Defining legal relationships under electronic ‘insurance card’ policies

Q: What is an insurance card?

A: Insurance cards sold by many insurance companies are electronic policies. The purchaser may activate the card on the insurance company’s website by following the appropriate steps, and the electronic policy may be consulted online, or printed, or downloaded. No written application or paper policy is required. At present, such insurance cards only cover household property insurance and comprehensive personal injury insurance.

Q: How is the time at which the policy is formed and enters into effect, and at which insurance coverage begins, determined?

A: With respect to a paper insurance policy, an offer is constituted once the proposer completes the application and hands it to the insurer, and acceptance is constituted once the insurer reviews the application and agrees to provide coverage, at which point the insurance contract is formed. However, a paperless electronic policy lacks the procedure whereby the proposer signs an application.

With respect to the issue of the formation and entry into effect of an insurance card, there are currently three different opinions: (1) the insurer should be deemed to have agreed to provide coverage once it accepts the premiums, that the contract is formed and enters into effect upon the insurer accepting the premiums, at which point the insurer commences to bear the insurance risk and that, during the term of the insurance card, whose name in which the card is activated and when it is activated are simply rights of the cardholder; (2) the proposer should be deemed to have made an offer once he or she pays the premiums, with such charges being premiums paid in advance, and that once the online activation procedure is completed, i.e. the insurance card has been activated, the insured and the coverage term are determined and the contract is formed and enters into effect; (3) the formation and entry into effect of the insurance contract and commencement of the coverage period are two separate concepts, and the times for both do not necessarily coincide. The insurance contract is formed and enters into effect once the insurer receives the premiums, and activation of the insurance card determines the specific insured and the time at which coverage begins.

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We are of the opinion that an offer is constituted once the proposer pays the insurer to purchase the insurance card, and the charge paid is the premium for the insurance contract. The acceptance of the insurance premiums by the insurer evidences that the parties have reached agreement on the main provisions of the insurance contract, such as the scope of coverage, amount of the premiums, insurance lines, insurance terms, etc., indicated on the insurance card, at which point the insurance contract is formed. The Contract Law provides that a contract formed in accordance with the law enters into effect upon its formation. Once the insurance contract is formed, the insurer is required to promptly issue the proposer an insurance policy or other insurance certificate. The issuance of an insurance certificate is an obligation that the insurer is required to perform after formation of the contract, not a condition for the entry into effect of the insurance contract. Accordingly, the acceptance of the premiums by the insurer signifies the undertaking by it agreeing to provide coverage, whereupon the insurance contract is formed and enters into effect. Activation and registration of the insurance card and generation of the electronic policy determines the insured and the time of commencement of coverage in the form of a data message on the insurance company’s website.

Additionally, item 3 of article 3 of the Code for Engaging in Personal Accidental Injury Insurance Business issued by the China Insurance Regulatory Commission specifies that “an insurance company shall indicate the activation and registration method on an activation and registration-type accidental insurance product, and expressly inform consumers that coverage commences only after activation and registration”. We are of the opinion that this provision also applies to the insurance card model.

Q: How is the proposer under an insurance card policy determined?

A: Article 10 of the Insurance Law specifies that “an insurance contract is an agreement that specifies the insurance rights and obligations of the proposer and the insurer”. With respect to a card-type electronic policy, the insurance contract is formed and enters into effect upon purchase of the insurance card and payment of the premiums. Accordingly, under normal circumstances, the person who buys the insurance card is the proposer.

However, in practice, a transfer of the insurance card will often occur after its purchase by the purchaser due to its being given as a gift, or its being given to employees by a company as a benefit. In such a circumstance, the transferee secures the right to register and activate the card, additionally it has the objective of taking out insurance for a specific insured, and only the person who registers and activates the card can determine the insured. In the course of activation, based on the insurance procedure, the person who registers and activates the card reads the explanatory provisions, such as the specific insurance terms and the insurer disclaimers and, based on the questions by the insurer, enters the various pieces of information on the insured and performs the obligation of giving true information in respect of the insured, and after passing the review procedure, finally activates the insurance card and generates the electronic policy. Accordingly, where an insurance card is transferred, the transferee becomes the proposer through activation of the card, or by entrusting someone else to activate it on his or her behalf.

Q: How is the insured under an insurance card policy determined?

A: Article 25 of the Insurance Law specifies that “the term ‘insured’ means the person whose property or person is secured by the insurance contract and who has the right to claim insurance moneys. The proposer may be the insured person.” Under normal circumstances, the insured as well as the rights and obligations have been determined when a proposer enters into an insurance contract with an insurer. However, under the insurance card model, although the insurer has reached a consensus with the proposer on the rights and obligations under the insurance contract at the time of the sale of the insurance card, due to the special nature of such model, the insured needs to be determined by the proposer when registering and activating the card. The insurer will, during the valid activation period indicated on the card, accept as the insured any subject that satisfies the coverage conditions, provided the insurance procedure specified on its website is followed.

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