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

To implement the Measures for Product Appropriateness Management of Financial Institutions issued by the National Financial Regulatory Administration, the China Insurance Association (hereinafter referred to as the CIIA) released on March 27 the Self-Disciplinary Norms for Appropriateness Management of Insurance Products (hereinafter referred to as the “Self-Disciplinary Norms”). As the first industry self-regulatory document in the insurance sector focusing on product appropriateness management, the “Self-Disciplinary Norms” is an important institutional outcome achieved by the CIIA in depth and by fully implementing the people-centered development philosophy, guided by the construction goals of the “three-good associations”—“good for serving the industry, good for supporting regulation, and good for contributing to society”—to provide strong support for strengthening the foundation of protecting the lawful rights and interests of insurance consumers.

In April 2024, the CIIA established a research working group for the “Self-Disciplinary Norms”. Based on the actual situation of the insurance industry, it adhered to the unity of scientific rigor, guidance, and operability, and went through multiple rounds of refinement such as soliciting industry opinions and conducting cross-industry discussions, resulting in the “Self-Disciplinary Norms” that are both practicable and tailored to industry needs. The regulation consists of nine chapters and forty-six articles, supported by five operational annexes, and forms a full-process management system covering the entire workflow of product grading, sales qualifications, customer assessment, matched sales, internal control management, and self-disciplinary supervision. For each key link, specific operational standards are clearly defined.

The “Self-Disciplinary Norms” are intended to build unified, scientific, and operable appropriateness management standards, taking “seller accountability” as the starting point. By establishing a full-chain self-disciplinary framework covering products, personnel, customers, sales, and internal controls, it aims to address sales-misleading and product-mismatch risks from the source, and to improve the professionalism and compliance of sales conduct. The formulation of the “Self-Disciplinary Norms” is closely centered on consumers’ real needs and prominent industry issues, emphasizing operability. It provides clear guidance for insurance institutions to implement regulatory requirements through supporting standardized tools, reflecting a trend in which industry self-discipline moves from principle advocacy to refined management. The release of the “Self-Disciplinary Norms” is both an effective follow-through of regulatory requirements and a practical safeguard for consumers’ right to know, right to choose, and right to fair trading, providing an important basis for clarifying responsibilities and assigning liability in insurance consumption disputes.

The “Self-Disciplinary Norms” clarify that insurance institutions must comprehensively consider factors such as the product design type, coverage responsibilities, the insurance term, and whether the policy benefits are determined, and implement categorized and graded management for insurance products. Personal insurance products are divided into five categories, P1 to 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 participating dividend and universal life products with a medium level of complexity and policy benefits that are floating but guaranteed; P4 covers products with floating benefits without guarantees, such as unit-linked products and variable annuities, or with a high level of complexity; and P5 refers to products with a high level of complexity and policy benefits that are floating without guarantees. Property insurance products are divided into two categories, P1 and P2, based on complexity.

For P4- and P5-type floating-benefit products, insurance institutions also need to further divide the product or investment account into risk levels, 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 generally has a low overall risk level, small yield or net value fluctuations, and a low likelihood that investment principal could be lost; R2 has relatively low risk, smaller fluctuations, and a lower likelihood of loss; R3 has medium risk, medium fluctuations, and a medium likelihood of loss; R4 has higher risk, larger fluctuations, and a higher likelihood of loss; and R5 has high risk, large fluctuations, and a higher likelihood of loss. They should also comprehensively consider factors such as investment direction, investment scope, investment proportion, and the liquidity of investment assets; maturity time limits and subscription and redemption arrangements; leverage conditions; structural complexity; the credit status of relevant entities such as issuers; and the past performance and historical fluctuation levels of comparable products.

The “Self-Disciplinary Norms” require insurance institutions to establish a tiered management system for salespersons’ qualifications. Insurance knowledge of salespersons, records of integrity and compliance, sales track records, and other items are used as the main grading standards, and these must be linked to product classification to implement differentiated authorization. Ability levels are upgraded progressively from four levels down to one level. Level 4 can sell P1 and P2-type products, while Level 1 can sell all insurance products. For bundled sales, authorization should be determined according to the principle of prioritizing higher over lower. At the same time, insurance institutions may not use sales performance as the sole assessment indicator, and must establish a mechanism to reclaim and claw back commissions and compensation to cover economic losses caused by salespersons’ violations.

The “Self-Disciplinary Norms” specify that insurance institutions need to assess customers. For ordinary products, the focus should be on evaluating the purpose of coverage and financial compatibility. For floating-benefit products of types P4 and P5 that may lead to loss of principal, risk-tolerance capacity assessments must also be carried out, classifying customers from low to high into five tiers: C1 (cautious) through C5 (aggressive), and establishing clear matching rules between customer tiers and product risk levels.

The CIIA said that in the next step, it will, guided by the construction of “three-good associations,” do a good job in promoting and implementing the “Self-Disciplinary Norms,” urge member institutions to fully implement the requirements of the norms, promote the industry to accelerate the development and improvement of appropriateness management systems, and continuously enhance insurance consumers’ sense of trust and sense of gain. To better serve the real economy through high-quality industry development, it will contribute insurance strength to the building of a financial power.

(Editor: Wang Xinyu)

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