Car insurance is up for reform again.
A few days ago, the China Banking and Insurance Regulatory Commission issued the "Model Actuarial Provisions for Commercial Auto Insurance" and the "Letter on Soliciting Opinions on Auto Insurance Reform" to property and casualty insurance companies, the main direction of which is to give insurance companies more independent decision-making power, and to further regulate the gray areas that existed in the auto insurance claims process by enhancing the degree of marketization of the industry, so as to achieve the goal of restoring the order of the market. The goal is to restore order to the market.
After decades of rapid development, the auto insurance market is facing a new bottleneck. The traditional insurance business is becoming saturated, while the composition and needs of consumers have made the traditional business model and business philosophy unsuitable.
The most obvious point is that the principle of insurance business has a "principle of balance of consideration", which requires that people who take part in the same kind of insurance are basically the same in terms of the incidence of risk, and the corresponding rate of risk bearing is also equal. However, it is clear that the traditional model of car insurance costs, undermining this principle.
So car insurance must and will change.
Just by whom, and how, with the drive for insurtech, there are already hints of what's to come.
Tesla, and the slew of car companies it represents with both volume, data capabilities and financial prowess, may be the new churners in an auto insurance industry that has long been criticized by users.
Much-needed repair of the quid pro quo principle
A car can be insured dozens of times a year, dozens of cars "coincidentally" in the same position in the cuts and accidents ...... how lucrative, people are crazy, a variety of oddball accident Behind it is the normalization of profit-oriented.
Once upon a time, faking accidents to obtain insurance claims, so that owners do not spend money to replace the old with the new, the repair shop to earn more profit, is the automotive aftermarket industry semi-open "secret".
And the traditional "from the car doctrine" auto insurance rate model, that is, the price of the car, brand, depreciation, etc. for the cost of insurance based on the invisible also in support of this model. The rights and obligations of a single insurance contract is unbalanced, so that low-risk policyholders for high-risk policyholders to bear more risk, high-risk policyholders from which to seek benefits, the ultimate result is the risk-taking *** disintegration of the same body, the insurance system can not function properly.
According to incomplete statistics, the proportion of domestic insurance fraud accounted for 20%-30% of the expenditure on claims, higher than the global proportion of 15%, with the total premium income of 818.8 billion in 2019 (accounting for 63% of the total property and casualty insurance premiums) volume of calculation, the temptation is self-evident, which also caused most of the current situation of the insurance companies can not meet the expenses.
Since the beginning of 2014, China's auto insurance rate market-oriented reform has been carried out to the sixth year, although a certain effect has been achieved, but the long-existing deep-rooted contradictions and problems have not yet been fundamentally resolved, there are still high pricing, high fees, sloppy operation, disorderly competition, data distortion and other issues.
So, in the upcoming 2020 comprehensive premium reform, the reinstatement of the principle of parity balance remains the most central issue.
What has been changed in the car insurance reform?
Users seek lower premiums and insurers seek higher profits. This is the most basic law that all reforms need to follow.
Therefore, the auto insurance reform involves three major directions: first, the proposed fine-tuning of the factor classification in the rate adjustment coefficient of commercial auto insurance, and the merger of the independent channel coefficient and the independent underwriting coefficient into the independent pricing coefficient; second, the proposed abolition of the independent channel coefficient and the independent underwriting coefficient of the floating space; and third, the proposed appropriate downward adjustment of the proportion of the additional cost rate.
In the premium adjustment factor, the influence factor is divided into two categories, "from people" and "from cars". The "from person" factors include driving skills, driving habits, driving age, age, gender, etc.; "from car" factors include mileage, agreed driving area, model, number of insured vehicles and absolute deductible.
Additionally, the adjustment factor also gives insurance companies the right to make their own pricing decisions based on their own operating costs and local sales of their models.
At the same time, the compulsory insurance will also be introduced into the regional adjustment factor, according to the actual situation of different regions payout, to change the "one-size-fits-all" pricing model.
It is clear that by taking more factors into account, especially the human factor based on the driver's history, and thus balancing the interests of different insured people, more quality users will be attracted in the long run.
But if you look a little deeper, this is in fact the beginnings of UBI insurance with premiums based on usage.
But there are a few problems with the implementation of this insurance system, which is growing rapidly in developed countries, in China:
First, headline insurers, which have the majority of high-quality customer resources, would have little incentive to develop UBI car insurance if their profits weren't fundamentally threatened. Small and medium-sized insurers, on the other hand, have more incentive to innovate, but are also more constrained by resources.
Secondly, the upfront investment cost of UBI car insurance is high, and whether it's front-loaded or rear-loaded, it has to be coordinated with OEMs and suppliers, which further increases the operational burden of insurance companies.
Lastly, the current level of data analysis technology is not sufficient to support the requirements of customized auto insurance based on user information and behavior, and the related risk assessment model is also impossible to talk about.
So, the current auto insurance reform can only be more primitive with the number of times of insurance, the amount of insurance and other historical behavior, roughly on the next year's premiums to adjust the coefficient.
Rather than a step forward toward UBI insurance, this is more of a move to treat the symptoms of the proliferating insurance scams.
Tesla stirring up trouble in the insurance industry?
During Tesla's fourth-quarter 2019 earnings call, Musk said insurance would be a major product for Tesla.
For users, the initial reason for choosing Tesla insurance is lower premiums; for Tesla, entering the insurance industry is to get more value added.
In the U.S., insurers set a relatively high premium for Teslas because of ambiguity about the cost of repairing an electric car. the average annual premium for a Model S is about $3,300, making it one of the most expensive in the U.S., and two to three times as expensive as comparable vehicles.
At the heart of why premiums are so high is that insurers don't understand Tesla's cars and owners. Tesla's core big data collection and analytics capability, on the other hand, gets to the root of the problem.
So Tesla is going to do its own insurance.
The Tesla Car Safety Report for the fourth quarter of 2019 shows that Tesla cars with Autopilot averaged one crash per 3.07 million miles, and one crash per 1.64 million miles without Autopilot. That compares to the U.S. average figure of every 479,000 miles.
Obviously, both the safety of Tesla models and the high quality of Tesla owners can support Tesla's ability to give more competitive premiums than insurance companies, which would be another source of profit for Tesla.
At the same time, in the future, after the Tesla FSD full-featured autopilot landed, the price of Tesla car insurance will also be closely related to whether or not the optional FSD or the use of FSD. By tying the Autopilot technology to the cost of insurance, Tesla won't lose out no matter which one it chooses.
Advances in autopilot technology have made the main risks facing cars no longer collisions, but software reliability and cybersecurity risks, and the main body of insurance accidents may not be the driver, but also car companies, suppliers, infrastructure departments and other parties responsible for the main body. For traditional insurance companies, they do not have the ability to collect and analyze user data, and high-level autonomous driving to reduce the accident rate resulting in lower premiums will also change the value chain of the insurance industry.
So the model of bundling vehicles with insurance, with car companies assuming the insurance risk, is a good thing for car companies, for users and for the industry.
At this point, the threshold for traditional insurance companies, perhaps only regulation and qualification.
Not only does Tesla see such an opportunity, those car companies that have the volume, data capabilities, and financial capabilities will likewise venture into this field.
In June 2019, the Motor Vehicle Insurance Telematics Data Collection Specification came into effect. Although this specification only provides a premise and standard for the collection of Telematics data, it is a start, indicating that the domestic auto insurance industry has realized that development cannot rely only on capital and manpower, but also on innovation-driven and technology-led.
Because the actual profitability of insurance companies that are "very rich" in people's eyes is surprisingly high, the comprehensive cost ratios of PICC Property and Casualty, Ping An Property and Casualty, and Taipao General Insurance in the first half of 2019 were 97.6%, 96.6%, and 98.6%, respectively, and the pressure on costs has made it necessary for insurance companies to look for new space for development.
Writing in the end
Even in the era of automated driving, as long as the individual's ability to withstand risk is not sufficient, as long as the individual needs to rely on the collective sharing and transfer of risk, the insurance industry will not go away, but what will change is the way of doing business and technology.
Why does everyone want a piece of the car insurance pie when insurers are facing huge cost pressures? It's because technology is changing the traditional auto insurance industry, and that's giving stakeholder companies with technology and data at their fingertips the potential to stir the pot.
This article comes from the authors of Motor Home Car, and does not represent the views of Motor Home's position.