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Bestweek.Com Bestweekasia/Pacific Weekly Insurance Newsletter www.bestweek.com BESTWEEKAsia/Pacific Weekly Insurance Newsletter September, 2011 China Close to Opening Its Auto Insurance Market A.M. Best Analyst: Foreign Players May Ease Loss Pressure in Motor Market By Rebecca Ng China is close to opening its highly regulated compul- sory third-party motor liability insurance market to foreign insurers, a move A.M. Best Co. believes “will alleviate solven- cy pressure for domestic non- life companies and premium pressure for motor products” Car buyers shop for vehicles in China. Car sales in China are driving insurance growth in the sector. Sales in China climbed 6.7% in July. in a market hobbled by dete- Imaginechina via AP Images riorating underwriting condi- tions. at consultancy Accenture. The motor market constitutes more than 70% of China’s Rising claims costs and falling premium rates are produc- nonlife industry. “With a strong growth of above 30% in ing negative underwriting results in China, according to the compulsory motor insurance market in recent years, consultancy Celent. “The increase of compensation levels, the domestic nonlife companies are having some solvency medical costs, price of motor parts and labor costs resulted pressure,” said Hong Kong-based MM Lee, general manager in an increase of the average cost of claims. The regulator of analytics with A.M. Best Asia-Pacific Ltd. Lee indicated the decreased the premium rate for third-party liability insur- problem is caused by the imbalance of demand and supply ance and raised the liability amount since 2008, which has forces. worsened the situation,” said Wenli Yuan, a senior analyst at China first introduced compulsory liability insurance Celent. in 2006. Currently, there are 33 Chinese property/casualty When the CIRC first introduced compulsory liability insurers operating in the market. In 2010, the market report- insurance, a universal premium rate was set with a fixed loss ed an operating loss of 7.2 billion yuan (US$1.1 billion). Of limit of 60,000 yuan. Since July 2007, the floating premium that, underwriting losses accounted for 9.7 billion yuan, rate came into effect. “Renewal policies which have favor- offset by 2.5 billion yuan in investment income, according able claim records can enjoy a premium discount, so the to the China Insurance Regulatory Commission (Best’s News average premium per policy is decreased,” said Yuan. Service, Aug. 5, 2011). The average premium rate for automobile insurance is The three big nonlife insurers, including PICC Property likely to fall by low single digits based on the floating rate and Casualty, China Pacific Property Insurance and Ping An scheme in China, said equity analyst Olive Xia at Core Pacif- Property and Casualty, all recorded combined ratios above ic-Yamaichi in a research report. Flexible pricing for automo- 100 in 2010, while all three were below 100 in 2008 and bile insurance is expected to “intensify price competition below 90 in 2007, noted A.M. Best. going forward,” she said. The high claims ratio, particularly for non-passenger Although most insurance companies had underwrit- vehicles, has been a drag on the domestic motor insurance ing losses for compulsory third-party liability insurance for sector, as insurers are “still trying to find the right operating motor vehicles, they are seeing underwriting profits for model,” said Sharon Khor, head of insurance in greater China ■ Continued: MOTOR, page 2 Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. Refer to our Terms of Use for additional details. BESTWEEK Asia/PacificMOTOR PACKAGE ■ MOTOR upside potential, said international law firm Clyde & Co in From page 1 a report. commercial motor vehicle insurance, which also allows One area of optimism for insurers is the CIRC’s consid- overall motor vehicle insurance to be profitable, said Yuan. ering whether to open the market for compulsory motor “Currently, there is already high competition in the motor insurance to foreign firms, “allowing overseas insurers to vehicle insurance market. The Chinese regulator might have boost their business in the world’s largest car market,” noted concerns about increased competition,” she said. the law firm. Strong compulsory motor Yuan said foreign play- insurance market growth also Top 10 Motor Insurers in China in 2010** ers can help China to form a “healthier” growing motor means that demand has been (Yuan Billion) vehicle insurance market increasing much faster than 2010 2009 the supply, driving up prices, Premium Premium with their “advanced technol- according to A.M. Best. Names Income Income ogy and risk management “From a regulatory per- 1 PICC Property and Casualty Insurance Co., Ltd. 30.58 25.02 experience.” spective, the authority would 2 Ping An Property & Casualty Insurance 12.05 7.99 She said because foreign like people to be able to Company of China Ltd. property and casualty insur- 3 China Pacific Property Insurance Co., Ltd. 9.25 6.77 afford insurance, or buy at an ers have not gotten approv- 4 China United Insurance Holding Co. Ltd. 4.64 4.69 adequate rate,” said Lee, add- 5 China Continent Property & Casualty 3.36 2.87 al from the regulator to sell ing the opening up of the Insurance Co. Ltd. compulsory third-party liabil- market “will ease forces like 6 Sunshine Property and Casualty Insurance 3.29 2.26 ity insurance for motor vehi- domestic nonlife insurers’ Co., Ltd. cle, they are at a disadvantage 7 China Life Property & Casualty Insurance 3.03 2.29 solvency pressure and motor Co. Ltd. in selling commercial motor premium rising pressure.” 8 Anbang Insurance Co. Ltd. 2.65 2.04 vehicle insurance as “custom- In China, many foreign 9 Tianan Insurance Co. Ltd. 2.31 1.93 ers usually want to buy this insurers who have been in 10 Yong An Insurance Co. Ltd. 1.67 1.79 business line from the same the market some time are **In terms of premium income in 2010. insurer.” failing to generate satisfacto- Source: Insurance Association of China. Yet even as the CIRC ry profits. Many are taking a reviews deregulation, contin- long, hard look at the feasibil- uous business growth with a ity of their relationships with scalable market size are key Audio: the local partners. However, concerns among domestic they are not about to quit, as players as they contemplate Listen to the entire interview with MM Lee at potential industry integration, they see China as an under- www.ambest.com/audio. insured market with huge said Khor. Global Writers Weigh China Auto Insurance Options By Rebecca Ng serving 73,000 drivers in Chongqing, Beijing and Zhe- Foreign insurers are eager to see whether China’s jiang, and will open another branch in Guangdong, insurance regulator will further open the country’s according to Tang. vast automobile insurance market to competition, but As an active player in auto market, Tang said Liberty capital concerns, service differentiation by region and “welcomes” the China Insurance Regulatory Commis- questionable profitability will still make entry deci- sion’s move toward opening mandatory third-party sions complex for many. liability insurance to foreign insurers and “will be “Service is our winning formula worldwide and interested in developing this new business.” China is no exception. The challenge is to differenti- With more than 18 million new vehicles, including ate our services among local companies in various passenger cars and commercial vehicles, registered provincial markets,” said Jackson Tang, China manag- in China in 2010, “the market and its potential is big” ing director of Liberty Insurance Co. Ltd., a subsidiary when compared with the 15.6 million new vehicles of U.S.-based Liberty Mutual Group. in Western Europe, according to Germany-based insur- Liberty has had an auto insurance business in er Allianz SE. Chongqing, its China headquarters, since 2005. It is “This offers a huge opportunity, but with a high now the leading foreign auto insurer in the country, ■ Continued: AUTO, page 3 2 BESTWEEK ASIA/PACIFIC • September, 2011 MOTOR PACKAGE BESTWEEK Asia/Pacific ■ AUTO provide consumers with more choices and project a From page 2 “progressive” image for the industry, said Tang. claims ratio in the Chinese market this also bears “Indeed, experiences in the U.S. and the other challenges for profitability of third-party motor busi- well-developed insurance markets have shown that ness, which an insurer has to assess with care,” said a reduction in market entry barriers for auto insur- Kamesh Goyal, regional chief executive of Allianz ance results in healthy competition, lower premiums Insurance Management in Asia Pacific, based in India. and expanded coverage, which are for the benefits of He said in China, the insurer is offering noncom- both consumers and insurers,” he explained. pulsory motor business with a local partner in Guang- Global reinsurers have raised concerns about the dong province. “An opening up of the third-party funding capability of Chinese direct insurers for busi- market would enable us to do motor business more ness developments, particularly motor insurers who efficiently,” said Goyal. are facing problems with Since it inception in “Service is our winning formula claims management with 2006, Liberty noted man- worldwide and China is no excep- rising loss ratios. datory third-party liability tion. The challenge is to differ- Munich Re expects insurance has operated entiate our services among local premium income in well, serving millions of companies in various provincial China will rise to about Chinese drivers. But some markets.” 1.1 billion euros (US$1.6 problems have harmed the Jackson Tang billion) in 2011, driven industry efforts, Tang said.
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