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China’s motor insurance reforms a win for consumers, insurers: Swiss Re

20th October 2020 - Author: Charlie Wood

While recent motor insurance reforms in China will likely result in increased price volatility and premium growth slowdown in the near term, both consumers and insurers will benefit in the longer term, according to analysis from Swiss Re Institute.

Swiss Re InstituteChina is the second largest car ownership market in the world, with 260 million motor vehicles insured across 2019 alone generating premiums of $122 billion.

The reforms are the country’s most significant in 20 years and are designed to address long-standing issues that have hindered development of a more dynamic market such as high commissions, non-transparent fee structures, product homogeneity and inflexible pricing.

Swiss Re analysts expect near-term pricing volatility, with new market conditions posing a challenge for small and medium-sized insurers reliant on motor business, and forecast a 5% drop in premium volumes in 2021.

The longer-term outlook is more positive, with there likely being a decline in the motor insurance expense ratio which, at 40%, is currently among the highest in the world.

Likewise, the sector’s combined ratio, which has hovered at around 100% since 2005, could improve.

When the new higher loss and lower expense ratio requirements come into play, intermediaries’ profits will be squeezed, prompting more efficiency initiatives.

Analysts say consumers will benefit from lower prices, more choice and better protection, while insurers see more varied revenue streams from new products and services such as electric vehicle insurance, usage-based insurance and telematics, laying the foundation of
sustainable industry development.

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