China has fully opened up its USD 32 billion auto insurance market to foreign companies, allowing them to compete head on with local players in the world’s largest car market, Reuters reported.
The new rules, which took effect on May 1, allow foreign firms to offer mandatory insurance, an area that had previously been reserved exclusively for local insurers. China requires drivers to buy mandatory third-party liability insurance, while commercial auto insurance that can cover any damages to their own vehicles or other needs is optional.
But the preference of most Chinese car owners to buy both insurance policies from the same provider stifled foreign firms’ participation. The 21 foreign insurers operating in China own just one per cent of the RMB 477.9 billion yuan non-life insurance market, of which auto insurance constitutes a substantial portion.
"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," Li Cong, analyst at Changjiang Securities Co., told Reuters.
While foreign insurers might put pressure on smaller domestic players, local insurance giants such as PICC and Ping An are expected to continue to dominate the auto insurance market, given their vast army of salespeople and geographical reach.
Foreign auto insurers had long sought equal treatment in this segment, and China had often promised to deliver. Now it finally has.
By Bei Hua