Reflecting on China's crisis management and market exit mechanism for insurers – Based on or independent of the general bankruptcy system?

Abstract

Due to the special nature of their business, insurers are under prudential regulation, subject to a series of statutory and regulatory requirements. From time to time, there are crises where insurers fall below the requirements they should conform to. In order to address these crises effectively and efficiently, it is important to have a well-designed crisis management and market exit mechanism for insurers (the CMME mechanism). However, the CMME mechanism has not been well-formed in China. The current mechanism is comprised of the regulatory intervention system and the bankruptcy system, but there is a lack of consideration of the special features of insurers. As a consequence, it would not be feasible or efficient to apply many of the arrangements therein when crises of insurers occur. Since many incompatible arrangements are basic elements inherent in the general bankruptcy system, this article argues that it would be more desirable to have a CMME mechanism which is independent of the general bankruptcy system. To achieve this, a radical overhaul is needed to detach the CMME mechanism from the general bankruptcy system. In this way, the whole CMME mechanism can be specifically designed to accommodate the special features of insurers, without containing any elements in the bankruptcy system which are arguably not fit for insurers.