IDENTIFYING THE CHARACTER OF THE SEPARATE ACCOUNT OF THE INVESTMENT-LINKED INSURANCE PRODUCTS IN CHINA : FROM THEORETICAL AND COMPARATIVE LAW PERSPECTIVES

Abstract

A brand new life insurance product, which is known as investment-linked insurance (ILI), was first introduced in China in 2000 by the China Ping, an insurance company in Shanghai after the ILI was approved by the China Insurance Regulatory Commission (CIRC). Due to the reduction of the interest rate on ordinary term deposits that began in 2000, ILI products spread quickly nationwide over a two-to-three year period. ILIs became popular with insurers, because they shift asset management risks to the insured and provide relief for the reverse spread problem facing the insurance companies. They became popular with insureds, because they offer an alternative to investments with a potentially higher yield. Although the market share of investment-linked insurance products in China has been noticeably increasing, laws and regulations regarding the administration of the ILI did not seem to correspond to the rapid growth of sales. In addition to the very limited number of articles in insurance law, the only two existing regulations that address the related supervisory issues are the “Tentative measures for the Administration of Investment-Linked Insurance” announced by the CIRC in 2000, and the “Measures Regulating the Information Disclosure of New Types of Insurance Products” enacted by the CIRC in 2009. Unfortunately, both Measures are inadequate to resolve complex supervisory problems such as asymmetry of information, suitability, or other standard settings for the conduct of ILI business. This paper argues that the root of their inadequacy lies in the failure of these measures to identify the character of the separate account in each ILI policy and its distinction from the life insurance policy to which it attaches. Without distinguishing the nature of the separate account from traditional “insurance”, it is virtually impossible to ascertain the category of the contract formed between each policyholder and insurer with respect to each such account and to determine which laws and regulations. On the other hand, clarifying the nature of the ILI separate account which requires consumers to bear the investment risk and also helps to decide the essential degree of protection to be given to consumers through laws and regulations. Part I of this paper aims first to clarify the nature of the separate account in the ILI product from a theoretical perspective. Then, Part II will verify the theoretical inference and its implementation from a comparative law perspective through the discussion of the related laws and rules concerning the supervision of ILI products in the United States, Singapore and Taiwan. After affirming the character of the ILI’s separate account and how its regulations are designed in other regimes, Part III will examine the present laws and regulations in China and discover the deficiencies of the current Chinese ILI supervisory system. Finally, Part IV proposes recommendations for the reform of the relate d laws and regulations pursuant to the studies in previous parts of this paper.