The Chinese motor insurance industry is set to grow at a compound annual growth rate (CAGR) of 5.4% from CNY912.2 billion ($127.4 billion) in 2024 to CNY1,125.7 billion ($158.9 billion) in 2028, in terms of gross written premiums (GWP), forecasts GlobalData, a leading data and analytics company.

GlobalData’s Insurance Database reveals that the Chinese motor insurance industry is expected to grow by 5.2% in 2024, supported by rising vehicle sales, growing demand for new energy vehicles (NEVs), and favorable regulatory developments.

Sutirtha Dutta, Insurance Analyst at GlobalData, comments: “The Chinese motor insurance market has witnessed a consistent growth of 5.6% in 2022 and 2023 after declining by 5.7% in 2021. The recovery in the economy after the prolonged impact of COVID-19 and rising vehicle sales has supported the growth of motor insurance. The trend is expected to continue in 2024 and 2025.”

According to the China Association of Automobile Manufacturers (CAAM), total vehicle sales increased by 10.6% during the first quarter of 2024 to reach 6.72 million units as compared to the same period in the previous year.

Dutta adds: “The sale of NEVs has shown considerable growth in the last couple of years, driven by the government’s push towards switching from internal combustion engine (ICE) vehicles to electric vehicles. The higher motor insurance premiums on EVs and hybrid vehicles due to their costly batteries and spare parts will support motor insurance growth.”

In June 2023, the government announced a purchase tax exemption of 10% up to CNY30,000 ($4,188.5) for vehicles purchased between January 01, 2024, and December 31, 2025. Also, in April 2024, the government implemented a vehicle trade-in subsidy of CNY10,000 ($1,396.2) to support the growth of NEV sales. According to CAAM, the share of NEVs among total vehicle sales remained at an average of 30% during the first 10 months of 2023. In terms of new energy passenger vehicles, China’s global market share has increased from 41% in 2020 to 65% in 2023.

Dutta continues: “China has witnessed a rise in road accidents in 2023, which is expected to result in higher claim payouts for motor insurers. The increase in claims will prompt motor insurers to reassess their risk exposure and raise motor insurance premium prices in 2024, which will support motor insurance growth.”

As per the Traffic Management Bureau of the Ministry of Public Security, China witnessed 1.75 million road accidents in 2023, a growth of 8% as compared to 2022.

Positive regulatory developments will also support motor insurance growth in China. Although the motor insurance rate in China is fixed by the regulator, a floating range of pricing coefficients is provided to insurance companies for pricing autonomy.

In May 2023, the China Banking and Insurance Regulatory Commission announced changes to the pricing coefficients from 0.65-1.35 to 0.5-1.5. This change will support insurers in determining premiums for high-risk commercial vehicles and incentivizing drivers with good driving habits, by offering benefits that include lowering their premiums.

Dutta concludes: “Growing demand for new and next-generation vehicles will support the growth of China’s motor insurance industry during the next five years. However, higher claim payouts due to inflation and rising road accidents are expected to impact the profitability of Chinese general insurers in the short term.”