Joint U.S. – China Insurance Dialogues
Shorenstein APARC
The Stanford China Program
The Hangzhou Dialogues:
Nurturing cooperation in risk
management as China rises

Montana State Auditor John Morrison
NAIC's International Vice-Chair for Asia
Joint U.S. – China Insurance Dialogues
1. The NAIC-CIRC relationship
 2003 Meeting
 Memorandum of Understanding
 Interns
 Issue Based Symposia
Yi
Chang, 2007- health insurance
Xian,
2008 - asset management or
catastrophic coverage
 Education based relationship
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
2. IAIS
 Growth
 Beijing 2006
 Executive Committee
U.S.
leadership
China
membership
 Uniformity/consistency based
Solvency
II
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
3. China’s Insurance Market
(as of 1/08)
 107 Companies, 62 Domestic, 35 U.S.
branches, 1600 agencies
 $414b US in assets
 $96.6b US in 2007 premium, up 24% from
2006; 30%/yr since 1980
 Per capita $46 US vs. $3747 in the U.S.
 Life 75%, Non-life 25% (health, compulsory
auto, commercial property casualty)
 Low density, 2.7% GDP
 CNInsure
Joint U.S. – China Insurance Dialogues
4. The China Insurance Regulatory
Commission (CIRC)
 Created 1998
 Cabinet level ministry since 2003
 31 local offices in every province except
Taiwan
 Centralized authority
 Provinces support local consumers and
industry
 www.circ.gov.cn
Joint U.S. – China Insurance Dialogues
5. U.S. – China Insurance Trade
Negotiations
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USTR
Department of Commerce
2001 Doha Round-multilateral (153 WTO members, China 2001)
General Agreement of Trade and Services (GATS) includes
insurance
 Four prior rounds of insurance dialogues
 Key issues
 Branching (old)
 Investment rules (old). Broader asset classes/overseas; equal treatment,
seasoning
 Market access: caps on ownership of domestic companies; JVs; Wholly
owned subsidiaries, esp. life (Doha)
 Auto TPL. (Doha)
 Private pensions/enterprise annuity. Domestic adv 57/1; moratorium
Joint U.S. – China Insurance Dialogues
6. 2008 U.S. Insurance Dialogues
attendees
 U.S. side
USTR (AUSTR, Director for China Affairs, +3)
 NAIC
 USDOC
 U.S. Embassy
 AIA (American Insurance Association)
 ACLI (American Council of Life Insurers)
 AIG, Travelers, Chubb, ACE, New York Life, Met Life, Liberty
Mutual, FM Global
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 Chinese side
CIRC
 PICC
 China Life
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Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
Joint U.S. – China Insurance Dialogues
7. Preliminaries
 Moment of silence for earthquake victims
 Government to Government session (no industry)
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Vice Chair Li Kemu: Commercial insurance important supplement to
public systems; economy, efficiency, stability; sub prime crisis,
earthquake crisis; premium revenue growth; International community
AUSTR Tim Stratford: appreciation to Li; saddened by quake;
watching carefully as government makes tremendous efforts to
rescue; U.S. Companies helping to gather funds; President Bush
supportive; our governments recognize much to gain
Li on key trade issues: In discussion on opening MTPL insurance to
foreign insurers (no WTO commitment); overseas investment no
longer limited; Branch companies of foreign insurers, being approved
now; Investment of foreign insurers in China, “We are actively
promoting this issue” and ask USTR help
Stratford response. Noting favorable rulings; urging increased
equity caps
Joint U.S. – China Insurance Dialogues
8. NAIC: Comments on Market Regulation,
John Morrison / Walter Bell
 State Regulation vs. Sub Prime
 Corporate governance-Sarbanes Oxley vs. NAIC
Model Audit rule
 Market Analysis Framework/Market Conduct
Annual Statement
 Functional regulation
 Asset management/ SVO
Joint U.S. – China Insurance Dialogues
9. CIRC: Update on Insurance Law,
Yang Hua Bai
 Current law passed June 30
 Phase 1, submit to State Council; Phase 2, Solicit opinions;
Phase 3, expand scope of insurance law
 Transparency is an important principle of WTO to ensure stable
and fair environment for industry and to protect citizens
 CIRC is exceeding WTO requirements
 Solicited opinions of foreign insurers and regulators
 30 day period before implementation, established channels to
answer questions
 Transparent implementation, too
 Lawsuits can be filed based on laws and regulations
 Public hearing before canceling license -TV broadcast (e.g.,
mandatory 3d party liability)
 Regular press conferences
Joint U.S. – China Insurance Dialogues
10. American Insurance Association: The Role of Risk
Management and Loss Reduction-How Insurance
promotes an expanding business sector, David Snyder
 2006 U.S. Disasters-$300 billion paid to businesses
and individuals to rebuild, saving public funds
 Employment: 489,000 jobs, $31b payroll, $15.4b
premium taxes, 16% of public financing (bonds)
 Loss reduction, risk analysis, education, public safety
(auto, workplace)
 Charitable contributions
 Asset protection for national priority industries
 Benefit of foreign companies in market (esp. MTPL) :
consumer choice, product innovation, actuarial
capacity, technical improvement, mitigate domestic
exposure, stimulate trade
Joint U.S. – China Insurance Dialogues
11. China Life: Corporate annuity /
health supplements, Wan Feng
 Growing private pension market: 16,000 companies had
private pensions supplementing social security; 30,000 in
2007. 60m employees
 Health insurance: 34.3b RMB premium, 27% increase
from 2006. 30.17m people covered, 8.75m had medical
expenses covered
 Provincial models (laboratories of democracy?): govt
/other stakeholders, TPAs
 By 2020, 16% of population will be over 60, needing
pensions
 Most of China Life Pension Co. are state owned
enterprises
 Seeking tax benefits and other governmental incentives
for health insurance
Joint U.S. – China Insurance Dialogues
12. AIG: Private pensions, Alan Lam
 History of private pensions; pervasiveness-41%
U.S., 87% Japan, 30% France
 Growth of seniors in China, 3.3-1 individuals
supporting retirees
 Government may: raise taxes, cut befits, raise
retirement age, or create incentives for private
pension plans
 Employer sponsored, Teacher association, unions
 Principles: long term capital appreciation, quality
of assets, diversification managing risk and return,
catering to age, risk tolerance
 Case studies: Brazil, Hong Kong
Joint U.S. – China Insurance Dialogues
13. NAIC: Recommendations for development
of health insurance, John Morrison
 Premium assistance, tax subsidies, purchasing pools
 TPAs to manage employer sponsored plans. Provider networks,
plan design, regulation, enrollment and billing, claims handling,
HSAs, pension and work comp
 Supplemental benefits, esp. for BMI. Medicare supp., Part D.,
lost wages/out of pocket
 High risk pools
 Reduce Marketing costs. 5-12% vs. 30-40%
 Clarify regulatory authority. Uniformity and transparency
 Improve quality of care
 Promote wellness (e.g. tobacco)
 Control health care costs. HIT, EHRs, EBM, P4P, primary care
 Fight fraud
Joint U.S. – China Insurance Dialogues
14. Asset management
 NAIC, Walter Bell. To address timing lapse between premium
receipt and claim payout; to support sometimes unprofitable
underwriting; facilitate asset-liability matching. Non-life 4.2-4.4%;
Life 5.6-5.9%. Securities Valuation Office (SVO) assures 80% of
assets are investment grade and not > 10% stock equities
(diversification). NAIC Investments of insurers model acts.
 MetLife. Eric Wu, director of international investments. Snapshot
of asset allocation: 41% corporate bonds; government bonds;
proactive asset management; diversification.
 CIRC, Guo Yan, Director of Capital Management. Nondiscriminatory approach. Companies investing globally, including
equities; control concentration of risk; tiered approach based on
sophistication; encourage investing in mature markets. Derivitives
may be used to hedge (not speculation) but need underlying assets.
 China Insurance Society, Lu Zhongmin, president. Investmentlinked products. More than 20 companies offering, creates net cash
outflow from equity markets; volatility with rapid market growth.
Disclosure of risks.
Joint U.S. – China Insurance Dialogues
15. Catastrophic risk insurance
 CIRC Asset Insurance Division. Earthquake highlights need. 11.8% of
damage from catastrophes in developing countries covered by insurance.
Higher in developed countries. One sixth of Chinese population faces
natural disasters. *Climate change causes more significant natural
disasters.* Hurricanes, floods. People not aware of value of insurance.
Commercial insurance limits government burden.
 Insurance Association of China, Jin, Jiang Qiang. Earthquake: <5%
appears covered. China needs cat risk management. Current model is
government. China is moving toward new model-joint effort, government
and industry. Financial system not yet developed for these risks. Cat
fund needed. CIRC risk management task force.
 NAIC, Walter Bell. U.S. earthquake, hurricane flood risk. Principles:
personal responsibility, bldg codes, maximize risk bearing capacity of
private market, state-regional cat fund, federal backstop. Consider all
perils coverage with plain checklist.
 AIA, Dave Snyder. Shared issue. U.S.-Wind covered, flood federal,
earthquakes excluded with pools, fire following covered. All perils
controversial.
Joint U.S. – China Insurance Dialogues
16. Microinsurance
 CIRC, Duan Jiaxi. Serve low income people. Government
subsidies. Regulators encourage rural expansion. Three major life
companies 25% in rural areas. Next steps: evaluate system,
encourage rural, build new distribution channels (China Post?),
update services, enhance study of microinsurance, increase
international cooperation.
 ACLI, Brad Smith. World Bank-insurance for the poor. Can
introduce companies in developing markets. Avoid 2 tiered system.
 NAIC, John Morrison. Differences from conventional insurance:
cash premium, unlicensed intermediaries, sold to groups, targets low
income, consumer education, declaration of good health, small sums,
group pricing, few exclusions, simple policy and claims process.
Encourage availability, adhere to IAIS core principles, key to
economic development, watch unregulated schemes.
Joint U.S. – China Insurance Dialogues
17. Agriculture Insurance. PICC, Wang He;
USDA, Jorge Sanchez, Ag attaché
 Total coverage: 830m RMB 1993-500b RMB 2007
 2005-06 new era > 100 new products; 2007
personal/commercial
 67 million acres of land; 28m livestock head
 Risk management; increase awareness
 Government has 6 subsidy programs
 Control, transfer, mitigate risk
Joint U.S. – China Insurance Dialogues
Questions and Answers
Montana State Auditor John Morrison
NAIC's International Vice-Chair for Asia
jmorrison@mt.gov
1-800-332-6148
Joint U.S. – China Insurance Dialogues