Guide to China’s Insurtech Regulations

By Baker McKenzie

Insurance companies in Asia are facing a labyrinth of regulations as they invest in the insurtech space, particularly in areas such as telematics, biometrics, and big data, according to The Insurtech Revolution: Regulatory Updates and Innovative Evolution in the Insurance Sector, a new guide by leading law global law firm Baker McKenzie.

With interest and investment in insurtech on the rise, this guide provides insights around the complex insurtech regulatory landscape and innovation trends, particularly in big data, that are likely to directly affect and disrupt insurers.

In Hong Kong, for example, the more prevalent use of telematics enables insurers to accumulate a wealth of customers’ behavioral information. This will allow insurers to have a deeper insight of their customers, which in turn will assist in formulating new directions for products and more accurately pricing their risks. This contrasts with China where fintech/insurtech innovations are a relatively recent phenomenon, although recent reports have suggested that Chinese regulators, increasingly cautious about the potential risksposed by fintech/ insurtech businesses, are in the process of drafting rules to tighten the control over internet lending, internet payment, and internet insurance businesses.

“The challenges that fintech/insurtech businesses face in Hong Kong and China are not dissimilar. The regulatory regime in Hong Kong is complex and sector-specific; and often times, the licenses and regulatory approvals that need to be sought differ on a case-by-case basis,”  said Martin Tam, a Partner in the Insurance Practice at Baker McKenzie in Hong Kong. “On the other hand, China’s financial service sectors are regulated by multiple authorities. The lack of a coordinated scheme among the regulators often results in a lack of specific guidance and supervision of fintech/insurtech innovation.”

The Chinese government is considering a centralized financial and monetary regulator with comprehensive power to regulate most (if not all) fintech/insurtech activities. In Singapore insurance companies are looking to mine data sets to identify underwriting opportunities for those who suffer chronic illnesses, such as dementia and obesity. Developing or acquiring big data capabilities can mean insurers are better able to adopt solutions that cross the entire insurance value chain.

According to Singapore-based fintech and insurtech expert Stephanie Magnus, principal at Baker McKenzie.Wong & Leow, insurers will also need to devise controls and systems for analytics to be appropriately integrated into the service, such as offering premium discounts and locking in future premiums.

“As the use of such analytics may directly affect the customers, any incidents of misuse, leakage or improper application of such analytics will pose a reputation risk for the insurer,” Magnus said. “Legally, insurers will of course need to be particularly mindful of the need to ensure the accuracy and reliability of this information, and of course how they can protect the privacy of customers.”

The report also draws out the key concerns for established players and new entrants, namely:

1. Dealing with data privacy
2. Further cybersecurity concerns
3. Wide variations in regulatory approach to insurtech
4. Securing talent and developing and securing skills and knowledge

“Asian hubs such as Hong Kong and Singapore have been working hard to understand and harness the opportunities inherent in fintech, and this is quickly expanding to other financial services subsectors, with insurance becoming a prime focus,” Magnus said. “How regulators embrace this disruption and simplify the current labyrinth of regulations in their market while protecting consumers and businesses will determine who wins this race.”

Watch out for is “just-in-time” insurance. The traditional concept of insuring an asset over many periods is outdated. Instead, businesses will start to move to a more transactional consumption model where just-in-time insurance is delivered on mobile and underwritten in seconds.”

About the author: Founded in 1949, Baker McKenzie advises many of the world’s most dynamic and successful business organizations through our 12,000 staff in 77 offices in 47 countries. The firm is known for its global perspective, deep understanding of the local language and culture of business, uncompromising commitment to excellence, and world-class fluency in its client service. Global revenues for the fiscal year ended June 30, 2015, were US$2.43 billion.