Insurance Insiders Say Foreign Insurers Can Help China Combat Motor Claims Difficulties

The recent announcement by Chinese and U.S. officials to commit China to allowing foreign insurers into the compulsory third-party motor market will accelerate that market's deregulation, according to industry watchers.

Some say foreign insurers should be able to gain more property/casualty business share in the emerging market while Chinese players can benefit from the new technologies brought in by foreigners to deal with motor claims problems.

Alex Ren, group president of Ping An Insurance (Group) Company of China Ltd., the country's second-largest nonlife insurer, said the market opening will not cause a significant impact or premium rate hikes in the Chinese compulsory third-party liability insurance sector, as he noted the existing market is "very localized" and still dominated by local players, while foreign property/casualty insurers only take up a small market portion.

"Opening the market will offer more competition and help the local insurance industry to improve their service quality," said Ren at a media meeting in Hong Kong.

Shenzhen-based Ping An earlier said it anticipates "continuous motorization in China" and tighter insurance regulation as creating new business opportunities that will offset any threat from the opening of the compulsory third-party liability motor market to foreign players (Best's News Service, Sept. 27, 2011).

In China, auto insurance is the biggest nonlife business sector, accounting for about 70% of total premium income. The market share of foreign-funded property/casualty insurers has remained "insignificantly at around 1%," mainly because foreign players are still prohibited from engaging in the third-party motor insurance business and providing one-stop service to customers who purchase commercial motor vehicle insurance policies from them, according to consultancy Celent.

U.S. Vice President Joe Biden recently said China has committed to opening the third-party liability auto insurance market to foreign companies, following his meeting with Chinese Vice President Jinping Xi in Washington D.C. (Best's News Service, Feb. 15, 2012).

"This significant development will bring more choice for Chinese motorists, increasing competition and improving service for consumers in this major global auto market," said Robert Gordon, senior vice president of policy development and research at the Property Casualty Insurers Association of America, in a statement.

"We believe this high-level commitment will motivate China to speed up the opening of the compulsory third-party liability insurance business to foreign insurers," said Wenli Yuan, a senior analyst with Celent based in Hong Kong.

"If the Chinese government and the China Insurance Regulatory Commission open this market to foreign companies, we can expect a significant increase of market share of foreign property and casualty insurance companies," she added.

Global reinsurer Swiss Re said it will not be surprised if the compulsory third-party liability insurance market is to open soon, though it is hard to tell when and how it will open. The reinsurer also expects new distribution technologies and better customer service will be seen in China.

"We've seen the third-party liability auto insurance market growing stably and we believe the entry of foreign players in this market will help the motor market to grow further," said Yinyin Huang, vice president of casualty at Swiss Re'sBeijing branch.

Difficulties with claims management for motor insurance in China "have seriously damaged" the legal interests of policyholders and discredited the industry, according to the CIRC, which said the problem must be solved through a comprehensive governance (Best's News Service, Feb. 10, 2012).

Yuan indicated the Chinese motor insurance market has claims management problems arising from "local players focused more on expanding business size and increasing market share, but less on the service." Many companies lack a standard and sufficient claims management process, and the industry lacks a monitor mechanism, she said.

Foreign companies can provide advanced technology to improve auto insurance product design, pricing and service. They would also change the Chinese market from pricing competition to technology and service-level competition, Yuan said.

Huang noted foreign players could "bring in better claims management and distribution technology" that will help eliminate fraud cases and increase quality market competition.

China first introduced compulsory liability insurance in 2006. There were 33 Chinese property/casualty insurers operating in the market in 2010, a year when the market reported a cumulative operating loss of 7.2 billion yuan (US$1.14 billion). Of that, underwriting losses of 9.7 billion yuan were offset by 2.5 billion yuan in investment income, noted the CIRC (Best's News Service, Aug. 5, 2011).

(By Rebecca Ng, Hong Kong news editor: [email protected])