(Yicai Global) Sept. 3 -- China seeks to reduce the cost of vehicle insurance and expand coverage through reforms to be introduced on Sept. 19. But analysts fear the move could shrink premiums, leading to losses at underwriters.

The China Banking and Insurance Regulatory Commission, the country’s chief watchdog overseeing those two sectors, released reform guidelines today.

The sector suffers from high pricing, high service charges, disorderly competition, and data distortion, while China’s auto insurers booked revenues of CNY818.9 billion (USD119.7 billion) last year, equal to 63 percent of property insurance premiums, according to the CBIRC.

Industry insiders say all market participants want to push reform, but are worried about a possible drop in premium levels and a rise in underwriting losses. Total cost ratios in the sector were 99.4 percent in 2015, 99.1 percent in 2016, 99 percent in 2017, and 99.9 percent in 2018, near the break-even point for underwriters.

The new rules would lower the commercial auto insurance ratio, weaken premium growth and push up payouts, according to Guo Jiaming, an analyst at Moody's. The new regulations will also discourage aggressive competition for commissions and boost product innovation, he added.

The average vehicle premium will drop significantly, said Shao Liduo, vice president of PICC Property and Casualty, estimating the decline at more than 20 percent.

New Payout Limits

Under the changes, the maximum payout for traffic accidents will increase, with overall compensation rising to CNY200,000 (USD29,240) from CNY122,000 (USD17,836). Death and disability payments will rise to a maximum of CNY180,000 from CNY110,000, while those for medical expenses will climb to CNY18,000 (USD2,632) from CNY10,000 (USD1,462).

The changes also extend coverage to new areas including liability against robbery, earthquakes and other disasters as well as waterlogged engines, while removing provisions such as accident liability deductible ratio and liability exemption clauses likely to cause claims disputes.

Auto insurance in China comprises mandatory liability coverage for traffic accidents and commercial insurance. The government requires all car owners to buy mandatory liability insurance. They can also opt for commercial insurance beyond the coverage of a mandatory policy.

Cover for damage comes under commercial insurance. It insures against damage to the insured owner’s vehicle when the policyholder or other permitted persons drive the vehicle. Insurers pay compensation within a reasonable range.

Many clauses in commercial insurance policies are disputable, causing discontent among owners. Damage insurance does not cover harm to vehicles from earthquakes and riots.

The new guidelines also support the sector to develop model clauses for new energy vehicle insurance, accident insurance for drivers and passengers, and motor vehicle extended warranty insurance and guide the sector to regulate or formulate value-added services such as proxy vehicle checks, road rescue, driving services, and safety inspections.

China has been pushing ahead with efforts to develop NEVs in recent years. NEVs and fossil-fueled vehicles may differ in kind, but are essentially the same for the purpose of auto insurance.

Editor: Peter Thomas