With online insurance booming, dealing with the impact and challenges that the industry poses to application of laws and adjudication rules is a major concern to arbitrators, judges and professional insurance lawyers. In accordance with the challenges facing online insurance in China, this article will discuss the practical issues relating to model clauses and exemptions of insurance policies as prescribed in article 17 of the Insurance Law.

According to the said Article 17, an insurer is obliged to explain its model insurance clauses to the insured. In connection with any exemptions, it also requires the insurers to fulfil the obligation of disclosure and explanation to
the insured.

While these obligations pose no concerns for the conventional face-to-face insurance marketing model, which allows employees or brokers of insurance companies to take their time making the disclosure and explanation to potential policyholders, they present a tough legal problem for insurers running online insurance processes, where the insured are only able to understand the products from reading about them on webpages before making purchase decisions.

DISCLOSURE AND EXPLANATION

Prescribed by laws. The Insurance Law explicitly prescribes that the insurers’ obligation of disclosure and explanation is mandatory and cannot be restricted, modified or terminated via agreements. If an insurer fails to fulfil or sufficiently fulfil this obligation, its relevant exemptions will not become effective.

Active obligation. Insurers must take the initiative to fulfil the obligation of disclosure and explanation to the insured. In other words, this obligation is not conditional upon any inquiry or request from the insured.

A pre-contractual obligation. Insurers must fulfil the obligation of disclosure and explanation to the potential insured during the insurance purchase process (i.e. before effectiveness of the policies), so that the latter is able to make well-informed purchase decisions, based on understanding of the insurance clauses. So, this is a pre-contractual obligation of the insurers.

Assessment standards that consider both form and substance. Setting forth detailed provisions concerning the insurers’ obligation of disclosure and explanation, Articles 11, 12 and 13 of the Interpretation II of the Insurance Law specify standards that the insurers must meet to fulfil this obligation.

These include substantive standards that require insurers to disclose and explain in a way that is “sufficient to attract attention of the insured” and “understandable by ordinary people” to enable the insured’s true understanding of the insurance clauses, as well as formal standards that account for behaviours, or external features. For example, the insurers may provide disclosure and explanation for relevant clauses through the use of webpages, audio or video clips or any other media.

JUDGES’ OPINIONS

A review of past judicial cases finds that courts mainly hold three views as follows when considering whether the insurers have fulfilled the obligation of disclosure and explanation in an online insurance process.

(1) Providing links to insurance clauses, deemed passive fulfilment of the obligation of disclosure and explanation, is not considered an effective approach to performing this obligation.

In the insurance contract dispute case between Sun Linghuan, Li Hongqin (and some others) and the Weihai Center Branch of Ping An Property & Casualty Insurance Company of China., the court argues that: (i) the insurance purchase process designed by insurer, instead of providing pop-outs of insurance clauses actively, requires the insured to click relevant links if they need to read the insurance clauses; (ii) according to Article 17 of the Insurance Law, the obligation of disclosure and explanation is an active obligation on the part of the insurer rather than a passive one resulted from request by the insured; and (iii) performing the obligation of disclosure and explanation in the way that Ping An did does not comply with the provisions of this Article 17.

(2) Once the insured ticks the insured’s acknowledgement to confirm reading of the insurance clauses and especially the exemptions, the insurer may be deemed to have fulfilled the obligation of disclosure and explanation.

Likewise, the insurer only provides links to webpages of insurance clauses and exemptions in the case between Ma Bin, Hui Xiuyun and the Shenzhen Branch of Ping An involving disputes over property and casualty insurance contracts.

However, the court points out that the purchase process is designed in such a manner that the insured is prevented from proceeding to the next step and making the purchase until they confirm they HAVE read and agreed with the contents of the insurance policies, especially the exemptions (to give this confirmation they have to tick the insured’s acknowledgment).

Therefore, it holds that the insurer has fulfilled the obligation of disclosure and explanation.

(3) If, in addition to the web links, any other method of disclosure and explanation is used, a holistic approach should be taken to assess whether the insurer has fulfilled the obligation of disclosure and explanation.

In the insurance contract dispute case between Zhang Ye and the Liaoning branch of Ping An Annuity Insurance Company of China, although the insurance clauses are also disclosed through the use of web links, the insurance purchase process is designed so that windows will pop out to give a reminder if the potential insured does not clink on the links to the insurance clauses and a suspension programme will start if the insured does not read or refuses to accept the clauses.

Therefore, the court holds that the insurer has fulfilled the obligation of disclosure and explanation.

When assessing how the insurer fulfils the obligation of disclosure and explanation, the court also recognizes complementary approaches that the insurer takes, including sending insurance clauses to the insured’s email accounts, making post-transaction phone calls, providing pop-up windows on the purchase webpages, and the insertion of a suspension programme. Given the special nature of online insurance purchases, this case may set a benchmark for future cases.

IMPROVEMENT TIPS

In view of the existing legislation and the approaches generally adopted for online insurance purchases, we suggest insurers follow the below advice so that they may fulfil the obligation of disclosure and explanation lawfully and effectively when carrying out their insurance business online:

  • The purchase processes are designed in such a manner that reading the insurance clauses is a must for the insured and conspicuous signs are provided to remind about the exemptions.
  • Emails of insurance clauses are sent, and telephone interviews are conducted during the cooling-off period.
  • In cases where the insurance clauses are provided through use of web links, records of traces evidencing the insured’s purchases must be properly kept. These may include operation records of the insured’s clicking on the links to the insurance clauses.
  • A diversified range of methods may be used to fulfil the obligation of disclosure and explanation. Examples include releasing relevant audio
    or video clips on the insurance purchase webpages.

Zhan Hao is an arbitrator at CIETAC and the director of AnJie Law Firm, and Kang Xin is an associate at AnJie Law Firm