The change applies to new and renewal policies as well as any endorsement that involves additional premium, including increased insurance value, increased rate, or period extension. The new regulation is intended to help insurers enhance their cash flow, and increase their profitability by reducing their bad debts and strengthening expense management.
Nearly all lines of non-motor property and casualty insurance are affected. In some cases, exemptions may include cargo insurance, trade credit insurance, personal accident & health insurance, among other lines of business.
This change introduces ambiguity into the market, because most documents do not clarify whether coverage is not effective without formal policy documents before inception, according to Marsh China. In the past, insurers accepted the confirmed closing slip as evidence of binding coverage.
In some cases, policy coverage may also be restricted. For example, common extensions like "automatic coverage for new locations and values” under property insurance may no longer be automatic.
Unlike other self-disciplinary actions promulgated by the insurance industry association, “cash before cover” is being directly pushed by the China Insurance Regulatory Commission (CIRC)—thus, the changes will be adopted quickly by insurers.
To date, Guangdong, Zhejiang (Ningbo), Shandong (Qingdao, Yantai), Jiangsu, Sichuan, Chongqing, Henan (Zhengzhou), Shannzi, Shanxi (Taiyuan), Harbin, Hunan (Yueyang), Xiamen and Shenzhen are on the list for adopting the “cash before cover” regulation.