China will let foreign companies compete in its market for compulsory third-party liability automobile insurance.
Heavy traffic on a major thoroughfare in Beijing. China will open its market for compulsory third-party auto insurance to foreign companies, which will help boost their market share in the non-life segment.[China Daily]
Industry experts said the change will help give foreign sellers of insurance a greater market share in China. They also said it will help improve local insurers' products and services.
During a meeting with US Vice-President Joe Biden on Tuesday, Chinese Vice-President Xi Jinping said China will open its market for third-party liability automobile insurance to foreign companies, Reuters reported.
Jackson Tang, CEO of Liberty Insurance Company Ltd, a US-based non-life insurer, said the opening of China's automobile-insurance market should benefit both foreign and domestic insurers.
"The change will help stimulate foreign non-life insurers' business," Tang said. "Domestic non-life insurers could also benefit from the opening by learning from their foreign rivals' expertise in data processing, pricing and underwriting."
A recent survey conducted by the professional-services firm PricewaterhouseCoopers International Ltd showed that foreign insurers' market share in China has not changed greatly in recent years. Life insurers now have about 5 percent of the market and property and casualty insurers about 1 percent - the lowest such proportions found in Asia.
Kevin Goulding, president and CEO of Chartis Insurance Company China Ltd, a subsidiary of the insurer Chartis Inc, said the opening of the Chinese market for third-party liability auto insurance will let Chartis gain a better understanding of Chinese customers' needs and the ways in which the company can meet them.
"This change now allows us to participate in a market that represents 70 percent of the general insurance market of China, which in itself is a fabulous opportunity," Goulding said. "In our view, the customers will benefit, our employees will benefit and the overall automobile-insurance market will benefit."
Tom Ling, PwC insurance leader for China, said entering into the mandatory third-party liability market might expand the pie for foreign property and casualty insurers.
Tang, meanwhile, said there are other considerations.
"For us, we don't care a great deal about bringing in premiums from third-party liability auto insurance," Tang said. "What we really care about is providing a one-stop service to our customers so that we can keep them and attract new ones."
The current rules erect a large barrier in front of foreign companies that seek to enter the Chinese insurance market. Customers are unlikely to go to a foreign company to buy automobile insurance other than third-party-liability insurance if they then must turn to a domestic competitor to obtain third-party liability.
"The introduction of foreign insurers, in fact, will help improve China's market of third-party-liability auto insurance," said Tuo Guozhu, an insurance professor at the Capital University of Economics and Business.
Statistics from the China Insurance Regulatory Commission show that local insurers suffered a loss of 7.2 billion yuan ($1.1 billion) from selling third-party liability automobile insurance in 2010, up from 2.9 billion yuan in 2009.
"But I believe it will still take some time for the market to be opened since regulators need time to work on management rules and stipulate which sorts of foreign insurers will be qualified to be in that business," Tang said. "Meanwhile, foreign non-life insurers also need time to introduce new products and obtain approvals from insurance regulators."