China motor insurance industry to reach $171.9 billion by 2028, forecasts GlobalData

The motor insurance industry in China is projected to grow at a compound annual growth rate (CAGR) of 4.5% from CNY871.2 billion ($129.1 billion) in 2023 to CNY1.1 trillion ($171.9 billion) in 2028, in terms of gross written premiums (GWP), according to GlobalData, a leading data and analytics company.

According to GlobalData’s Insurance Database, China’s motor insurance industry growth is expected to peak at 6.1% in 2023. The growth will be supported by increasing demand for new energy vehicles (NEVs) and favorable regulatory reforms to increase the pricing cap for commercial motor insurance.

Sravani Ampabathina, Insurance Analyst at GlobalData, comments: “Motor insurance in China is rebounding after experiencing volatilities during 2018-21, arising from depressed economic conditions, COVID-19, supply chain issues, and regulatory challenges that lowered premium prices. The situation recovered in 2022 with an increase in vehicle sales that has continued in 2023.”

According to the China Association of Automobile Manufacturers (CAAM), total vehicle sales recorded an 8% growth during January-August 2023 as compared to the same period the previous year.

Insurers’ premium collections are also expected to benefit from higher premium prices for NEVs. Typically, NEV insurance premiums cost around 20% higher than internal combustion engine vehicles. NEV sales accounted for 29.5% of the total vehicle sales during January-August 2023 and recorded an increase of 39.2%, as compared to the same period in the previous year, according to data from CAAM.

To promote the sale of NEVs, in June 2023, the Chinese government extended the ongoing subsidy for NEVs until 2027. The extended policy allows new NEVs bought in China until December 31, 2025, to receive a 10% purchase tax exemption of up to CNY30,000 (US$4,447.8). From January 1, 2026, to December 31, 2027, the exemption will be halved.

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

Chinese motor insurance premiums are fixed by the regulator, and insurers are given a floating range of pricing coefficients that provide them limited with autonomy over individual policy pricing. In April 2023, the regulator increased the motor insurance premiums’ pricing coefficient limits from 0.65-1.35 to 0.5-1.5 for all commercial vehicles, excluding NEVs.

The change will provide higher flexibility to insurers in determining premiums for high-risk vehicles. The increased pricing autonomy will also support commercial insurance availability in the country and will incentivize motor insurers to improve their premium pricing expertise and segmentation.

Ampabathina concludes: “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.”

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