China has launched a broad reform of its insurance regulatory framework, proposing substantial changes aimed at strengthening supervision, protecting policyholders, improving corporate governance and enhancing insurers’ ability to withstand financial risks.
The National Financial Regulatory Administration published a draft amendment to the Insurance Law on 4 September for public consultation. Interested parties have until 3 October to submit their views. The proposed changes represent one of the most extensive structural revisions to China’s insurance legislation in recent years, with the draft seeking to address risks that have emerged as the sector has expanded and become more complex.
The revised draft contains 214 articles, compared with 185 under the existing law. The increase reflects an effort to provide more detailed rules covering capital adequacy, ownership, governance, investment activities, risk management, market exit arrangements and consumer protection.
One of the most significant proposals concerns the minimum registered capital required to establish an insurance company. Under the current framework, insurers must have at least 200 million yuan in registered capital. The draft proposes raising this threshold to 1 billion yuan, a fivefold increase.
The higher requirement is intended to strengthen insurers’ financial foundations and improve their capacity to absorb losses during periods of market volatility or significant claims. It would also raise the financial barrier for new entrants, placing greater emphasis on the strength and sustainability of companies seeking to enter the market.
Tighter scrutiny of ownership and control
The proposed amendments would give regulators stronger powers to examine the ownership and actual control of insurance companies. Rather than relying solely on formal shareholding records, authorities would be able to pay closer attention to who ultimately controls an insurer and influences its decisions.
The draft also seeks to prevent shareholders from improperly interfering in the day-to-day management of insurers. Greater responsibilities would be placed on shareholders in areas including capital contributions, corporate governance and transactions involving related parties.
Such provisions are intended to make ownership structures more transparent and reduce the risks associated with shareholders using their influence in ways that could undermine an insurer’s financial stability or governance.
Wider investment options for insurers
Investment rules are another major component of the proposed reform. The draft seeks to provide clearer recognition of insurers’ ability to invest insurance funds in shares, asset-management products, gold and various futures contracts.
Insurance companies manage substantial pools of long-term funds, making investment policy a key part of their financial operations. Broader investment options could give insurers greater flexibility in managing those funds and diversifying their portfolios. At the same time, wider investment activity would require effective controls to ensure that additional opportunities do not translate into excessive risk.
The draft therefore places considerable emphasis on internal controls, solvency, the balance between assets and liabilities, and comprehensive risk-management systems. Regulators would have greater scope to intervene before emerging weaknesses develop into serious financial problems.
Stronger arrangements for troubled insurers
The proposed law also seeks to improve the framework for dealing with insurance companies facing financial distress. Where necessary, regulators would have more structured mechanisms for controlling troubled institutions and facilitating an orderly exit from the market.
The objective is to prevent difficulties at an individual insurer from spreading across the wider financial system. Early identification of risks and timely regulatory intervention are central to this approach.
Consumer protection is also a major element of the proposed amendments. The draft includes measures intended to make insurance contracts clearer, strengthen policyholders’ rights and improve transparency in insurers’ business practices.
Penalties for violations would also become tougher. Increased enforcement would raise the potential financial and legal consequences for insurance companies, shareholders and those who exercise actual control over insurers when they fail to comply with regulatory requirements.
The reform forms part of China’s broader effort to strengthen the resilience of its financial sector. Regulators have been placing greater emphasis on capital strength, corporate governance and financial risk management across major financial institutions.
The public consultation will now provide an opportunity for industry participants and other interested parties to comment on the proposed changes. Authorities will review the submissions before making further adjustments to the draft and advancing it through the relevant legislative process.
If adopted, the amendments could bring significant changes to the way insurance companies operate in China. Higher capital requirements and tighter scrutiny of ownership would raise regulatory expectations, while clearer investment rules could give insurers greater flexibility in managing long-term funds. The overall framework would place greater emphasis on financial resilience, responsible governance, early risk intervention and the protection of policyholders.
