SHANGHAI, May 2: China has given foreign insurers full access to its $32 billion auto insurance market, allowing them from this month into a segment of the business that was earlier reserved for domestic players in the world’s biggest automobile market.
Foreign insurers had been lobbying for access to the third-party liability auto insurance market, arguing that being kept away from that business was a major handicap because most car-owners buy both commercial and compulsory insurance policies from the same insurer.
The full opening up would likely attract more foreign non-life insurers to the market, although any impact on the dominant local players would likely be limited, given their vast sales network, analysts said.
China’s state council, or the cabinet, published the revised auto insurance rules, which took effect on May 1, on the government’s website on Monday. Official papers reported on Wednesday that the move had effectively opened up China’s third-party liability automobile insurance market to foreign players.
The announcement comes as U.S. And Chinese leaders are due to start the Strategic and Economic Dialogue on Thursday in Beijing.
China has long promised to open its mandatory auto insurance market. During his February visit to the United States, Chinese Vice President Xi Jinping vowed to give foreign access to this market.
MARKET DOMINATION
Chinese insurers, such as PICC Property and Casualty Co and Ping An Insurance, have dominated the insurance business in China by leveraging their vast army of salespeople and geographical reach.
There are currently 21 foreign insurers operating in China, including Tokio Marine & Nichido Fire Insurance Co, Chubb Corp and RSA Insurance Group, but they own just 1 percent of China’s 477.9 billion yuan ($75.73 billion)non-life insurance market.
‘With the rule changes, some foreign insurers are expected to start making strategic investments in this area, possibly through acquisitions because auto insurance is too big of a market to ignore for a non-life player,’ said Li Cong, analyst at Changjiang Securities Co.
He added that smaller Chinese players could feel the heat of competition from foreign players, but top local players such as PICC and Ping An will continue to dominate the market.
Auto insurance is a major portion of China’s non-life insurance, consisting of mandatory third-party liability insurance and commercial insurance.
The mandatory insurance policies were introduced five years ago, in line with similar practices used in other countries such as the United States and Japan.
Every car-owner must sign up for a third-party liability insurance and most often choose to join commercial insurance policies as well to cover any damages to their own vehicles or other needs.
($1 = 6.3102 Chinese yuan)
(AGENCIES)
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