Motor insurance in China – what will drive the growth?

Sector expected to experience a 4.5% CAGR boom

Motor insurance in China – what will drive the growth?

Motor & Fleet

By Kenneth Araullo

The motor insurance industry in China is forecasted to expand at a compound annual growth rate (CAGR) of 4.5%, growing from CNY871.2 billion (US$129.1 billion) in 2023 to approximately CNY1.1 trillion (US$171.9 billion) by 2028 in terms of gross written premiums (GWP).

Figures from GlobalData indicate that the peak growth for China's motor insurance sector is anticipated to be 6.1% in 2023. Factors contributing to this growth include the rising demand for new energy vehicles (NEVs) and regulatory reforms aimed at increasing the pricing cap for commercial motor insurance.

GlobalData insurance analyst Sravani Ampabathina said that the Chinese motor insurance sector is recovering from the volatilities it experienced between 2018 and 2021. These challenges were due to economic downturns, the COVID-19 pandemic, supply chain disruptions, and regulatory issues that led to lower premium prices. However, the situation improved in 2022, buoyed by an increase in vehicle sales that has continued into 2023.

The China Association of Automobile Manufacturers (CAAM) reported an 8% increase in total vehicle sales from January to August 2023 compared to the same period in the previous year.

The motor insurance industry is also set to benefit from higher premium prices for NEVs, which typically cost around 20% more than premiums for internal combustion engine vehicles. NEV sales constituted 29.5% of total vehicle sales in the same period and saw a 39.2% increase year-on-year.

The Chinese government extended the subsidy for NEVs in June 2023 until 2027 to promote NEV sales. The subsidy policy includes a 10% purchase tax exemption for new NEVs bought in China up to Dec. 31, 2025, with a cap of CNY30,000 (USUS$4,447.8). From Jan. 1, 2026, to Dec. 31, 2027, this exemption will be reduced by half.

“Relaxed regulations on premium prices for commercial vehicle insurance are also expected to benefit motor insurance growth over the coming years,” Ampabathina said.

In China, motor insurance premiums are regulated, with insurers having a limited range of pricing coefficients for individual policy pricing. In April 2023, the regulator broadened the pricing coefficient limits for commercial vehicles, excluding NEVs, from 0.65-1.35 to 0.5-1.5. This change offers insurers greater flexibility in setting premiums for high-risk vehicles, improving commercial insurance availability and encouraging insurers to refine their premium pricing strategies.

“Motor insurance in China is moving closer to full marketisation through periodic reforms that aim to lower premiums, expand insurance coverage, and improve overall insurance quality. Furthermore, increasing vehicle sales and rising demand for NEVs will support the motor insurance industry growth over the next five years,” Ampabathina said.

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