Insuring the next generation of vehicles in China – Opportunities and challenges
In less than a decade, China has become one of the world’s largest markets for new energy vehicles (NEVs). While the government is gearing up to promote NEVs through subsidization and a dual-credit policy to encourage original equipment manufacturers (OEMs) to produce a certain percentage of NEVs compared to gasoline cars, some major cities now have ambitious plans to replace all public transportation with NEVs over the next several years.
Insurance needs for New Energy Vehicles
On 4 August 2021, the Insurance Association of China released draft dedicated motor insurance policy for the new energy vehicle segment. It does not only review the terms and tariffs, but also introduces a number of extension covers designed exclusively for new energy vehicles, including external grid failure insurance, charging pile damage and liability insurance, intelligent assisted driving software loss compensation insurance, fire accident limit doubling insurance and a new energy vehicle value-added service special clause.
These new provisions are expected to give further support to the development of the industry as major reinsurers and primary insurers have already been experimenting and exploring heavily of their capabilities in this new area. This new product is intended to cover the new features of NEVs such as batteries and charging piles, as well as OTA (over-the-air) technology.
While the rapid development of NEVs in China means significant opportunities for the insurance industry, the new fuels that they use are transforming the risk landscape and challenging the way we assess risk impacts. With new risks posed by battery failure, changes in driving behaviour and difficulties in estimating used-car residual values, insurers need to acquire not only a deeper understanding of the risks, but also big data analytical capabilities in order to design suitable products and meet the changing demand in the market.
Market pain points and their impacts on insurance product development and claims
On the NEV market, the main determinants of customers’ purchasing decisions include safety, driving range and vehicle depreciation. While these factors are partly related to the degradation behaviour of lithium-ion batteries, insurers are also facing a higher frequency of accidents involving NEVs, as well as higher repair costs. This will continue to be a challenge for insurers until common standards for NEV loss adjustments, battery repair, and claims handling are in place, which will require cross-industry collaborations among battery manufactures, OEMs, tech companies and re/insurers.
On the other hand, the massive amounts of big data generated by NEVs (on e.g. battery performance, user behaviours, maintenance, repair history and telematics) could be capitalised on for insurance product design. For example, telematics data can be utilised for user-based insurance and ride-hailing car risk scoring products; ADAS (advanced driver-assistance systems) data can be used for commercial fleet liability products; and battery data can be used for extended warranty products. As such, it has become crucial to understand the value chain and the relevant players in the local Chinese NEV ecosystem – such as non-motor service providers for repair and replacement compensation products, and car-longevity service providers, who are also highly relevant for OEMs and dealers.
Munich Re’s role in the new ecosystem
China has already set a long-term ambitious climate goals: peaking carbon dioxide emissions by 2030 and achieving carbon neutrality by 2060. In this regard, NEVs can offer environmentally friendly mobility solutions.
In view of Munich Re’s ESG goals, it is of the utmost importance that we continue to invest in the untapped field of NEVs, and that we together with our clients and centres of expertise within the Group to explain and assess the emerging risks it entails and create tailor-made solutions that match our clients’ requirements.
Smart Thinking Consulting “Sitao”, our designated innovation hub and consulting service in China, has been putting efforts into research and development on NEV-related areas. Together with our Green Tech Solutions (GTS) experts, we are already developing solutions for NEVs and related non-motor services products. Our Sitao team is combining GTS’ experience in renewable energies and energy efficiency with its local market know-how in order to quantify mobility-related risks. And, through an in-depth collaboration with our insurance clients, we can enable OEMs and insurers to jointly design bespoke cover for the latest models, test various product features with rapid turnaround, and make the next generation of vehicles insurable.