The China Insurance Industry Association Releases the "Self-Regulatory Code for Suitability Management of Insurance Products"

To implement the “Measures for the Product Suitability Management of Financial Institutions” issued by the National Financial Regulatory Administration, the China Insurance Industry Association (hereinafter referred to as “CIIA”) released the “Self-Regulatory Standards for the Management of Insurance Product Suitability” (hereinafter referred to as the “Self-Regulatory Standards”) on March 27. As the first self-regulatory document in the insurance industry focusing specifically on product suitability management, the “Self-Regulatory Standards” are an important institutional achievement guided by CIIA’s efforts to thoroughly implement the people-centered development philosophy and the goal of building a “Three-Good Association”—“good for the industry, good for supervision, and good for society.” It provides strong support for strengthening the foundation of protecting the legitimate rights and interests of insurance consumers.

In April 2024, CIIA established a working group for the “Self-Regulatory Standards.” Based on the realities of the insurance industry, and adhering to the unity of scientific rigor, guidance, and practicality, the document was refined through multiple rounds of work, including collecting industry feedback and conducting cross-industry discussions, resulting in the “Self-Regulatory Standards” that combine strong implementability with industry suitability. The standard consists of nine chapters and forty-six articles. It is supported by five operational attachments and forms a full-process management system covering product classification, sales qualification, customer evaluation, suitability-based sales, internal control management, and self-regulatory supervision. For each core link, specific operational standards are clearly defined.

The “Self-Regulatory Standards” aim to build unified, scientific, and operable suitability management standards. With “the seller’s duty” as the starting point, and by establishing a whole-chain self-regulatory framework covering products, personnel, customers, sales, and internal control, they are committed to resolving sales misguidance and product mismatch risks from the source, and to improving the professionalism and compliance of sales practices. The formulation of the “Self-Regulatory Standards” closely centers on consumers’ real needs and prominent issues in the industry. It emphasizes operability and provides clear guidance for insurance institutions to implement regulatory requirements through accompanying standardized tools, reflecting a trend in which industry self-regulation is moving from advocacy of principles toward more refined management. The release of the “Self-Regulatory Standards” is both an effective continuation of regulatory requirements and a practical safeguard for consumers’ rights to know, to choose, and to fair dealing, providing an important basis for clarifying responsibilities in and assigning responsibility for insurance consumer disputes.

The “Self-Regulatory Standards” specify that insurance institutions must, in an overall manner, consider factors such as the type of product design, coverage responsibilities, the insurance period, and whether policy benefits are determined, among others, to implement classified and tiered management of insurance products. Personal insurance products are divided into five categories, P1 through P5. Among them, P1 refers to short-term products with a low level of complexity and determined policy benefits; P2 refers to ordinary long-term products with a medium level of complexity and determined policy benefits; P3 refers to products such as participating insurance, universal insurance, and others with a medium level of complexity and policy benefits with guaranteed fluctuations; P4 covers products with fluctuating benefits without guarantees, such as investment-linked products and variable annuities, and products with a high level of complexity; P5 refers to products with a high level of complexity and policy benefits with fluctuating benefits without guarantees. Property insurance products are divided into two categories, P1 and P2, according to complexity.

For P4 and P5 categories of fluctuating-benefit products, insurance institutions must further divide the risk level of the product or investment account, from low to high, into at least five grades: R1 (low risk) through R5 (high risk). The corresponding reference names are R1 (low risk), R2 (medium-low risk), R3 (medium risk), R4 (medium-high risk), and R5 (high risk). Among them, R1 has a generally low overall risk level, small fluctuations in returns or net asset value, and a low possibility of losses of invested principal; R2 has relatively low risk, smaller fluctuations, and a lower possibility of losses; R3 has medium risk, medium fluctuations, and a medium possibility of losses; R4 has relatively high risk, larger fluctuations, and a higher possibility of losses; R5 has high risk, large fluctuations, and a high possibility of losses. Insurance institutions should also comprehensively consider factors such as the investment directions, investment scope, investment proportions, and liquidity of invested assets, as well as factors such as time to maturity, subscription and redemption arrangements, leverage conditions, structural complexity, the credit standing of relevant entities such as issuers, and the past performance and historical fluctuation levels of similar products.

The “Self-Regulatory Standards” require insurance institutions to establish a tiered management system for the qualifications of sales personnel. Insurance knowledge, records of integrity and compliance, and sales experience of sales personnel are used as the main tiering standards, and these are linked with product classification to implement differential authorization. Ability levels are improved step by step from four levels to one level. Level 4 sales personnel may sell P1 and P2 products, while Level 1 sales personnel may sell all insurance products. For bundled sales, authorization should be determined based on the principle of choosing from high and not from low. At the same time, insurance institutions may not use sales performance as the sole evaluation indicator, and must establish a mechanism to recover and claw back commissions and compensation in cases where economic losses are caused by sales personnel’s violations.

The “Self-Regulatory Standards” clarify that insurance institutions need to evaluate customers. For ordinary products, the focus should be on assessing the purpose of protection and the financial alignment. For floating-benefit products in categories P4 and P5 that may lead to losses of principal, it is also necessary to conduct a risk tolerance assessment, categorizing customers from low to high into five grades: C1 (conservative) to C5 (aggressive), and establishing clear matching rules with the product risk levels.

CIIA stated that in the next step, it will, guided by the “Three-Good Association” initiative, do a good job in publicizing and implementing the “Self-Regulatory Standards,” urge member institutions to fully implement the requirements of the standards, promote the industry to accelerate the construction of a more complete suitability management system, and continuously enhance insurance consumers’ sense of trust and sense of gain. With the industry’s high-quality development, it will better serve the real economy and contribute insurance strength to the building of a strong financial country.

(Editor: Wang Xinyu)

Keywords: