Chinese Motor Insurance... an opportunity for foreign insurers or a poisoned chalice?

The Chinese government's decision to open the third-party motor liability market to foreign insurers is either an opportunity for foreign insurers or a poisoned chalice. According to the notice posted on China Insurance Regulatory Commission (CIRC) site last week, the regulator will also allow a select group of insurers to use their own data and market value of the vehicles.

While this decision is a move away from the strict "base rate" structure historically imposed by the government, it does cap premium rates set by insurers at a maximum of 135% of base premiums laid down by the state. Will this premium cap be sufficient to reverse the heavy losses traditionally suffered by domestic motor insurers which, despite China's insurance sector being profitable since 2009, resulted in losses on mandatory motor insurance totalled ¥9.7bn in 2010? 

Like so many western companies before them, the lure of the east in terms of market potential may entice some foreign insurers to compete in this liberalised marketplace but at what price? 

Is this development a further indication of the Chinese government's efforts to open up their domestic markets or is it, as I suspect, simply a clever ploy by the CIRC to spread the strain of a loss making sector of the industry among the international insurance community thereby allowing domestic insurers reduce their exposure to unprofitable mandatory motor risks?