(Yicai) Sept. 30 -- China's compulsory liability insurance system for car accidents is suffering increasingly large underwriting losses because claims costs are rising much faster than incomes from premiums, though insurers and industry experts do not expect premiums to increase in the near future.

The losses have widened sharply since 2023, reaching CNY29.6 billion (USD4.4 billion) last year, according to figures released by the National Financial Regulatory Administration. Even after deducting CNY6.6 billion in investment income, the operating loss stood at CNY23 billion for 2025.

The NFRA's annual report on the Compulsory Traffic Accident Liability Insurance system shows that claims costs increased much faster than income from premiums last year, with payouts climbing almost 12 percent to CNY252.4 billion (USD37.6 billion) from the year before and revenue rising only 5.2 percent to CNY285.2 billion.

Introduced in 2006, CTALI was China's first mandatory insurance system stipulated and enforced by law and has since become one of the country's most widely used and publicly scrutinized insurance products. It compensates third-party victims of traffic accidents for bodily injury, death, and property damage caused by accidents involving insured vehicles, subject to statutory liability limits, but does not cover the insured vehicle, its driver or occupants of the insured vehicle.

The CTALI system’s underwriting losses have deepened every year since 2023. Last year’s deficit was about 6.7 times the level of 2021.

Insurance industry sources attribute the deterioration largely to rising compensation standards as household incomes grow and the increasing share of new energy vehicles within the insured vehicle pool. NEVs generally have higher repair costs and, in some cases, higher claim frequencies.

Despite mounting losses, insurance company executives and industry experts interviewed by Yicai generally said the probability of a near-term increase in base premium rates is extremely low.

Insurers will likely continue absorbing the losses in the short run because regulators are prioritizing operational efficiency improvements over premium increases, said Long Ge, deputy director of the innovation and risk management research center at the University of International Business and Economics.

Premium Increases Are “No Simple Matter”

“Insurance companies will have to absorb the losses from compulsory insurance themselves in the short term, as the regulators’ priority strategy is to guide the industry to mitigate losses by cutting costs and improving efficiency,” Long said.

Long noted that the system is governed by nationally unified rates and policy terms and operates under a regulator-approved pricing framework intended to achieve long-term break-even results. So insurers cannot independently raise premiums and must get regulatory approval for any rate adjustments, he said.

“Adjusting the premium rates for the CTALI system is no simple matter,” the chief actuary of a major property and casualty insurer pointed out. Substantial changes require a formal hearing organized by the State Council's insurance regulator before implementation, making significant revisions difficult to achieve quickly.

Long said insurers are more likely to address losses through tighter cost control, improved claims management, lower operating expenses, and reduced repair costs through cooperation with NEV makers. Stronger returns on investments may also help to offset some of the operating losses, he added.

Since most drivers buy the compulsory insurance and commercial car insurance from the same provider, and given that commercial vehicle insurance is profitable, insurers' motor insurance businesses generally remain profitable, so there is little regulatory impetus to push for changes to the CTALI premium rates, Long said.

Nonetheless, one auto insurance executive argued that the long-term outlook for CTALI rates remains uncertain. Premiums have stayed largely unchanged for years even as personal injury compensation standard and vehicle parts costs have continued to rise. He suggested introducing differentiated rates for NEVs, which generally entail higher claims costs than conventional vehicles.

Editor: Tom Litting