To safeguard the legitimate rights and interests of insurance consumers, standardize the product rate determination process and management and control systems of property insurance companies, and improve the quality of product development, the China Insurance Regulatory Commission (CIRC) recently issued the Guidelines for Product Rate Determination of Property Insurance Companies (the "Guidelines"), which will be officially implemented from February 1, 2017.

       Determining reasonable, fair, and adequate product rates is of great significance for protecting the legitimate rights of insurance consumers and maintaining the stability and sustainable development of the industry. However, at present, China has a large number of property insurance products of a wide variety of types, and many products suffer from problems such as unscientific pricing processes, lax process controls, and unreasonable rate results, which may trigger pricing risk events. In response to these problems, the CIRC studied and formulated the Guidelines, setting out comprehensive and rigorous requirements for the rate determination work of property and casualty insurers, so that product pricing supervision has rules to follow.

        The Guidelines regulate three aspects: First, they provide a normative description of the composition of rates and the principles of rate determination; regulate the scope of application, the definitions of relevant concepts in rate determination, and the accountability mechanism; and specify the principles to be followed in rate determination, namely reasonableness, fairness, and adequacy. Second, they regulate the specific process of rate determination, including preliminary preparation, the determination process, and monitoring and adjustment. In the preliminary preparation stage, normative requirements are made mainly with respect to the basic data used in rate determination, including data sources, data content, data extraction and management mechanisms, data verification and correction, and so on. The Notice also specifically requires insurance companies to retain records of the methods used to extract data, thereby providing a safeguard for the verification of data extraction work. Third, they set out provisions on the supervision and administration of product rate determination, including requirements for rate actuarial reports and rate determination working papers as well as accountability provisions, providing safeguards for the supervision of product rate determination.

        The issuance of the Guidelines improves the regulatory mechanism for property insurance pricing, provides insurance companies with a sound and reasonable operational process for product development and retrospective review, promotes the formation of an actuarial cycle internal control mechanism within insurance companies, and guards against pricing risks, thereby protecting consumers' legitimate rights and interests more rigorously and promoting the development of product pricing work in the property insurance industry in a more professional and rigorous direction.

Source: China Insurance Regulatory Commission (CIRC)