China's insurance regulator came to the rescue of property insurers this week, securing a Supreme People's Court ruling that will spare them from exposure to a higher statutory standard of liability risk not reflected in the premiums of outstanding vehicle policies. The Chinese Road Traffic Law, which came into effect last month, makes third-party motor vehicle liability insurance (TPL) mandatory for all drivers nationwide. That is considered good news for insurers, who can now count on a guaranteed source of premium revenue. However, the new law also dramatically expands the liability of parties causing death or injury in vehicle accidents, raising TPL underwriting risks substantially. 'Plainly put, the new standards significantly raise insurers' liabilities,' said a Shenzhen-based insurance company official. The new rules also legalise anguish payments, and for the first time explicitly hold the culpable party liable for income loss of the victim. Death and disability payments are now capped at 20 times the regional average annual wage, up 10 times under previous codes. Bearing the additional risk would not be a problem for insurers - provided they can account for it in their premium rates. Existing third-party liability policies carry premiums that are commensurate with the old liability standards, meaning that insurers would have to bear the augmented risk without the premium income to justify it. This prompted the China Insurance Regulatory Commission to seek relief on behalf of the industry from the Supreme People's Court, which ruled that the old liability standards would apply to bearers of valid TPL policies issued before the Road Traffic Law came into force. Holders of older policies who wished to obtain coverage under the new, higher compensation standards, would have to renegotiate policy terms with insurers and pay a higher premium, the commission said. In practice, most policyholders will keep their coverage as is until renewal time. Vehicle TPL policies in China are renewed annually, and all new policies issued will reflect the higher liability standards. Insurers had raised premium rates by 10 per cent to offset the impact of the higher potential liabilities, said a spokeswoman at China's largest non-life insurer, PICC Property & Casualty, yesterday. While the Supreme Court ruling removes a degree of short-term uncertainty from the property insurance sector on the mainland, there are lingering concerns over how strong a driver of insurance profits the mandatory TPL requirement will prove to be. Although insurers have been free to set premiums, uniform national policy terms - including coverage, liability limits and premium rates - might be put in place in the future, limiting profit potential. 'The regulator's official line is that TPLs are 'statutory policies, commercially managed',' said a spokeswoman for PICC Property & Casualty. 'However, the policy has yet to be clarified. We are not sure whether rates will be unified.' One analyst noted that TPL policies were still categorised by the regulator as 'not for profit'. Insurers hope that the nationwide mandatory TPL requirement will help boost policy volumes and moderate the premium volatility afflicting the sector as competition intensifies. However, as many provinces had already made TPL cover mandatory before the new traffic law, the legislation might stabilise premium growth, rather than create a huge swell of new demand, a Hong Kong analyst wrote in an April report. 'It's hard to see notable change in a month,' the PICC spokeswoman said. 'But it will certainly expand the base of policy buyers, as every car will need the policy.' TPL cover accounted for about 30 per cent of PICC's vehicle insurance business, which in turn contributed 66.6 per cent of its 40.4 billion yuan in net premiums earned last year. Insurance actuaries in China operate on much higher risk standards than those in developed countries. Traffic accidents have been rising on the back of rapidly expanding vehicle numbers, often unmatched by road improvements. These problems are compounded by the inexperience of many drivers. There are tentative signs of improvement. Last year, 104,372 people were killed and a further 494,174 injured in 667,507 traffic accidents on Chinese roads, the first annual decrease in the number of accidents and casualties in a decade, according to the Ministry of Public Security. Fatalities per 10,000 vehicles dropped to 10.8 from more than 13 in 2002.