24 May 2019

Car curbs may be blessing in disguise for insurers

First came Beijing, Shanghai and Guangzhou, and now Tianjin has joined the municipal ranks capping the growth of vehicles within its city limits. It was no surprise and the China Association of Automobile Manufacturers expects other key cities like Shenzhen, Qingdao, Chengdu, Chongqing, and Wuhan to follow suit as pressure mounts on authorities to tackle air pollution and traffic jams.

Given that car insurance accounts for more than half of the business of China’s property and casualty insurers, tighter rules on car ownership in affluent cities has raised fears that the auto insurance industry’s momentum may suddenly stall.

The concerns are understandable but should not be overblown. Undoubtedly, tougher rules on purchasing and licensing will have an adverse impact on car sales but the consequences for insurers are likely to be mixed. Going by Beijing’s experience, limits on car numbers will put a dent in auto premium growth in the near term but could have benefits for insurers over the long run.

The policy curbs will drive up the cost of buying and maintaining a vehicle and eventually spur demand for luxury cars, a lucrative market for the insurers, Securities Daily reported. While the premiums on luxury vehicles are often higher, the claims ratio of their policyholders remains intriguingly low.

The newspaper quoted a car dealer as saying that luxury car owners generally take more care of their vehicles. They not only drive more carefully but are also willing to pay for wider insurance coverage.

All in all, there’s no need to be overly bearish about the outlook of the property and casualty insurance market in China.

– Contact the writer at [email protected]


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