The compulsory auto coverage has both advantages and drawbacks for insurers.
The Chinese marketplace is a captive one, and though this would seem like it is positive insurance news, particularly for the insurers, themselves, it is coming with its struggles.
Fitch Ratings has reported that this environment is leading to some surprising losses.
Although the law in China requires all motorists to have a car policy, which should – in theory – dilute the risk that is associated with underwriting that coverage, the most recent insurance news numbers are showing that there are significant losses being seen by many insurers.
There are a number of reasons that this insurance news is being made – three in particular.
The three main reasons that the losses are as high as they have become are: an increase in the number of people who are filing accident claims, the increase in competition from foreign insurers, and the strict price regulation that is holding insurers back from being able to charge higher premiums in order to compensate for predicted losses.
Additionally, the report made by Fitch points out that “We believe the higher medical expenses and rising repair costs insurers are having to pay out could lead to a deteriorating claim experience.
However, as much as there have been notable losses, perhaps the truly interesting insurance news is that the large players in this market are showing no signs of attempting to leave the marketplace or even to attempt to limit their exposure to this “compulsory motor insurance market”.
The reason, according to Fitch, is that the majority of these insurers may still be able to scratch an overall profit for themselves in the auto coverage market.
Furthermore, they may be sticking around because as the coverage is compulsory, the insurers are driven to make insurance news by holding their large positions within that market, not only for that particular sector, but also in the hopes to attempt to cross-sell some of the policies that are more profitable for them within the Chinese marketplace. There are several non-life insurance products that are performing extremely well lately in both the Hong Kong and Shanghai indexes.