CHINA – International firms eye loss-making Chinese motor insurance market
According to Guangzhou’s 21st Century Business Herald reports, insurers in the mandatory third-party liability car insurance business in China have been incurring losses, but foreign insurers are still lining up to enter the market that has been recently opened.
According to the China Insurance Regulatory Commission, 36 companies selling mandatory car insurance policies reported a net loss of 9.2 billion yuan (USD 1.5 billion), while only two companies had generated a profit in that part of business in 2011.
Among these companies, PICC Property and Casualty, which earned the highest premium on such policies, also reported the widest loss at 4.04 billion yuan (USD 649 million).
Compulsory insurance was introduced in China in 2006, with the initial premium set on the basis of fixed rates. In 2010, floating rates linked to illegal driving were introduced gradually.
Regulatory commission official Guo Zuojian had said earlier that since compulsory car insurance is a product meant for the good of public,
the premium should be lowered or the maximum payout should be raised when insurers make a profit from it.
The profitability of compulsory car insurance depends on the type of car and its location, with policies sold in more developed cities and for commercial vehicles, tractors and trucks often incurring losses.
Li Xiaobin, an analyst with Xiangcai Securities said profitability is also decided on the basis of an insurer’s ability to handle claims and in driving down administrative costs.
Several foreign insurers, accounting for 1.22 percent of the property insurance market in terms of the premium they collected during the first 10 months of this year, are still awaiting government approval for their applications to seal compulsory policies.
Only two foreign insurers — the US-based Liberty Insurance and Taiwan’s Fubon China subsidiary — had obtained approval after the mandatory car insurance business was opened up to them from May 1.
Foreign insurers are trying to capture market share in the compulsory car insurance business, so that they can expand their business in other types of car insurance. Since car owners often buy policies for car insurance and third-party compulsory insurance from the same insurer, foreign companies are eager to tap into the area.
While noting that it requires a strong network of salesmen, Li said foreign insurers may lack a strong brand compared with their Chinese counterparts, but their entry in the sector and their experience and innovation could help further drive down costs for compulsory policies.
