, the business scope of captive insurance companies is limited to property insurance related to the group’s parent company, as well as accident and short-term health insurance for employees. 

We have not identified instances where overseas ART transactions are recognised by domestic regulators as reinsurance contracts.

Interpretation of Insurance Contracts

Pursuant to the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the General Rules of Contract of the Civil Code of the People’s Republic of China, interpreting contracts typically involves a combined approach. This starts with the “common understanding”, also known as semantic interpretation, considering the relevant terms, contract nature and purpose, customary interpretations, and the principle of good faith. Additionally, factors like background, negotiation process, and performance history, contribute to justifying the meaning of disputed terms.

In respect to insurance contracts, the following rules also apply.

The utmost good faith interpretation

Based on the utmost good faith principle as noted in 6.6 Consumer Contracts or Reinsurance Contracts, an insurance contract shall be interpreted using waiver and estoppel rules.

Contra proferentem rule

Particularly, when construing insurance contracts, the substantive law of China relating to insurance generally favours the insured. Where there is a dispute over a contract clause between an insurer and the insurance applicant, the insured party or the beneficiary of an insurance contract concluded by adopting the standard clauses provided by the insurer, interpretation shall be made using normal reasoning. Where there are two or more interpretations of the contract clause, the People’s Court or arbitration agency shall adopt the interpretation that is in the interest of the insured party and the beneficiary. Besides, the contra proferentem rule is also applicable to both consumer contracts and commercial contracts.

Special interpretation

By way of special interpretation, where the contents are inconsistent, the insurance slip takes precedence over the policy document or any other insurance certificate, the non-template clauses take precedence over the template clauses; the handwritten certificate signed and sealed takes precedence over the printed version.

The slight differences in relation to consumer contracts are listed in 6.6. Consumer Contracts or Reinsurance Contracts. Moreover, since reinsurance contracts are concluded between equal commercial entities such as insurance companies, and the parties are endowed with professional insurance knowledge and experience in insurance management, the contra proferentem rule does not apply, whereas customary and market understanding play a greater role than in consumer insurance.

Reasonable expectation

The principle of reasonable expectation is a concept imported from US insurance law; namely, the objective reasonable expectations of the insurance applicant and the beneficiary should be respected, even if the explicit terms of the contract may not fully support these expectations. Its purpose is to protect the interests of insurance applicants and beneficiaries who are in a disadvantaged position and to balance the interests of insurance applicants, beneficiaries and insurance companies. The judge may determine the insurer to bear the insurance liability according to the principle of reasonable expectation. The relevant case includes: GONG, Jiaju v China Pacific Property Insurance Co., Ltd. Zhengzhou (No 1744, Hu 74 Minzhong, 2022).

Use of extraneous evidence

Extraneous evidence may be admissible, such as evidence about negotiations, the circumstances in which the contract was entered into, or the “usual practice” or market understanding in relation to such contracts or certain terms therein, which may be evidence of mutual agreement and both parties’ intention. Additionally, the Basic Terminology of Insurance jointly issued by the State Administration for Market Regulation and the Standardisation Administration is also a significant source of interpretation.

Insured and Insurer Obligations

There are no explicitly defined warranty clauses in China. Nonetheless, insurers and the insured are subject to obligations, including but not limited to the following.

The insured’s obligation to provide truthful information

See 6.1 Obligations of the Insured and Insurer and 6.2 Failure to Comply With Obligations of an Insurance Contract.

The insured’s obligation to prevent or reduce loss

The insured party shall, at the time of occurrence of an insured event, endeavour to adopt the necessary measures to prevent or reduce losses.

The insured’s obligation to safeguard the safety of the subject matter of insurance

An insured party shall comply with the provisions of the State on fire services, safety, manufacturing and operation, labour protection, etc, and safeguard the safety of the subject matter of insurance.

The insured’s obligation to provide notification and relevant materials

The insurance applicant, the insured party or the beneficiary shall:

• promptly notify the insurer upon becoming aware of the occurrence of an insured event; and
• endeavour to provide the relevant proof and materials for ascertaining the nature, reason, extent of damages and other specifics of the insured event to the insurer at the time of making a claim for compensation or payment of insurance monies.

The insurer’s obligation to highlight and explain specific disclaimers

Where the standard clauses provided by an insurer are adopted:

• The insurer must highlight clauses that disclaim insurer liability in an insurance contract. This highlighting should occur on the insurance slip, insurance policy document, or any other insurance certificate. The highlighting can be achieved through the use of words, font size, symbols, or any other clear markings that effectively draw the insurance applicant’s attention.
• In addition to highlighting, the insurer must provide a specific explanation. This can be done through either written or verbal means. The explanation should clarify the concept, contents, and legal consequences of the relevant disclaimer clauses. Importantly, this explanation must be presented in a manner that can be easily understood by ordinary people.

The insurer’s notification obligation

The insurer is required to promptly inform the insurance applicant, the insured party, or the beneficiary in a single notification, requesting additional evidence and materials to address any deficiencies in establishing the nature, cause, and extent of damages related to the insured event.

The insurer’s obligation relating to a prompt assessment and compensation or payment of insurance monies

Upon receipt of a claim for compensation or payment of insurance monies, the insurer shall promptly make an assessment; where the case is complex, the assessment shall be made within 30 days, unless otherwise provided in the contract. Subsequent to the assessment process, the insurer shall notify the insured party or the beneficiary of the assessment outcome; where the claim falls under insurance liabilities, the insurer shall indemnify the insured within 10 days of reaching an agreement with the insured party or the beneficiary on compensation or payment of insurance monies, unless otherwise specified in the contract.

Unlike the strict limitations in the UK or the United States, where an insured’s failure to comply with a condition precedent could discharge the insurer from its coverage obligations under the insurance contract if the insurer proves that such failure prejudices its ability to investigate the loss, defend a liability claim, or develop a defense to coverage, in China, consequences arise when the insurance applicant intentionally or due to gross negligence fails to perform the disclosure obligation as noted in 6.1 Obligations of the Insured and Insurer and 6.2 Failure to Comply With Obligations of an Insurance Contract.

Addressing Disputes over Coverage

The difference between consumer contracts and reinsurance contracts do not bear legal implications in China. Generally, disputes concerning coverage are addressed in accordance with the insurance contracts and their related materials; eg, application forms, policy documents, policy schedules and insurance slips.

Statute of Limitations

Pursuant to the Insurance Law, the statute of limitations for life insurance disputes is five years, and two years for property insurance disputes, which is one year shorter in comparison with the general statute of limitations of three years prescribed by the Civil Code. However, in accordance with the principle that the new law takes precedence over the former and protecting the interests of the insured, a statute of limitations of three years is mostly applied to property insurance claim. The statute of limitations commences from the date on which the insured or the beneficiary becomes aware or should have become aware of the occurrence of the insured event. 

With respect to property insurance and life insurance, a third party cannot bring a direct action against the insurer. However, concerning liability insurance, where the insured party does not request the insurer to make compensation of insurance monies, the third party may bring a direct action against the insurer.

Beneficiary or Third Party’s Right to File a Claim

As noted in 6.5 Multiple Insured or Potential Beneficiaries, the specifically defined “beneficiary” in the personal insurance contracts has the right to claim for compensation or payment of insurance monies. The beneficiary agreed between the insurance applicant or the insured and the insurer, on the other hand, is only entitled to the insurer’s performance of the payment, without the right to claim insurance benefits from the insurer.

Choice of Law

In China, disputes may be resolved by negotiation, settlements, litigation, arbitration, or mediation. Regarding the choice of law, the parties to a contract can explicitly choose the laws applicable in accordance with the Law of the People’s Republic of China on the Application of Laws to Foreign-related Civil Relations.

The disputing parties may voluntarily choose arbitration as the preferred dispute resolution method. The arbitration clauses are effective, and the People’s Court shall not hear the case, except if the arbitration agreement is invalid. Arbitration is not subject to the hierarchical jurisdiction and territorial jurisdiction outlined below.

Hierarchical Jurisdiction

In China, there are four levels of courts: the primary courts, the intermediate courts, the high courts and the Supreme People’s Court. If the amount in dispute for a civil case is less than RMB500 million (not inclusively), the primary court will have first-instance jurisdiction. If the amount in dispute for a civil case is between RMB500 million (inclusively) and RMB5 billion (not inclusively), an intermediate court will have first-instance jurisdiction. If the amount in dispute for a civil case is more than RMB5 billion (inclusively), the high court will have first-instance jurisdiction. It is rare for the Supreme People’s Court to hear a case at the first instance.

Territorial Jurisdiction

The People’s Court at the location of the defendant’s domicile or the insurance subject matter shall have jurisdiction over an insurance contract dispute lawsuit. However, the territorial jurisdiction is subject to some exceptions. China has established some professional courts, such as the financial court, to handle litigation in some specific sectors. For instance, since 26 March 2021, the Beijing Financial Court will hear insurance disputes over which the Beijing Intermediate People’s Court has first-instance jurisdiction. The Beijing Financial Court will also hear the appeals in insurance disputes from the district courts of first instance.

Overview

In China, the judicial system primarily follows an inquisitorial approach, with judges actively involved in questioning both parties and other relevant individuals, such as witnesses, during proceedings.

Trial of First Instance

The People’s Court will hear the case following registration if the disputing parties do not reach a settlement or mediation, and such proceedings may be conducted in either an ordinary procedure or a summary procedure.

Trial of Second Instance

The People’s Court of second instance shall examine both the relevant facts and applicable laws for the appeal requests. A second instance judgment shall be binding and enforceable and can therefore only be challenged by judicial review.

Retrial

The retrial may be conducted if a litigant deems that there is an error in a judgment or ruling that has come into legal effect or a People’s Court discovers an error in a judgment letter and deems that there is a need for retrial, although such applications are not always approved. Where the litigants apply for retrial, enforcement of the judgment or ruling shall continue.

Unlike the UK procedural regime, except for hearing in the courts or applying for arbitration, in China there is no independent body like the Financial Ombudsman Service (FOS), which reviews complaints from consumers or small businesses against insurers, makes binding decisions, and can only be challenged through judicial review.

In cases where the ratification and enforcement of a judgment or ruling from a foreign court, which has attained legal effect, is sought, a People’s Court will assess the matter. The examination will be conducted in accordance with an international treaty entered into or participated in by the People’s Republic of China or based on the principle of reciprocity. If the People’s Court determines that such enforcement does not contravene the basic principles of the laws of the People’s Republic of China, or impinge upon the sovereignty, security, or public interest of the State, it will issue a ruling confirming the validity. Should enforcement be necessary, an enforcement order will be issued and carried out in accordance with relevant provisions.

Conversely, if the People’s Court finds that the enforcement of the judgment or ruling would violate the basic principles of the laws of PRC or compromise the sovereignty, security, or public interest of the State, the foreign court’s judgment or ruling will not be ratified and enforced.

An arbitration agreement shall include arbitral clauses stipulated in the contract and other written agreements which request arbitration to be made prior to or following the occurrence of a dispute. An arbitration agreement shall include:

• a request for arbitration;
• the subject matter of arbitration; and
• the chosen arbitration commission.

An arbitration agreement shall be deemed invalid when:

• the subject matter of the arbitration exceeds the legally regulated scope of arbitration;
• the arbitration agreement has been concluded by persons without civil capacity or with limited civil capacity; and
• one party compels the other to conclude the arbitration agreement through coercive means.

The arbitration agreement shall exist independently, and its validity shall not be affected by changes, dissolution, termination or invalidity of the contract.

Where the parties concerned filed a complaint to a People’s Court without declaring the existence of the valid arbitration agreement and, following acceptance of the case by the People’s Court, the other party provides the arbitration agreement prior to the beginning of the hearing, the People’s Court shall dismiss the case. Where the other party fails to provide the opposing opinion prior to the beginning of the hearing by the People’s Court, the arbitration agreement shall be regarded as having been forfeited and the People’s Court shall continue the hearing.

Enforcement of Awards

Arbitration awards are final. The arbitration commission or People’s Court will not hear a reapplication arising from the same matter if a lawful and valid arbitration award has been issued.

The parties concerned shall enforce the award. A party may apply to a People’s Court for enforcement if the other failed to implement the award.

Enforcement of Foreign Awards

Where an arbitral award of an overseas arbitration organisation requires ratification and enforcement by a PRC People’s Court, the parties concerned shall submit an application directly to an intermediate People’s Court at the location of the enforcee’s residence or the location of the enforcee’s properties; the People’s Court shall handle the matter pursuant to the international treaty concluded or participated by the PRC or in accordance with the principle of reciprocity.

New York Convention

China became a party to the New York Convention on 22 Jan 1987. However, two reservations were made upon joining, namely the reciprocity reservation and commercial reservation. The territorial application of the Convention extended to the Hong Kong Special Administrative Region of China and Macao Special Administrative Region of China. The People’s Court can refuse enforcement of a foreign award based on the grounds as set out in the New York Convention.

Alternative Dispute Resolution (ADR) is not only recognised but also actively promoted in China. Among the various ADR methods, settlement is particularly common. This involves a process initiated by the court before the case is officially registered. Typically, a specialised judge, often a retired senior judge, is appointed to assist the parties. Another approach is a pre-arbitration procedure organised by a third party aiming to facilitate a settlement between the involved parties. In certain cases, with relatively low claim values, the court may delegate a third-party agency to assist in mediation.

It is important to note that the mediation preceding both court proceedings and arbitration are internal processes conducted within the framework of the courts or arbitrations. These processes are not independent of the litigation or arbitration itself.

In light of the insurer’s obligation regarding prompt assessment and compensation or payment of insurance monies noted in 8.2 Warranties, where the insurer failed to perform such obligation, the insurer shall, in addition to payment of insurance monies, compensate the insured party or the beneficiary for losses incurred therefrom. In practice, the People’s Court may also uphold the insured’s or the beneficiary’s claim for the loss of interest during the period of delayed performance. The interest is calculated based on the Loan Prime Rate (LPR) issued by the People’s Bank of China.

If an insurer refuses to perform the indemnification obligation, it may face corrective orders from the NAFR and a fine ranging from RMB50,000 to RMB300,000. In severe cases, the insurer’s business operations may be restricted or it may be ordered to stop accepting new business, or its business permit be revoked.

Where the occurrence of an insured event is due to damages to the subject matter of insurance made by a third party, the insurer shall, with effect from the date of making compensation of insurance monies to the insured party, exercise subrogation rights within the scope of the compensation amount to claim for compensation from the third party.

Where the insurer is unable to exercise subrogation rights due to an intentional act or gross negligence of the insured party, the insurer may deduct or request a refund of the corresponding insurance monies. An exception to that would be when an insured event is caused intentionally by a family member of the insured party or its member, in which case the insurer shall not exercise subrogation rights to claim compensation from the family member of the insured party or its member.

The latest insuretech developments are listed below.

Artificial Intelligence (AI) Applications

• intelligent insurance advisers;
• AI-assisted claims processing;
• intelligent risk control and anti-fraud measures; and
• precision pricing.

Blockchain

• utilising blockchain technology to connect primary insurers, reinsurers, and brokers in reinsurance transactions, facilitating secure and transparent information sharing in the reinsurance business; the Shanghai Insurance Exchange, in collaboration with industry institutions, has successfully built and launched a reinsurance platform based on blockchain technology, supporting non-auto reinsurance facultative business.

Big Data

• the Million Medical Insurance product; and
• people’s livelihood insurance.

The overall regulatory attitude supports the development of innovative insurance technology while emphasising the control of risks associated with it.

The CBIRC released the Fourteenth Five-Year Plan for Standardisation in the Chinese Insurance Industry, stating that digital transformation is a crucial means for the insurance industry to implement new development concepts and promote high-quality development. Standardisation facilitates the digital transformation of the insurance industry while concurrently strengthening industry standards in network and data security and personal privacy protection, balancing development and security. The plan also advocates for the development of standards in information technology capabilities to solidify the foundation for further development. Local authorities have convened meetings to actively promote the digital transformation of insurance institutions.

In response to technological advancements and to leverage technological innovation in the insurance industry, leading insurers such as China Life, Ping An, PICC, CPIC, and Tai Ping are strategically positioning themselves in insurance technology by establishing dedicated insurance technology subsidiaries.

Emerging risks that affect the market include:

• the high incidence of criminal cases in insurance institutions;
• third-party use of leaked personal privacy data of financial consumers to make fraudulent claims on behalf of consumers with insurance companies; and
• individuals or organisations posing as professional legal experts on online platforms, enticing consumers to entrust them with policy surrender or rights protection, and charging consumers high consultation and service fees.

Insurance institutions face significant data security risks when outsourcing services; such outsourcing has led to various security incidents impacting their networks, data security, and business continuity.

The main issues contributing to these risks are as follows:

• Insurance institutions lack a clear understanding of how to effectively collaborate within digital ecosystems, which can result in inadequate management of the outsourcing process, leaving vulnerabilities in the overall system.
• These institutions face challenges in clearly identifying and dividing data security risks and responsibilities in collaborative efforts.

The NAFR has issued the Risk Prevention and Control Management Measures for Criminal Cases Involving Banking and Insurance Institutions, effective on 1 January 2024, as a response to the high incidence of criminal cases in insurance institutions.

Insurance companies have leveraged artificial intelligence and big data technology to establish an intelligent claims anti-fraud platform to achieve intelligent claims and anti-fraud capabilities. The CBIRC has also introduced the Management Measures for Consumer Rights Protection in Banking and Insurance Institutions, safeguarding consumers’ legitimate rights from various aspects, including information security and property safety rights.

Relevant departments have intensified efforts to combat the illicit practice of “policy surrender through agent”, which include:

• a multi-department joint strike mechanism;
• comprehensive use of regulatory technology;
• leveraging the advantages of centralised data management;
• implementing information sharing;
• precise counterattacks;
• strengthening co-ordination between law enforcement; and
• fully utilising the joint advantages of regulatory authorities’ professional supervision and public security agencies’ investigation methods to uncover criminal activities related to “policy surrender through agent”.

The NAFR has issued the Notice on Strengthening Network and Data Security Management in Third-Party Co-operation, which requires the insurance institutions to conduct risk self-inspections, enhance overall management of technological risks, and reinforce monitoring and regulatory reporting for off-site outsourcing risks.

Promulgation of The Financial Stability Law

The Financial Stability Law of the People’s Republic of China (Draft) (“Financial Stability Law” (Draft), promulgated on 30 December 2022, serves to establish a legal framework for financial institution risk management, encompassing prevention, resolution, and wind-down. The law highlights several key mechanisms:

• diversifying financial risk mitigation and prevention;
• expanding the available options for remediating failing financial institutions;
• enhancing specific systems to support early identification, containment, and management of financial risks; and
• clarifying the connection between the wind-down process and the judicial system.

In practice, the mitigation measures explicitly provided in the Financial Stability Law (Draft) have been utilised, including but not limited to:

• requiring the institution facing resolution to undertake self-rescue efforts as a first course of action;
• mobilising market-based funds to participate in investment or M&A;
• using local administrative and judicial forces to participate in asset recovery and loss prevention;
• implementing debt write-downs; and
• if necessary, injecting funds from the industry’s protection fund to support the wind-down process, in order to minimise the reliance on public funds.

The Fifth Amendment of the Insurance Law

Since its inception in 1995, the Insurance Law in China has undergone four amendments in 2002, 2009, 2014, and 2015, with a fifth amendment currently in the pipeline. Anticipated to be enacted after an eight-year interval, the fifth amendment aims to address the disparity between theoretical provisions and practical implementation. Key areas of focus include establishing an insurance mechanism with a core focus on consumer protection, providing guidance or regulation for cyber insurance, and enhancing supervision of insurance fraud, among other considerations.

Administrative Measures for the Protection of Consumers’ Rights and Interests by Banking and Insurance Institutions

The Administrative Measures for the Protection of Consumers’ Rights and Interests by Banking and Insurance Institutions came into effect on 1 March 2023 to further improve the protection of consumer rights and interests.

Notice on Strengthening Network and Data Security Management in Third-Party Co-operation

The Notice on Strengthening Network and Data Security Management in Third-Party Co-operation issued by the NAFR requires insurance institutions to diligently fulfil their network and data security protection obligations. This involves conducting self-inspections, supervising outsourcing risks, and enhancing emergency response mechanisms.