Shifting gears in a changing landscape

Motor is by far the biggest non-life insurance line of business in China accounting for over CNY 913 billion in premiums in 2024 – more than 54% of the total non-life gross written premiums. CEIC data shows that the number of registered vehicles or car parc, increased to almost 353 million units in December 2024 compared to 336 million for December 2023.

During the past several years, performance of China's motor insurance market has been largely impacted by two interconnected factors, the 2020 motor insurance reform, which resulted in a significant drop in motor insurance premium and the COVID-19 pandemic, which reduced the loss ratio due to less traffic on the roads.

Similar to previous rounds of motor reforms that have been implemented since 2015, regulators aim to achieve three clear goals:

1. Improve consumer benefits through expanding coverage at reduced rates and commission
2. Promote safe driving through the implementation of no-claim discount (NCD)
3. Allow more flexible pricing through widening self-pricing factor range applicable to the base rates

As a result of the motor reform, which was launched in September 2020, market premium stayed flat in 2020 and experienced a negative 5.7% year-on-year (YoY) growth in 2021, whilst it increased 8.2% CAGR over 2014-2019. In addition, the overall market combined ratio increased to 101% in 2021, making an underwriting loss for the first time since 2015. 

2022 was a year of transition for motor insurers and the market adapted to the motor reform impacts and enjoyed lower claim frequency due to less traffic and activity during the COVID-19 outbreak. Premium growth and profitability has generally returned to pre-pandemic levels and during the period from 2022-2024, premiums increased by 5.5% CAGR, in line with 5.2% CAGR in car parc, and a combined ratio average of 98.1% (see figure 1).

Despite the stabilized performance of the motor insurance portfolio, a few notable claim trends and emerging risks pose both challenges and opportunities to the industry.

NatCat events trigger increased claims

Motor losses resulting from NatCat events, such as Super Typhoon Doksuri are occurring at an increased frequency and severity (see figure 2). Based on recent claims experience, one major NatCat event can cost almost 1% of market premium, which challenges the profitability of insurers’ motor books that are kept at thin margins under high competition. The rising impact of secondary perils, such as floods and severe convective storms, also contributes to increasing aggregate NatCat losses in motor portfolio.

Claims inflation stable but profitability challenges remain

Claim inflation has been at a mild level for both motor own damage (MOD) and motor third party liability (MTPL) cover. Looking at the Vehicle Use and Upkeep Fare CPI, which helps track changes in repair and replacement costs and is therefore closely linked with MOD severity, the YoY change was 1.5% during 2021 and 2022. It then decreased through 2023 and became stable at around 0.5% in 2024. In addition, the Automotive Manufacturing Producer Price Index (PPI), which is a proxy for claims costs, has declined since 2022, and this trend continued through 2023 and even dropped further in 2024.

However, with the increasing penetration rate of Electric Vehicles (EV), the Part-to-Whole Price Ratio has kept rising in past years as components get more expensive and is expected to have slight increases over the next few years.

With decreasing rates due to the motor insurance rate reform and insurers' ambition to upsell, the average sum insured of Voluntary Third-Party Liability (VTPL) has kept increasing. Despite the Supreme People's Court of China decision on unifying bodily injury compensation standards for urban and rural residents in 2022, VTPL severity has slightly increased due to road safety improvement and increasing adoption of assistive driving features based on Swiss Re insights.

Electric Vehicles impact loss costs in the short-term

EV sales have been growing rapidly, accounting for around 50% of new vehicles sold and contributing to 15.4% of motor premium in 2024. EV are identified with higher loss cost than internal combustion engine (ICE) vehicles and the sector is currently at an underwriting loss. We explore the reasons for this in the section below entitled: Collaborative approach key to addressing EV higher loss ratios. However, the combination of advanced safety features, improved technology and better risk management practices could lead to lower loss ratios in China over time.

Leveraging motor OEM & dealership channels for a more holistic partnership, Chinese insurers also sell motor affinity insurance to vehicle owners such as motor vehicle extended warranty, GAP (guaranteed assets protection) and courtesy vehicle cover. As affinity products encourage vehicle owners to go back to the OEM/dealership for repairs, it adds to the motor ecosystem with insurers cross-selling products while OEM/dealership benefit from automotive aftermarket revenues.

With the increasing adoption of assistive/autonomous driving functions in EV, since 2024, more and more EV OEMs are looking for autonomous/intelligent driving function liability insurance to cover their obligations to vehicle owners and third parties in case of faulty design and malfunction of these advanced features.

China has gradually become a world leader in the New Energy Vehicles (NEV) market over the past five years. Globally China's NEV volume contributes to 70% of the global NEV market share in 2024 (see figure 3). In China alone, NEV penetration has increased to 48% (including plug-in hybrid EV, range extended EV and hybrid EV), in 2024 with around 13 million NEVs sold.

As a result, EV Motor Insurance premium volume has been growing rapidly in recent years, but it is also loss making. EV motor insurance premium increased significantly in the past five years and in 2024 EV premium (including both mandatory and voluntary motor insurance only) stood at CNY 140.9 billion, accounting for 15.4% of total motor insurance premium (see figure 4). Furthermore, by 2030 EV premium is expected to account for 37% of total motor insurance premium.

In 2024, the average combined ratio of EV voluntary motor insurance was around 107%, with CNY 5.7 billion underwriting losses. The high combined ratio is mainly driven by high loss ratios, for example, out of 301 EV passenger vehicles with car parc >10k vehicles, 99 models have a loss ratio >100%. What's more, out of 55 EV trucks with car parc >5k vehicles, 38 models have a loss ratio >100%. In comparison to traditional ICE Vehicles, EV higher loss cost is about 2.2 times, driven by frequency claims.

According to a Swiss Re report, the average EV insurance premium for drivers was 81% higher than for standard motor in 2023. The high risk premium associated with EV motor insurance can be attributed to several factors:

• Certain physical characteristics can lead to high claim costs, because of:
  • Low repairability resulting from wide application of integrated casting technology
  • Power battery costs around half of the total vehicle value on average and is of high vulnerability as it is typically attached to the chassis
  • EV fires are difficult to extinguish, hence such incidents often result in large-scale damages
• High claims frequency is identified for EV during the first year of usage as drivers adapt to driving characteristics that are significantly different from ICEs:
  • Low noise during operation
  • Mismatch with traditional driving habits, such as faster speed-up and uncertain lag at deceleration due to kinetic recovery features
• User base is overweight in risk segments with the worst claim experience:
  • Younger age groups below 35
  • More developed cities
  • Commercial vehicles such as buses, taxi and rental vehicles

Due to the sector's poor underwriting result, the insurance industry and EV manufacturers are working collaboratively to address the challenges. A few examples include the following:

• In Jan 2025, the National Financial Regulatory Administration (NFRA) and three other ministries jointly issued the "Guiding Opinions on Deepening Reform and Strengthening Supervision to Promote High-quality Development of New Energy Vehicle Insurance", which introduced measures to reduce repair and maintenance costs, innovate and optimize insurance supply, and strengthen insurance management and supervision.
• On the same day of the issuance of the Opinions, the Shanghai Insurance Exchange launched a NEV insurance platform, aiming to achieve full coverage availability, especially to high-risk vehicles. 22 insurers are currently registered with the platform, where they are prohibited from declining any coverage request.
• Swiss Re has been actively engaged in the topic with industry players. Besides multiple publications issued on EV, Swiss Re also works with the China Automotive Maintenance and Repair Trade Association to co-develop and publish a set of insurance standards, titled "Power Battery Testing and Repair Standards for New Energy Vehicles" in October 2023, which serves as valuable reference material for claim professionals to deliver accurate and consistent claim assessments.

Since 2024, Autopilot functions have started to become a key competence of new vehicle models, especially for electric vehicles (see figure 5). In early 2025, Build your Dreams (BYD), a high-tech company, announced the God's Eye system, an advanced driving assistance system (ADAS), which is comparable with Tesla's Full Self-Driving (FSD), for no extra cost on their cars. This autopilot system will be equipped on vehicles with price points below USD 10,000.

This is the key milestone for the migration of the autopilot functions from luxury vehicles to cheaper, standard models. As such, the 'Democratizing Autopilot Technology', becomes a powerful theme of the Chinese car manufacturing industry. The market expects 2025 to be a booming year for autopilot and autonomous driving.

Recent notable developments in autonomous driving include:

• AEB (Autonomous Emergency Braking), FCW (forward-collision warning) and LDW (Lane departure warning) being integrated into almost all new vehicles, with the penetration higher than 50% as of September 2024. Furthermore, at the end of 2024, APA (Automatic Parking Assist) installation hit 4.9 million vehicles, indicating a growth rate at 39.7%, with the penetration reaching 21.3% on new cars.
• From 2024, the adoption of the Highway NOA (Navigation on Autopilot) and City NOA have been fast-growing. According to market data, the NOA installation hit 1.97 million passenger vehicles in 2024, indicating a 162% YoY growth rate. The penetration of NOA on EV reached 21.68% in 2024 and is expected to increase to higher levels especially when OEMs are installing NOA to vehicles with lower price.
• After years of government support, the cellular vehicle-to-everything (V2X) technology in China has gradually evolved to the stage to sufficiently support commercial robotaxi. By April 2024, the open autonomous driving testing area had reached 29,000 km, and more than 6,800 licenses have been issued to companies for Level 3/Level 4 pilot (L3 is defined as conditional driving automation and L4 is defined as high automation). And the total tested driving mileage has reached to 88 million km. Robotaxis have been put into commercial operation in multiple cities including Beijing, Chongqing. Shenzhen and, Shanghai, And, after months of operation, Baidu reported the accident frequency is estimated to be around 7% of human drivers.

The rapid rise of autonomous vehicles (AV) is also presenting new opportunities for motor insurers in China to design new coverage strategies and liability frameworks. For example, since late 2024, Autonomous Driving Liability insurance has started to increase with the higher penetration of autopilot functions. This insurance product indemnifies for the loss caused by defects in the AV system and boosts the confidence level on AV, OEMs usually bundle this insurance product into their service package and the subscription of the AV functions.  As more vehicles with self-driving capabilities hit public roads, new risks are emerging related to software safety and reliability as well as data and cyber security. At Swiss Re we are playing our part, supporting our clients by providing end-to-end solutions, including product design, pricing, and claim adjustment expertise.

China's export business has increased rapidly worldwide surging by almost 500% since 2021. During the epidemic, global automobile markets have been volatile, however, China's auto exports have been a bright spot.

China auto exports have now surpassed Japan to become the world's largest auto exporter, with 6.4 million exported cars in 2024 valued at USD 117 billion. In 2025, China auto export is expected to increase to 7 million cars, however, trade barriers could stall export momentum.

Market data shows that the volume of auto exports has increased in many countries, especially passenger vehicles and to a lesser degree trucks and buses, in the United Arab Emirates, Saudi Arabia and Brazil to mention a few.

The growth in auto exports has many implications for motor insurers. In general, we are embracing the historical record level of auto exports. For example, several OEMs and traders require export related insurance products, such as Export Warranties Insurance (EWI), which provides exporters with confidence and the protection needed to engage in international trade and also helps promote car exports from China. Meanwhile, it would be essential to build an after-market ecosystem, including Third Party Administrators (TPA), repair networks and sales channels. The more mature the motor ecosystem can be, the faster overseas insurance will grow, and more insurance products will serve overseas customers.

China's motor insurance market is fast-moving and dynamic. Demand for insurance is rising with rapid growth in vehicle ownership and new regulations and the integration of technology in vehicles is transforming the insurance landscape. Moreover, the rise of EV presents unique risks and coverage needs at a time when consumers are demanding more personalized and flexible insurance products.

With our local presence and global motor expertise, we are partnering with insurers to manage risk, support product development and provide global expertise and knowledge to help enhance the resilience of the Chinese motor insurance market.

^{1 数据来源：基于对直保公司的访谈及再保续转数据的观察}