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Since one month the new environmental tax is is effective. Besides this new tax, high-polluting companies have to be prepared to take out insurance against environmental damages in the near future. Opinions on a corresponding, publicized draft were already invited but the resolution still awaits approval of the Chinese State Council. Under the new regime, Chinese companies would be obliged to take out insurance for certain environmental damages or else face statutory fines.
According to several sources, reparation of environmental damages accounts for up to three percent of China's GDP. In addition, the civil society becomes more and more aware of environmental issues. In reaction to these developments, the Chinese government holds companies increasingly liable for the damages that they might have contributed to. In 2013, some companies were obliged to take out environmental insurance within a pilot project. This project was introduced on grounds of the so-called Guiding Opinions on Pilot Scheme for Compulsory Environmental Pollution Liability Insurance. Two years later, a suggestion to take out such coverage was included in the new Chinese Environmental Law. Finally, on 9 June 2017, the China insurance Regulatory Commission (CIRC), together with the Chinese Ministry of Environmental Protection (MEP), publicized a draft resolution that would introduce a compulsory insurance for environmental damages.
According to the so-called Compulsory Environmental Pollution Insurance Rules – Discussion Paper, Chinese companies that operate in certain sectors would be obliged to take out insurance for a number of damages resulting from environmental pollution. Insurers would not be allowed to reject a respective policy without compelling reasons.
The regulation aims at companies involved in production that carries a high risk of environmental pollution. Eight sectors are specified in the draft which would include, among others, companies that engage in the extraction of oil and gas, in the disposal of harmful wastes and in chemical production. Additionally, the regulation would apply to companies that were involved in significant environmental pollution since 2005.
The policies should cover personal injuries and loss of property of third parties, ecological damages and costs of emergency service and environmental clean-up. Intentional and illegal pollution are exempted from the policies. The premiums would be standardized and subject to approval by the CIRC.
The policies should also impose an obligation on the insured companies to implement measures for cases of environmental emergencies. The insurer, on the other hand, conducts individual environmental impact assessments and attaches them to the insurance agreement. The policies are meant to be renewed annually.
The policies will be filed with the local agency by the insurer. In case a company does not comply with the insurance requirements, the competent authority may impose a fine of RMB 30,000 and require it to take out appropriate insurance.
The date the regulation enters into force remains unclear. However, since the Chinese government puts ever greater emphasis on the protection of the environment, a compulsory environmental insurance is likely to be introduced in the near future. Affected companies should not hesitate to enquire about the available insurance policies. Taking out such insurance does not necessarily pose a burden to the company. It might also allow for sufficient hedging against potential liabilities. Therefore, companies that are involved in high-risk operations may consider entering into an appropriate insurance agreement voluntarily. With the new Chinese Environmental Law of 2015, companies face increased accountability, irrespective of whether their production is considered risky. However, appropriate environmental insurance policies have also long been part of the product range of international insurance companies.
Sebastian Wiendieck
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