The China Regulatory Commission recently implemented a new regulation stipulating that insurance policy documents may not be issued until the premium or first installment premium is confirmed by the insurer’s accounting or core business system. The regulation, referred to as “cash before cover,” will affect almost every insurance placement and will likely change the way business is handled in China.

The change applies to new and renewal policies as well as any endorsement that involves additional premium, including increased insurance value, increased rate, or period extension. The new regulation is intended to help insurers enhance their cash flow, and increase their profitability by reducing their bad debts and strengthening expense management.

Nearly all lines of non-motor property and casualty insurance are affected.  In some cases, exemptions may include cargo insurance, trade credit insurance, personal accident & health insurance, among other lines of business.

This change introduces ambiguity into the market, because most documents do not clarify whether coverage is not effective without formal policy documents before inception, according to Marsh China.  In the past, insurers accepted the confirmed closing slip as evidence of binding coverage.

In some cases, policy coverage may also be restricted.  For example, common extensions like "automatic coverage for new locations and values” under property insurance may no longer be automatic.

Unlike other self-disciplinary actions promulgated by the insurance industry association, “cash before cover” is being directly pushed by the China Insurance Regulatory Commission (CIRC)—thus, the changes will be adopted quickly by insurers. 

To date, Guangdong, Zhejiang (Ningbo), Shandong (Qingdao, Yantai), Jiangsu, Sichuan, Chongqing, Henan (Zhengzhou), Shannzi, Shanxi (Taiyuan), Harbin, Hunan (Yueyang), Xiamen and Shenzhen are on the list for adopting the “cash before cover” regulation.

Marsh is communicating with the insurance markets and continues to closely monitor the situation.  Clients with business operations in any applicable locations of “cash before cover” should start their insurance renewal process as early as possible. 

Please contact your local Marsh representative, who will work with you to navigate applicable local "cash before cover” requirements as well as any exemptions that may be allowed.

For more information, please contact us at: contact@marsh.com.