The ICLG to: Insurance & Reinsurance Laws and Regulations

Insurance & Reinsurance Laws and Regulations China 2024

ICLG - Insurance & Reinsurance Laws and Regulations - China Chapter covers common issues in insurance and reinsurance laws and regulations – including regulatory authorities and procedures, (re)insurance claims, litigation – overview, litigation – procedure and arbitration.

Published: 15/03/2024

1. Regulatory

1.1        Which government bodies/agencies regulate insurance (and reinsurance) companies?

In the mainland of China, insurance and reinsurance activities are regulated by the National Administration of Financial Regulation (“NAFR”).

The NAFR was officially unveiled on 18 May 2023.  The NAFR, which will function directly under the State Council, China’s Cabinet, is formed on the basis of the former China Banking and Insurance Regulatory Commission.

1.2        What are the requirements/procedures for setting up a new insurance (or reinsurance) company?

To set up an insurance company in the mainland of China, the following requirements must be met:

  1. The principal shareholders must have sustainable profitability and no record of significant violations of laws and regulations in the past three years, and the net assets must be more than CNY 200 million. 
  2. The articles of association must be in conformity with the Insurance Act and the Company Law of the People’s Republic of China.
  3. The minimum registered capital must be more than CNY 200 million, and the registered capital must be fully paid up in cash.
  4. The directors, supervisors and senior management personnel must have professional knowledge and experience in business operations and related licences.
  5. A sound organisational structure and management system must be in place.
  6. Business premises and other facilities relative to the insurance business must conform to the requirements.

The application must be submitted to the NAFR, which will make a decision within 60 days.  In case the NAFR permits the establishment of the insurance company, the company must be established within one year and apply for a licence from the NAFR.

1.3        Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?

If foreign insurers have not established a legally registered branch in the mainland of China, they will be prohibited from directly engaging in business in the mainland of China.  However, such foreign insurers can still participate in reinsurance business with domestic insurers.

1.4        Are there any legal rules that restrict the parties’ freedom of contract by implying extraneous terms into (all or some) contracts of insurance?

The duty of utmost good faith is implied into all insurance and reinsurance contracts by the Insurance Act and relevant chapters of the Maritime Code.  The insured has the obligation to disclose the material information so that the insurer can determine whether to cover the risk and the premium rate accordingly.  The insured is also obliged to provide assistance to the insurer when the insurer exercises its right of subrogation.

Under article 135 of the Insurance Act, the terms and premium rates of compulsory insurance, public insurance and life insurance shall be set by the NAFR. 

1.5        Are companies permitted to indemnify directors and officers under local company law?

The Company Law and related regulations do not explicitly prohibit companies from indemnifying directors and officers.  However, the right to indemnify is not unconditional.  For example, in the event a director and(/or) officer act(s) illegally, the company cannot indemnify the loss or expense occurred.

1.6        Are there any forms of compulsory insurance?

Besides social insurance, in the commercial insurance field, individuals and businesses involved in certain activities are mandated to acquire insurance for their activities.  Below is a list of some examples:

  1. Compulsory Insurance for Vehicle Traffic Accident Liability.
  2. Civil Liability Insurance for Vessel-induced Oil Pollution Damage.
  3. Liability Insurance of Travel Agencies.
  4. Professional Liability Insurance.

In accordance with the Work Safety Law of the People’s Republic of China, China now encourages enterprises to purchase workplace safety liability insurance.  Enterprises in high-risk industries or fields as specified are obliged to apply for workplace safety liability insurance.

2. (Re)insurance Claims

2.1        In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?

Generally speaking, the substantive law of China relating to insurance is slightly more favourable to the insured.  For example, given that insurance policies are in many cases issued on the insurer’s standard terms, in line with article 30 of the Insurance Act, the insurance contract is subject to the contra proferentem rule, meaning that if there are two or more interpretations of the contractual wording, courts will adopt the interpretation that favours the insured.

2.2        Can a third party bring a direct action against an insurer?

In regard to property insurance and life insurance, a third party cannot directly bring an action against an insurer.  However, in the case of liability insurance, a third party can invoke article 65 of the Insurance Act and its Fourth Interpretation to initiate a direct legal action against the insurer if the insured party fails to make a claim for insurance proceeds.

With certain types of insurance, there are special laws and regulations that authorise a third party to file such claim.  Such laws include article 97 of the Special Maritime Procedure Law and article 15 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Hearing of Cases Involving Compensation for Damages in Road Traffic Accidents.

2.3        Can an insured bring a direct action against a reinsurer?

According to article 29 of the Insurance Act, the insured of the original insurance policy cannot make a claim for compensation or payment of insurance monies from the reinsurer.  The reinsurer is the insurer of the insurer, not of the insured.

2.4        What remedies does an insurer have in cases of either misrepresentation or non-disclosure by the insured?

In case the misrepresentation and non-disclosure is related to a material matter, the insurer may have the right to rescind the policy and keep the premium.  To access the remedy of rescission, an insurer must show that the misrepresentation and non-disclosure involved an intent to deceive.  If there is no intent, but rather negligence, the insurer would only be entitled to cancel the policy. 

2.5        Is there a positive duty on an insured to disclose to insurers all matters material to a risk, irrespective of whether the insurer has specifically asked about them?

For general insurance, under article 16 of the Insurance Act, the insured is only obliged to provide the information requested by the insurer. 

However, for marine insurance, under article 222 of the Maritime Code, the insured is obligated to disclose to the insurer, before the contract is concluded, every material circumstance that is known to him/her, and the insured is deemed to know every circumstance that, in the ordinary course of business, ought to be known by him/her.

2.6        Is there an automatic right of subrogation upon payment of an indemnity by the insurer or does an insurer need a separate clause entitling subrogation?

According to articles 60 and 62 of the Insurance Act, the insurer is entitled to, with effect from the date of making insurance payments, exercise subrogation rights within the scope of the compensation amount to claim for compensation from a third party.  Yet, in practice, insurers commonly request the insured to issue a Letter of Subrogation.

3. Litigation – Overview

3.1        Which courts are appropriate for commercial insurance disputes? Does this depend on the value of the dispute? Is there any right to a hearing before a jury?

The court covering the domicile of the defendant or the location of the subject-matter insured is the court that has jurisdiction over the commercial insurance dispute.  For life insurance, the court covering the domicile of the insured will also be a competent court.  For property insurance that is related to transport facilities and cargo in transit, the court covering the place of registry of the transport facilities, the destination of the shipment and where the accident occurred has jurisdiction over the dispute.

Generally speaking, commercial insurance cases should be filed to the Primary People’s Court.  However, if the case is foreign-related and the claim amount is more than CNY 20 million (or 40 million in Beijing, Shanghai, Tianjin, Jiangsu, Fujian, Shandong, Guangdong, Chongqing and Zhejiang), such case should be handled by the Intermediate People’s Court.

There is no jury in the judicial system to hear civil disputes in the mainland of China.

3.2        What, if any, court fees are payable in order to commence a commercial insurance dispute?

Once the court accepts the filing, it will serve a notification of acceptance and the notice of court fee.  The court fee is calculated based on the claimed amount.  For a claimed amount of more than CNY 10,000 but less than CNY 100,000, a fee must be paid at the rate of 2.5%.  If the case goes through the simplified procedure, the court fee would only be 50% of the general procedure.

3.3        How long does a commercial case commonly take to bring to court once it has been initiated?

The court is obliged to accept a claim within seven days.  In the first instance, from the date of establishment of the case file, when there is a need for an extension of time under special circumstances, upon the approval of the president of the court, an extension of six months may be granted.  In the second instance, the court has a time frame of three months, but an extension of time of three months may be granted.

However, for foreign-related civil cases, the Civil Procedure Law does not set a compulsory period.  The court will try to comply with the above-mentioned schedule, but the civil proceedings take more time due to the complexity of the dispute, the foreign parties involved, etc.

3.4        Does COVID-19 have, or continue to have, a significant effect on the operation of the courts, or litigation in general?

We believe that COVID-19 no longer has a significant effect on the operation of the courts and litigation.

4. Litigation – Procedure

4.1        What powers do the courts have to order the disclosure/discovery and inspection of documents in respect of (a) parties to the action, and (b) non-parties to the action?

Under article 67 of the Civil Procedure Law, the party bears the burden of providing evidence for its claim.  The court will investigate and collect evidence that a party and its litigation representative are unable to collect for some objective reasons and evidence that the court deems necessary for trying a case.

Article 70 of the Civil Procedure Law further provides that courts have the authority to investigate and collect evidence from the relevant entities and individuals, and the relevant entities and individuals cannot refuse such investigation and collection of evidence.

Article 112 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law provides that where the documentary evidence is in the possession of the opposing party, the court may order the opposing party to produce such document.  In the case that the party refuses to submit such documentary evidence without any justified reason, the court may, at its discretion, deem the allegation of the opposing party to be proven by such document to be true. 

4.2        Can a party withhold from disclosure documents (a) relating to advice given by lawyers, or (b) prepared in contemplation of litigation, or (c) produced in the course of settlement negotiations/attempts?

A party can object to disclose such documents pursuant to Chinese law.  To our knowledge, there have been no precedent cases in which the court has ordered a party to provide documents relating to the advice given by lawyers, prepared in contemplation of litigation, or produced in the course of settlement negotiations/attempts.

According to article 107 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law, in litigation, the facts admitted by a party for the purpose of entering into a mediation agreement or reconciliation agreement cannot be used in subsequent litigation, unless otherwise provided by the law or consented by all parties.

4.3        Do the courts have powers to require witnesses to give evidence either before or at the final hearing?

Under articles 75 and 76 of the Civil Procedure Law, any entity or individual that knows any circumstances of a case has the obligation to testify in court.  Upon notice by a court, a witness shall testify in court. 

Under any of the following circumstances, a witness may testify by written testimony, audio-visual transmission technology, audio-visual recording or any other means as permitted by the court:

  1. The witness is unable to appear in court for health reasons.
  2. The witness is unable to appear in court due to geographic distance or travel difficulties.
  3. The witness is unable to appear in court due to force majeure (such as a natural disaster).
  4. The witness is unable to appear in court for any other justifiable reason.

If a witness provides their testimony during the preparation period before trial or when both parties are present at the scene of an investigation or inquiry by the court, such testimony shall be deemed to be given in court.  With the consent of the parties, witnesses may also make statements by pleadings outside the court. 

4.4        Is evidence from witnesses allowed even if they are not present?

As mentioned in question 4.3 above, witnesses will be obliged to testify at trial.  In the case that the court and parties indeed request the witness to attend, but the witness refuses without any justified reason, such evidence from the witness not presented in court will be invalid.

However, if there is other evidence to justify its admissibility, the testimony might be considered by the judge at his/her discretion based on the ancillary evidence, his/her own knowledge and experience.

4.5        Are there any restrictions on calling expert witnesses? Is it common to have a court-appointed expert in addition or in place of party-appointed experts?

Parties may file an application, before expiration of the evidence-producing term, for one or two experts to cross-examine the appraisal opinion or to give opinions on specific issues.  Moreover, if deemed necessary, the court is entitled to appoint an expert from an independent institute, but such expert would not replace the expert(s) appointed by either party. 

4.6        What sort of interim remedies are available from the courts?

Even if a final decision has not been rendered, the plaintiff can file a petition for an order for provisional attachment to freeze the assets of the defendant to some extent for the purpose of securing the compulsory enforcement of a final judgment in the future.  In addition, the plaintiff can also apply for a provisional measure to order the defendant to temporarily act or not act in a certain manner.

In principle, the court will request the applicant to provide a security deposit before the execution of the provisional attachment or injunction; however, instead of the security deposit, the applicant can provide Litigation Property Preservation Liability Insurance.

In addition, according to articles 109 and 110 of the Civil Procedure Law, the court may rule on prior enforcement pursuant to an application of a litigant under certain circumstances.

4.7        Is there any right of appeal from the decisions of the courts of first instance? If so, on what general grounds? How many stages of appeal are there?

If the party finds the first instance decision unfavourable, the party may appeal to a higher-level court.  The appellate court is obliged to accept the appeal and review and investigate the facts as well as the legal issues.

In principle, there is only one stage of appeal.  The judgment or ruling of the appellate court will serve as the final judgment or ruling.  However, under exceptional circumstances, a party may petition the higher-level court for a re-trial.  The court holds the authority to accept or reject such an application.

4.8        Is interest generally recoverable in respect of claims? If so, what is the current rate?

Interest is generally recoverable in respect of claims.  The interest rate is flexible with the concurrent Loan Prime Rate (“LPR”), which is about 3.45% per annum for one-year loans, unless otherwise agreed by the parties.

Generally speaking, under the Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases, even if the parties have agreed on the overdue interest rate, such overdue interest rate must not exceed four times LPR for one-year loans at the time of the conclusion of the contract.  Based on the latest LPR, which is about 3.45%, the upper limit of the private lending interest rate is 13.8%.

4.9        What are the standard rules regarding costs? Are there any potential costs advantages in making an offer to settle prior to trial?

In accordance with the Measures for the Payment of Litigation Fees, court fees are mainly calculated based on the claim amount.  In principle, the court fee will be borne by the party that lost the lawsuit.  However, if the result of the judgment is not completely favourable to one party, the court will distribute the court fee to the parties in proportion.  In addition, except as otherwise provided, the attorney fees would be borne by each party respectively.

In the event that the case is a mediation (whether prior to or after the hearing) that is successful or the party applies for withdrawal of the action, the plaintiff could apply for the return of 50% of the court fee.

4.10      Can the courts compel the parties to mediate disputes, or engage with other forms of Alternative Dispute Resolution? If so, do they exercise such powers?

Although mediation and Alternative Dispute Resolution have become increasingly important for civil disputes, according to article 96 of the Civil Procedure Law, People’s Courts shall carry out mediation in the trial of civil cases pursuant to the principle of voluntary participation by litigants.  However, the court would invariably recommend both parties to sort out the claim by ADR. 

4.11      If a party refuses a request to mediate (or engage with other forms of Alternative Dispute Resolution), what consequences may follow?

The parties are not obliged to negotiate a settlement.  No sanction will be imposed for such refusal; the court will proceed with the trial proceeding and serve its judgment.

5. Arbitration

5.1        What approach do the courts take in relation to arbitration and how far is the principle of party autonomy adopted by the courts? Are the courts able to intervene in the conduct of an arbitration? If so, on what grounds and does this happen in many cases?

The principle of party autonomy in choice of arbitration is fully respected by Chinese courts.  It is rare for courts to intervene in arbitration, because arbitration clauses are based on the mutual consent of the parties.

Under article 5 of the Arbitration Act, where one of the parties, between whom an arbitration agreement has been reached, files an action with a court, the court will not accept the suit, unless the arbitration agreement is invalid.

However, in the case of the application of interim relief, award revocation procedure, etc., the court may intervene in the arbitration procedures accordingly.

5.2        Is it necessary for a form of words to be put into a contract of (re)insurance to ensure that an arbitration clause will be enforceable? If so, what form of words is required?

The arbitration agreement or clause can be stipulated in their original agreement, or by jointly electing to submit to arbitration after a dispute has arisen.

Pursuant to article 16 of the Arbitration Act, an arbitration agreement or clause must include the following elements: (1) manifestation of the intention to request arbitration; (2) arbitrable matters; and (3) a selected arbitration institution. 

There are model arbitration clauses recommended by arbitration institutions to be included into agreements.

5.3        Notwithstanding the inclusion of an express arbitration clause, is there any possibility that the courts will refuse to enforce such a clause?

According to article 17 of Arbitration Act, the court will refuse to enforce an arbitration clause in any of the following circumstances:

  1. An agreed-upon arbitrable matter exceeds the statutory scope of arbitration.
  2. The arbitration agreement is concluded by a person with limited or no capacity for civil conduct.
  3. One party causes the other party to conclude the arbitration agreement through duress.

5.4        What interim forms of relief can be obtained in support of arbitration from the courts? Please give examples.

Under articles 28 and 46 of the Arbitration Act, a few interim measures are available from the court to support:

  1. Provisional attachment of the assets of the defendant in order to ensure the enforceability of the arbitration award.
  2. The preservation and interim custody of any evidence for the purposes of the proceedings.

5.5        Is the arbitral tribunal legally bound to give detailed reasons for its award? If not, can the parties agree (in the arbitration clause or subsequently) that a reasoned award is required?

Under article 54 of the Arbitration Act, it is mandatory for the arbitral tribunal to give detailed reasons for its rewards, except where the parties have agreed otherwise.

5.6        Is there any right of appeal to the courts from the decision of an arbitrary tribunal? If so, in what circumstances does the right arise?

In principle, an arbitration award is final and binding as a final judgment of the court.  However, article 58 of the Arbitration Act provides that the court, upon a party’s petition, may set aside the award in any of the following circumstances:

  1. The arbitration agreement is not concluded or is invalid.
  2. The arbitration award is beyond the scope of the arbitration agreement, or the petition filed in the arbitration procedure is concerned with a dispute that may not be subject to an arbitration agreement.
  3. The composition of the arbitration tribunal or of the proceedings of the arbitration is in violation of the arbitration agreement or law.
  4. The evidence upon which the arbitration award relies is forged or fraudulently altered or contains any misrepresentation.
  5. The other party conceals evidence to the degree that fairness has been affected.
  6. The arbitrators have accepted bribes, resorted to deception for personal gain or perverted the course of justice by the award.

The intermediate court where the arbitration institution is located has the right to revoke the arbitration award.  If an arbitration award has been revoked by a final judgment of a court, a party may bring the dispute to the court unless otherwise stipulated by the parties.

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