China's motor insurance reforms: a global view
China has launched the largest reforms to motor insurance since 2003. We analyse major advanced markets to explore the expected impact on China's insurers.
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Motor is the single most important line of business for P&C insurers in China, accounting for more than 60% of P&C gross premiums written. The Chinese regulator has launched a comprehensive reform of the motor insurance segment this year, covering pricing, fee structures, product coverage among others. This is the largest reform programme since 2003. In response, Swiss Re Institute China Centre is producing a research series to explore the impact of the reforms on China's motor insurance market.
This study is the first in our new motor research series. It compares compulsory motor insurance schemes, reform cycles, pricing mechanisms and distribution channels in major advanced markets. The research then analyses the expected impact of the new reforms on the Chinese motor insurance market. This report is available in Chinese only.
There is huge heterogeneity in motor insurance globally and the development paths and progress of reforms also differ. For voluntary motor insurance, the common trend is towards lighter regulation and market-led pricing. Countries with a higher proportion of direct distribution channels – such as the US and UK – tend to have lower expense ratios and better motor insurance scheme efficiency. For compulsory motor, a certain degree of government intervention and tariff avoids cut-throat pricing and competition, as our Asia market case studies illustrate.
As part of the reforms the Chinese authorities require insurers to adhere to a higher loss ratio and lower expense ratio, and we expect this to lead to higher market volatility and price competition in the short term. However, the long-term outcomes may be considerably better for both consumers and insurers: consumers may benefit from lower policy prices, more choice and better protection, while insurance companies may see higher-quality premium growth. New products and services such as electric vehicle insurance, usage-based insurance and telematics in the motor value chain could also thrive going forward.