【Who,Benefits,from,Opening,Compulsory,Traffic,Insurance?】 come from用Who
After 5 years’ preparation, the compulsory traffic accident liability insurance for vehicles in China (hereafter compulsory traffic insurance) is finally open to foreigners. On February 14, the Chinese and U.S. governments published the Joint Announcement about Enhancing the Sino-U.S. Economic Relationship, which revealed the Chinese government’s decision about opening the compulsory traffic insurance to foreign insurance companies. The new rule will be issued after the modification of relevant clauses.
“I am really glad to hear that,” said Yu Chenhui, chief representative of General Representative Office of Mitsui Sumitomo Insurance Company Limited in China. “It is good news for the whole insurance industry in China. The opening will be an important turning point.”
Many experts believe that the foreign insurance companies will be fully engaged in the car insurance business via the compulsory traffic insurance, thus making the competition in the insurance industry in the future more intensified. For consumers, there are more choices, faster claim settlement and lower premium rate. Because of the presence of foreign insurance companies, consumers are quite likely to get better services.
The Field Exclusive for Chinese Companies
The compulsory traffic insurance, which was launched in 2007, has been only available for Chinese insurance companies for five years.
Before the implementation of the new rule, foreign insurance companies, which were not given the right to launch compulsory insurance services, usually chose to work with Chinese insurance companies for their car insurance business. This limited foreign insurance companies’ development in China. According to the statistics, foreign property insurance companies only took less than 2% of the Chinese auto insurance market.
The compulsory traffic insurance accounted for 20% of the auto insurance market of China. Strangely, Chinese insurance companies always suffered losses in this field even though they had no foreign competitors. The data from the Chinese Insurance Regulatory Commission (CIRC) revealed that the losses in the compulsory traffic insurance started in 2009 with the amount hitting 2.9 million yuan and then the loss surged to 7.2 billion yuan in 2010. However, it is noteworthy to mention that both Chinese and foreign insurance companies are eager to get into this field despite the losses because a), it is mandatory; b), the number of vehicles in China is increasing; and c), it is the key to the commercial auto insurance.
Long Discussion about the Opening
There was a long-term discussion about the opening of the compulsory traffic insurance. In August 2011, the CIRC published a notice, saying that it was studying the issues of opening the compulsory traffic insurance to foreign companies. The CIRC also made several discussions and reviews about this issue. Even a plan was once submitted to the State Council but seemingly the plan was denied.
On November 16, 2011, Jin Jianqiang, president of the Chinese Association of Insurance Industry, said that the compulsory traffic insurance was quite likely to be open to the foreign insurance companies in China. “By then, the foreign insurance companies that are allowed to provide auto insurance services in China could be allowed to launch this business.”
Presently, there are 20 foreign property insurance companies in China. But because of their disability to get engaged in the compulsory auto insurance, only four or five have their auto insur- ance business, which is based on the cooperation with Chinese local insurance companies.
The cooperation between foreign and Chinese insurance companies in the auto insurance is featured with foreign companies’ sale of their own auto insurance services along with their Chinese partners’ compulsory traffic insurance. Such a cooperative pattern usually brings great cost for foreign insurance companies while reducing their competitive power in the auto insurance market. Therefore, many foreign property insurance companies have to give up their auto insurance business.
Chinese Companies Answer to Challenges Calmly
Will the foreign insurance companies’ entry into the compulsory traffic insurance be a problem for the Chinese insurance companies?
Yan Jianjun, a fellow with the In- surance and Economy Research Center of the Chinese Academy of Social Sciences, said that the foreign property insurance companies had no obvious advantages in China at this moment.“They do not prevail over their Chinese peers no matter in consumers’ preference, distribution channels and technologies. Therefore, no big changes are expected in the coming future though tiny difference might be found, which is the emergence of the ‘Internet of Cars’– the mobile Internet that connects cars together. The ‘Internet of Cars’ has already risen in Japan and America with a lot of innovative technologies. Foreign companies might explore this field.”
An insider from a large state-owned property insurance company said that foreign companies have rich business operation experiences and thus could help in improving the transparency of China’s auto insurance industry. However, the Chinese auto industry has its own local features. The complicated network of interest and the market environment needing improvement can easily lead to the “unfitness” of foreign companies. In addition, the consumers have high requirement about the convenience of auto insurance services.
The CIRC’s data show that the premium of 51 foreign property insurance companies only accounted for 1.08% of the total premium income by the first three quarters of 2011. Their proportion in the auto insurance market is even smaller.
Interestingly, CIRC chairman laid his focus on solving the problem of claim settlement for auto insurance and improving the service quality of auto insurance when she moved to this position last October. On February 15, 2012, the first day when the decision about opening compulsory traffic insurance to foreign insurance companies, Xiang Junbo held a conference, in which Ping’an Property Insurance, one of the largest property insurance companies in China, promised to reduce the time for settling a claim of auto insurance by half, which was followed by other insurance companies (though the reduction amount was different).
Foreign Companies’ Eagerness to Get Involved
Though the Chinese compulsory traffic insurance market is haunted with losses for years, the foreign property insurance companies are still quite interested in this field.
The saying about “opening”emerged as early as at the beginning of 2011. Then the announcement of CIRC last August drove foreign companies to an ecstasy. However, opening the compulsory traffic insurance is not only related with the CIRC. It needs to change the national rules and policies, which regard many other departments. But it is real that many foreign insurance companies began to prepare for entering the compulsory traffic insurance industry from then on.
What influences will come along with the opening. Guo Jinlong, director of the Insurance Research Office, Financial Institute, the Chinese Academy of Social Sciences, said that it would be a challenge for Chinese property insurance companies. But he stressed that the size of compulsory traffic insurance market would increase along with the number of cars in China – “the cake itself is growing” – and Chinese companies could learn the experiences, skills and services from their foreign peers –good opportunities for them as well.
Some experts said that the foreign insurance companies could not be satisfied with the opening of compulsory traffic insurance. What they want is bigger market share in the auto insurance market. But a strong presence in the compulsory traffic insurance is the first step before earning a bigger market share in the broader auto insurance market. Thus it is also very meaningful.
Yu Chenhui from Mitsui Sumitomo Insurance Company Limited said that the opening of compulsory traffic insurance is wonderful news for then. “This is an important milestone for China’s insurance. But everything just started. We know the difficulty in risk control in the auto insurance. Many things should be done before finally earning profits. The key is to provide high-quality services for consumers.”
Prof. Wang Wen from the Insurance School at the University of International Business and Economics said that the benefits brought by opening the compulsory traffic insurance are more significant than the impact it causes.“The experiences, innovation, service quality and risk control are the advantages of foreign insurance companies, but these could secure their success in China.”
In Wang Wen’s opinion, foreign insurance companies need to solve three problems before seeing profits in the compulsory traffic insurance. At first they need to grow and enhance their auto insurance business by increasing the number of business offices, number of employees and quality of backend systems. Then, they have to endure the huge cost of talent training, project investment and so on. At last, they need quite an amount of experiences before doing well in China.
Consumers Are Biggest Beneficiaries
Many car owners were once haunted by the inconvenience of buying auto insurance and the difficulty in claim settlement when accidents happen. In addition, the compulsory traffic insurance whose maximal premium is 950 yuan per year could only provide at most 120 thousand yuan of compensation. Such a small amount of compensation sometimes could not assist in solving problem at all. The accidents involving luxury cars in recent months fully brought these problems under limelight.
Thus the opening of compulsory traffic insurance to foreign companies is definitely a good thing for consumers. “The consumers are given more choices based on the products and services that insurance companies could offer. It could help to break the monopolization of a minority of insurance companies. The more companies are engaged in this field, the better services consumers could enjoy.”
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