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

To implement the Measures for Product Suitability Management for Financial Institutions issued by the National Financial Regulatory Administration, the China Insurance Industry Association (hereinafter referred to as the “CIIA”) issued the Self-Disciplinary Norms for the Suitability Management of Insurance Products (hereinafter referred to as the “Self-Disciplinary Norms”) on March 27. As the first self-disciplinary document in the insurance sector focusing specifically on product suitability management, the Self-Disciplinary Norms are an important institutional outcome led by the CIIA’s efforts to deeply implement the people-centered development philosophy, with the goal of building “three good associations”—serving the industry well, assisting regulation well, and contributing to society well—providing strong support for laying a solid foundation for protecting the legitimate rights and interests of insurance consumers.

In April 2024, the CIIA established a task group for the Self-Disciplinary Norms. Based on the realities of the insurance industry, it upheld the unified approach of scientific rigor, guidance, and operability, and, through multiple rounds of refinement such as soliciting comments from the industry and conducting cross-industry discussions, it formed the Self-Disciplinary Norms that combine practical usability with industry fit. The regulation consists of nine chapters and forty-six articles, and is supported by five operational attachments, forming a full-process management system covering product tiering, sales qualification, customer assessment, matched sales, internal control management, and self-disciplinary oversight. For each core link, specific operational standards are clearly defined.

The Self-Disciplinary Norms aim to build unified, scientific, and operable suitability management standards. Starting from the principle of “seller’s due diligence,” they seek to establish a full-chain self-disciplinary framework covering products, personnel, customers, sales, and internal controls. The goal is to resolve, at the source, risks of sales misrepresentation and product mismatch, and to improve the professionalism and compliance of sales conduct. The formulation of the Self-Disciplinary Norms closely centers on actual consumer needs and prominent industry issues, emphasizes operability, and provides clear guidance for insurance institutions to implement regulatory requirements through supporting standardized tools. This reflects a trend of self-disciplinary industry management moving from advocating principles to advancing fine-grained management. The issuance of the Self-Disciplinary Norms is both an effective follow-through on regulatory requirements and a practical guarantee of consumers’ right to know, right to choose, and right to fair dealing, providing an important basis for clarifying responsibilities in and assigning responsibility for insurance consumer disputes.

The Self-Disciplinary Norms specify that insurance institutions must comprehensively consider factors such as the type of product design, coverage responsibilities, the insurance period, and whether policy benefits are determined, in order to implement classified and tiered management of insurance products. Human life 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 products such as participating and universal life products with a medium level of complexity and policy benefits that fluctuate with guarantees; P4 covers products with fluctuating benefits without guarantees, such as unit-linked insurance and variable annuities, as well as products with a high level of complexity; and P5 refers to products with a high level of complexity and policy benefits that fluctuate without guarantees. Property insurance products are divided into two categories, P1 and P2, based on complexity level.

For P4 and P5 categories of variable-interest products, insurance institutions must further divide the risk level of the product or investment account, from low to high at least into five levels: R1 (low risk) to R5 (high risk). The corresponding reference names are R1 (low risk), R2 (low-to-medium risk), R3 (medium risk), R4 (medium-to-high risk), and R5 (high risk). Specifically, R1 has an overall low risk level, small fluctuations in returns or net value, and a low possibility of loss of invested principal; R2 has relatively low risk, smaller fluctuations, and a lower possibility of loss; R3 has medium risk, medium fluctuations, and a medium possibility of loss; R4 has relatively high risk, larger fluctuations, and a higher possibility of loss; and R5 has high risk, large fluctuations, and a high possibility of loss. Such assessment should also comprehensively consider factors including investment direction, investment scope, investment proportions, and the liquidity of invested assets; time to maturity, subscription and redemption arrangements; leverage conditions; structural complexity; the creditworthiness of relevant entities such as issuers; and the past performance and historical fluctuation levels of similar products.

The Self-Disciplinary Norms require insurance institutions to establish a tiered management system for sales personnel qualifications, using the insurance knowledge of sales personnel, records of integrity and compliance, sales track record, and similar information as the main criteria for tiering, and to connect it with product categorization for differential authorization. Capability tiers improve progressively from four levels down to one level: tier 4 personnel can sell P1 and P2 products, while tier 1 personnel can sell all insurance products. For combined sales, authorization is determined according to the principle of “choose the higher, not the lower.” At the same time, insurance institutions may not use sales performance as the only evaluation indicator, and must establish a clawback mechanism to recover commissions and compensation in cases where economic losses are caused by violations by sales personnel.

The Self-Disciplinary Norms clarify that insurance institutions need to assess customers. For ordinary products, they should focus on evaluating the match between the coverage purpose and the customer’s financial situation. For P4 and P5 categories of variable-interest products that may cause loss of principal, they must also conduct an assessment of risk tolerance. Customers are then tiered from low to high into five levels: C1 (cautious type) through C5 (aggressive type), with clear matching rules established between customer tiers and product risk tiers.

The CIIA said that in the next step, it will take the building of “three good associations” as guidance, do a good job in publicizing and implementing the Self-Disciplinary Norms, urge member units to fully implement the requirements of the Norms, promote the industry in accelerating the establishment of a comprehensive suitability management system, and continuously enhance insurance consumers’ sense of trust and sense of gain. By supporting high-quality industry development, it will better serve the real economy and contribute insurance strength to the building of a financial power.

(Editor: Wang Xinyu)

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