Global Corporate Insurance & Regulatory Bulletin - May 2013

Co-edited by Martin Mankabady, David W. Alberts, Lawrence R. Hamilton and Vikram Sidhu

Keywords: corporate, insurance, regulatory,

ASIA

China: Tighter rules on insurance licensing and life insurance telesales

The China Insurance Regulatory Commission ("CIRC") has tightened rules on insurer licensing and the telesale of life insurance products as follows:

Licensing Of Insurance Companies

Under the new regulations, licences will be issued depending on the insurer's scope of business and ability to bear risk. The rules classify insurance businesses into 'basic' or 'extended' categories. New insurers can only apply to carry out 'basic business' and will be barred from 'extended business' until they qualify for all basic businesses.

Additionally, insurers who wish to conduct basic business are required to meet certain registered capital requirements, and insurers applying to handle extended business need to have strong financials and sound risk control and compliance management.

The products covered by the above categories include the following:

Basic (non-life insurance): motor insurance, commercial or household property insurance, engineering insurance, liability insurance, ship and cargo insurance, health and accident insurance. Basic (life insurance): ordinary life insurance such as term, endowment and whole life; health insurance; accident insurance; participating life insurance and universal life insurance. Extended (non-life insurance): agriculture insurance, credit guarantee insurance, special risk insurance and investment risk insurance. Extended (life insurance): includes unit-linked insurance and variable annuity insurance. Life Insurance Telesales

More than two-thirds of life insurance in China is sold over the phone. This process has created problems for consumers. CIRC received 617 consumer complaints about insurance telesales in 2012, up from only 16 in 2011, with more than half of the complaints relating to life insurance. Complaints include repeated calls, fraudulent information provided by salespeople and the disclosure of personal information.

Under the new regulations, insurance salespeople are prohibited from making cold calls between 9:00p.m. and 9:00a.m. Life insurance companies will be required to maintain a list of people who do not wish to be called, and any client who requests not to be called again should be added to the list for at least six months.

Hong Kong: Contracts (Rights of Third Parties) Bill

The Hong Kong government commenced a public consultation on a Contracts (Rights of Third Parties) Bill ("Bill"). The Bill seeks to reform the common law doctrine regarding privacy of contracts, which applies in Hong Kong. Currently, Hong Kong has no equivalent of the English Contract (Rights of Third Parties) Act 1999. Other common law jurisdictions, including England and Wales, Ireland, Singapore, New Zealand and certain states of Australia, have adopted similar reforms. The proposal is closely modelled on the English legislation.

The Bill allows third parties to enforce rights under a contract if the contract expressly allows for this, or if the third party can demonstrate that it was the intention of the contracting parties that the third party should have the right to do so.

Where a life insurance policy allows the insured party to direct payments to a nominated third party, such interests are currently unenforceable by the third party beneficiary (subject to certain statutory and common law exceptions, developed to redress potential unfairness). If the Bill passes, third party rights in insurance policies governed by Hong Kong law could be enforced directly without resorting to such exceptions.

Insurance policies are unique in that they impose a duty of utmost good faith on the insured party (and a consequential duty of material disclosure). The Bill, however, allows a third party to enforce its benefit under the policy even though it is not held to the same standard of disclosure. As a result, the insurer may be unjustly expected to confer benefits upon a third party who has not yet satisfied the standards required under insurance contracts for duty of disclosure.

The Bill seeks to address such concerns by allowing an insurer, in response to a third party action, to rely on any defences which would have been available to it if the insured had brought the action, such as proving that the insured party had breached its duty of disclosure or, indeed, any other contractual term under the policy.

Moreover, the Bill permits the inclusion of a term to exclude its effect. It is likely that, as in other jurisdictions, commercial contracts including insurance contracts, will start to exclude this legislation.

UK/EUROPE

UK: Government Announces Strategy to Promote the UK Insurance Industry

Greg Clark, financial secretary to the Treasury, recently spoke at an insurance conference where he expressed his respect for the UK insurance industry and announced the government's plan to put the industry at the heart of its focus in driving UK economic growth. The Association of British Insurers ("ABI") has welcomed the government's announcement as insurers are amongst the country's top exporters. The ABI highlighted the potential...