Sun Shihui, reporter for 21 Century Economic News
Recently, the National Financial Regulatory Administration released an announcement on compulsory motor vehicle traffic accident liability insurance business for 2025, showing that coverage has expanded further. The number of insured vehicles reached 3.86 billion, a year-on-year increase of 3.8%. Additionally, underwriting losses amounted to 296 billion yuan, while allocated investment income was 66 billion yuan.
This loss reflects the strengthening of social welfare protection. Compulsory Traffic Accident Liability Insurance is China's first legally mandated insurance. Since its implementation in 2006, it has covered third-party victims in traffic accidents, excluding vehicle occupants and policyholders. It is not profit-driven and inherently serves a public welfare function.
Notably, despite a 296 billion yuan underwriting loss in compulsory traffic insurance, car owners generally feel that premiums have continued to rise. Car owner Xiao Wang told the Century Economic News reporter that even though he had not filed any claims for three consecutive years, his quoted premium inexplicably increased. Other owners reported being forced to purchase unwanted add-ons, such as passenger liability insurance.
Long Ge, Deputy Director of the Center for Innovation and Risk Management at the University of International Business and Economics, told 21 that "the industry will absorb pressure through commercial auto insurance quotes, underwriting, and bundling. As a result, 'mandatory coverage showing losses on paper while commercial coverage feels de facto expensive' reflects owners' true perception."
What does a 20 ten-thousand yuan limit mean in the face of an accident?
Can I purchase only the compulsory third-party liability insurance?
From the perspective of coverage liability, Compulsory Traffic Accident Liability Insurance (CTALI) only covers "third parties injured in an accident," not the vehicle itself, its occupants, or the policyholder. After the comprehensive reform in 2020, the liability limits are: death and disability 18 ten thousand yuan, medical expenses 1.8 ten thousand yuan, property damage 2000 yuan, totaling 20 ten thousand yuan.
A clear comparison: If you damage a luxury car, repair costs 10 million yuan, but compulsory insurance covers only 2000 yuan. If you injure someone, medical expenses reach 5 million yuan, yet compulsory insurance pays just 1.8 million yuan. Any amount exceeding the limit must be paid out of pocket by the vehicle owner.
In a case concluded by the Qidong Court in 2024 year, 7 month, an accident occurred in 2022 year, 1 month when Wan drove a car and collided with an electric bike. Tao suffered severe injuries and became a vegetative state, classified as Grade 1 disability. Since the vehicle was only insured with compulsory traffic insurance, the court ordered the insurance company to compensate over 18 ten thousand yuan within the limit of compulsory insurance, while Wan personally paid over 95 ten thousand yuan.
Longe noted that the compulsory traffic insurance coverage reached 2025 trillion yuan in 76.8, but the limit per claim is very low, making it essentially a "statutory safety net."
Major payouts still rely on commercial auto insurance. The China Insurance Association's demonstration clauses for new energy vehicle commercial insurance list vehicle damage liability, third-party liability, and passenger liability as three separate main coverage options. Policyholders may choose to purchase all or some of these coverages, with sum insured amounts determined through negotiation between the policyholder and insurer.
Like compulsory traffic insurance, commercial third-party liability coverage protects only the other party—not yourself or passengers. However, its coverage limit ranges from 100 to 300 thousand yuan, making it the primary source for large-claim payouts.
"If you only buy compulsory insurance, you'll have to pay out-of-pocket for any damages exceeding the limit after hitting someone. Repairs to luxury cars costing over 2000 yuan are also your responsibility, and neither your vehicle nor others' injuries are covered. The risk is very high," said Long Ge.
A common blind spot in compulsory third-party liability insurance is that it does not cover occupants of your own vehicle. If the driver or passengers are injured in an accident, this coverage pays nothing. To fill this gap, you need seat insurance or ride protection insurance.
Mandatory bundling of seat insurance: From an "optional add-on" to a de facto requirement
While compulsory traffic insurance, as a legally mandated "safety net," leaves significant coverage gaps in accidents, commercial vehicle insurance remains voluntary under the law. The Insurance Law stipulates that insurance contracts are entered into voluntarily unless required by laws or administrative regulations.
However, recently some car owners reported to the media that they were forced to purchase driver liability insurance and passenger seat insurance. While owners explicitly wanted only compulsory traffic accident liability insurance (CTALI) and third-party liability insurance, sales staff stated that without adding extra coverage, "the system would significantly increase premiums, making it impossible to underwrite or issue policies due to head office risk control requirements." The price difference exceeding 1000 yuan does not come from vehicle damage insurance or third-party liability insurance, but from the new quote which added driver liability insurance and passenger seat liability insurance for all four seats—each with a coverage limit of 45 thousand yuan, resulting in total additional premiums exceeding 1000 yuan.
Why do non-mandatory insurance policies become de facto requirements during the sales process?
An insurance industry practitioner told the 21 Century Economic Reporter that this situation is not uncommon. In telemarketing scenarios, most insurers evaluate sales agents based on a "non-vehicle" ratio—specifically, the proportion of sales from add-on coverage such as driver and passenger liability insurance or personal accident insurance, which fall outside third-party liability and vehicle damage insurance.
He further stated that seat insurance is optional. In cases of bundled sales, policyholders can explicitly refuse and even report the issue to the agent; such complaints are typically resolved promptly.
However, complaints are not always a low-cost solution. After one car owner filed a complaint, they received a call from a salesperson who offered to cancel the seat insurance but raised premiums for other commercial policies. "They said there's no discount if you don't buy seat insurance, so we have to issue the policy at this price," the owner reported. Ultimately, the plan without seat coverage ended up costing more than the original package that included it.
Long Ge pointed out that under the 2023 "Measures for the Administration of Insurance Sales Conduct," practices such as forced bundling, pre-checked options, and coercing additional purchases through threats of non-issuance are violations. Vehicle owners may request itemized details, switch insurers, or use the "Easy Car Insurance Purchase" platform; after documenting these actions, they can file a complaint by calling 12378.
In reality, the situation is often more complex than "forced bundling."
"Non-auto insurance's share drops too low, and we get penalized on KPI," the person admitted.
New Energy Vehicle Insurance: The "Growth Engine" and "Loss Black Hole" of the Auto Insurance Market
This sales-side pressure isn't baseless. The deeper challenge stems from how new energy vehicle insurance is disrupting traditional auto insurance profitability models.
In 2025, the industry insured 4358 thousand new energy vehicles, a year-over-year increase of 40.1%; premium income reached 1900 billion yuan, up 34.8% year-over-year. New energy vehicle insurance has become the most significant growth segment in the auto insurance market, with an average premium per vehicle of approximately 4360 yuan, significantly higher than traditional auto insurance.
However, scale expansion has not improved profitability. According to data released by the China Association of Actuaries, in 2025, underwriting losses for new energy vehicle insurance still reached 56 billion yuan. Although losses decreased year-over-year by 1 billion yuan and the combined ratio dropped by 1.3 percentage points, the industry as a whole has yet to reach the break-even point.
More concerning is the structural pressure on the claims side. In 2025, among 429 new energy vehicle (NEV) series underwritten, 143 series had a loss ratio exceeding 100%, accounting for one-third of the total. NEV buses were the absolute mainstay, totaling 106.
The root cause of high claim ratios in new energy vehicle (NEV) insurance lies in fundamental differences in risk structure compared to internal combustion engine vehicles. Zhang Daoming, Party Secretary of PICC Property and Casualty Company, summarized the challenges into three key points: NEVs have a significantly higher frequency of claims than gasoline vehicles; insufficient socialized repair channels lead to relatively higher repair costs; and the proportion of personal injury cases, along with compensation standards, is rising, driving up average claim amounts.
However, this year has seen accelerated exploration of insurance models for new energy vehicles that separate the vehicle from its battery.
In 2026, the Ministry of Commerce and eight other departments jointly issued the "Notice on Several Measures to Cultivate and Expand Consumption in the Automotive Aftermarket," explicitly calling for the exploration of a "vehicle-battery separation" insurance model. This model's core is to completely decouple coverage responsibilities for the vehicle body and the power battery, insuring them separately: vehicle insurance reverts to traditional logic, covering only hardware risks; battery insurance is priced independently, with differentiated rates based on data such as battery model, residual value rate, and battery swap frequency.
However, scaling this model from pilot to full rollout will take time. Industry experts believe that the "vehicle-battery separation" insurance model is likely to achieve large-scale implementation first in commercial vehicles such as ride-hailing cars, logistics trucks, and buses. In the future, the new energy vehicle insurance market will not adopt a single approach but will see both "integrated vehicle-battery" and "separated vehicle-battery" models coexist.
For car owners, the 296 billion yuan underwriting loss in compulsory insurance is just an industry statistic; but "is buying only compulsory insurance enough?" is a decision directly tied to your own risk.
Rongge provides a clear insurance framework: Compulsory Traffic Accident Liability Insurance (CTALI) and Third-Party Liability Insurance are mandatory. Start with 100 million CNY for third-party coverage; in first-tier cities, for frequent highway driving, or for new energy vehicles (NEVs), consider 200 million to 300 million CNY. Comprehensive Vehicle Damage Insurance is recommended, especially for new cars, high-value vehicles, and NEVs. For older vehicles, you may skip it based on residual value. Optional Seat Insurance or Driver & Passenger Coverage should be added only if you frequently carry passengers, with 10 million to 50 million CNY per seat. However, if you're pressured into buying extras due to "system cannot issue policy" errors, that's not a recommendation—it's an illegal bundled sale.
The loss in compulsory traffic insurance represents a safety cost shared by society as a whole. It ensures that every victim of a traffic accident receives at least the minimum compensation, which is the original intent of the system. However, for individual vehicle owners, the law of large numbers does not apply to a single incident. A major accident causing serious injury or death often results in compensation ranging from hundreds of thousands to millions of yuan, making the 20 yuan limit of compulsory insurance merely a fraction of the total amount.
