Introduction: Premiums Rivaling Luxury Brands?

Perhaps the official unveiling of the new model YU7 is still awaiting the right moment. However, the Xiaomi SU7 Ultra and the entire Xiaomi SU7 lineup will undoubtedly steal the spotlight at the Shanghai International Auto Show in late April.

In the past 20 days, two Xiaomi SU7 standard editions caught fire after collisions in Tongling, Anhui, and Xuwen, Zhanjiang, respectively, claiming the lives of five individuals. These incidents have cast a shadow over Xiaomi Motors' meteoric rise, which was on track to deliver 29,000 vehicles in a single month, aiming for an annual target of 350,000 vehicles in 2025.

Dubbed "The first car for young people," the SU7's initial marketing heavily targeted this demographic. Notably, both drivers involved in the accidents were in their twenties.

This underscores the potential mismatch between high-performance electric sports cars, which prioritize acceleration, and young drivers with limited experience and impulsive tendencies. Such cars might not be the ideal first vehicle for them.

These successive accidents, coupled with the driving habits of young people, have also impacted the renewal premiums for Xiaomi SU7. Car owners on social media have reported facing an "insurance dilemma" in the second year, with premium increases as high as 130% and insurance companies denying coverage under the pretext of "system failures." The phrase "renewal difficulties" has become a buzzword in the new energy vehicle industry.

In response to rumors of "refusal to underwrite" and questions about "excessive accident rates," a Xiaomi spokesperson issued a statement on the company's official Weibo account, refuting the rumors and stating, "Evidence of this content has been preserved, and a report has been made to the public security organs in accordance with the law."

More certain than the rumors is the challenge faced by property insurance companies underwriting Xiaomi SU7: "high accident rates and high claims ratios," with a combined cost ratio exceeding 100% in the past year.

What exactly has led the SU7 vehicle insurance into this near "lose-lose" situation?

01 Premiums Comparable to Luxury Cars?

Have the renewal premiums for Xiaomi SU7 indeed skyrocketed?

Based on feedback from car owners on social media, there have been cases of both premium increases and decreases. A vehicle insurance salesperson told Jin Mei Mei that generally, if there are no accidents or violations in the previous year, the premium for the second year is likely to decrease due to vehicle depreciation.

However, after an accident, even if the related expenses are minimal, it's not uncommon for the Xiaomi SU7's vehicle insurance premium to jump to over 10,000 yuan in the second year. Additionally, quotes for the same SU7 model from different insurance companies can vary by as much as two or three thousand yuan for the same car owner.

Since its launch, the Xiaomi SU7's vehicle insurance price has been described as "high." With a price tag in the 200,000 yuan range, its annual premium was between 6,000 and 8,000 yuan, comparable to that of a Maserati priced at 680,000 yuan, sparking heated market discussions.

At that time, Xiaomi Motors responded that the pricing was in line with the overall premium level of mainstream new energy electric sedans in the market.

Besides the generally high premiums for new energy vehicles, Xiaomi SU7's positioning as a "performance sedan" also contributed to its high premiums.

After the vehicle insurance reform, the premium for commercial vehicle insurance is determined by four factors: the basic premium of the vehicle model, the no-claim discount coefficient (NCD coefficient) for commercial vehicle insurance, the traffic violation coefficient, and the company's autonomous coefficient. The first three coefficients are industry-standard, while the company's autonomous coefficient is determined by each company.

In terms of the autonomous coefficient, after the vehicle insurance reform, each company has its own model with different indicators.

"For the same car, a driver born in the 1990s or 1960s will incur higher vehicle insurance costs than one born in the 1970s or 1980s. For two cars of the same price and year, the premium for a sports sedan will also be higher than that for an ordinary passenger car," an auto insurance actuary told Jin Mei Mei.

Since its inception, Xiaomi SU7 has emphasized performance and speed, fulfilling the sports sedan dreams of young people. However, the combination of strong acceleration, 0-100km/h sprint times, and the thrill-seeking nature of "ghost fire boys" has significantly increased the incidence of scratches and rear-end collisions, pushing up insurance company scores on the NCD coefficient for car owners and subsequently increasing premiums.

02 Underwriting Losses Across All SU7 Policies

The "three highs" of new energy vehicles – "high premiums, high accident rates, and high claims ratios" – have led to a "lose-lose" situation in new energy vehicle insurance, with car owners complaining about high premiums and insurance companies reporting losses.

For car owners, the average premium for new energy vehicles is actually 20% or more higher than that for fuel vehicles, and they are more likely to be denied coverage.

On the other hand, even if insurance companies charge higher premiums for car owners with accidents and violations, it's difficult to reverse the underwriting losses faced by insurance companies.

Jin Mei Mei learned from the industry that several property insurance companies cooperating with Xiaomi, including Ping An Insurance (China) Company of (Group) Ltd. (601318.SH), PICC Property and Casualty Company Limited (601319.SH), China Pacific Property Insurance Co., Ltd. (601601.SH), and Sunshine Property & Casualty Insurance Co., Ltd. (6963.HK), all incurred losses in underwriting Xiaomi SU7, with a combined ratio (COR) as high as around 115%.

It's not just Xiaomi SU7; the entire industry is mired in the vortex of underwriting losses for new energy vehicles.

Data shows that in 2024, the Chinese insurance industry underwrote 31.05 million new energy vehicles with a premium income of 140.9 billion yuan, a COR of 104%, and underwriting losses of 5.7 billion yuan, presenting a state of continuous losses.

Facing a promising future, insurance companies cannot foresee a turning point in current profitability and can only resort to indirect price increases, continuing to pass on significant costs to car owners who have already purchased insurance. This then enters a negative cycle.

At its root, the "lose-lose" situation may be related to the manufacturing process of new energy vehicles. New energy vehicle manufacturers often use an integrated body process, with sensors, radars, and other precision instruments scattered around the body.

Compared to fuel vehicles, although this new modality reduces manufacturing costs, a minor collision can result in high repair costs. For example, damage to a battery pack may lead to an overall replacement cost exceeding 40% of the vehicle price.

Moreover, despite the high fees, the premium adequacy of new energy vehicle insurance is still insufficient.

An industry insider told Jin Mei Mei that due to pricing coefficients and industry support, the premium levels for new energy vehicles have been artificially lowered. Coupled with the mixing of commercial and household vehicles, the premiums for new energy vehicles are difficult to cover the cost of claims.

The relatively young profile of new energy vehicle owners also means shorter driving experience. The proportion of owners under 35 years old is 14 percentage points higher than that of fuel vehicle owners.

This series of factors has resulted in a new energy vehicle accident rate of 30%, exceeding that of fuel vehicles by more than 10 percentage points, further exacerbating the claims pressure on insurance companies.

03 Even "Automaker-Affiliated" Insurance Companies Cannot Escape Losses

In 2024, the premium income for new energy vehicle insurance was 140.9 billion yuan, accounting for 15% of vehicle insurance. It is estimated that by 2030, the premium for new energy vehicles will reach 500 billion yuan, accounting for about 40%.

Such a huge market is one that no one wants to miss out on. Especially for automakers, after new energy vehicles no longer require regular maintenance, the only connection with customers is insurance. Insurance accounts for 60%-70% of the expenses incurred by car owners after purchasing new energy vehicles, making it their largest expenditure.

Therefore, insurance companies with automaker genes have also entered the market. Currently, Tesla (TSLA.US), BYD (02594.SZ), and Xiaomi have all ventured into this sector.

In May 2023, "the leader in new energy," BYD, acquired a property insurance license through the acquisition of Yian Property & Casualty Insurance and established BYD Insurance.

At BYD's 2024 shareholders' meeting, Wang Chuanfu stated that BYD would further reduce various costs and expenses in the insurance business, so that insurance for new energy vehicles would not only be profitable but also generate profits.

However, BYD Insurance's solvency report for that year revealed a full-year insurance income of 1.351 billion yuan and a loss of 169 million yuan.

The reason for the loss can be gleaned from the fact that BYD Insurance's combined cost ratio and combined claims ratio both exceeded 200%. Compared horizontally, the industry's combined cost ratios are mostly between 100%-150%.

An industry insider told Jin Mei Mei that BYD Insurance's combined cost ratio, which is much higher than the industry average, is due not only to the company being in its early stages of development and needing to increase investment in operations but also because there is no mature pricing mechanism for the risks of new energy vehicles across the industry.

BYD, which is still "feeling its way across the river," cannot skip the data accumulation period.

However, it is not an easy task for automakers to enter the insurance industry. According to Warren Buffett, the difficulty of automobile companies in developing insurance businesses is no less than that of insurance companies in manufacturing automobiles.

The situation overseas is not much better. Tesla began operating its own insurance in 2022 and is still incurring losses. In 2023, the loss ratio for Tesla's self-operated insurance business was 115%.

"Automaker departments are not monolithic, and each department has corresponding KPI requirements. When a car accident occurs and requires repairs, it's crucial how the repair department charges and coordinates with the insurance department. Additionally, the premiums generated from vehicle insurance are insignificant compared to car sales revenue and are not highly ranked in terms of internal importance," said an insurance industry insider.

04 Looking Forward to Policy Deregulation

With the continuous emergence of various new functions in new energy vehicles and record highs in production and sales, new energy vehicle insurance, as a shortcoming of the entire industry, urgently needs addressing.

In the view of many industry insiders, a crucial step in solving the problem lies in matching risks and pricing.

At the beginning of this year, the China Banking and Insurance Regulatory Commission, the Ministry of Industry and Information Technology, and other departments jointly issued the "Guiding Opinions on Deepening Reforms, Strengthening Supervision, and Promoting the High-Quality Development of New Energy Vehicle Insurance" (hereinafter referred to as the "Opinions").

In addition to arrangements for reducing repair costs, the "Opinions" also specifically mentioned the intention to optimize the floating range of the autonomous pricing coefficient for new energy commercial vehicle insurance and the benchmark rate for commercial vehicle insurance. This also responds to the expectations of insurance companies.

Currently, the range of the autonomous pricing coefficient for new energy vehicle insurance is [0.65, 1.35], meaning that insurance companies can increase premiums by up to 35% and decrease them by up to 35% based on the benchmark rate.

Compared to the autonomous pricing coefficient range of [0.5, 1.5] for fuel vehicles, insurance companies have limited pricing adjustment space, and the true risk level of vehicles is not reflected.

If the coefficients for new energy vehicle insurance can be further liberalized, insurance companies can alleviate underwriting pressure by adjusting pricing. Consumers with good driving habits can also experience a reduction in premiums, while "ghost fire boys" with erratic driving habits will face greater constraints.

However, before the relevant policies are implemented, car owners and insurance companies must continue to navigate the chaotic landscape of new energy vehicle insurance for some time.