Premiums for policies covering new energy vehicles in China have soared to $13.8 billion—a six-fold jump from the level recorded five years earlier, AM Best said in a special report.
According to the report, “China’s New Energy Vehicle Boom Transforms Motor Insurance Market,” China leads the way globally in producing and selling new energy vehicles, NEVs, which in turn has stimulated demand for insurance coverage. (Editor’s Note: According to Wikipedia, in China, the term new energy vehicle is used for vehicles fully or predominantly powered by electric energy.)
The report describes how China’s push to NEVs has further separated the auto insurance market there, with three major insurers that dominate the market— the People’s Insurance Co. of China (PICC); China Pacific Property Insurance Co. Ltd.; and Ping An Insurance (Group) Co. of China Ltd. — increasing market share over recent years, while struggling smaller and mid-sized players have scaled down or exited.
Meanwhile, NEV auto makers are actively entering the insurance space, mainly by acquiring domestic insurance brokers, with one setting up an insurance company. “This may lead to potential change in the competitive landscape and closer cooperation between the insurers and manufacturers,” AM Best said in statement about the report.
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The report states that the actions of smaller insurers to cut back or leave the market followed the implementation of comprehensive motor insurance reforms in 2020 and subsequent underwriting losses. A chart in the report displays underwriting gains for the Big Three for each year from 2017 through 2023 juxtaposed with “rest of market” underwriting losses for the same years.
The “rest of the market collectively failed to break even in each of the last seven years,” the report says.
AM Best references anecdotal reports from insurers who believe that loss ratios for insured NEVs run 10-20 points higher than standard motor insurance. It’s not just higher repair costs that drive the results, the report suggests, offering these two additional factors as possible causes of higher loss and combined ratios for NEVs:
- Younger drivers with higher accident risk more likely to drive NEVs.
- Leading ride-sharing platforms, such as Beijing-based Didi, log more miles than other regular drivers, pushing up claims frequency.
Again referencing reports from insurers, the AM Best publication notes that reports of accident claims for NEVs may be double that of internal combustion engine vehicles.
The report provides further insights on market growth and the need for catastrophe management of NEV risks not currently captured by vendor cat models—specifically, the vulnerability of NEV lithium-ion batteries to damage from flooding.
- NEV premiums represented 11.5% of China’s motor insurance business in 2023, compared with less than 2% in 2018.
- China’s top three motor insurers account for 70% of the market.
- The top insurer, PICC, saw a nearly 60% jump in NEVs insured in 2023.
- “Recent regulatory guidance expanded the level of pricing autonomy for insurers based on their technical calculations. Although this eased some of the profitability pressure on small to medium-sized insurers by allowing them to increase the NEV rate, some insurers still view it as insufficient to achieve adequate pricing.”
- Cat losses can be significant. Motor insurance claims from the 2021 Henan flood are expected to consume about 10 years of motor insurance underwriting profits within the impacted province.
According to AM Best, China is already the world’s largest automobile market, and it may “further strengthen its lead through government subsidies that advance the NEV market, supportive governmental policies, increased consumer demand for sustainable transportation, and technological advancements.”
In the United States, the fate of government subsidies for EV remain a question as President Trump’s previously stated intentions to curtail government tax credits and other federal support for EVs come up against the wishes of Tesla founder Elon Musk, who will co-lead the Trump administration’s newly created Department of Government Efficiency.
Related article: Mixed Bag: What Trump 2.0 Tariffs, DOGE Activities Mean For Insurers
Drawing a comparison between China and other developed countries, the AM Best report notes that overall underwriting risk for motor portfolios in China tends to be lower because of much lower limits in third-party liability coverage, the civil law environment, and minimal legal representation.
The report also comments on the potential relative strength of auto makers vs. traditional auto insurers. The AM Best report authors suggest a path forward for auto makers that can design NEV-specific insurance products, offering them through their insurance partners via the automaker-owned intermediaries and gaining knowledge of insurance operations in the process. “For NEV manufacturers, the industry know-how and insights drawn from their proprietary data on vehicle characteristics and driver behaviors can provide a competitive advantage over traditional insurers,” the report concludes.
In a report published in April last year (“Navigating unknowns: Auto insurance questions in a new mobility era”), consultants from McKinsey & Co. offered similar predictions for the U.S. auto insurance market.
“OEMs might emerge as formidable competitors for insurers,” with data playing a central role in risk selection, claims management and distribution. Insurers “may need to consider the implications of OEMs potentially treating vehicle data as a competitive asset, affecting data sharing and utilization—and opening up new opportunities for collaboration with traditional insurers,” the McKinsey report said in a section titled, “Are OEMs set to disrupt insurer incumbents?” (Related article: Going, Going, Gone: ‘Disruption’ to Shrink Traditional Premiums for Auto)
This article first was published in Insurance Journal’s sister publication, Carrier Management.
