The China Insurance Regulatory Commission (CIRC) plans to let insurance companies decide the assumed interest rate on conventional life insurance policies.
China currently caps the assumed, or guaranteed, interest rate, the return an insurer gives to policyholders, at 2.5 percent. The higher the rate, the greater the cost for the insurance company.
In a statement on its website, www.circ.gov.cn, the CIRC said it was seeking feedback on its proposals by July 20.
China Life Insurance Co and China Pacific Insurance (Group) Co tumbled in Shanghai trading Monday.
China Life, the nation' biggest insurer, fell 6.7 percent, the most since November 28, 2008, to 23 yuan as of 10:02 am local time. China Pacific declined 6.7 percent. Ping An Insurance (Group) Co shares are suspended.
Analysts said the overall impact of lifting the cap would be limited since most policies sold in China are of a different kind.