Source: Financial Mayflower
Author: Zhang Junyan
Amending the Insurance Law to tighten regulatory safeguards and increase penalties for violations will better protect the legitimate rights and interests of policyholders, insured persons, and beneficiaries.
On 9 4, the National Financial Regulatory Administration (NFRA) released the "Draft Revision of the Insurance Law of the People's Republic of China" for public comment.
This marks another comprehensive revision of the "Insurance Law of the People's Republic of China" (hereinafter referred to as the "Insurance Law") since its implementation in 1995, representing the most significant adjustment in over a decade. In 2025, China's original insurance premium income reached 6.12 trillion yuan, surpassing 6 trillion yuan for the first time and solidifying its position as the world's second-largest market. The larger the market, the more critical it is that rules keep pace.
This draft revision focuses on five key areas: shareholder transparency, prudential supervision, risk resolution, consumer protection, and increased penalties for violations. As the foundational law of China's insurance legal framework, amending the Insurance Law will have profound impacts on protecting policyholders' rights, regulating insurance company operations, and strengthening industry oversight. The Insurance Law serves both as a guarantee for the smooth conduct of insurance business and as a critical tool for maintaining market stability, ensuring orderly operations, and safeguarding the legitimate rights and interests of all parties involved.
The purpose of the Insurance Law, as stated in Article 1, is to regulate insurance activities, protect the legitimate rights and interests of parties involved in such activities, strengthen supervision and administration of the insurance industry, maintain social and economic order and public interest, and promote the healthy development of the insurance sector. This revision both summarizes over a decade of industry growth and regulatory practice and serves as a key institutional measure to drive high-quality development of the insurance industry.
The legislative logic behind 6 trillion yuan in premiums
China's Insurance Law was enacted in 1995 and came into effect on 1 of the same month. Since then, it has been amended four times. The first amendment in 10 of 2002 was primarily to adapt to the new situation of further opening up of China's insurance industry after its accession to the World Trade Organization.
In 2009 year, 2 month, the Insurance Law underwent its second revision, strengthening legal regulations on insurance contracts, fundamental industry systems, and insurance supervision while increasing accountability for illegal activities. Central to this revision was safeguarding the legitimate rights and interests of policyholders, insured persons, and beneficiaries—measures that included restricting insurers' right to terminate contracts, regulating standard clauses, and clarifying claims procedures and timelines. Subsequently, the Insurance Law was revised twice more in 2014 year, 8 month, and 2015 year, 4 month; these later revisions contained fewer provisions and primarily reflected a shift toward streamlining administration and delegating authority.
In recent years, China's insurance market has grown rapidly, facing increasingly complex and diverse risks. The current Insurance Law is becoming increasingly outdated. A comprehensive revision is necessary to address critical challenges in industry development and regulation, ensuring the continuous and stable operation of the insurance sector.
The context for this revision of the Insurance Law differs from previous efforts. First, high-quality development in the insurance sector requires a stronger legal foundation. In recent years, China's insurance market has flourished, with insurance playing an increasingly vital role in the national economy and people's daily lives. Building on this progress, many established practices and emerging challenges in insurance operations now require clearer legal guidance. For instance, laws must explicitly address mechanisms such as the cooling-off period and policy loans in insurance contracts, as well as regulatory measures like beneficial ownership transparency and risk resolution for insurance institutions. These updates aim to strengthen legal frameworks and better align them with practical needs.
Second, as a vital component of the financial and social security systems, insurance plays a pivotal role in building a global financial power. The State Council's three "National Ten-Point Plans" on reforming and developing the insurance industry highlight that modern insurance not only provides loss compensation and risk management but also serves critical functions in capital mobilization and social governance. It is described as "a fundamental tool for risk management under market economy conditions," with its stabilizing and catalytic roles effectively realized. We must deeply understand the connotation of high-quality development in the insurance sector to help build robust economic safety nets, social security networks, and disaster prevention systems. In advancing the five key initiatives—tech finance, green finance, inclusive finance, pension finance, and digital finance—insurance can make significant contributions. Accelerating the growth of the modern insurance service industry is crucial for refining the contemporary financial system, expanding employment opportunities, driving economic quality improvement and upgrading, innovating social governance approaches, ensuring stable social operations, enhancing public security, and improving the quality of life for all people.
Third, strict regulation, risk prevention, and promoting high-quality development are the three core tasks for China's insurance sector reform in the coming period. On 2024 9, 11, the State Council issued "Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Insurance Industry." This marks another comprehensive national deployment for the industry following 2006 and 2014, earning it the title of the new "Ten Articles" within the sector. The new "Ten Articles" clearly emphasize high-quality development. Building on strict supervision and risk prevention, they aim to better leverage insurance's role in safeguarding people's livelihoods and serving the real economy. To prevent and resolve risks, rigorous supervision must be maintained—ensuring regulators have "teeth and thorns," with clear boundaries—to achieve full coverage without exceptions and firmly uphold the bottom line of preventing systemic risks. This approach is also reflected in the draft revision.
Five Key Revisions: From Shareholder Transparency to Consumer Protection
Against this backdrop, the main amendments to the Insurance Law focus on five key areas: strengthening shareholder transparency oversight, refining prudential regulation frameworks, improving risk resolution mechanisms, enhancing consumer protection, and increasing penalties for violations.
China's Insurance Law comprises eight chapters, adopting a legislative structure that combines insurance contract law with insurance industry law. Chapter 1 covers general provisions and Chapter 8 contains supplementary provisions. Chapter 2 specifies rules on insurance contracts, while Chapters 3 through 7 address the operation, management of insurance institutions, and supervision of the insurance industry. Compared to the second revision in 2009, this revision focuses primarily on insurance operations and regulation, with fewer changes to the insurance contract section—a rationale evident from the drafters' explanatory notes.
Currently, competition among market participants in the insurance sector is intensifying, and violations of operating regulations occur frequently. These issues highlight shortcomings in the current Insurance Law: incomplete regulatory coverage, insufficient supervisory authority, inadequate punitive measures, low compliance costs for insurance institutions, and weak consumer protection effectiveness. Therefore, amending the Insurance Law is necessary to strengthen regulatory safeguards, increase penalties for violations, and better protect the legitimate rights and interests of policyholders, insured persons, and beneficiaries.
First, the revision of the Insurance Law emphasizes a people-centered approach. It firmly establishes the value orientation of prioritizing the people by strengthening protection for the legal rights and interests of policyholders, insured persons, and beneficiaries, while building a fair and just market environment for the insurance industry. This principle is reflected not only in amendments to regulatory rules but also in revisions to contract provisions. For example: policyholders now have the right to terminate insurance contracts during the cooling-off period; they may borrow against policies with cash value from insurers; the statute of limitations for non-life and annuity insurance claims has been extended from two to three years; and the insurer's duty to explain terms has been further clarified. These changes incorporate industry consensus into law and align with the Civil Code and judicial interpretations of the Insurance Law, all demonstrating a commitment to protecting insurance consumers' interests.
Second, consistently treat risk prevention as an enduring priority in financial work. Financial transactions involve complex and dynamic rights and obligations, are characterized by information asymmetry, and demand high levels of trust; therefore, robust regulatory frameworks are essential. The latest revision of the Insurance Law remains grounded in industry development and regulatory realities, addressing key issues to strengthen systems and mechanisms while enhancing regulatory effectiveness to safeguard against systemic financial risks. This approach is clearly reflected in the extensive revisions to insurance operating rules and regulatory standards. For instance, enhanced shareholder transparency oversight now brings insurance company shareholders and actual controllers within the regulatory scope, with stricter qualification reviews for major shareholders and controllers to ensure rigorous entry requirements. Additionally, the prudential regulatory framework has been strengthened to cover corporate governance, internal controls, related-party transactions, disclosure practices, solvency, asset management, liability-asset balance, product marketing, consumer protection, and cyber and data security—driving insurers toward prudent and compliant operations. Furthermore, a comprehensive risk resolution mechanism has been established, including early correction procedures for general risk hazards, improvements to the insurance guarantee fund system, and refined rules for risk处置 and market exit.
Third, increase the cost of violations. Implement strict and robust regulatory requirements by expanding the scope of legal liability and moderately raising penalty amounts in line with insurance market developments. Raise the cap on fines for institutions, introduce industry bans, credit penalties, and lifetime employment prohibitions. The enhanced insurance regulatory approach not only aligns with the Draft Financial Law and the Draft Financial Stability Law but also significantly strengthens rules under the two pillars of solvency regulation and corporate governance within the three-pillar framework of insurance supervision (solvency, corporate governance, and market conduct). Consequently, the focus of insurance supervision has shifted from micro-level compliance checks on operational practices to a macro-level systemic assessment of institutional stability.
Policy benefits upgrade, industry logic shift.
"Laws are the foundation of governance." A comprehensive revision of the Insurance Law aims to address critical industry and regulatory challenges while ensuring the sector's continued stability. By systematically optimizing the legal framework, we can better harness the rule of law to guide, regulate, and safeguard the insurance industry. This is our aspiration for the Insurance Law revision.
First, the insurance market's development requires support from a robust legal framework for insurance.
Over the past three decades since the implementation of the Insurance Law, significant achievements have been realized. With the widespread adoption of related administrative regulations, departmental rules, normative documents, and judicial interpretations, a systematic insurance legal framework has largely taken shape. This foundation has supported the steady growth of the insurance industry, substantially enhanced its capacity, and significantly strengthened regulatory oversight.
Although China's insurance industry has achieved remarkable progress, significant room for growth remains. In terms of key development indicators, in 2024, China's insurance density (premiums per capita) was approximately 3635 RMB, and insurance penetration (premiums as a percentage of GDP) stood at around 4.2%. By comparison, the global average insurance density was about 928.52 USD per person, with an average penetration rate of 6.81%. Meanwhile, persistent violations in the insurance market—such as misleading sales practices and difficulties in claims settlement—continue to hinder healthy development. Insurance legislation must not only safeguard the legitimate rights and interests of consumers but also promote the sustainable and compliant operation of insurance institutions.
To address these issues, the Insurance Law has established a foundational framework for the insurance market, clarifying the rights and obligations of contracting parties and enshrining core principles such as utmost good faith, insurable interest, and indemnity. This provides predictable behavioral standards for insurance transactions. On the other hand, as stipulated in Article 141 of the draft revision, the insurance regulatory authority, acting in accordance with the Insurance Law and the responsibilities defined by the State Council, follows the principles of legality, openness, and fairness to supervise the industry. It strengthens institutional supervision, conduct-based supervision, functional supervision, look-through supervision, and continuous oversight to maintain market order and protect the legitimate rights and interests of policyholders, insured persons, and beneficiaries. Only through such measures can we achieve the goals set forth in the new "National Ten Articles": by 2035, establishing a new pattern for the insurance industry characterized by a complete market system, diverse products and services, scientific and effective regulation, and strong international competitiveness.
Second, insurance legislation provides the institutional engine for the sustained and stable development of the insurance market.
The "15th Five-Year Plan for Building a Financial Powerhouse" places high expectations on the insurance sector. Insurance is expected to fully serve as an economic shock absorber and social stabilizer in supporting economic and social development. This clear industry positioning has been formally integrated into the plan's implementation framework. During the entire "14th Five-Year Plan" period, the insurance industry delivered cumulative payouts of 9.7 trillion yuan—a 65% increase compared to the "13th Five-Year Plan" period—demonstrating continuous release of its risk protection capabilities. At the same time, the insurance sector can also make significant contributions to supporting real economy development.
Taking insurance fund utilization as an example, in recent years, the industry has leveraged its long-term horizon, large scale, and stable funding sources to provide diversified financing services for the real economy. As of the end of 8 in 2024, total insurance assets under management reached 31.8 trillion yuan, with 28.8 trillion yuan provided to the real economy through debt, equity, and other instruments. The new "Ten Articles" also calls for "leveraging the long-term investment advantages of insurance funds" and "cultivating true patient capital." At the business level, pension finance is one of the "Five Major Initiatives," where insurers have significant potential in developing the third-pillar pension system; inclusive insurance has already achieved scale in medical protection and family property coverage. In disaster prevention, mitigation, and relief efforts, the insurance sector leverages its risk management expertise by proactively participating in pre-disaster prevention, mid-disaster mitigation, and post-disaster recovery, coordinating risk reduction with claims services. Catastrophe insurance, agricultural insurance, and work safety liability insurance will all play key roles.
The insurance sector must continue to align with national strategic priorities and key areas, supporting technological innovation and the development of a modern industrial system. This includes establishing a comprehensive insurance product and service framework that covers the entire lifecycle of technology enterprises. Stable operations are essential for insurers to fulfill these roles. Only by ensuring their own stability can insurance institutions effectively serve the real economy and social security needs. Capitalizing on the revision of the Insurance Law, regulators will guide insurers during the 15th Five-Year Plan period to shift from prioritizing speed and scale to focusing on quality and profitability through strengthened legal frameworks. Insurers must continuously enhance their core competitiveness, deepen efforts to reduce costs, improve efficiency, and upgrade quality, while expanding service scope and elevating service standards.
Conclusion
"A good tool is essential for a craftsman to do his work well." The insurance industry fundamentally serves to protect people's lives and property and enhance their well-being. To play its role in building a financial powerhouse, highlight its advantages in serving the real economy, and provide services in disaster prevention, mitigation, and relief, the industry must first ensure its own high-quality and sustainable development.
Regulators have established a blueprint for systemic reconstruction in the insurance sector. Through legislative amendments and strengthened oversight, the industry is shifting from scale-driven growth to high-quality development grounded in rule of law and core principles. The revision of the Insurance Law not only solidifies the long-term institutional foundation but also charts a clear path forward. Strong corporate governance, robust innovation and product development capabilities, and high-quality public service delivery are now the new core competencies for insurance companies. The next priority is to enhance institutional stability and enforcement effectiveness, ensuring insurance plays an even greater role in building a harmonious socialist society.
(Authored by an associate professor at the School of Finance and Public Administration, Renmin University of China; a researcher at the China Insurance Research Institute; and a researcher at the National Academy of Financial Studies. Edited by Yang Rui.)
