NEW YORK – Soon-to-be-relaxed rules in China have firms including American International Group and Allianz eager to grab a bigger share of the $50 billion that the countrys drivers spend each year on auto insurance.
Both insurers are making plans to offer more products as China lifts a ban on foreign companies selling mandatory policies for drivers.
On a recent two-week trip, Kevin Goulding, the Shanghai-based head of Chartis China, AIGs property-casualty business in the country, scouted four municipalities and provinces with a combined population of 500 million, as he weighs where to open the companys next branch and lays plans to sell car coverage for the first time.
Were definitely looking forward to moving into the auto market in China, he said in a phone interview.
Its an extremely large market and will also allow us to offer other products to consumers.
The policy shift, announced in February during Chinese Vice President Xi Jinpings visit to the United States, may be a boon for foreign insurance companies, which have struggled to gain a foothold in the worlds largest auto market, where an average of about 40,000 cars are sold a day.
Non-Chinese property-casualty carriers share of premiums has been stuck at 1 percent since 2004, a December report from PricewaterhouseCoopers LLP shows.
The compulsory coverage, which protects drivers against third-party liability, is a loss leader for Chinese insurers.
The companies often bundle the policies with more-lucrative voluntary insurance that covers damage to cars.
Taken together, the protection has been a profitable business in China since 2009, representing about 70 percent of all property-casualty insurance sold in the country.
Based on that ratio, auto would account for more than $50 billion in premiums in what the China Insurance Regulatory Commission said was a $75.8 billion property-casualty market last year.
PICC Property & Casualty Co., Chinas largest non-life insurer, with about one-third of the market, generated more than 100 million yuan in premium revenue from the auto segment in 2011.
The rule that limited foreign insurers only to sales of the optional coverage has stymied their growth in the country, said Sally Yim, an analyst at Moodys Investors Service in Hong Kong.
If a customer wanted to buy motor insurance, why would they want to choose a foreign company that cant provide the compulsory coverage? she said by phone. Being able to offer a comprehensive package will help them build their brand recognition and gradually build scale.