Asian News - China: Auto free pricing system causing concern to insurers
Source: Asia Insurance Review | Apr 2016
The proposed expansion of the open tariff system in the auto sector to first-tier cities in 2016 is causing significant concern among insurers, given that the sector contributes such a large proportion of business for most underwriters in China, according to the 2016 Aon Asia Market Review.
If the auto business becomes unprofitable, insurers may seek to deploy capacity in the commercial market and become more cautious in writing business, ultimately causing premiums to rise, said Aon in the report.
Changes to the tariff structure of China’s auto sector, which contributes 75% of premiums, have already caused some disruption. The move to a non-tariff system started in 2013 and was widened to include more cities during 2015. This coincided with a significant oversupply of capacity which has led to intense competition among insurers and further dropping of premium rates.
Motor premium rates declined by around 10%
In March, CIRC Vice Chairman Zhou Yanli said the regulator planned to introduce the motor free pricing system throughout the country within the first half of the year. This follows smooth outcomes seen in a pilot scheme carried out since 1 June last year in six areas: the provinces of Heilongjiang, Shandong, Guangxi and Shaanxi, Chongqing municipality and the city of Qingdao.
Summing up the results of the pilot scheme, Mr Zhou said that motor premium rates had declined by around 10% on average for policyholders while auto insurers reported that their business had increased by 10-12%.