New energy vehicle companies jostling for share of car insurance pie
China's NEV maker NIO Inc. (NIO: NYSE) has recently incorporated its insurance brokerage company in eastern China's Anhui Province, with a registered capital of CNY 50 million (USD 8 million), as per information on business data provider Qcc.om.
Stanley Qu, NIO's vice president of finance, is made the legal representative of the new company, called NIO Insurance Brokers Limited that was registered in Hefei, capital of Anhui.
A wholly owned subsidiary under NIO, its business scope will cover areas like insurance brokerage, insurance agency and insurance survey.
NIO's move was is widely regarded as a response to the launch of exclusive insurance products for NEVs in China.
On December 27, 2021, China's insurance industry association issued a special regulation stipulating that NEVs will no longer be insured according to the same rates as fuel-powered vehicles. Instead, they will be subject to a new set of applicable insurance pricing standards.
Subsequently, some NEV car owners reported that their insurance fees jumped following the regulation. One-year covers for some Tesla models even soared by as much as 80%.
On the same day the new regulation took effect, Shanghai Insurance Exchange launched a NEV insurance trading platform. NEV-specific insurance products from 12 insurance companies were listed on the platform.
Cui Dongshu, secretary-general of the China Passenger Car Association, once noted in an article that the launch of NEV-only insurance is laudable, but the spike in insurance expenditure could offset the car owners' fuel cost savings and diminish the appetite for NEVs.
He suggested that auto makers introduce insurance products of their own.
In effect, auto makers eyeing an expansion into insurance are lured by greater incentives than a new possible revenue stream.
NEV producers large and small have set sights on offering insurances to consumers themselves. This could provide them with a way to connect directly with buyers and create new business opportunities throughout a car's life cycle.
NIO's move came after a number of competitors had set up wholly owned insurance brokerage firms.
BYD announced the launch of usage-based insurance (UBI) services as early as 2018. Xpeng secured the permit from China Banking and Insurance Regulatory Commission (CBIRC) in July 2018 for a brokerage firm it had established earlier.
Meanwhile, Tesla incorporated Tesla Insurance Brokers Limited in Hong Kong in April 2020, to be followed by the debut of its own UBI services in October 2021.
NIO previously worked with insurance brokers and third-party insurers to offer service packages to users. They included insurance, maintenance and other add-ons.
Acquiring the license from CBIRC will be the first, albeit critical, step for NIO to operate its insurance business. Next, the firm will need to set up regional branches and service networks to move ahead with this endeavor.
A study by iResearch, a consultancy firm, shows that the profit margins of the automotive after-sales market are vastly greater than car production per se, often accounting for 50%-60% of those generated by the whole industry chain.
Normally, dealerships earn commissions by selling insurance policies to car buyers.
Therefore, traditional auto makers' presence in the insurance market is highly limited, says iResearch. But this could change with the increasing adoption of NEVs and the Internet of Vehicles (IOV).
Under a direct-to-consumer model, auto makers are able to reach out to users directly and disintermediate dealers in offering more after-sales services, keeping the lion's share of the profits for themselves.
As of the third quarter of 2021, China's number of NEVs topped 6.78 million, according to statistics released by China Association of Automotive Manufacturers.
In 2021, the country's domestic NEV sales totaled 3.521 million units, an increase of 160% from the same period of the previous year, ranking first for seven years in a row across the world, said the association.
It also projects NEV sales in 2022 to reach 5 million units, up 42%, with their market share forecasted to exceed 18%.