As the reports detailing solvency capabilities of various property insurance companies roll out, a striking trend has emergedOver 60 property insurance companies in China have achieved a remarkable milestone, surpassing 900 billion RMB in auto insurance premiums for 2024, with underwriting profits showing substantial growth compared to 2023. However, amidst this optimistic backdrop, the new energy vehicle (NEV) insurance market continues to grapple with significant challengesAccording to the China Actuarial Society, the insurance industry underwrote 31.05 million new energy vehicles, generating an insurance premium income of 140.9 billion RMB, providing risk protection worth an astounding 106 trillion RMB, but suffering underwriting losses amounting to 5.7 billion RMB, marking a continued trend of losses.

In parallel, the youthful insurance company set up by one of the most talked-about new energy car manufacturers—Shenzhen BYD Property Insurance—has also released its solvency report for the fourth quarter of 2024. Despite generating an impressive insurance business revenue of 1.351 billion RMB, predominantly in the third quarter, the company couldn't turn a profit, incurring an annual loss of 169 million RMB, with a quarterly loss of 81 million RMBIts comprehensive claims ratio and comprehensive cost ratio have both skyrocketed above 200%, well over the industry average, with the comprehensive cost ratio hitting an alarming 308.81%.

When one examines the data, it becomes evident that while the overall comprehensive cost ratio in the NEV insurance market is grim, with most specialized insurance firms also hovering above 100%, BYD's metrics stand out as particularly troublingThis data seems to contradict the anticipated advantage of car manufacturers entering the insurance market.

Dai Haiyan, Managing Director of Risk Information for the China region at law and commerce union, articulated in an interview with the 21st Century Business Herald that, in theory, new energy automotive firms should have an edge

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They directly control vehicle technology and data, potentially allowing for effective management of repair costs and a reduced claims ratioNevertheless, insurance is intrinsically different from automobile manufacturingThe former relies on a robust focus on post-sale services, encompassing underwriting, claims processing, and other complex workflowsNEV manufacturers still face the necessity of bridging gaps between auto production and insurance operations, gradually establishing refined and efficient operational frameworks.

The industry consensus suggests that automotive manufacturers possess innate advantages when they venture into the insurance spaceZhang Lei, CEO of Car Technology, shared with the 21st Century Business Herald that these firms have access to vast datasets on vehicle operations and telematics, enabling them to price insurance products with precisionHowever, this advantage is limited to their own vehiclesFurthermore, the existence of an integrated ecosystem where automotive firms consolidate sales, maintenance, and insurance services can mitigate lifelong costs.
Another noteworthy asset is their extensive customer base, providing direct outreach to clients.

In recent years, a multitude of car manufacturers have shown readiness to explore the insurance marketIn 2020, Tesla established Tesla Insurance Brokerage but had to cancel its business in April 2024 due to a lack of approvalBy 2021, Xiaopeng launched Tianjin Xiaopeng Commercial Factoring Company, and in June 2022, Li Auto acquired Yinjian Insurance Brokerage, successfully entering the vehicle insurance arenaBy March 2023, NIO had purchased Huiding Insurance Brokerage, while in May of the same year, BYD fully acquired Yi'an Insurance and transformed it into Shenzhen BYD Property Insurance Co., Ltd., receiving approval for the national unified mandatory insurance terms by May 2024, thereby entering various regional markets.

In addition, traditional automotive giants have not been left behind in this domain

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Guangzhou Automobile Group established Zhongcheng Car Insurance Company in June 2011, with a registered capital exceeding 2.2 billion RMBSimilarly, SAIC Group invested 200 million RMB to form Shanghai Automotive Group Insurance Sales Company, tasked with agency sales of insurance products.

Observably, in the NEV insurance landscape, most car manufacturers are currently operating through insurance brokerage firms, with BYD being the standout with its independent insurance companyIndustry experts posit that leveraging BYD's accumulated technical capabilities and data in the new energy vehicle sector could potentially foster precise pricing and enhanced service quality, ultimately reducing the insurance costs for vehicle owners.

Market research conducted by the 21st Century Business Herald reveals that BYD's insurance products indeed offer competitive pricing for certain modelsNevertheless, some individuals assert that for a number of vehicles, the insurance premiums may not showcase clear advantages, with other insurance companies effectively compensating for these disparities through alternative merits.

Considering BYD's performance and solvency for the fourth quarter of 2024, the company noted a significant increase in the scale of auto insurance, with exposures to premium risks, reserve risks, and catastrophe risks escalating sharply, resulting in an 108 million RMB rise in minimum insurance risk capital, a staggering 220.07% increaseThe inclusion of a 60 million RMB stock fund and an 11 billion RMB combination insurance asset management product also spurred a market risk capital increase of 39 million RMB, representing a 29.08% uptickAfter accounting for the quantitative risk diversification effect, the overall minimum insurance capital increased by 89 million RMB, reflecting an increase of 48.66% from the previous quarter.

Given the current pressures within the NEV insurance market, insiders assert that while one cannot outright dismiss the inherent advantages of automotive companies entering the insurance industry, it is equally vital to recognize that these companies may not swiftly reshape market dynamics or resolve systemic industry challenges simply through their entry.

“With the comprehensive cost ratios predominantly exceeding 100%, what justifies the expectation of immediate profitability for car manufacturers?” questioned one insider

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They highlighted two main factors: firstly, car manufacturers often lack sufficient expertise in insurance, which requires deep knowledge and experience in areas like risk pricing and actuarial sciencesThe costs associated with constructing an in-house team can be prohibitiveSecondly, automotive firms must navigate the complex regulatory landscape to acquire the necessary licenses in various provinces and cities, facing multifaceted challenges surrounding funds, capabilities, and network distributionAdditionally, the establishment and operation of an insurance transaction system demand significant human and financial resources.

Importantly, many consumers are keen to know whether insurance companies affiliated with car manufacturers enjoy advantages regarding repair costs for their vehiclesAccording to the solvency report released by BYD Insurance for the fourth quarter of 2024, repairs resulting from insured incidents with vehicles associated with BYD Automotive amounted to over 51 million RMB, constituting a significant related-party transactionThe pricing for repair services adhered to principles of fairness and market competitiveness, with agreements stipulating the utilization of OEM parts priced not to exceed market levels, with costs being settled individually upon verification following customer acceptance of repairs.

Industry experts believe that since the pricing follows market principles, the discrepancies between repair costs and market rates are likely minimal.

Zhang Lei further pointed out that although car manufacturers exhibit substantial advantages in terms of data and ecosystem development, this does not guarantee a competitive edge in overall pricingThis is mainly because the repair and parts replacement costs for new energy vehicles are substantially higher compared to traditional gasoline vehicles, which escalates the overall payout risks, making it challenging for high-risk clients to obtain noteworthy discountsHowever, car manufacturers can leverage their rich data resources to precisely identify high-quality client segments

For these clients, manufacturers can offer more competitive pricing under measured risk conditions, facilitating differentiated pricing and targeted marketing efforts.

In light of the fierce competition currently plaguing the NEV insurance market, Xu Minmin, an associate professor at the School of Economics at Beijing Technology and Business University, stresses that businesses must meticulously assess future operational outcomes and resilience before deciding to infiltrate the NEV insurance landscapeNonetheless, she notes that current data suggests improvements in the losses experienced in NEV insuranceSubsequent enhancements in loss ratios could stem from bolstering insurers' pricing capabilities and optimizing managerial processes to enhance efficiency, particularly through precise pricing for NEVs.

He Xiaowei, associate dean at the School of Insurance at the University of International Business and Economics, further asserts that insurance for new energy vehicles is not purely an internal matter for the insurance sectorIt heavily relies on the entire new energy vehicle industry chain; the activities of manufacturers and maintenance providers significantly influence insurance pricingThe associated risk factors are intrinsically linked to these industry entities.

Recent industry reports reveal that the Chinese insurance sector underwrote 2,795 types of new energy vehicles, with 137 models registering a claims payout ratio exceeding 100%. This figure includes 99 buses and 38 trucks.

Finally, Dai Haiyan underscores that the disparity in technology and structure between new energy and traditional fuel vehicles results in drastically different repair costs and component pricingHence, the maintenance expenses and part replacement costs for new energy vehicles are disproportionately higher than their traditional counterparts.

With the rapid growth of the NEV insurance market and an increasingly diverse set of participants, competition shows no signs of abating

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