China's Regulator Places Limits on Cross-Selling Agreements

Property and a life insurers that develop a cross-selling system using a mutual agency model will not be allowed to sign a sales agreement with their respective agents to cross-sell each of the insurer's products. The China insurance regulator said the move enhances its governance of agency distribution.

The "dual subscription" tactic, which comprises the cross-selling mutual agency model with two insurance companies and with their respective agents, is not in compliance with relevant insurance regulations, according to the China Insurance Regulatory Commission.

The regulator said it will also reinforce the management of misleading sales of life insurance, the responsibility of insurance companies and their senior executives, as well as implement stricter investigations and penalties to improve market discipline, said Junbo Xiang, chairman of the CIRC, in a meeting in Beijing.

According to Chinese regulation, an agent is not allowed to be appointed by two or more insurance companies to distribute insurance products.

Insurers that have agreed to cross-sell with the mutual agency model need to "ensure clear legal relations between them," said the CIRC. The companies are also required to clearly define their management responsibilities and ensure the transparency of their financial auditing and capital flows.

The CIRC noted dual subscription will lead to confusion of the legal entity of the agent and the subordination of the agent to the insurance companies. Once there is a dispute related to an insurance contract, the insurers will "probably deny" their responsibilities, which will run counter to proper management practices and consumer rights.

If dual subscription is allowed, the number of property insurance agents "will be rapidly expanded in a short time," generating new problems that make the reform of the agency management system more complicated, the CIRC said.

In 2011, China had 59 nonlife insurers generating premiums of 478 billion yuan (US$76 billion). The country has 61 life insurers, generating premiums of 956 billion yuan.

(By Rebecca Ng, Hong Kong news editor: Rebecca.Ng@ambest.com)