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

To implement the “Guidelines for the Appropriateness Management of Financial Institution Products” issued by the National Financial Supervisory Administration, the China Insurance Industry Association (hereinafter referred to as “CIAA”) released the “Self-Regulatory Norms for Insurance Product Appropriateness Management” (hereinafter referred to as “Self-Regulatory Norms”) on March 27. As the first self-regulatory document in the insurance industry focusing on product appropriateness management, the “Self-Regulatory Norms” is an important institutional outcome led by the CIAA to deeply implement the development concept centered on the people, with the goal of building a “Three Good Association” that serves the industry well, supports regulation well, and contributes to society well, providing strong support for solidifying the protection of insurance consumers’ rights and interests.

In April 2024, the CIAA established a research group for the “Self-Regulatory Norms,” based on the actual situation of the insurance industry, adhering to the unity of scientificity, guidance, and operability. Through multiple rounds of industry solicitation of opinions and cross-industry discussions, the “Self-Regulatory Norms” were formed with both practicality and industry adaptability. The norms consist of nine chapters and forty-six articles, with five operational attachments, forming a comprehensive management system that covers product classification, sales qualifications, client assessments, matching sales, internal control management, and self-regulatory supervision, with clear operational standards for each core link.

The “Self-Regulatory Norms” aim to establish a unified, scientific, and operational standard for appropriateness management, starting from the principle of “seller responsibility.” By constructing a self-regulatory framework covering products, personnel, clients, sales, and internal control, it aims to resolve the risks of sales misguidance and product mismatching from the source, enhancing the professionalism and standardization of sales behavior. The formulation of the “Self-Regulatory Norms” closely revolves around the actual needs of consumers and the prominent issues in the industry, focusing on operability and providing clear guidance for insurance institutions to implement regulatory systems through supporting standardized tools, reflecting the trend of advancing from principle advocacy to refined management in industry self-regulation. The release of the “Self-Regulatory Norms” not only effectively meets regulatory requirements but also provides practical guarantees for consumers’ rights to know, choose, and fair trading, offering important basis for clarifying responsibilities in insurance consumption disputes.

The “Self-Regulatory Norms” specify that insurance institutions must comprehensively consider factors such as product design type, protection responsibilities, insurance duration, and whether policy benefits are determined, to implement classified and graded management of insurance products. Life insurance products are classified into five categories from P1 to P5, where P1 is a short-term product with low complexity and determined policy benefits; P2 is an ordinary long-term product with moderate complexity and determined policy benefits; P3 includes products such as participating and universal life insurance with moderate complexity and guaranteed floating benefits; P4 covers investment-linked and variable annuity products with high complexity or non-guaranteed floating benefits; P5 represents products with high complexity and non-guaranteed floating benefits. Property insurance products are also classified into two categories, P1 and P2, based on complexity.

For P4 and P5 floating benefit products, insurance institutions must further classify the risk levels of the products or investment accounts into five levels from low to high, at least R1 (low risk) to R5 (high risk), with reference names as R1 (low risk), R2 (medium-low risk), R3 (medium risk), R4 (medium-high risk), and R5 (high risk). R1 has a low overall risk level, small yield or net value fluctuations, and a low possibility of loss of the invested principal; R2 has relatively low risk, small fluctuations, and low possibility of loss; R3 has medium risk and fluctuations, and medium possibility of loss; R4 has relatively high risk, larger fluctuations, and higher possibility of loss; R5 has high risk, large fluctuations, and high possibility of loss. Additionally, factors such as investment direction, investment scope, investment ratio and liquidity of investment assets, maturity period, subscription and redemption arrangements, leverage situation, complexity of structure, credit status of relevant entities such as issuers, and historical performance and volatility of similar products must be comprehensively considered.

The “Self-Regulatory Norms” require insurance institutions to establish a qualification grading management system for sales personnel, using insurance knowledge, compliance records, sales experience, etc., as the main grading criteria, and implement differentiated authorization linked to product classification. The ability level increases progressively from level four to level one, where level four can sell P1 and P2 products, and level one can sell all insurance products. When selling in combination, the authorization should be determined based on the principle of higher not lower. Furthermore, insurance institutions must not use sales performance as the sole evaluation criterion and establish a mechanism for recouping commissions and salaries due to economic losses caused by sales personnel violations.

The “Self-Regulatory Norms” clearly state that insurance institutions must assess clients. For ordinary products, the focus is on evaluating the alignment between protection goals and financial suitability; for P4 and P5 floating benefit products that may lead to loss of principal, a risk tolerance assessment must also be conducted, categorizing clients from low to high into five levels from C1 (conservative) to C5 (aggressive), and establishing clear matching rules with product risk levels.

The CIAA stated that in the next step, it will lead the implementation of the “Self-Regulatory Norms” and provide guidance for their rollout, urging member units to fully comply with the normative requirements, promoting the industry to accelerate the construction of a comprehensive appropriateness management system, continuously enhancing the sense of trust and gain among insurance consumers, and contributing to the construction of a strong financial nation with high-quality development in the insurance industry.