China unveils insurance protection fund

China's insurance regulator has announced the establishment of an insurance protection fund system. The system aims to protect policyholder's interest in case of insurer bankruptcy and to ensure a healthier insurance market. CRI reporter Zhou Yun finds out more.

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 400 million US dollars from insurers by the end of this year.

Jiang Xianxue is an official with the insurance regulator.

He says 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 but its assets are not enough to repay liabilities, policyholders' losses that are no more than 6,000 US dollars will be fully covered by the fund.

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

Jiang Xianxue says the new system can not only effectively prevent potential financial risks but also 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 for operation and management. On the other hand, it is quick and convenient to make compensation for policyholders as long as the insurer goes bankrupt."

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

Source: CRI news