Restrictions on the sale of offshore insurance policies to Mainland China customers

In recent years, the issue of ever changing insurance regulations of local insurance regulators has posed challenges for the international insurance community. In Dubai, the recent changes in policy have made it hard for more IPMI companies to offer products for people in Dubai. 

In China, last year, the China Insurance Regulatory Commission (CIRC) has released more restrictions following the trend of life insurance products sold from Hong Kong. The restrictions made under Chinese insurance law have now affected more than just the life insurance industry in Hong Kong and China and led to obstacles in business, making it harder for people to obtain and pay for international health and life insurance. 

Lawyers from international law firm, Hogan Lovells, give us their insights and walk us through the growing challenge for the insurance community in Hong Kong and China.

Senior Associate Jan Buschmann and Associate Sherry Hu, Hogan Lovells

Mainland individuals purchasing life insurance in Hong Kong have been an important feature of the market for many years. The trend has increased over the last few years, and a significant percentage of new business underwritten by Hong Kong life insurers is attributable to Mainland customers. The Chinese regulators have sought to curb the trend by enforcing the prohibition of the sale and marketing of Hong Kong insurance products in the Mainland, which means Mainland customers must purchase their products in person in Hong Kong. The Chinese authorities' efforts to stem the outflow of Yuan have led to further obstacles to the business. 

Under Chinese insurance law, individuals are not per se prohibited from purchasing insurance protection abroad, and overseas insurers are not prohibited from selling their products to Mainland customers so long as the relevant insurance activities take place outside the Mainland and there is no marketing or advertising of such products within the Mainland. 

The PRC's insurance regulator, the China Insurance Regulatory Commission ("CIRC"), has recently asked its local branches to crack down on illegal sales activities within the Mainland, which includes not only product introduction fairs and investment management presentations, but also making arrangements for individuals to travel abroad to purchase insurance.

In a further effort to curb offshore purchases, the CIRC has recently reminded individuals of what it perceives as the risks associated with buying offshore insurance products, such as the lack of protection under PRC insurance regulation, potentially high litigation costs in the event of disputes with the offshore insurer, foreign exchange risks and the uncertainty of discretionary distributions under life insurance products designed as investment tools. The Hong Kong Insurance Authority has dutifully supported these efforts by requiring Hong Kong life insurers to provide an "important facts statement" to Mainland customers from 1 September 2016 onwards. The statement refers to certain of the risks to policyholders highlighted by the CIRC in its notices. Hong Kong insurance agents and brokers are required to go through the important facts statement point by point and each page of the statement must then be signed by the Mainland customer.

Despite these measures, purchases of offshore insurance policies by Mainland customers, particularly in Hong Kong, increased further in the last quarter of 2016. Chinese regulators therefore decided to address the issue through restrictions on credit cards in order to restrict the outflow of capital. Since October 2016, Mainland customers have been unable to use UnionPay cards to buy life and health insurance products with investment features in Hong Kong.

In addition, according to media reports, since December 2016 MasterCard Inc. and Visa Inc., under their internal rules, have capped their customers' transactions using Master or Visa cards with a single Hong Kong insurer at $5,000, which put an end to the "multiple swipes" technique/direct debit arrangement for regular contributions that customers had previously used to get around monetary restrictions.  It remains to be seen whether this approach will have the long-term effect desired by Mainland authorities.