Home » Business » Biz Commentary
Mandatory auto insurance market faces further losses in China
By Fitch Ratings |
August 28, 2012, Tuesday
|
Print Edition
Print Edition
INSURERS operating in China's compulsory motor insurance market, which provides a mandatory minimum level of third-party liability insurance to motorists, face further significant underwriting losses in the next one to two years due to rising claims, tightly regulated pricing and the potential for further competition.
We expect this to lead to a modest decline in overall motor insurance underwriting margins, which is already factored into the stable outlook for China's non-life insurers.
However, if competition led to a big drop in margins it could result in a negative outlook for the sector.
We believe the higher medical expenses and rising repair costs insurers are having to pay out could lead to a deteriorating claim experience.
The loss ratio of the compulsory auto insurance sector is likely to be consistently above 80 percent in the short term, after 82.3 percent in 2010 and 81.9 percent in 2011.
However, ongoing underwriting losses are unlikely to lead to Chinese property and casualty insurers reducing their exposure to the compulsory auto insurance market.
The overall underwriting results of most major insurers' motor books are still profitable. Because every driver must have a mandatory auto insurance policy, insurers feel they need to be in the business in order to cross-sell profitable commercial policies.
In fact, competition in compulsory auto insurance is likely to increase in 2012 following the liberalization of the market for foreign insurers in May.
Foreign insurers
Regardless of poor underwriting results, we believe the compulsory auto insurance market will be attractive to foreign insurance companies because it will allow them to strengthen their market presence in China without working with local insurers, and to build up their distribution outlets.
One of the most important benefits for foreign insurers of the opening up of the compulsory motor insurance market is that foreign companies will be able to attract a new customer base and bundle other insurance products when they provide mandatory car insurance coverage.
The latest figures from the Insurance Association of China show the underwriting deficit for the entire compulsory motor insurance market rose to 11.2 billion yuan (US$1.76 billion) in 2011 from 9.7 billion yuan in 2010.
After accounting for 2 billion yuan of investment returns, the industry reported an operating loss of 9.2 billion yuan in 2011.
The article originally appeared as a post on the Fitch Wire credit market commentary page. It can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
We expect this to lead to a modest decline in overall motor insurance underwriting margins, which is already factored into the stable outlook for China's non-life insurers.
However, if competition led to a big drop in margins it could result in a negative outlook for the sector.
We believe the higher medical expenses and rising repair costs insurers are having to pay out could lead to a deteriorating claim experience.
The loss ratio of the compulsory auto insurance sector is likely to be consistently above 80 percent in the short term, after 82.3 percent in 2010 and 81.9 percent in 2011.
However, ongoing underwriting losses are unlikely to lead to Chinese property and casualty insurers reducing their exposure to the compulsory auto insurance market.
The overall underwriting results of most major insurers' motor books are still profitable. Because every driver must have a mandatory auto insurance policy, insurers feel they need to be in the business in order to cross-sell profitable commercial policies.
In fact, competition in compulsory auto insurance is likely to increase in 2012 following the liberalization of the market for foreign insurers in May.
Foreign insurers
Regardless of poor underwriting results, we believe the compulsory auto insurance market will be attractive to foreign insurance companies because it will allow them to strengthen their market presence in China without working with local insurers, and to build up their distribution outlets.
One of the most important benefits for foreign insurers of the opening up of the compulsory motor insurance market is that foreign companies will be able to attract a new customer base and bundle other insurance products when they provide mandatory car insurance coverage.
The latest figures from the Insurance Association of China show the underwriting deficit for the entire compulsory motor insurance market rose to 11.2 billion yuan (US$1.76 billion) in 2011 from 9.7 billion yuan in 2010.
After accounting for 2 billion yuan of investment returns, the industry reported an operating loss of 9.2 billion yuan in 2011.
The article originally appeared as a post on the Fitch Wire credit market commentary page. It can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
