Auto Insurance In China: What You Need To Know

Auto insurance in China is a complex and evolving market. As in many other countries, China requires all drivers to be insured to a minimum standard. The auto insurance market in China is dominated by large domestic brands, with foreign insurers owning just 1% of the non-life insurance market. However, in 2012, China opened its $32 billion auto insurance market to foreign companies, and in 2019, new regulations were implemented to include more foreign insurance companies to increase competitiveness. The auto insurance market in China has a total revenue of 834.5 billion RMB and a 10% year-on-year growth, with auto insurance dominating the non-life insurance market with over 70% of the total premium.

Mandatory third-party liability insurance

In China, there are two types of mandatory car insurance, and the first of these is third-party liability insurance. This type of insurance is used to cover third-party injuries and/or deaths in car accidents. It is compulsory for both private and commercial use. The premium is regulated and stipulated by a simple rating table, according to vehicle types and other variables.

Third-party liability insurance is a type of coverage that financially protects you if you are considered responsible for damages or injury to another person or their property. It is mandatory in several countries, including China, the United States, Canada, and Japan. In China, this type of insurance is known as "vehicle compulsory insurance". It has limited financial coverage, and policyholders should check the exact amount with their insurance agency.

In Canada, third-party liability insurance is also mandatory for driving. It covers repair costs to damaged vehicles or property, up to the specified limit on the policy. Accidents can be very expensive, with medical costs and legal fees to consider, so it is important to have the right amount of coverage to protect yourself if you are held responsible.

Commercial insurance

Commercial motor insurance in China offers wider financial protection than the compulsory liability insurance. This includes claims for theft, keying, weather or natural disasters, and damage caused by colliding with stationary objects.

There are two segments of commercial motor insurance in China: basic risks and additional risks. Car owners must purchase insurance for basic risks first, which will then provide them with access to additional risk insurance.

Basic Risks

• Vehicle damage insurance covers all damage to the car, regardless of the reason.
• Theft insurance covers the vehicle and its contents in the event of burglary or theft.
• Quota-free insurance pays 100% compensation regardless of who is held responsible for the accident.
• Passengers insurance covers all passengers and is purchased according to the number of car seats.

Additional Risks

• Free compensation special insurance is when the insurance company is responsible for compensation in the liability limit according to the deductible amount, based on the rate specified in the corresponding basic insurance clause.
• Risk of spontaneous combustion refers to the compensation for the loss of the combustion vehicle caused by the failure of the vehicle’s electrical, wiring, fuel supply system and the cause of the cargo itself.

Foreign companies in the auto insurance market

Foreign companies have been allowed to enter China's auto insurance market since 2012, when foreign-invested insurance companies were permitted to write compulsory liability insurance for car accidents, subject to the prior approval of the China Insurance Regulatory Commission. However, the auto insurance market in China is dominated by large domestic brands, and small and medium-sized companies find it difficult to grow due to scarce insurance licenses and fierce competition.

In 2019, new regulations were implemented to include more foreign insurance companies in order to increase competitiveness. The Chinese government's policy support has played an important role in the development of the auto insurance market, and the recent reforms welcoming foreign players with 100% ownership are expected to further increase competitiveness among major players. Some of the major foreign players in the market include Samsung Property Insurance and Huatai Property Insurance.

The auto insurance market in China is highly competitive, with major international players. The market is expected to grow further during the forecast period, driven by increasing disposable income, improved standard of living, and a growing middle class. The increasing adoption of personal vehicles and commercial vehicles in China is expected to increase the demand for auto insurance in the near future.

Insurance scams

Insurance fraud has been a problem in China for centuries and has resulted in billions of dollars in losses. The Chinese government and insurance companies are taking various measures to tackle this issue, including the use of new technologies.

One common type of insurance scam in China is "pengci" (碰瓷), which involves scammers feigning injury in traffic accidents to extort money from drivers. The term "pengci" literally means "touching or bumping porcelain" and originates from a scam where crooks would place fragile porcelain items in places where they could be easily knocked over, allowing them to collect damages. Another variation of this scam involves individuals throwing themselves in front of traffic to cash in on a driver's motor insurance.

To combat insurance fraud, the Chinese government insurance regulator has issued guidelines and taken control of the country's largest insurance provider, Anbang Insurance Group, due to violations of regulations and laws. Insurance companies are also utilizing new technologies, such as computer algorithms, predictive modelling, and facial recognition, to detect and prevent fraud. Traditional methods of fraud detection, such as detective work and document review, are also still used.

The penalties for insurance fraud in China can be severe, ranging from fines to prison sentences, and even life imprisonment or the death penalty in extreme cases. Civil litigation can also be pursued by affected parties to recover damages.

Consumer perception of car insurance

The compulsory nature of car insurance in China, implemented by the government in 2006, has also contributed to its widespread adoption. This mandatory insurance covers third-party injuries and deaths in car accidents, providing peace of mind to drivers. Additionally, the availability of both offline and online sales channels has made purchasing car insurance more convenient for consumers. The rise of online platforms has simplified the process, allowing consumers to compare prices and policies from various providers easily.

However, there are also negative perceptions surrounding car insurance in China. Some consumers feel disappointed by false advertising and conflict of interests between auto insurance sales stores and insurance companies, resulting in extra costs. There is also a perception of exploitation of risk protection for profit purposes.

Overall, car insurance in China is viewed as a necessary safeguard, especially with the increasing number of vehicles on the road and frequent traffic accidents. The market is expected to witness significant growth, driven by rising vehicle ownership and increased awareness of the importance of insurance coverage. Consumers are willing to allocate substantial funds towards insuring their vehicles, as evidenced by the projected average spending per capita of US$145.60 in 2024.

Frequently asked questions