Poor drivers

Just don’t hit one

How do you devise a formula to insure a nation of largely first- time drivers, who might collide with anything from a donkey cart to one of the world’s most expensive sports cars?

That’s the conundrum that Chinese insurance companies have been struggling with since third party auto insurance became mandatory in 2006.

And it’s a question that international insurance firms are going to have to answer too. No doubt they have some of their best people working on a China algorithm.

Last week Xi Jinping announced during his US tour that foreign insurance providers will be allowed to sell third party insurance to Chinese drivers. As one of the few insurance policies that are mandatory in China, the new entrants will be hoping that auto cover will help them snare customers.

But auto insurance is a tricky field in China, as two incidents this month show. In both cases drivers of low-end vehicles crashed into Rolls-Royces worth millions of yuan. Unfortunately, their third-party liability policies only covered a fraction of the damage and both drivers faced the prospect of selling their homes to cover the repair bill, the Oriental Morning Post has reported.

In the second case, a man named Liu, a chef from Jiangsu, drove into a Rolls-Royce Phantom outside Nanjing’s airport. The Rmb1 million of damage equated to 41 years of his salary, the newspaper said.

In theory all drivers must take out third-party insurance. But because the accident rate is so high, local insurance firms say they often can’t offer comprehensive third-party cover. Instead, people buy what they can afford and hope they don’t hit anything too expensive, an insurance agent told WiC.

For both Liu and Ms Zhu – the second person to hit a Rolls-Royce car this month – the fallback plan seems to have been getting public opinion on their side. Both went to the media after their accidents and their stories were picked up by Sina Weibo where they fed into the angry undercurrent often directed at the country’s rich (see WiC136).

In both cases the owners of the Rolls-Royces then dramatically reduced their financial demands, earning praise from their former critics.

“The number of rich may have grown in recent years but very few of them have heart and responsibility as well as money! Good job!” one wrote on his weibo account approvingly.

But others cautioned that this was an outcome of a particular case and not a permanent solution for the wider problem. Some even said that it wasn’t always fair to make the richer party absorb so much more of the cost of accidents.

“This time people let it go out of good nature. But we can’t expect people to do this all the time,” another posted on his microblog. “We need to come up with a better way of dealing with these situations.”

That is soon going to be something for the likes of AIG and AXA to figure out.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.