Flight accident insurance cartel nears end

PUBLISHED : Tuesday, 02 October, 2007, 12:00am
UPDATED : Tuesday, 02 October, 2007, 12:00am

The cartel operating the mainland's unpopular aviation accident insurance scheme is to be broken up as Beijing gets serious about exposing the industry to market forces.

Since 1996, travellers have been paying 20 yuan each for the insurance that they purchase at airports counters every time they fly.

Only about 5 per cent of passengers now choose to pay amid widespread complaints that the insurance is grossly expensive, considering improving aviation safety and alternative forms of cover now available.

The China Insurance Regulatory Commission last week announced the current system would end on December 1 and that individual insurance companies would be allowed to develop their own products.

'The regulator's move shows its determination to adopt market principles,' said Wang Guojun, a professor at the University of International Business and Economics. 'For customers, it means more choices and more valuable services.'

While the aviation accident insurance market is a tiny part of the 564.14 billion yuan industry, accounting for 0.03 per cent of total premiums, that it is being opened to competition signals growing resolve to liberalise the wider accident insurance market.

CIRC official Chen Wenhui said the reform intended to protect policyholders' interests and improve the industry's image.

'Although the premium is not big, it is socially sensitive as it matters to hundreds of thousands of people,' Mr Chen said. 'It is related to the image of the whole insurance industry.'

Mr Chen said reforming the aviation accident insurance market was the starting point in improving regulation of short-term accident insurance. He said there were many irregularities in policies covering student safety, construction accidents and aviation.

Premium income from aviation accident insurance has slumped over the past two years amid fierce competition and intense media criticism on profiteering. The policy should only cost travellers about three yuan, according to some estimates.

Income from premiums, which have a 400,000 yuan ceiling for accident compensation, dropped 33.83 per cent from 266 million yuan in 2004 to 176 million yuan last year. In the first seven months of the year, premiums reached only 127 million yuan, which means only one in 20 passengers buys the product. Insurers, which have long developed alternative products to the insurance, applauded the regulator's move.

Zhang Jingquan, general manager of product development at China Life, said the price of the insurance would definitely be cheaper and the scope of protection wider following the opening of the market.

'Every insurer is transforming to grab market share,' Mr Zhang said. 'The premiums from pure aviation accident insurance may shrink but travel or other short-term insurance will post strong growth.'