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Oct. 21 (Bloomberg) -- China’s State Council is considering a plan to allow some foreign insurance companies to offer auto liability policies for the first time, said one person with knowledge of the matter, boosting competition for local insurers dominating the market.
The insurance regulator submitted a plan to the State Council, the nation’s cabinet, to allow companies that meet certain criteria, such as profitability, to sell mandatory third-party liability auto insurance, said the person, asking not to be identified because the submission is confidential.
The proposal by the China Insurance Regulatory Commission aims to remove a restriction that the American Chamber of Commerce said has “effectively blocked” foreign insurance companies such as American International Group Inc. from tapping the world’s biggest car market, as drivers tend to choose the same company for both optional and compulsory coverage. Auto insurance contributes 80 percent of premiums at PICC Property & Casualty Co., the nation’s biggest non-life insurer.
“This should be negative on domestic property insurers as competition will intensify,” said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi International Ltd. “Foreign insurers’ market share should rise over time, but the short-term impact won’t be huge” as Chinese companies are already well established in the market.
China’s auto insurance sector has turned profitable since 2009 as regulatory controls on price competition tightened, reversing years of losses in an industry where about 70 percent of premiums come from auto insurance. First-half net income at PICC almost doubled after underwriting profits from auto insurance more than tripled.
The regulator is seeking to tap foreign expertise to help reverse chronic losses and improve a service aimed at better protecting victims of traffic accidents, the person said. The foreign insurers would need to meet criteria including solvency, size of their parent companies and operating history in China, the person said.
The regulator is also opening up a market where underwriting losses from mandatory policies, which protect drivers against third-party claims in accidents, totaled 9.7 billion yuan ($1.5 billion) last year, according to a statement on the CIRC’s website on Aug. 4.
China lifted geographical and most business limitations on foreign insurers in 2004 to comply with World Trade Organization commitments, leaving the mandatory insurance protected for local companies. The 20 foreign property insurers operating in China accounted for only 1 percent of the nation’s property premiums in the first eight months, according to official data.
The CIRC held discussions last year on the possibility of opening up the compulsory business, three people with knowledge of the matter said in August 2010. The Ministry of Commerce, which leads China’s WTO negotiations, supports the liberalization although the nation isn’t obliged to do so under its WTO commitments, two of them said then.
The nation’s passenger-car sales rose at a faster pace for a fourth straight month in September as automakers offered discounts and consumers bought cars ahead of a week-long national holiday. Deliveries of cars including sport-utility vehicles and minivans gained 8.8 percent to 1.32 million units last month, the China Association of Automobile Manufacturers said Oct. 13.
--John Liu. Editors: Linus Chua, Andreea Papuc
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