Recipe for success in China motor insurance

It has been almost a year since China, in September 2020, initiated the largest reform in the motor insurance sector of the past two decades. The reforms cover pricing, fee structures and product coverage, among others. For P&C insurers in China, the imperative is to transform their motor business in order to be compliant with the new regulatory requirements, and also manage the challenge of declining premium volumes and rising loss ratios that the new operating environment has led to.

Most Chinese insurers have a short history of operation relative to peers in western markets. Motor insurers in advanced markets have gone through a long-running journey, adjusting business practices to changes in the competitive environment over many years. Actions have included reducing distribution costs, improving risk pricing and developing tailor-made products for different client segments. The experiences offer valuable insights for Chinese motor insurers now coming to terms with the challenges posed by de-tariffication.

This report is the second issue of the "Global Motor Insurance Insights" series, a joint project between Swiss Re Institute's China Centre and Swiss Re's Motor underwriting team. The report analyses the experience of select P&C insurers in advanced markets including from the US, UK, Spain and Australia, in achieving and maintaining strong results in motor over many years, across different segments of the line of business value chain.

The report finds that strong financial outcomes such as achieving better-than-market underwriting margins, stable premium growth and increasing market share, tend to be based on efficient operating processes, and well-designed products and related services. There is no direct relationship between financial results and premium volume size per se. Rather, both large and small insurers have opportunity to deliver strong underwriting results. Small insurers do not necessarily need to be market followers: they build a solid position forging their own development paths, which can be different from that of large players.

The experience from advanced markets also reveals that successful motor insurers tend to have comparative advantage or strength in a specialist area, be that low-cost distribution channels, effective marketing strategies, accurate pricing and/or consistent innovation in product pricing, deep knowledge of a market and/or products, a focus on targeted sub-segments, or strong aftermarket services and cost control capabilities. Differentiated strategies that enlarge such comparative advantages will be key for success in China's highly competitive motor market.

This report is available in Chinese only.