China’s motor market changes
The underwriting performance of motor insurers in China has been further polarised since the introduction of motor de-tariffication in 2016, which is transforming the market, Christie Lee, director and head of analytics for North East Asia at AM Best, told SIRC Today.
“As motor profitability is squeezed, the market is at a transformation stage, moving from heavy reliance on the motor line in the past to diversifying into non-motor lines of business such as agriculture, liabilities, accident and health, credit, and surety,” said Lee.
While the combined ratios of large companies remain profitable, smaller players struggle to remain relevant and competitive in the market, she added.
Regulators in China, Malaysia and Thailand have all made varying commitments to motor de-tariffication. Insurance companies will be able to practise risk-based pricing, and use their own methods to calculate car insurance premiums based on the risk profile of the customer.
China is currently leading in non-life premium growth, with premium increases as much as North America and Western Europe combined. The market is currently dominated by the major players, as the top five companies account for over 70 percent of market share.
AM Best’s outlook for the non-life insurance market segment has been Negative since May 2018, reflecting its view that the markets are a negative influence on industry profitability for the next 12 months.
“We expect overall market conditions to improve slightly over the near term, particularly when compared to the last couple of years since de-tariffication was introduced,” Lee added. “The regulator is making efforts to ensure data accuracy and transparency in insurer reporting, which will enable companies to price adequately and focus on profitability.”
Going forward, AM Best expects non-life insurers’ investment to continue to deliver relatively volatile results, as most investment portfolios are highly concentrated in domestic holdings and thus subject to domestic investment market volatility.
The macroeconomic environment partially influenced by trade tensions could add pressure to investment returns, as well as motivate insurers to increase their underwriting profitability targets.
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