Rates could be uncompetitive if state fixes premiums

China

Foreign insurers should soon be able to sell comprehensive motor insurance in China after a deal was sealed by vice-president Xi Jinping at a meeting held in the US.

The agreement was announced as part of the joint statement of outcomes under the US-China Strategic Economic Dialogue. No timetable has been set for the changes to come into effect.

But, according to analysts, foreign insurers will be unable to compete on price due to premium rates being set by the state.

The Chinese motor market is currently worth RMB300bn (£30.3bn) in premiums, of which foreign insurers have a combined market share of 0.1% or RMB415m.

Morgan Stanley analyst Ben Lin wrote in a research note: “While [compulsory third-party] CTP represents only 30% of total motor premiums, the inability to underwrite motor CTP has prevented foreign insurers from underwriting the much more significant and profitable commercial motor insurance business.

“It is uncommon for consumers to purchase CTP and commercial motor on an unbundled basis from separate insurers due to the inconvenience.”

According to the China Insurance Regulatory Commission, the motor market makes up 75% of all non-life premiums.

The market grew by almost 40% in 2010 year-on-year, according to Swiss Re in Hong Kong.

Clarence Wong, Swiss Re’s chief economist in Asia, said that any competition from foreign insurers would have to be based on customer service rather than pricing.

“Insurance companies in China have realised the importance of claim management to the motor business and are taking concrete actions to improve their claims management,” he said. “We hope foreign companies will help speed up the process.”

Another factor influencing insurers’ decisions about writing business in China is the high rate of traffic-related deaths, which remains high despite a raft of road safety measures made in the late 1990s and early 2000s, according to the World Health Organisation.