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China Unveils Insurance Protection Fund

China's insurance regulator has announced the establishment of an insurance protection fund system. The system aims to protect policyholders' interests in the case of an insurer's bankruptcy and to ensure a healthier insurance market, according to CRI reporter Zhou Yun's report.

The China Insurance Regulatory Commission, the country's insurance watchdog, has passed a new regulation that requires all insurers to put part of their premiums in an Insurance Protection Fund, to compensate policyholders in case an insurer goes bankrupt.

The fund will pool about US$400 million from insurers by the end of this year.

Jiang Xianxue, an official with the insurance regulator, said, the new system signals that the insurance industry has become the first financial sector in the nation to break away from the years-old practice of "the State budget holding the bag when financial institutions go bankrupt."

"Because of the bankruptcy compensation arrangements, insurance companies that have serious solvency problems can, in the future, peacefully exit the market under market principles. Therefore, it's fair to say that, after the establishment of such a system, the functioning of the insurance market will be more open, orderly, and healthier."

In addition, the interests of policyholders will also be better protected under the new system.

The regulation says that when a non-life insurer goes bankrupt, with assets insufficient to repay liabilities, policyholders' losses that are no more than US$6,000 will be fully covered by the fund.

For losses in excess of that number, the fund will cover 90 percent of the extra for individual policyholders and 80 percent for corporate policyholders.

Jiang Xianxue says the new system can effectively prevent potential financial risks and safeguard the interests of policyholders.

"The fund will be under supervision and management by an Insurance Protection Fund Council. On the one hand, it is easy to operate and manage. On the other hand, it is quick and convenient to make compensation for policyholders as long as the insurer goes bankrupt."

The official said the new regulation applies to foreign insurance companies and joint venture insurers operating in China.