Insurance regulator bans sale of two 'smog policies'

The regulator has banned the sale of two new policies that insured people against health hazards linked to smog, saying they fell short of standards for insurable items.

The companies that designed the policies – PICC Property and Casualty Co. Ltd., Ping An Annuity Insurance Co. and Ping An Property and Casualty Insurance Co. – received a notice from the insurance regulator telling them to stop selling those policies, sources from the companies say. The latter two are subsidiaries of Ping An Insurance Group.

The policies hit the market around mid-March after another wave of severe air pollution smothered Beijing and many other northern cities, forcing schools and factories to temporarily close. Smog has been a recurring problem in the capital and neighboring cities in the last few years, and people have been increasingly voicing their concerns.

The smog policies compensated their policyholders for expenses incurred by visiting doctors for illnesses such as breathing difficulties and lung problems that are known to be caused by bad air.

The premiums ranged from 10 yuan to 154 yuan, and the policyholders were entitled to compensation of up to several thousand yuan in the form of free physical exams and cash subsidies when the official Air Quality Index (AQI) went above a certain level.

An official with the China Insurance Regulatory Commission (CIRC) who declined to be named said the policies were not qualified insurance products because their insurable interests were not clearly defined.

In a property insurance policy, for example, the insurable interest is the owner's right to his or her properties, the loss of which would cause financial damage that can be measured.

The CIRC official said the smog policies were also problematic because the probabilities of claims did not follow the law of large numbers. In other words, the frequency and amount of compensation claims could be predicted the way other policies can be.

The policies were more like gambling than insurance, the official said. "They were an abuse of innovation," he said.

Some critics said the companies set the conditions too tough for people to claim compensation. PICC Property and Casualty's policy would see its Beijing policyholders get a one-off payment of 200 to 300 yuan when all 12 monitoring centers in the city posted an AQI reading of greater than 300 for five straight days.

Critics say the chances of meeting all those criteria were extremely low, so low that even during a spell of awful air in February – when the Beijing city government issued its second-highest air pollution warning – no one would have received compensation.