I have been criticized by the central media for many times, and I have been frequently punished by supervision. Why is it that I have to pay strong insurance？

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In recent years, compulsory traffic insurance, which stipulates compulsory insurance and unreasonable insurance, has gradually become a "business forbidden zone" for some regions, some companies and some models. This restricted area has also become a frequent visitor to public opinion. Among them, there are many names of central media such as Xinhua News Agency and CCTV News.

Some time ago, Xinhua News Agency made a special report on the difficulty of motorcycle insurance in many places in Henan. According to the report, the Ninth Inspection Team of the Ninth General Inspection of the State Council visited a number of insurance institutions in Zhengzhou City and Jiaozuo City, Henan Province, and found that it was difficult to insure high-paying vehicles represented by motorcycles in many places, and a considerable number of motorcycles were out of insurance.

In this regard, Henan Banking Insurance Regulatory Bureau has seriously investigated and dealt with the insurance companies involved and conducted a comprehensive investigation in the whole province. Henan Insurance Association has also joined forces with 40 property insurance companies operating strong insurance in Henan Province to make a promise of "not refusing to insure high-paying vehicles to pay strong insurance".

In November, 2021, the radio and television general station Yangguang Voice also reported that taxis in Anshan City, Liaoning Province could not be insured for "compulsory insurance". Many taxi owners reported that they contacted many local insurance companies to renew their insurance after the expiration of the compulsory insurance, and they were all told to refuse to underwrite the compulsory insurance for taxis.

In fact, not only the above-mentioned areas, but also motorcycles and taxis, and some high-paying models in many parts of the country, especially in the eastern region, almost all have the problem of difficult insurance.

The regulatory authorities have been repeatedly applying for this. At the end of 2021, they even issued the Notice on Doing a Good Job in the Insurance Underwriting of Operating Vehicles, demanding that the refusal or delay of insurance underwriting in any form be resolutely put an end. Branches of insurance companies that have similar violations are also frequently and strictly investigated, but the behavior of refusing to insure high-paying vehicles to pay strong insurance is still repeatedly prohibited.

After one company has been punished, the news that one high-paying model after another has been refused insurance will still appear in various media reports.

What is the real logic behind this?

01

It is not a common phenomenon that high-paying models are refused insurance! To pay attention to the difficulty of insurance for compulsory insurance, we should first pay attention to its "unbalanced" market situation.

When it comes to the difficulty of insuring high-paying vehicles, we have to mention a word "surplus market". In the field of auto insurance, the so-called residual market can be simply understood as "residual business in auto insurance market"-no matter what kind of vehicle, there are always some vehicles and owners who are refused insurance by insurance companies because of too high risks, and these remaining businesses become the so-called "residual market". The so-called "surplus market" is precisely the direct reason for the difficulty in paying insurance.

It is indeed not a case that it is difficult to insure the compulsory insurance, but it is worth noting that there is a strong imbalance behind the seemingly common problems, including regional imbalance, enterprise imbalance and vehicle imbalance.

The most obvious is the regional imbalance. According to industry insiders, there are perennial losses in cross-border insurance in the eastern regions such as Beijing, Jiangsu and Shandong, and it is more common to refuse to insure high-paying vehicles, but these phenomena are relatively rare in the western region.

This is because the payout ratio of auto insurance in the eastern region, especially in economically developed regions, is often higher, and the underwriting losses of insurance companies’ branches are obvious. This is mainly because the maintenance costs of vehicles and the operating costs of insurance companies in the eastern region, especially in first-tier cities, are much higher than those in the western region.

The data shows that the comprehensive cost ratio of compulsory insurance varies greatly among provinces, and some of them are nearly twice as different. In 2020, the comprehensive cost ratio of compulsory insurance in Jiangsu is 119.6%, ranking the highest, and the lowest is in Xizang, with a comprehensive cost ratio of only 62.8%, which is nearly twice the difference.

In addition to Jiangsu, the comprehensive cost ratio of Zhejiang, Hunan, Anhui and Shanghai is also in the top; While the comprehensive cost ratio is low, except Xizang, Inner Mongolia, Xinjiang, Qinghai and other western provinces, cities and autonomous regions are also low.

Secondly, it is the imbalance between companies. Among the companies exposed by the media and fined by supervision, the probability of large and medium-sized companies is significantly higher than that of small insurance companies. In this regard, industry insiders analyzed that small property insurance companies are weak, and if they refuse to insure, they will be easily understood and accepted by customers. However, the head office is different, and its risk tolerance is strong, and its tolerance for business will generally be higher than that of small and medium-sized insurance companies. If even large companies refuse to insure, customers may really take off insurance, so the refusal of insurance by large companies can cause customers’ resentment and even complaints.

Finally, it is the imbalance between car models and car owners. Even the same motorcycles and various operating vehicles, as long as the models are different and the owners are different, the risk probability will be very different. In fact, most motorcycles and operating vehicles can be insured smoothly, and only a small number of vehicles and owners are refused insurance because of the high risk, but it is often this small part of the "surplus market" that leads to the biggest public opinion storm.

02

Loss is the most direct reason: in 2021, the underwriting of compulsory insurance turned from profit to loss of 4.4 billion yuan.

According to statistics, from the implementation of compulsory insurance in 2006 to 2012, it was in a state of loss. Since 2013, thanks to the investment income, the cross-border insurance has gradually achieved a low operating profit. After that, with the insurance companies improving their management efficiency, strengthening the control of expense ratio and payout ratio, the compulsory insurance gradually turned losses into profits. But on the whole, the long-term historical burden is still there.

According to industry analysts, the low insurance premium and high risk rate have brought great pressure on the operation of insurance institutions and become a rejected business of "doing more than one order and losing more than one order".

Focusing on the executive level, this business has little contribution to the salesman’s performance because of its low profit, and even has a negative impact, which also greatly affects the enthusiasm of front-line business personnel to take orders.

According to the data disclosed by the former China Insurance Regulatory Commission and the Insurance Association, in the past five years, the premium income of compulsory insurance has shown an upward trend year by year, and the amount of compensation has also fluctuated.

Among them, from 2017 to 2020, the underwriting profit of compulsory insurance increased year by year, and the investment income was relatively stable. However, after the comprehensive reform of auto insurance in 2020, the situation turned sharply, and the underwriting profit of strong insurance began to turn from profit to loss.

According to public data, in the fourth quarter of 2020, there was an underwriting loss in the new insurance policy. In 2021, in the first full year of comprehensive auto insurance reform, the overall underwriting loss reached 4.4 billion yuan.

According to the detailed business data of compulsory insurance in 2021, the number of motor vehicles insured increased by 7.3%, the amount of insurance increased by 48.8%, the cost of compensation increased by 27.4%, the number of cases filed increased by 20.9%, the insurance coverage increased by 21 trillion yuan, the compensation increased by 9 billion yuan, and the average car premium decreased by 1.8%. In other words, the growth rate of compensation cost is much higher than that of premium income.

03

The root cause: after 16 years of compulsory insurance, the former policy logic is no longer in line with the realistic market orientation.

As a compulsory insurance system, compulsory insurance has achieved remarkable results in resolving social contradictions, protecting the interests of road traffic accident victims, ensuring traffic safety and maintaining social harmony and stability since its implementation in 2006.

However, after 16 years of development, its core setting of non-profit business handled by commercial insurance companies has begun to encounter severe challenges.

"No profit, no loss" and "Balance of payments" were carved into the gene of compulsory insurance from the beginning. At first, the insurance industry had no objection to this. Even if it is stipulated that the handling fee for compulsory insurance is only 4%, the insurance company will accept it in full-although according to the reality, this ratio can’t cover the actual handling fee for compulsory insurance.

Insurance companies are enthusiastic, and the logic is very simple. Although compulsory insurance does not make money, it even needs to pay back the handling fee, but commercial insurance can make money, especially the implementation of compulsory insurance system, which will linearly increase the domestic auto insurance coverage rate. The resulting increase in compulsory insurance business and commercial insurance can still make insurance companies make considerable profits after removing the cost of compulsory insurance.

Facts have proved that it is the implementation of the compulsory insurance system that has promoted the rapid development of domestic auto insurance business and made a number of property insurance companies rise.

The data shows that in 2006, the insurance coverage rate of motor vehicle compulsory insurance was 36%, and by the end of 2018, the overall insurance coverage rate had reached 78%, and by the end of 2021, the insurance coverage rate was over 80%.

However, in recent years, the environment for this model to survive has become precarious because of the evolution of the market and the deepening of the comprehensive reform of auto insurance.

In September 2020, the comprehensive reform of auto insurance officially kicked off. The regulatory authorities took "safeguarding the legitimate rights and interests of consumers" as their main goal, gave up their insistence on the scale of premiums, and even made plans to underwrite losses in the whole industry for a certain period of time. The clear goal and firm will should not be underestimated.

In order to reduce the burden on consumers, the comprehensive reform has lowered the upper limit of the surcharge rate for commercial auto insurance products from 35% to 25%, and it is expected that payout ratio will increase from 65% to 75%—in other words, the fee space left for insurance companies is smaller and the profit space is smaller, and most consumers can enjoy more affordable auto insurance services through this reform.

At the same time, it also means that the space for insurance companies to use commercial insurance to subsidize compulsory insurance has also become smaller. Under the pressure of performance appraisal, insurance companies have to strengthen risk management and control, and reduce their tolerance for high-risk businesses. Therefore, news that a small number of high-paying vehicles have been refused insurance for compulsory insurance has appeared in the field of public opinion more frequently than before.

More precisely, under the comprehensive reform of auto insurance and benefiting consumers, the business logic of commercial insurance companies began to have more contradictions with the principle of "no loss, no win" and "balance of payments" of compulsory insurance.

04

Throughout the world, there are two major schools of compulsory insurance, which are either highly marketized or strengthened by government regulation.

With the development of the market environment, the compulsory insurance system, which once made great contributions to reducing traffic accidents and disputes and promoting the development of the property insurance industry, is now becoming more and more urgent.

Stones from other mountains can attack jade, and summarizing the models of other countries and regions has certain reference value for solving problems at this stage. It can be seen that there are two main business models of compulsory insurance in the world:

First, the commercial operation mode, in which insurance companies have a high degree of freedom within the framework stipulated by law, and can draw up their own rates. The law stipulates compulsory insurance, but only the minimum compensation limit or total insurance coverage is clearly required. Representative countries include Germany, the United States, South Korea, etc.

Second, the government-led, commercial insurance company agency model, in which commercial insurance companies fully bear the operational risks, and the government gives tax incentives. The difference is that, in practice, the pure premiums and compensation paid by commercial insurance companies are all transferred to the public funds specially set up by the government, and then the premiums and compensation are distributed to insurance companies according to a certain proportion, so as to realize the risk and balance of payments among insurance companies. At present, this business model is implemented in Japan and Taiwan Province.

Germany: The implementation of the Owner’s Liability Insurance Law is also compulsory statutory insurance. Insurance companies can float the auto insurance rate within a wide range according to the vehicle and the owner’s situation, but the law will clearly stipulate the maximum compensation amount and the minimum compensation limit. For example, if the personal injury is not less than 2.5 million euros per person, the maximum standard of vehicle loss is not less than 500,000 euros. According to the nature of the accident, the total compensation amount can be up to 50 million to 100 million euros, and the maximum compensation for personal injury insurance can be up to 8 million euros.

United States: The Compulsory Automobile Liability Insurance Law is implemented, and the specific premium is related to the region, the insured vehicle, the driver’s personal driving record and other personal circumstances. There are differences between states, but generally speaking, in the system design, the United States implements a floating rate system for compulsory insurance, which will determine the minimum amount of local compulsory insurance according to ten factors, as well as the size of the city, the population and the number of motor vehicles.

Japan: The Motor Vehicle Third Party Liability Insurance Law is implemented. The premium is based on "cost principle" and the principle of "no loss and no profit". The premium rate is estimated by a neutral organization (NLIRO) and reported to the regulatory authorities. It can only be used after review. The formulation of the rate mainly refers to the number of insured cars, the accident rate and the average compensation amount for each accident. As a floating rate system, the highest premium standard can reach 2.55 times of the benchmark premium standard. In order to ensure that the insurance company does not lose money, it is stipulated that an additional insurance premium will be levied as a handling fee, and an additional insurance premium will be imposed on the owner of the fatal accident. At the same time, the government acts as a reinsurer and has established a perfect automobile insurance fund system.

Of course, it is particularly important to note that, as an institutional arrangement with important social significance, compulsory insurance involves not only the broadest masses of the people, but also many state departments. If we want to change it, we need the joint efforts of many departments.

For example, in 2006, the units that participated in the formulation of the Regulations on Compulsory Liability Insurance for Motor Vehicle Traffic Accidents included not only the former CIRC, but also the traffic management department of the public security organ, the competent department of agriculture (agricultural machinery), the competent department of health, the competent department of finance and so on.

05

Conclusion: The insurance industry is in action.

It is worth noting that in the face of the difficulty in insuring some high-paying vehicles, some places have begun active exploration with the support of regulatory authorities.

For example, in Guangdong, Shandong, Jiangsu, Shaanxi and other places, local regulatory authorities, trade associations and insurance companies are actively working together to explore and try. The schemes in different regions are different, but they all strive to give full play to the role of "visible hand" and "invisible hand" and fundamentally solve the problem of difficult insurance.

Of course, whether these explorations can be popularized in a large area remains to be further verified, but what is important is that we can see a new multi-balanced solution, as well as ideas and future that are more compatible with the current reality.

This article was first published on WeChat WeChat official account: Huibao Tianxia. The content of the article belongs to the author’s personal opinion and does not represent Hexun.com’s position. Investors should operate accordingly, at their own risk.