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China – Guiding Opinions Issued On Pilot Scheme For Compulsory Environmental Pollution Liability Insurance.

13 March, 2013

 

 

On 21 February 2013, the Ministry of Environmental Protection (MEP) and the China Insurance Regulatory Commission (CIRC) jointly promulgated the Guiding Opinions on Pilot Scheme for Compulsory Environmental Pollution Liability Insurance (“Guiding Opinions”), which for the first time, requires compulsory purchase of environmental pollution liability insurance by enterprises with high environmental risks.

 

Enterprises to participate in the pilot scheme

 

Enterprises in the following industries which create and discharge heavy metal pollutants are required to purchase environmental pollution liability insurance on a mandatory basis:

 

  • non-ferrous metal mining and smelting
  • lead battery manufacturing
  • leather and related products manufacturing
  • chemical materials and products manufacturing

 

The Guiding Opinions also state that environmental pollution liability insurance must be purchased if it is required by any local legislation.

 

In addition, the Guiding Opinions encourage the following high environmental risk enterprises falling outside the above categories to purchase environmental pollution liability insurance:

 

  • enterprises in petroleum and gas mining and chemical industries
  • enterprises which produce, store, use, sell and/or transport hazardous chemicals
  • enterprises which create, collect, store, transport, use and/or dispose hazardous waste
  • enterprises discharging dioxins which may cause great environmental risks
  • other high environmental risk enterprises as determined by the MEP

 

Insurance policy and premium rates

 

The Guiding Opinions state that insurance companies shall reasonably design the environmental pollution liability insurance policy wording and determine the rates. In addition, it is also required that the insurance coverage shall include:

 

  1. personal injury, death or property loss caused to any third party by pollution;
  2. necessary and reasonable expenses incurred by the insured to save any third party’s life or to prevent or mitigate the loss of property of any third party;
  3. necessary and reasonable clean-up costs incurred by the insured to control pollutant diffusion or to clean up pollutants in accordance with environment protection laws and regulations; and
  4. insurance indemnity as otherwise agreed between the policyholder and insurer.

 

Insurance companies may, either by themselves or through a third party, assess the environmental risks of the companies to be insured.

 

General measures to implement the pilot scheme

 

Enterprises which fail to purchase environmental pollution liability insurance as required may be at a disadvantage when applying to the MEP for environmental protection approvals. The MEP may also suspend acceptance of the enterprises’ applications for special funds for environmental protection and prevention of heavy metal pollution. Information regarding the failure to purchase environmental pollution liability insurance may be shared with banks, which could in turn use the information as a basis to rate and manage their clients.

 

On the other hand, the MEP may work with other authorities to give priority to enterprises which have purchased environmental pollution liability insurance in respect of the allocation of special funds (for environmental protection and prevention of heavy metal pollution) and the granting of bank loans.

 

Implications

 

There are growing concerns in China regarding environmental issues arising along with the vast developing economy. Reports state that the existing pilot insurance programs currently cover over 2,000 enterprises across more than ten provinces and municipalities and the total sum insured is approximately RMB20 billion. Through the new pilot scheme, the MEP and CIRC aim to increase enterprises’ awareness of environmental risks and improve their management to reduce the occurrence of pollution accidents. Since the Guiding Opinions only set out the general guidance on the compulsory environmental pollution liability insurance scheme, detailed rules are expected to be released later to implement the scheme.

 

 
For further information about this article, please contact:
 
Carrie Yang, Partner, Clyde & Co
carrie.yang@clydeco.com.cn
 
Amanda Li, Clyde & Co
amanda.li@clydeco.com.cn

  

 
 

 

 

 

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