Released on June 16^th, 2006

　　Since the country’s embrace of the reform and opening-up policy, the development of China’s insurance industry has held the attention of the world. With fast-growing premium income, expanding coverage, maturing market system, improving legal framework, better supervision and enhanced risk management, the industry has emerged much larger and stronger, making great contribution to China’s reform, economic development, social stability and rising living standards. However, China’s insurance industry started late and much remains to be done before it can play its due role in the drive for a full-fledged socialist market system and a moderately prosperous and harmonious socialist society. Facing economic globalization, financial integration and China’s all-around opening-up, China’s insurance market needs to tap its huge potential and grow faster. To this end, and in line with the concept of scientific development, we hereby offer an outline of the guiding principles, objectives and initiatives concerning the reform and development of the industry as part of the endeavour to build a harmonious socialist society.

　　1.The rationale behind the policy to speed up the reform and development of the insurance industry.

　　Insurance offers a protection against financial loss, serves as a financing mechanism and contributes to social administration. It constitutes an integral part of the financial system and the social security system, playing an important role in building a harmonious socialist society. Accelerated reform and development of the industry will deliver multiple benefits.

　　·It’s conducive to the risk management of natural catastrophes and traffic and workplace accidents while protecting lives and property and ensuring economic stability. Although such risks cost China dearly every year, only a limited proportion of businesses and households are covered by insurance. This has hindered the reconstruction process and increased the burden on the government. The campaign for faster development of the insurance industry will complement the disaster-mitigation-and-relief system and play an indispensable role in rapid and healthy economic development.

　　·It strengthens the social security system, meeting the diversified needs of the public for protection. China has entered the crucial stage of its market economy reform. In the context of ageing population and higher living standards of the people, needs for insurance have been on the rise. Faster reform and development of the insurance industry, in particular, increased coverage of commercial pension and health insurance will stimulate domestic demand, improve the social security network and contribute to social stability and harmony.

　　·It helps in the optimization of financial resources allocation. The imbalance of China’s financial system can be most seen in the high proportion of indirect financing, which has had a negative impact on the optimal allocation of financial resources and the spread of financial risks. The first 20 years of the century present China with a historical opportunity for faster development, with the financial services sector playing an even more important role in the modern economy. The campaign will promote an integrated development of money market, capital market and insurance market, contributing to a sound financial system and facilitating China’s market reform.

　　·It boosts innovation in social administration and public services, leading to a more efficient government. As government reform gathers pace, governments need to realign social resources and make full use of market-based levers to improve on social administration and public services delivery. The campaign will promote the involvement of insurance mechanisms in social administration, which, in turn, helps to balance interests of all sides and resolve social conflicts, contributing to public services innovation and the shift of the role of the government.

　　2. Guiding principles, vision and initiatives.

　　Thanks to China’s economic and social advancement, in particular the transition towards socialist market economy, the public awareness of insurance has been raised, leading to increasing demands for diversified insurance services. Therefore, the conditions are ripe for the country to speed up the reform and development of its insurance industry.

　　Guiding principles: We uphold the Dengxiaoping theory, the important thoughts of “Three Represents” and the scientific concept of development which puts people first and emphasizes balanced and sustainable growth. By pursuing faster development, we strive to foster a bigger and stronger insurance market with Chinese characteristics to promote economic growth and social stability, ultimately serving the goal of building a moderately prosperous and harmonious society.

　　Vision: We seek to establish an insurance industry with sophisticated market system, wide coverage, high professional standards, strong solvency positions, enhanced overall competitiveness and a balance of growth rate, business quality and profitability.

　　Initiatives:

　　·Pursue aggressively the development of general insurance, life insurance, reinsurance and insurance intermediary services for broader business scope and mature market system;

　　·Press ahead with structural reform for sound corporate governance;

　　·Open up on a higher level to increase the industry’s international competitiveness and its capacity for sustainable development;

　　·Promote independent innovation, optimize product mix and change the way of growth to improve services continuously;

　　·Upgrade asset management and improve returns to support national economy;

　　·Enhance supervision, prevent and mitigate risks and better protect the interests of the policy-holders;

　　·Improve the legal framework, enhance public education and accelerate the establishment of the in surance credit-rating system to foster a culture of integrity and honesty.

　　3.Put in place a comprehensive agriculture insurance system with multiple means of delivery by actively and prudently pushing forward the pilot programmes.

　　We shall carefully review the pilot programmes of agriculture insurance to draft sound policies for its development, and to identify the development model that best suits China’s reality. Agriculture insurance shall be incorporated into the overall agriculture supportive system as an innovation. Agricultural departments shall play a more important role in driving the legislative process for agriculture insurance, educating the farming communities, balancing the interests of all sides and promoting the development of the agriculture insurance. It’s also important to get on board the central government, local governments, insurance providers, leading local companies and farmers themselves in the process to set up a broad-based agriculture insurance system with wide coverage and diversified means of delivery.

　　We need to better define the scope of coverage of government-subsidized agriculture insurance and formulate favourable policies to stimulate its development. The agricultural disaster-mitigation-and-relief system that is solely financed by the government shall be gradually complemented by government-subsidized agriculture insurance schemes.To ensure sustainable development of agriculture insurance, governments at various levels should offer subsidy to the farmers and the insurance companies which engage in the business. We will explore and determine the form and proportion of the subsidy for farmers and the kind of products that will benefit. We seek to improve the multi-levelled catastrophe risks transfer mechanism for agriculture and put in place an agricultural reinsurance system subsidized by the central and local governments.

　　We’ll explore the idea of developing various forms of agriculture insurance providers like mutuals and co-operatives. We encourage leading local companies to help finance the purchase of agriculture insurance products. We support insurance firms’ efforts to offer affordable and easy-to-understand insurance products with reasonable coverage, coupled with tailor-made service networks and distribution channels. We support agriculture insurance providers in their efforts to tap into niche markets and agriculture-related markets.

　　4.Seek integrated development of commercial pension and health insurance for urban and rural residents to improve the multi-tiered social security system.

　　In response to the drive for a full-fledged socialist market system and a new socialist countryside, pension and health insurance shall be pushed forward aggressively to meet the needs of urban and country residents.

　　·Pursue aggressively the development of individual and group pension business;

　　·Encourage employers to increase the financial security of their employees through a multi-levelled pension scheme complemented by commercial insurance;

　　·Encourage insurance institutions to fully utilize their actuarial expertise and expertise in investment, account management and pension payment to participate more actively in enterprise annuity programmes so as to expand the coverage of supplementary pension schemes;

　　·Aggressively promote the development of health insurance and support insurance institutions’ efforts to invest in medical institutions;

　　·Make great efforts to develop commercial pension, health insurance and personal accident insurance which suit the needs of the farmers;

　　·Provide insurance cover for sterilization operations and launch pension schemes for rural family planning households;

　　·Explore ways for insurance companies to be involved in the management of the new rural co-operative health care services.

　　5. Accelerate the development of liability insurance to improve workplace safety and complement the emergency response system.

　　Insurance plays a significant role in risk-prevention and disaster-mitigation and shall be integrated into the national prevention and relief system for disasters and accidents. Moreover, insurance not only offers financial protection but promotes risk prevention. Insurance institutions shall make continuous efforts to enhance their risk management capabilities and leverage tariff rates to provide incentives for better risk prevention practices so as to improve workplace safety and emergency management.

　　We encourage faster development of workplace safety liability, construction and engineering liability, product liability, public liability, professional liability, Directors & Officers liability and environmental impairment liability products.The development can be driven by market complemented by guidance and support from the government. Legislating compulsory insurance is also an important driving force. On the basis of pilot schemes in the coal-mining industry, compulsory liability insurance will be extended to other high-risk sectors, public places and the overseas tourism industry. Continued efforts shall be made to improve the work-safety collateral deposit system for high-risk sectors coupled with an examination of the possibility of more professional management of the fund by specialized insurance companies. The compulsory motor vehicle liability insurance system shall be further improved. A unified medical liability insurance system will be set up on the basis of pilot programmes. To conclude, these initiatives will enable the insurance industry to better contribute to the drive for “a safer China”.

　　6. Improve insurance services through independent innovation.

　　We are committed to a market-driven and insurer-based insurance innovation system featuring combination of international experiences and independent innovation. High-tech insurance products such as aerospace insurance and bio-pharmacy insurance should be developed in order to better support the national efforts for a more innovative country. We promote the steady development of consumer finance insurance such as housing mortgage and car loans credit insurance to boost consumption. We will push forward the development of insurance of construction and engineering and project financing. We will also encourage the development of export credit insurance to promote foreign trade and investment. In a nutshell, China’s industry shall beef up its efforts to develop new life and on-life products, optimize the product mix and expand its service to meet the diversified needs of the public.

　　Besides, we identify the following initiatives for better insurance services:

　　·Increase the application of science and technology in insurance products and develop alternative service mode such as on-line insurance;

　　·Better actuarial support for sound pricing;

　　·Promote the simplification of clauses and service standardization;

　　·Enhance the training of sales persons;

　　·Make use of the expertise of insurance intermediaries in underwriting, claims management, risk management and product development for faster and more professional delivery of insurance services;

　　·Accelerate the development of reinsurance to achieve a coordinated growth of both primary insurance and reinsurance;

　　·Promote well-balanced development of insurance across regions of the country, in particular, focusing on better insurance services in underdeveloped areas and areas of ethnic minorities.

　　We encourage the development of specialized insurance companies in commercial pension, health and liability insurance. We support the efforts of insurance firms to transform into insurance holding companies enjoying international competitiveness through restructuring and acquisition, provided that they are in a position to do so. We’ll steadily push forward the pilot programmes of integrated operation for insurance firms, exploring possibilities of closer co-operation among insurers, banks and securities firms at broader and deeper levels with an aim to offering comprehensive and diversified financial services.

　　7. Improve insurance asset management to better support national economy.

　　We are committed to further reform of insurance asset management system so that insurance assets can be invested in a more market-oriented fashion with stronger professional standards and better compliance. It’s essential to put in place an effective risk control and warning system and all-round risk management to ensure the safety of assets.

　　Insurance asset management companies should uphold the philosophy of long-term investment, balance safety, liquidity and profitability, and ensure good management of the insurance assets. Companies meeting certain conditions are allowed to expand their scope of asset management. We’ll explore the possibility of establishing an independent custody system for insurance funds.

　　Provided that risks are under control, insurers are encouraged to directly or indirectly invest in the capital market with the proportion increased step by step, to expand investments in asset securitization instruments, to invest in real estate and venture capital on a trial basis, to purchase shares in commercial banks and to invest overseas. To sum up, it’s our policy to gradually relax the restrictions on the investment channels for insurance companies so that they can better finance the national economic construction.

　　8. Press ahead with the system reform and the opening-up of the industry to achieve sustainable development.

　　To further improve the corporate governance of insurance firms, it is essential to establish a system of checks and balances between shareholders, directors，supervisors and management through a more clear-cut definition of their rights and responsibilities. A sound internal control system should be established, the capacity for risk management should be enhanced and a more effective legal person and management accountability system should be put in place.Moreover, we’ll explore and set up a sound incentive-giving mechanism including shares and stock options based on a scientific performance evaluation system. In human resources management, the people-oriented industry invigoration strategy shall be further executed, reinforced by continued reform in human resources management and optimization of the composition of human resources aiming to foster a high-quality workforce.

　　We believe that the development of domestic insurance industry must be balanced with further opening-up so that we can capitalize on both the domestic and overseas markets to enhance the competitiveness of China’s insurance industry and its capacity for sustainable development. We should be fully committed to China’s WTO accession promises to promote the common development of domestic and foreign insurance players on the basis of close co-operation and mutual complementation. We encourage eligible insurance companies to establish operations overseas to provide insurance services to facilitate the implementation of the “going overseas” strategy. We commit ourselves to extensive international exchanges and will actively participate in the norm-setting process in the global insurance community. This includes the exchanges and co-operation with regulators of other jurisdictions, in particular those of neighbouring countries and regions for better oversight of cross-border business.

　　9. Prevention and mitigation of risks through improved insurance supervision.

　　Sound risk management is the cornerstone of the healthy development of the insurance industry. We’ll make continuous efforts to set up and refine the modern insurance regulatory regime centred on solvency, corporate governance and market behaviours. With regard to solvency, it’s essential to establish a dynamic indicator system for supervision, a sound actuarial system and a uniform set of financial statistical parameters and performance-evaluation criteria. It’s also important to formulate, on the basis of international standards, accounting principles that suit the needs of the insurance industry to ensure the authenticity, transparency and timely disclosure of financial data. Corporate governance regulation shall focus on affiliated transactions, information disclosure and transparency. Market behaviours supervision shall be more practical, effective and enhanced through better on-site and off-site inspection, reinforced by severe penalties for illicit practices.

　　While we set high and normalized standards for market entry, we also seek to set up a market-oriented exit mechanism. Insurance regulation shall take a differentiated approach to reward the better performers while phasing out the underperformers. The capital replenishing mechanism shall be strengthened. The institution of insurance security fund shall be further improved, aiming for market-oriented and specialized management. The insurance supervisory information system shall be set up to enhance oversight effectiveness.

　　There shall be better oversight over the insurance organization forms like captive insurance and mutual insurance. Self insurance shall be disciplined and brought under insurance supervision. The initiative to supervise insurance holdings (group) companies on the basis of consolidated financial reports is under consideration and will be put into practice in due course. A sound co-ordination mechanism between the insurance regulator and other financial services authorities will help to curb the transmission of risks across sectors and safeguard national economic financial security.

　　Efforts shall be also intensified to foster a culture of integrity and honesty and a mechanism of insurance credit in the insurance community. Higher professional standards for insurance employees complemented by a penalty system for dishonesty and frauds will help to address misrepresentation and hardness of claims settlement. We promote the development of industry associations for self-discipline. To better protect the interests of the policyholders, it’s also necessary to establish an expeditious procedure for settlement of insurance-related disputes.

　　10. To create a favourable environment for the insurance industry through a sound legal framework and policy support.

　　In our efforts to speed up the development of the insurance industry, we attach importance not only to market forces which play a central role in the allocation of resources but also the macro-regulation, instruction and policy support of the government. In the context of tax reform, we’ll explore the possibility of providing tax incentives to encourage insurance participation of people and enterprises, on a selective basis, for those lines of insurance which have a big impact on national economy and people’s well-being. Combining with taxation reform, we will also improve a taxation policy to promote the development of insurance industry according to national conditions. Rules and regulations shall be further improved to better safeguard the legitimate rights of sales persons. A government-subsidized catastrophe insurance system shall be established. We’ll amend the Insurance Law, accelerate the formulation of laws and regulations concerning agriculture insurance and move forward the legislative process for commercial pension, health insurance and liability insurance and insurance assets management. To improve the insurance awareness of the public, education is critical. Mass media can contribute to this by offering positive publicity and the ABC of insurance will find its way into the textbooks of primary and secondary school students.

　　All regions and departments should be aware of the importance of accelerating the reform and development of insurance industry and, through enhanced co-operation and co-ordination, better understand and utilize commercial insurance to serve the goal of building a harmonious socialist society. Governments and departments should incorporate the development of the insurance industry into their own development programmes. They should fully implement the relevant policies and regulations to create a favourable environment for the industry while upholding the rule of law to protect the legal rights and operational autonomy of insurance companies. The CIRC shall continue to enhance its abilities to guide the growth and risk-mitigation of insurance industry, conscientiously perform its responsibilities, focus on policy implementation and pursue a differentiated approach in its supervision to ensure healthy development of the industry. We are confident that with the joint efforts of all communities, China’s insurance industry will see rapid and sustainable development, making its due contribution to the drive for a harmonious socialist society.