Since People's Insurance Company of China (PICC) and China Life Insurance got listed in overseas stock market the practical question of improving insurance company governing structure and establishing a modern corporate system has become more imminent for the insurance industry. Improving insurance company governing structure is the core content in establishing modern insurance company system pointed out Li Kemu, Vice-Chairman of China Insurance Regulatory Commission (CIRC) on May 19 when delivering a keynote speech on Beijing International Finance Forum. He said CIRC is conducting study to enact Insurance Company Governing Structure Guideline, which is aimed at directing insurance company to establish a standard and efficient internal operation mechanism.

Li Kemu said the thinking of perfecting insurance company governing structure is in general to optimize ownership structure as the foundation of the work, take strengthening the construction of board of directors as the core, make the forming of an inter-corporate check-and-balance mechanism as the chief substance. Through such external restrictions as governmental supervision and regulation insurance companies are urged to truly establish a modern system.

Since the opening up of China, the insurance industry has kept its premium revenue increasing at a rate of 34 percent a year. It is one of the fastest developing industries in the national economy. Up to now the gross assets of the insurance industry has topped RMB 1 trillion yuan. However in the meanwhile, There are still some problems in the system and mechanism of insurance companies, which manifest themselves mainly in the faultiness of insurance company governing structure. For example, some companies' directorates operate at low efficiency while supervisory committee fails to give full play to its supervision function.

The successful listing of PICC and China Life has become a landmark event in the development of China's insurance industry. What's the greatest impact exerted upon the insurance industry is the motivation brought about by the successful listing of the two companies in changing the corporate system and mechanism. In the meanwhile Chinese insurance market is heading for a new phase of all-round opening up. By the end of this year restriction on foreign-invested insurance companies with respect to their operation regions will be lifted. Life insurance joint ventures will be allowed to offer health insurance, group insurance and pension insurance to Chinese citizens and aliens. The enhancement of competitiveness of domestic insurance companies, therefore, demands immediate action.

Li Kemu said improving insurance company governing structure is a systematic engineering project, which entail paying attention to three problems. First, prominent feature should be given to credibility as a characteristic underlying the insurance industry and priority should be given to protecting the interests of the insured in the governing structure. Secondly, emphasis should be put on the checking and control of internal personnel in order to prevent operator's swerving away from owner's interests and maximizing shareholders' interests. Thirdly corporate governance and insurance company decision-making process is to form part of the insurance supervision.

Improving insurance company governing structure should start from optimizing ownership structure. Li Kemu believes that there are three ways to optimize ownership, i.e. increasing capital and shares from targeted sources, public offering of stocks or other means. Meanwhile the construction of insurance company directorate needs to be strengthened and internal check-and-balance mechanism be perfected. He said CIRC is paying special attention to improving insurance company governing structure and establishing a modern corporate system. It will, through reinforcing and improving insurance supervision, create an open and orderly market environment that encourages unitary competition, promotes the joint development of domestic and foreign insurance companies and enhances the overall strength and competitiveness of China's insurance industry.

Source: People's Daily Online