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HONG KONG Mon Jun 4, 2012 5:08pm EDT HONG KONG (Reuters) - "People like us who buy Ferraris don't caretoo much about insurance because we buy cars for speeding," saidLi, in his twenties and the son of a Pearl River Delta factoryowner, as he took delivery of a new 5 million yuan ($787,500) 458Spider, his fourth red Ferrari. "If we crash, we just throw themaway." Drivers like Li, who gave only his family name, illustrate thechallenges that big global insurers such as Allianz (ALVG.DE), AXA(AXAF.PA) and Chartis face as they move further into China undernew rules allowing foreign firms to offer a full range of insuranceproducts in the world's largest car market. While the opportunities are vast in China's estimated $50 billionauto insurance industry, there are roadblocks aplenty - from poordriving standards to a new generation of car owners unfamiliar withthe concept of buying protection against accidents and repairs. "You can get lost in the attractiveness of the market because ofthe size, but there are a lot of challenges," said Kevin Goulding,China CEO of Chartis, part of American International Group (AIG.N),who said his company was methodical in its approach in China. "Wehave no intention of making a big splash." As it stands, the 21 foreign insurers selling non-life products inChina control just 1.1 percent of the market. Auto insuranceaccounts for three-quarters of non-life insurance premiums. One of the main reasons foreign insurers' market share is so smallis the limits China imposes on their growth. Foreign insurers mustapply to open new branches, and approval for each branch can take12-18 months. The policy has left foreign insurers with networks far smaller thanthose of state-backed rivals PICC and CPIC, and Ping An (2318.HK),part-owned by HSBC (HSBA.L). The small networks could be a problemfor insurers trying to cover cars, which can travel long distances. Takaaki Tamai, senior managing director at Tokio Marine (8766.T),said his company has concerns about not being able to grow itsservice network quickly enough to meet customer demand. Thoseconcerns are reinforced by David Chen, who lives in Shenzhen andowns an Audi. His priority for car insurance is fast service - hesaid he expects a representative at the site of an accident within30 minutes and reimbursement for repairs within a week. As well as having a big enough geographic footprint to win and keepcustomers, foreign insurers have to figure out just which customersto target. Except for a pilot program with a handful of Chineseinsurers, the government sets the rates insurers can charge, soprofitability is tied to which customers an insurer covers ratherthan how it prices its policies. Double-digit growth in the number of new drivers - thousands passtheir driving test each day across the world's most populouscountry - promises hefty premium volumes. "The motor insurance business is booming," said Liberty MutualChina CEO Jackson Tang. "The number of middle and high incomepeople in China is increasing rapidly and these people will buy acar even before they buy a residential property." BIZARRE TEST However, the vast number of people passing China's famously quirkydriver's test - one question asks where a driver should aim when heneeds to spit - is no reason for confidence among insuranceexecutives hoping for fewer crashes, and fewer payouts. In 2010 alone, China reported 3.9 million road accidents thatkilled 65,225 people and injured 254,075. For comparison, therewere 30,797 fatal crashes in the United States in 2009, accordingto the National Highway Traffic Safety Administration. The UnitedStates has almost 2.5 times as many registered vehicles as China. The grim reality of so many new drivers hitting the roads meant afatal road accident every 5 minutes somewhere in China, accordingto a World Health Organization website last updated by its Chinaoffice in 2006. Driving backwards on a highway is not uncommon, deliberateaccidents are frequent, and dealers often tack repair shops ontoshowrooms to profit from the frequent dings and dents theircustomers suffer. "Historically, young drivers tend to be a bad risk, but what we'vegot here is everybody is a young driver equivalent," said Chartis'Asia-Pacific consumer head John McPhee, noting foreign insurers aresetting up teams and hiring consultants to study which drivers willbe more profitable to insure. There are national databases cataloguing driver behavior but theyare not up-to-date, said KPMG's Hong Kong insurance practice headSam Evans. "One of the big issues is data quality," he said. "Thereare centralized databases collecting claims statistics, but they'renot updated very regularly so people will potentially take a policyout with one insurer, claim under that, then the next year switchto a new insurer and the system doesn't necessarily pick up thatthey've made a claim in the prior year." Foreign insurers don't have a good grasp on what data is availableand are struggling to take data from other markets and apply it toChina, said Johnny Chen, CEO of Zurich Financial's (ZURN.VX)general insurance business in Asia Pacific. "There's really nothingwe can take from European or North American or other Asian marketsto draw any claims benchmarks," he said. DRIVING ONLINE Five years ago, about 1,100 new cars and other vehicles hit thestreets of Beijing every day and, three years ago, China overtookthe United States as the world's biggest new car market.Consultancy LMC Automotive predicts new car sales will grow at 7-15percent a year for the next five years. China has a population of1.3 billion and only 106 million cars on the road. Foreign insurance executives say Chinese consumers are becomingmore comfortable buying insurance online, and point to Ping An'ssuccess with tele-sales as a possible roadmap for how they mightovercome their own geographic limitations. Ping An (601318.SS) earned 41.6 percent of its auto insurancepremiums from cross-selling and tele-sales in 2010, the most recentfull-year data available. "What we expect to be doing is very much technology-driven. As anorganization we can't replicate the massive agency businesses ofPICC and Ping An," said Chartis' McPhee. Apart from Li and his sleek new Ferrari, foreign insuranceexecutives say they can steer clear of some of the bigger claims bytargeting people who buy expensive cars - who will pay more forinsurance and are likely to be more experienced drivers. The plan for attracting these high-value customers centers onservice. Jack Yuan, deputy head of AXA's general insuranceoperations in China, said AXA may offer concierge services as partof its auto insurance package, and could tailor-make packages toadd other high-end products such as international medicalinsurance, fine art insurance and yacht insurance. "We could provide privilege services like bookings at famousrestaurants, concert tickets, pet boarding," he said. The e-commerce company in China offers quality products such as China Dot Matrix Camera , China Vandalproof Dome Camera, and more. For more , please visit VandalProof Camera today!
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