The practice of insurance
The question that lies ahead for the inevitable influx of interest in insurance law is whether Chinese firms are prepared. When compared to promising sectors such as capital markets and banking law, it is not unknown for insurance law to attract little interest from lawyers.
Legal professionals tend to engage their focus more towards opportunities that more popular markets can offer, and may neglect what the insurance sector has available. However, the revised law might well change that, as an increasing number of investors are seeking potential JV partners. Insured parties are also constantly looking for assistance to make sure they have indemnity from their insurers, and to comply with new CIRC regulations.
“The revision more stringently protects the rights of the insured and requires the insurance companies make the compensation more effectively. More and more insurance companies are seeking help from lawyers to review the clauses in their contracts and provide relevant legal opinions as well as act as their agent in the litigation and arbitration cases,” says Grandall’s Duan.
King & Wood, whose long-term clients include top-tier PRC insurance companies like China Pacific Insurance Company (CPIC), China Life and People’s Insurance Company of China (PICC), has now placed significant focus on its insurance practice. The firm says it is confident that the workflow deriving from the industry will continue to increase.
“Given the large amount of available funds for investments, insurance lawyers should prep themselves for an influx of work,” says King & Wood’s Wang. “Despite the fact that specific regulations have not yet been announced, even if the funds allowed for investments in ‘immovable assets’ is tiered at a mere 5% of total capital, this would still generate a huge amount of work. Chinese lawyers specialising in insurance law and practices are insufficient due to the previously under-developed insurance market,” says Grandall’s partner.
However, lawyers admit that it is no easy feat going into insurance practices. Being capable of practising professionally within the many different specifications of insurance law is one criterion that must be met. There are set principles, rules, doctrines and terminologies that are difficult to link with other practices.
“Every industry comprises its own set of challenges, but the stringent regulations of the Insurance Law, that are drafted ultimately to protect consumers, are complex because it is coupled with a need to be flexible. This makes it very difficult compared to other practices,” says Wang. “The insurance law is being modified according the changing economic climates, clauses that govern the establishment of an insurance business, sales and development of products, operational rules, restructuring of business operations and even claims for compensation. These regulations change all the time.”
Mallesons’ Valentine agrees that insurance law revolves around what government regulations specify. “The difference in the legal work tendered to an insurance company – compared to other businesses – is essentially the government and regulatory approvals. There are limitations in different ventures and these sometimes cause problems,” he says.
Take on the heat
As an adviser on insurance clients’ listings on the sharemarket, such as China Life’s H+A-shares listings and PICC H-shares listing, King & Wood is excited about undertaking new responsibilities. The firm is already clear on its role should it take the first step to acquire assets on clients’ behalf.
“If an insurance company is investing in an immovable asset, the first step for us is to assess the regulations for legal compliance. Following that, we will assess the transaction as an investment, conduct due diligence and consider the pros and cons of it, negotiate the terms and finally draft up a contract,” says Wang.
Maintaining one of the leading international firm insurance practices in China, Mallesons is confident about taking on the challenge. “Most of our work before the revised law was to provide legal advice regarding business restructuring, opening of new branches, transfers, sales, mergers, operation and cross-border regulatory work,” says Valentine.
Clearly, China’s revised laws now opens the door for insurance companies to be more competitive and professional. And for insurance companies already operating in the country, the biggest impact is undoubtedly going to be having more flexibility for investing funds.
The impending flood of investor interest has insurance practitioners perched on the edge of their seats. “There will inevitably be more improvisations to the Insurance Law in the future. The current amendments have allowed for great imagination and will undoubtedly be great news for the legal industry,” says King & Wood’s Wang.
Key amendments in the revised law
- Chinese insurers will now be able to make investments in real estate.
- CIRC now has greater power in regulating affiliate transactions between insurance companies.
- Insurance companies are required to establish information disclosure systems to reveal affiliate transactions.
- Insurance contracts must state the responsibilities of insurers and the insured, the coverage of claims and the timeframe and procedure for filing and settling claims.
- An exception clause provided by insurance companies to dismiss off claims and exclude rights of insured and benefits will no longer be valid.
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