Insurance brokers play a crucial role in the insurance market of China. On one hand, insurance brokers help policyholders develop insurance plans, select insurance companies, handle insurance procedures, and assist insured individuals or beneficiaries in filing claims with insurance companies. On the other hand, insurance brokers also provide consulting services to clients, such as disaster prevention, loss prevention, risk assessment, and risk management. Particularly in purchasing and making claims under complex insurance products like directors and officers liability insurance and reinsurance, insurance brokers become increasingly prominent. According to the statistical data released by the former China Banking and Insurance Regulatory Commission (now the National Financial Supervision and Administration Commission, referred to as “CBIRC”), by the end of September 2022, there were a total of 2,609 insurance intermediaries in China. Among them, there were five insurance intermediary groups, 1,733 professional insurance agencies, 494 insurance brokerage companies, and 377 insurance loss adjustment companies. Due to the increasing number of insurance brokers and their growing importance in the Chinese insurance market, there have been emerging controversies related to insurance brokers. This article aims to provide a preliminary analysis and overview of these relevant hot issues.
I. Definition of insurance brokers in Chinese laws and regulations
The definition of insurance brokers is provided in the Insurance Law of China (《保险法》)and the regulatory provisions formulated by the former CBIRC. Article 118 of the Insurance Law stipulates that insurance brokers are institutions that, in the interest of policyholders, provide intermediary services for the conclusion of insurance contracts between policyholders and insurers and collect commissions in accordance with the law. Article 2 of the Regulations on the Supervision and Administration of Insurance Brokers (《保险经纪人监管规定》) also states that insurance brokers refer to institutions that, including an insurance broker and its branches, provide intermediary services for the conclusion of insurance contracts between policyholders and insurance companies based on the interests of policyholders and receives commissions in accordance with the law.
To operate insurance brokerage business in China, it is necessary to obtain the license for operating insurance brokerage business issued by the former CBIRC. In determining whether to grant the license for operating insurance brokerage business, the former CBIRC comprehensively examines various conditions and factors related to insurance brokers, including shareholder information, registered capital, qualifications of senior management personnel, governance structure and internal control system, business model, and other relevant aspects.
Foreign-funded insurance brokers have also undergone a gradual process of liberalization in operating their insurance brokerage business in China. When China first joined the WTO, according to the Notice on Issuing the Relevant Contents of the Legal Documents on China’s Accession to the WTO regarding the Insurance Industry (CBIRC Document No. 14 [2002]) [《关于印发我国加入WTO法律文件有关保险业内容的通知》(保监办发〔2002〕14号)], the admission conditions for foreign-funded insurance brokerage institutions five years after China’s accession to the WTO were as follows: the investor should be a foreign insurance broker with a history of operation in WTO member states for more than 30 years, must establish a representative office in China for two consecutive years, and the total assets at the end of the year prior to the application should be no less than 200 million US dollars.
In April 2018, CBIRC announced the “nationwide abolition of the 2-year requirement for foreign insurance institutions to open a representative office before setting up” . In May 2019, Chairman Guo Shuqing, in an interview with reporters from People’s Daily, Xinhua News Agency, and Economic Daily, announced 12 new measures to expand the opening-up of the banking and insurance industries. Among these measures, the ones related to insurance intermediary market include “cancellation of the requirement for foreign-funded insurance brokers to have a history of operation of 30 years and total assets of no less than 200 million US dollars to operate insurance brokerage business in China,” “allowing foreign insurance groups to invest and establish insurance institutions,” and “allowing foreign-funded insurance groups within Mainland China to establish insurance institutions by taking reference to the qualification requirements of Chinese insurance groups.” To effectively implement the aforementioned opening-up policies, the CBIRC has studied and formulated the Notice of the General Office of the CBIRC on Clarifying Measures for the Opening-up of the Insurance Intermediary Market (《中国银保监会办公厅关于明确保险中介市场对外开放有关措施的通知》).
At present, there are already a number of insurance brokerage companies in the Chinese insurance market that are fully owned by foreign investors.
II. Legal relationship between the policyholder and the insurance broker
According to the definition of insurance brokers in laws and regulations such as the Insurance Law, insurance brokers are organizations that, based on the policyholder’s interests, provide intermediary services for the policyholder and the insurer in the formation of insurance contracts and legally collect commissions. However, in practice, insurance brokers often receive commissions from insurance companies. Therefore, policyholders and insured individuals often have questions about whose interests insurance brokers actually serve, what the relationship is between insurance brokers and policyholders, and whether the actions of insurance brokers have legal binding force on policyholders.
To clarify the above-mentioned issues, it is first necessary to figure out the nature of the legal relationship between policyholder and insurance broker. Currently, there are two main views regarding the legal relationship between policyholder and insurance broker. One view is that it is a relationship of commission contract, while the other view is that it is a relationship of intermediary contract. The argument for an intermediary contract relationship is primarily based on Article 118 of the Insurance Law and Article 2 of the Regulations on the Supervision of Insurance Brokers. The concept of an intermediary contract emphasizes the intermediary reports on the opportunity for concluding a contract or provides intermediary services for the formation of contracts to the principal, with the principal paying remuneration. The main basis for asserting a commission contractual relationship is Article 48 of the Insurance Brokers Regulatory Provisions. This article stipulates that an insurance broker engaging in insurance brokerage business shall enter into a commission contract with the principal, agreeing on the rights and obligations of both parties and other matters in accordance with the law. A commission contract is a contract between a principal and an agent in which the agent handles the affairs of the principal based on the agreement between them.
With regard to the difference between an intermediary contractual relationship and a commission contractual relationship, the main aspects are as follows:
- Differences in the status of the parties, the acts of service rendered and the attribution of the legal consequences of the acts.
In an intermediary contract, the intermediary is limited to reporting contracting opportunities or mediating contracts. The scope of their services is restricted to merely introducing or assisting the principal in entering into a contract with a third party. The intermediary does not directly participate in the contract between the principal and the third party. In the course of conducting intermediary activities, the intermediary cannot make or represent the principal’s expressions of intention. The role of the intermediary is that of a middleman, serving as an intermediary and facilitator between the parties involved in the transaction.
When the entrusted person handles entrusted matters in a commission contract, they may act in the name of the principal or in their own name. They are authorized to make statements of intention to third parties, entering into contracts on behalf of the principal. They participate in the affairs based on the principal’s instructions and have the authority to determine the content of the relationship between the principal and the third party. The consequences of handling the affairs directly belong to the principal.
- The difference in the scope of the handled matters.
The intermediary in an intermediary contract provides the principal with the opportunity to conclude a contract with a third party, or provides intermediary services to the principal, mediating between the principal and the third party to facilitate their transactions, and his or her conduct itself has no direct legal significance for the contract concluded between the principal and the third party; the agent in a commission contract deals with the affairs entrusted to him or her at the request of the principal, which may be matters of legal or non-legal significance.
- Differences in the availability of remuneration and in the source and terms of payment of remuneration.
An intermediary contract is a compensated contract, but the intermediary can only request remuneration when there are intermediary results, and in the case of contractual mediation, the intermediary may obtain remuneration from both the principal and the counterparty. On the other hand, a commission contract can be compensated or uncompensated, with the remunerated agent receiving compensation from the principal.
- The difference in the burden of costs.
In an intermediary contract, where the intermediary facilitates the formation of the contract, the costs of the intermediary’s activities are borne by the intermediary. The parties may agree whether the costs are to be borne by the intermediary or the principal in the event that the contract is not procured, or whether they are to be shared. In a commission contract, the principal is responsible for bearing the expenses related to the entrusted matters handled by the agent, and they are typically required to make advance payment for these expenses.
The interpretation of the Insurance Law released on the website of the National People’s Congress also partially explains and elaborates on the position of insurance brokers and the relationship between insurance brokers and policyholders. According to this interpretation:
- An insurance broker represents the interests of the policyholder. Unlike an insurance agent, an insurance broker is entrusted by the policyholder and represents the interests of the policyholder and shall act in accordance with the instructions and requirements of the policyholder, reflecting and adhering to the interests and requirements of the policyholder in the process of providing intermediary services for the conclusion of insurance contracts between the policyholder and the insurer.
- Insurance brokers are individuals who provide intermediary services for policyholders and insurers to enter into insurance contracts. Although insurance brokers act on behalf of and in the interest of the policyholder, they only report opportunities and information for entering into insurance contracts to the policyholder or facilitate the policyholder in entering into insurance contracts with the insurer. They serve as intermediaries, providing introductions and assistance, but they do not enter into insurance contracts with insurers in their own name or on behalf of the policyholder.
(3) Insurance brokers are legally permitted to receive commissions. Commissions are the remuneration paid to insurance brokers for providing intermediary services between policyholders and insurers in the formation of insurance contracts. Generally, in a brokerage contract, the principal is obligated to pay remuneration to the broker as compensation for their intermediary services. However, according to the general practice in the Chinese insurance industry, although insurance brokers act on behalf of and in the interest of the policyholder, providing intermediary services in the formation of insurance contracts between the policyholder and the insurer, their commissions are typically paid by the insurer. If the insurance broker and the policyholder agree that the policyholder should pay the broker a commission for their intermediary services, the policyholder is required to pay it according to the contract terms.
The interpretation provided by the website of the National People’s Congress tends to define the relationship between insurance brokers and policyholders as an intermediary insurance contract relationship. It emphasizes that insurance brokers, in the process of providing intermediary services for policyholders to enter into insurance contracts with insurers, reflect and uphold the interests and requirements of the policyholders.
However, defining the legal relationship between the policyholder and the insurance brokerage institution as an intermediary contract relationship may face the following issues in the practice of China’s insurance market:
(1) The scope of services provided by insurance brokers is much broader, including the formulation of insurance plans for policyholders, handling insurance procedures, assisting in claims settlement, and providing risk prevention, risk assessment, and risk management consulting services to policyholders, insured parties, and beneficiaries. It goes beyond the limited scope of an intermediary contract, which is typically focused on reporting contract opportunities or providing contract mediation services. Insurance brokers are involved in multiple stages such as insurance underwriting, claims processing, and risk management.
(2) According to the provisions of the Civil Code(《民法典》), if a contract is facilitated by an intermediary’s contract mediation services, the parties to that contract shall evenly share the remuneration of the intermediary. From this perspective, the expenses of insurance brokers are shared equally between the policyholder and the insurance company. However, in the practice of the insurance industry, it is common for insurance companies to pay commissions to insurance brokers as remuneration. Nevertheless, these commissions ultimately originate from the insurance premiums paid by the policyholder.
(3) The legal relationship between the policyholder and the insurance brokerage institution also depends on whether there are any specific agreements between the policyholder and the insurance broker.
Due to different provisions in laws, regulations, and regulatory requirements regarding the relationship between insurance brokers and policyholders, there are different understandings in judicial practice. In a case concerning insurance brokerage contract dispute of Nantong Shengyang Company and Mingya Insurance Brokerage Jiangsu Branch, Mingya Insurance Broker, and the third party PICC Nanjing City Chengnan Branch, heard by the People’s Court of Liuhe District, Nanjing City [Case No.: (2018) Su 0116 Min Chu 1152] (【案号：(2018)苏0116民初1152号】), the court held that Mingya Insurance Brokerage Jiangsu Branch, as an intermediary institution for insurance between Nantong Shengyang Company and PICC Nanjing City Chengnan Branch, had its intermediary status specified in the insurance policy. Therefore, there existed an insurance brokerage relationship between the policyholder, Nantong Shengyang Company, and Mingya Insurance Brokerage Jiangsu Branch. In the absence of a written intermediary contract between Nantong Shengyang Company and Mingya Insurance Brokerage Jiangsu Branch, their respective rights and obligations in the intermediary contract could be determined in accordance with the law. However, in another case concerning insurance brokerage contract dispute of Jiang Haiping and Shanghai New World P&C Service Company, heard by the Supreme People’s Court, the court applied the provisions of the Contract Law(《合同法》)regarding commission contracts to determine the rights and obligations of the insurance broker.
Based on the aforementioned different understandings, the interests of the policyholder, insurer, insured, and beneficiary will be affected to varying degrees. In certain situations, the legal characterization of the relationship between the policyholder and the insurance intermediary will directly impact the fulfillment of the insurer’s contractual obligations. Taking all factors into consideration, there is still some controversy in the current insurance practice in China regarding how to define the legal relationship between the policyholder and the insurance intermediary. It is hoped that unity of understanding will be achieved through enacting laws, formulating judicial interpretations, and unifying judicial practices in the future.
III. In the presence of an insurance intermediary, whether the insurer’s obligation to prompt and provide explanatory information is reduced or exempted depends on the circumstances.
Both the Insurance Law and relevant judicial interpretations stipulate that insurers have an obligation to explain the standard terms they provide, and for clauses in insurance contracts that exempt the insurer’s liability, the insurer should provide prompts and explanations at the time of contract formation. The establishment of this obligation is mainly based on two considerations. On one hand, insurance clauses are pre-drafted by insurers for repetitive use, lacking sufficient negotiation with the policyholder. Therefore, clauses that involve the core interests of the policyholder need to draw their attention and provide clear explanations. On the other hand, insurance clauses possess a certain level of expertise, and compared to insurance companies, policyholders (especially individual policyholders) may lack sufficient understanding of insurance terms, leading to an imbalance in contractual benefits between policyholders and insurers.
However, in the case where an insurance broker assists the policyholder in purchasing insurance, considering that the insurance broker is a professional insurance intermediary with sufficient knowledge of insurance terms, the question of whether the insurer can be exempted from or relieved of the obligation to provide prompts and explanatory notices becomes a commonly encountered issue in practice.
Regarding this issue, there are different understandings in current judicial practice. Taking the case of Wuhan General Aviation Co., Ltd. and PICC Property and Casualty Co., Ltd. Wuhan Central Branch Second Instance Civil Case of Insurance Contract Dispute[Case No. (2018) E01 Civil Final 4184] heard by the Wuhan Intermediate People’s Court, as an example. In this case, the court held that the insurance contract in question was entered into with the involvement of an insurance broker. Due to the participation of such professionals, the contractual parties had relatively balanced strength. The insurance broker possessed insurance expertise and was not at a disadvantage in terms of attentiveness and negotiation ability. They were able to accurately understand the meaning and legal consequences of the terms and express their intention to enter into the insurance contract completely, accurately, and freely. They were able to exercise autonomous will and could fully negotiate the exemption clauses in the contract. Therefore, it should be presumed that the professional insurance broker is capable of understanding the content of the contract terms and fully understanding the meaning of the exemption clauses. As a result, the insurer’s obligation to provide explanations can be relieved or exempted. However, in the case of China Ping An Property and Casualty Insurance Co., Ltd. Guangdong Branch v. Gao Zongjian and others, Second Instance of Motor Vehicle Traffic Accident Liability Dispute [Case No. (2021) Lu 01 Civil Final 2600] heard by Jinan Intermediate People’s Court, the court held a different view. It stated that Chongqing Jincheng Hunuo Company was only the broker for Jinan Youwaimai Company’s insurance, and the actual policyholder was Jinan Youwaimai Company. The insurer informed the insurance broker, Chongqing Jincheng Hunuo Company, about the insurance terms, but it did not directly fulfill its obligation to provide explanatory notices to the policyholder. Therefore, the exemption clause in question had no legal effect.
IV. Conclusion
The disputed issues analyzed above are only a part of the common issues in Chinese judicial practice regarding insurance brokers. There are many other disputes related to insurance brokers in the Chinese insurance practice, including whether the insurer’s duty to provide explanations can be fulfilled through the insurance broker, whether the statements made by the insurance broker in communication with the insurer with respect terminating the insurance contract have binding effect on the policyholder, and so on. These disputes often arise from the lack of clear agreements on rights and obligations between the policyholder and the insurance broker and the lack of a clear determination of the nature of their legal relationship. However, these issues are of great importance and often affect the fulfilment of the obligation to inform truthfully, the prompting and clear explanation of the exclusion clause, the payment of insurance premiums, the termination of the insurance contract and the assumption of the insurance company’s insurance liability. It is expected that in the future, judicial practice and understanding can be unified, clarifying the role and positioning of insurance brokers, and promoting a more standardized and efficient development of the Chinese insurance market.
