The emergence of insurance telematics in China will take three to five years, as the China Insurance Regulatory Commission begins to liberalize insurance terms and rates, according to Celent.
China’s telematics services currently include logistics and dispatch management, vehicle security and traffic surveillance. Insurance telematics do not yet exist in China and cannot until some preconditions are met, including compliance with regulatory requirements, the need for insurers to develop market segments and the development of telematics technology, according to “Telematics Opportunities In China’s Insurance Market,” a report from Celent.
While there are telematics service providers in China, Celent said they have not found “value-obvious selling points and a suitable profit model.” Personal telematics usage is limited in China, but they could potentially promote interest in insurance telematics. This would help create a mutually reinforcing cycle, Celent said, which could promote wider adoption. “If the right business model and balance of interests could be found, telematics service providers and insurers can achieve mutual development,” Celent said.
China’s auto insurance regulators are not yet as mature as those in the United States, and the report details the development of concepts and data points that would seem commonplace in the United States.
The Insurance Association of China in 2012 initiated the “Model Clauses of Commercial Motor Vehicle Insurance,” a piece of regulation that integrated liability, vehicle damage and third-party liability, plus 38 supplementary insurances and other special clauses. It also included clauses to regulate methods for insurance limits and more than 10 new insurance liability items previously determined unreasonable, such as the invalidation of driver’s license or inspection failures. Celent said insurers were concerned about degrading profit margins, and insureds were equally concerned about rising premiums. “Regulatory agencies have worked out a plan to take about three years to carry out the ‘three-step’ schedule, with the final aim of having insurers meet the conditions for the development of commercial motor insurance premium rates based on their own data,” Celent said.
Auto insurance premium rates have undergone several cycles of liberalization and standardization. In 2003 China’s insurers were free to determine rates. That led to intense price competition, Celent said, as well as steep losses as regulators reportedly also have not enforced restrictions on capital and solvency.
For commercial auto insurers, statutory automobile liability insurance was launched in 2006, as were vehicle damage insurance and third party liability insurance. China’s commercial auto insurers where then required to use standard terms and premium rates, and maximum possible discounts were stipulated, Celent said. “The factors determining premium rates included the category of policyholder, vehicle usage, number of seats, acquisition cost of the new vehicle, vehicle age, and third party liability limits,” Celent said.
Floating premiums based on claims records was introduced in 2010 for commercial motor insurance in Beijing, as was a reform plan in the city of Shenzhen that aligned premium rates with claim records and illegal driving. “The floating premium rate reform launched by Beijing and Shenzhen improved the profitability of insurers and also reduced the insurance premium expenditure of low risk car owners. For some regions, premiums were even linked to the bank credit records of drivers (for example, drink driving information),” Celent said in the report.
Market pricing mechanisms were proposed in 2012, with the “Circular on Strengthening the Administration of the Clauses and Premium Rates for Commercial Motor Vehicle Insurance.”
“Apart from stipulating the collection, tabulation, and analysis of the industry wide commercial motor insurance business data by the Insurance Association of China, and the calculation of the referential net loss ratio for the commercial motor insurance business sector for reference and use by the insurers, companies that meet the conditions may also develop commercial motor insurance premium rates based on their own company data,” Celent said in the report. “The circular also stated that the floating factors for commercial motor insurance premium rates shall be based on reasonably set conditions such as motor vehicles’ and drivers’ risk profiles, thereby realizing the link between premium rate and risk level.”
While there are telematics service providers in China, Celent said they have not found “value-obvious selling points and a suitable profit model.” Personal telematics usage is limited in China, but they could potentially promote interest in insurance telematics, which would help create a mutually reinforcing cycle, Celent said, which could promote wider adoption. “If the right business model and balance of interests could be found, telematics service providers and insurers can achieve mutual development,” Celent said.
