The revised insurance law, which will enable insurance companies to invest in real estate, will go public as early as the end of next year, said top managers at China's insurance regulator.

 

The current insurance law was enacted in 1995 and revised in 2002. However, due to the skyrocketing development of China's insurance sector, which has seen an average annual growth of 30 percent over the past two decades, the original insurance law lags far behind the times.

 

"One of the major problems is with investment channels," said Yang Huabai, director of the legislation department of the China Insurance Regulatory Commission (CIRC).

 

China's Insurance companies held a combined 1.85 trillion yuan (US$236.5 billion) of assets as of October 31, up 25 percent on last year.

 

However, because of strict constraints on which fields insurers can invest under the original insurance law, their investment return has hovered at around only 3 percent over the past few years.

 

Although the CIRC has taken measures to open investment channels, such as allowing some insurers to pour money into infrastructure projects and buy stakes in banks, these moves haven't yet been included in the law.

 

"As a major change, insurers can invest in real estate in the revised draft," said Yang.

 

Some insurance companies have already embarked on pilot programs in the property sector.

 

"We have bought several commercial buildings this year and will further strengthen our investment in this sector, including in medium-sized cities," Li Yanhua, chief risks officer at Taikang Life Insurance, told China Daily. Taikang Life is the country's fifth largest life insurer by premium.

 

Insurance companies' liabilities are mostly long-term, so finding good long-term assets to match them is important, with real estate projects are among the best choices, Li explained.

 

"My confidence in China's real estate sector is based on the country's growing economy and limited land supply, especially in hot areas," Li said.

 

For Li, the revised insurance law is good news, promising further regulation of the market.

 

She cares most about the clarification of consumers' benefits and liabilities.

 

"We hope that there will be more articles to protect consumers in the revised insurance law," she said.

 

Most of the articles in the original insurance law were targeted at insurance companies. However, the enhanced competition in the insurance sector has led to more irregularities, damaging consumers' services.

 

"On the other hand, there are very few regulations to clarify consumers' liabilities," said Li. "Insurance companies are becoming frustrated by the growing number of fake claims."

 

According to Janet De Silva, CEO of Sun Life Everbright, a 50-50 joint venture life insurer between Canada's Sun Life Financial and China's Everbright Group, the broadened investment channels in the revised law will make product innovation easier.

 

"We will be pleased if CIRC loosens the restrictions on insurers' overseas investments, as it could make product innovation more straightforward," said De Silva.

 

While broadening investment channels, the revised insurance law will also expand insurers' business scope and add new market entities.

 

For instance, there are only three types of business insurers could do under the original insurance law life insurance, non-life insurance and reinsurance. However, with the growth of the economy, there is now demand for different types of insurance.

 

The new medical co-operative system in rural areas, for instance, was widely welcomed by peasants but has exceeded the business scope of the original law, said Yang. The system aims to help peasants receive better medical treatments at lower cost.

 

Yang said the revised insurance law could go public as early as the end of next year.

 

"We submitted the draft law to the Legislative Affairs Office of the State Council at the end of 2005 and we've reached an initial consensus now after some amendments," said Yang.

 

The Legislative Affairs Office will submit the draft to the National People's Congress (NPC) for a review early next year. The NPC usually conducts three reviews before passing a law, said Yang.

 

"Therefore, if everything moves on smoothly, the revised insurance law could be made public at the end of next year," Yang added.

 

China's insurance sector has seen an annual growth rate of 35 percent over the past five years, with the overall premium topping 517.7 billion yuan (US$66.2 billion) by the end of November this year.

 

Under the 11th Five-year Plan, China's insurance revenue is expected to exceed 1 trillion yuan (US$128 billion) by the end of 2010, and insurance assets are expected to hit 5 trillion yuan (US$639 billion).

 

(China Daily December 22, 2006)