Electric car insurance is in the news again, but this time it is a loss-leader for insurers in China. Sales of new electric vehicles there are accelerating faster than anywhere else, making this a good market to chase. But service providers are complaining they are losing money hand-over-fist. Surely they should just increase their rates?
Electric Car Insurance Is Not That Simple in China
The Chinese National Financial Regulatory Administration mandates providers to proactively deliver this service, according to Nikkei Asia. This approach is part of the overall goal of achieving carbon neutrality in China by 2060. It also means electric and petroleum vehicle rates must compare.
Chinese insurers use ‘autonomous pricing coefficients’ to promote impartiality. But the problem, they say, is that electric car insurance risks are greater than gasoline. When they run the following numbers, new energy vehicles rank higher:
- Their loss ratio, that compares paid claims and other related expenses with premiums earned.
- Their expense ratio, that includes operating costs such as management and marketing expenses.
Combining these ratios ranks ‘new energy vehicles’ at 105% of the combustion vehicle norm. While ride-hailing cars chime in at a whopping 120% to 130%. The question is what happens next, now the authorities have the facts?
Which Factors Should the Chinese Insurance Regulator Review?
Liu Shulin is president of a research institute specializing in insurance-related car technology. He suggested the following three factors for consideration:
- Electric cars accelerate much faster than those with combustion engines.
- Their batteries are costly to repair. This must be done by manufacturers.
- Many electric ride-hailing taxis clock up exceptionally high mileages.
Chinese rules prevent providers from arbitrarily implementing higher electric car insurance rates. Moreover, current policy places a ceiling on coefficients, and this is currently below the new energy vehicle break-even point.
Nikkei Asia suggests lowering the floor of the coefficient, and raising its ceiling. This could allow insurers more flexible pricing policies we believe, because not all electric vehicles present the same insurance risks.
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