Designing a New Automobile Insurance Pricing System
in China: Actuarial and Social Considerations
Daqing Huang and J. Tim Query
"To make simple things complicated is simple; to make complicated things simple is complex.'"
There are numerous articles extolling the future potential of the insurance industry in The
People's Republic of China (hereafter referred to as China) since the implementation of economic
market reforms. While the current size of the Chinese insurance market is much smaller than many
industrialized nations, the rate of premium growth is among the highest in the world. The national
premium income had reached nearly US$60 billion in 2005, up 13.95 percent over 2004, and 3.09
times of the amount in 2000. Although the insurance industry has garnered increasing interest from
researchers, little has been written about actuarial practices in the world's most populous nation.
Supreme Court Justice Stephen Breyer recently commented that international opinion can be
relevant in determining fundamental freedoms in a more global society. According to Breyer, "U.S.
law is not handed down from on high even at the U.S. Supreme Court," he said. "The law emerges
from a conversation with judges, lawyers, professors and law students .... It's what I call opening your
eyes as to what's going on elsewhere." While the role foreign countries should play in dictating
American law is debatable (and beyond the scope of this study), social researchers, including those in
economics and business, have unearthed valuable insights when researching corollary issues beyond
our borders. Examining the inimitable challenges facing casualty actuaries in China, recognizing
the unique history of their social and legal framework, and studying the creative solutions used to
overcome these obstacles should improve the understanding of our global diversity and is warranted.
The automobile industry in China has a relatively short but impressive history. Backed by
technical assistance f