China FinTech:How will smart drive reshape car insurance?

Recently we have seen a clear trend for ‘smart drive’ technologies beingadopted in coming years by the global auto industry, including: (1) Internet ofVehicle (IoV), (2) ADAS (Advanced Driving Assistance Systems), as well as(3) autonomous driving. On the insurance side, we think major car insurancecompanies such as PICC P&C (2328 HK, Neutral), Ping An (2318 HK, Buy),and CPIC (2601 HK, Buy) may benefit from a jump in profitability at thebeginning, in particular for first-movers in UBI (Usage Based-Insurance), buteventually car insurers will face a profit decline from a shrinking businessarising from car insurance changing into a much smaller product, ie, liabilityinsurance.

    On the technology side, we think business innovations in car insurance suchas UBI would stimulate the use of smart drive-related electronics in cars,hence benefiting major component vendors, including Launch Tech (2488HK, NR, for OBD [On-Board Diagnosis]), Deren Elec (002055 CH, NR, carsafety sensors and control units), Sunny Optical (2382 HK, Buy, vehiclelenses) and Joyson (600699 CH, NR, active car safety, see Fig 2). However,autonomous driving would require an entirely new insurance system,because liabilities in an accident are associated with car OEMs or smartdrive solution vendors (such as Google), instead of drivers. We think theautonomous driving industry may take a long time to convince regulatorsand insurance companies to establish the new system for autonomous cars.