Drivers across China will be compelled to stump up about 1,000 yuan (US$125) for compulsory insurance before getting behind the wheel of a vehicle. The insurance regulator said yesterday that vehicle liability insurance would become compulsory on July 1.

Costs will depend on the vehicle and a driver's record. A family car with no more than six seats should cost 1,050 yuan (US$131) annually with claims limited to 60,000 yuan (US$7,500), including 50,000 yuan (US$6,250) for disfigurement or death, 8,000 yuan (US$1,000) for medical treatment and 2,000 yuan (US$250) for vehicle damage.

The China Insurance Regulatory Commission (CIRC), the industry regulator, said the Compulsory Liability Insurance Policy was designed to ensure victims of traffic accidents receive timely medical treatment and financial compensation.

"The policy is a little expensive for me," said Liu Yang, who drives a Jetta car. He complained that his other car insurance last year already totaled 1,600 yuan (US$200).

"The coverage of 2,000 yuan (US$250) for potential damage is the main reason for such high premiums," said Hao Yansu, an insurance professor with the Central University of Finance and Economics.

"As 80 percent of traffic accidents result in some damage insurers can hardly reach a break-even point despite such premiums," he added. He also warned the regulator may raise premiums next year.

The standard premium was based on the principle of "no profit, no loss" for this type of business which could improve services because of competition in the market, according to Zhang Huaili, general manager of the Beijing branch of China Continent Property and Casualty Insurance.

"Products from different insurers will be quite similar with the standard premium and clauses," Zhang explained. "But big insurers will have the upper hand as they have a sound client base and better publicity."

The regulator has approved 22 domestic insurers to market the new policies. Foreign insurers will not be permitted to offer policies as China made no promises to open up the compulsory insurance business in its World Trade Organization commitments.

Under the new policy's "compensation first" principle insurers will have to pay for losses incurred in an accident before responsibility is clarified.

A fund will also be set up to pay in advance for rescue, medical treatment and funeral service costs not covered by insurers. Those managing the fund will be able to reclaim money from those found responsible for accidents.

(China Daily June 20, 2006)