Introduction
When referring to insurance, the first term that comes up with one’s mind is likely to be insurers, which are mostly known to operate insurance businesses. Nowadays, with the growth of the insurance industry, other entities also emerge such as insurance agents, brokers, and loss adjustors. These entities play different roles to prosper the industry in many ways, for example, to provide more value-added services to their clients and to ensure the smooth process of insurance. Among them, an entity called Third Party Administrator abbreviated as “TPA” is picking up steam, especially in the health insurance field. Currently, there is not yet a unified definition of TPA in a worldwide manner as they conduct various functions and are subject to dissimilar regulatory requirements under different jurisdictions. However, in most cases, TPAs are known to help insurers “collect and process information during the process of insurance, underwriting, and claims, and improves their risk management and control capabilities”. It is commonly recognized that insurers are outsourcing some of their activities to TPAs, because of the TPA’s expertise in certain fields.
In China, along with the expansion of the insurance market in these years, more insurance entities, including insurers and reinsurers, would like to develop their cooperation with TPAs. In this case, it is anticipated that more TPAs will be founded in the future, with their products and services expected to be more diversified and abundant. As increasing aspects are covered by the TPA with its multiple business models, a concern arises about whether it may step into the restrictive area from the perspective of insurance regulations. Therefore, this article aims to explore the possible connection between TPA’s business scope and insurance activities under the legal and regulatory framework of the People’s Republic of China (“the PRC”, for the purpose of this article, excluding jurisdictions as Hong Kong SAR, Macao SAR, and Taiwan).
II. Insurance Activities under the PRC Law
In the PRC, the insurance industry, as a significant financial sector, is heavily regulated and supervised where not only laws apply, but also several regulations, mainly promulgated by the China Banking and Insurance Regulatory Commission (“CBIRC”, previously known as China Insurance Regulatory Commission or “CIRC”) as the primary regulator. These laws and regulations aim to comprehensively cover legal and compliance issues in the insurance industry. Specifically in the view of insurance activities, according to Article 6 of the Insurance Law of the People’s Republic of China (“Insurance Law”):
“Insurance business must be conducted by insurance companies established in accordance with this Law and other insurance entities as stipulated in laws or administrative regulations. No other entity or individual may operate insurance business”.
As the fundamental source of law in this regard, the Insurance Law sets a principle that only insurance entities established and approved in accordance with relevant laws and regulations are eligible to conduct insurance business in the PRC. Nevertheless, the law does not further elaborate a definitive concept of the insurance business. In practice, concretely speaking, activities such as underwriting, policy issuance, premium collection, claims assessment, and claims payment are generally deemed as typical insurance businesses.
As for the regulatory perspective, specifically to insurance intermediary activities, for the insurance broker as an example, Article 36 of the Provisions on the Regulation of Insurance Brokers provides:
“An insurance broker may engage in all or part of the following activities: (1) designing insurance plans for policyholders, selecting insurance companies, and handling insurance purchase procedure; (2) assisting the insureds or beneficiaries in claims; (3) reinsurance brokerage business; (4) providing clients with disaster or loss prevention or risk evaluation, risk management consulting services; and (5) other insurance broker-related businesses prescribed by the China Insurance Regulatory Commission.”
As for insurance agents, it distinguishes between professional and sideline agents. Article 41 of the Provisions on the Regulation of Insurance Agents states:
“A professional insurance agency may engage in all or part of the following businesses: (1) sales of insurance products as an agency; (2) collection of insurance premiums as an agency; (3) loss investigation and claims settlement of insurance-related services as an agency; and (4) other relevant businesses as prescribed by the insurance regulator under the State Council.”
Its Article 42 continues as “A sideline insurance agency may engage in the businesses prescribed in (1) and (2) of Article 41 hereof as well as other businesses approved by the insurance regulator under the State Council.”
In terms of loss adjustors, Article 43 of the Regulations on Insurance Loss Adjustors provides:
“A loss adjustor may operate all or part of the following business: (1) pre-underwriting and post-underwriting inspection, valuation, and risk assessment on the subject of insurance or the insureds; (2) post-claim survey, inspection, loss assessment, and claims settlement of the subject of insurance and disposition of their residual value; (3) risk management consulting; and (4) other business as provided for by the CIRC.”
Furthermore, in the Circular Concerning Banning the Illegal Insurance Institutions and Illegal Insurance Activities issued by the CIRC on July 30, 2008, illegal insurance activities include an unapproved entity conducting “activities in which fees are collected from the public in the name other than insurance premiums, but the obligations promised to be performed include liability of insurance benefits payment or other similar liabilities”. Also, illegal insurance intermediary activities include an unapproved entity to “provide intermediary services for the purpose of facilitating the conclusion of an insurance contract between policyholders and insurers with service fee charged”. As for the regulatory practice, according to the sanction issued by CBIRC’s Beijing Bureau on December 29, 2021, because of illegal conducting insurance intermediary activities, a technology company’s profit was confiscated and fined 2,127,000 yuan, and the relevant illegal activities were banned. The sanction was issued in accordance with Article 159 of the Insurance Law.
As can be seen above, the insurance business is strictly regulated by laws and regulations, with the CBIRC as the regulator supervising the insurance industry. Only certain licensed entities are allowed to operate insurance businesses and doing so without a required license or approval could result in sanctions in accordance with applicable laws and regulations.
III. TPA’s Business and Insurance Activities
As TPAs mainly serve insurance entities, their business is tightly connected to insurance activities. Among those, healthcare management service seems as one of the most popular TPA activities, where the TPA provides healthcare management services such as healthcare service provider network, physical examination, online treatment, health consultation, medicine delivery, and other related services to the insureds or applicants of health insurance. On this matter, according to the Circular of the General Office of the China Banking and Insurance Regulatory Commission on Standardizing the Health Management Services of Insurance Companies issued by the CBIRC on September 6, 2022, “For healthcare management services that cannot be carried out by themselves, insurance companies may cooperate with health management service providers, medical institutions, rehabilitation service providers and nursing service providers to enrich healthcare management service and meet the diversified and personalized health needs of customers.” In this case, the regulator recognizes TPA’s participation in health management and considers it as the important supplement to insurers’ healthcare management related to health insurance.
Furthermore, in practice, in providing healthcare management services and others, many TPAs are not satisfied to only offer value-added services but would like to deeply contribute to insurance product development, policy management, underwriting, claims, reporting, etc. for improving their competitiveness and value by maximizing their involvement in above activities. For instance, in claims processing, some TPAs authorized by the insurance company would decide whether to pay compensation in accordance with policy terms, conditions, and liability exclusions; or in policy management, some TPAs would communicate with policyholders on inquiries raised related to policy execution and servicing, and issue certificates of insurance by themselves. Although those could be general practices worldwide, it would trigger compliance issues as they may step into insurance activities in the PRC as stated above. Taking policy conclusion as an example, Article 13 of the Insurance Law stipulates as “An insurance contract shall be concluded when a policyholder applies for insurance and the insurer agrees to underwrite the insurance. The insurer shall issue an insurance policy or other insurance certificate to the policyholder in a timely manner.” Hence, by law, only insurers are entitled to issue an insurance policy or certificate of insurance and TPAs are not eligible for this activity.
Here, since TPAs dedicate to enriching their products to provide multiple services, it is hard to analyze each service in detail. Moreover, as the boundary between TPA business and insurance activities is not explicit from the perspective of law, and there are only a handful of sanction cases observed at this moment, it would be difficult to make a clear conclusion on this matter. However, general advice for TPAs lies in refraining from making any decision on insurance-related activities, where such decisions should be ultimately made by licensed insurance entities. It means TPA’s insurance-related business should only stay on the advisory or supporting level. Furthermore, TPAs should also refuse to directly engage in typical insurance activities such as concluding policies, collecting premiums, or issuing benefits.
IV. Conclusion
With more global TPAs expanding their business to the PRC and arising of domestic TPAs, attention should be paid to their operating compliance. As the insurance industry is heavily regulated by PRC laws and regulations and strictly supervised by the regulator, unlicensed status does not release the TPA’s compliance obligations, particularly on its business activities aspect. In fact, although TPAs may wish to promote their involvement in the insurance sector, they should also constrain themselves with the boundary of the insurance activities, as wrongfully stepping into such field would lead to sanctions.
[1]VHS, “Understand the health insurance TPA track, from service outsourcers to industry innovation drivers” <https://www.vhsinsurtech.com/news/shownews.php?id=489&lang=en>.
[2]Insurance Law of the People’s Republic of China, entered into force on April 24, 2015, Article 6.
[3]Provisions on the Regulation of Insurance Brokers, adopted on February 1, 2018, entered into force on May 1, 2018, Article 36.
[4]Provisions on the Regulation of Insurance Agents, adopted on November 12, 2020, entered into force on January 1, 2021, Article 41.
[5]Ibid, Article 42.
[6]Provisions on the Regulation of Insurance Loss Adjustors, adopted on February 1, 2018, entered into force on May 1, 2018, Article 43.
[7]Jing Yin Bao Jian Fa Jue Zi, No. [2021] 43.
[8]Insurance Law, Article 159, “any acts establishing professional insurance agents and insurance brokers, or illegally engaging in the insurance agency business or brokerage business without obtaining the insurance agency business permit or insurance brokerage business permit in breach of this Law shall be banned by the insurance supervision authority, confiscating the illegal proceeds and imposing a fine of one to five times legal proceeds; where there is no illegal proceeds or the illegal proceeds is less than 50,000 yuan, a fine ranging from 50,000 yuan to 300,000 yuan shall be imposed.”
[9]Circular of the General Office of the China Banking and Insurance Regulatory Commission on Standardizing the Health Management Services of Insurance Companies, Yin Bao Jian Ban Fa No. [2020] 83, Article 1, “The healthcare management services provided by insurance companies refer to the monitoring, analysing and evaluating of customers’ health and intervening in the factors endangering customers’ health to control the occurrence and development of diseases and maintain a healthy status, including health physical examination, health consultation, health promotion, disease prevention, chronic disease management, medical service, and rehabilitation care.”
[10]Circular of the General Office of the
