Foreign insurers gain full access to car insurance market
June 01, 2012 | BY
clpstaff &clp articles &Foreign insurers can now enter the nation's compulsory transport accident insurance market
The Regulations on Compulsory Liability Insurance for Motor Vehicle Traffic Accidents (Revised) (机动车交通事故责任强制保险条例) (修订) came into effect on May 1 and were promulgated by the State Council.
“This is a fundamental change for the Chinese insurance market,” said Zhan Hao, executive partner at Grandall Law Firm in Beijing. He added that, after ten years of waiting, the move was “great news for foreign insurers”.
Any insurer who gains approval from the China Insurance Regulatory Commission (CIRC) will now be able to sell compulsory transport accident products. The market had previously
only been open to Chinese insurers, causing much frustration for foreign insurers.
Consumers typically purchase commercial car insurance products at the same time as the compulsory insurance. As foreign insurers could only offer commercial products, they were denied access to a large share of the market.
According to statistics from the CIRC, there are 21 foreign firms operating in the property and casualty insurance markets, with premiums equivalent to only 1.1% of the combined premiums of their 38 domestic counterparts in the market. The car industry accounts for 70% of the property and casualty market.
The government has always promised to open the domestic market, but foreign insurers were never convinced that it was high on their agenda. These landmark Regulations have now fully opened the compulsory insurance industry to foreign firms.
“Foreign insurers should thank the US government as they exerted pressure to open this market up,” said Zhan. He was referring to Vice President Xi Jinping's visit to the US in February, where he declared China's determination to open up the compulsory transport accident insurance market.
Despite the Regulations already being effective, foreign insurers will have to wait for further details from the CIRC as to when they can gain approval. Some industry experts hoped they could offer products by July this year, but Zhan explained the end of the year is a more realistic date.
The regulations are expected to spark healthy competition in the market. There is already a large amount of competition between domestic insurers such as Ping An of China and China Life Insurance offering promotions and discounts. However, one area where foreign firms like Zurich and Liberty can surpass their domestic counterparts is in service.
Local firms are known for their hard sells and many question their good faith. It is common for them to delay compensation claims. “Domestic firms will have to change their strategy,” said Zhan, as the new competitors in the market will be offering higher quality service and products. The move could be good news for domestic consumers as well as foreign insurers.
In the long term, the Regulations have the potential to transform the insurance landscape. Pressure from the foreign firms will cause domestic ones to enhance their products. Consumers will receive a better product and foreign insurers finally have access to the market.
By David Tring
Further reading:
PRC Insurance Law (Revised) 中华人民共和国保险法（修正）
PRC Road Traffic Safety Law (Revised) 中华人民共和国道路交通安全法 (修正)
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