How to recognise legal variants of usage-based insurance

By Xia Yibin, AnJie Law Firm
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The theoretical basis of usage-based insurance (UBI) is that drivers with safer driving performance should deserve the insurance premium discount, such that the insurance companies should focus on the actual driving history, location, specific driving method and other considerations, on which the premium should be determined. This is different from traditional commercial auto insurance in China. UBI in China has not started yet, however innovative internet enterprises such as Tainiu are eager to work on the variants similar to UBI. Combined with the current trend, this column will discuss how to legally realise the variants of UBI.

Q: What are the legal relationships that may be involved in the variants of UBI launched by the Internet of Vehicles (IoV) enterprises?

A: The legal relationships that may be involved are:

First, the commercial partnership between the insurance companies and the IoV enterprises. Based on the advantages of collecting drivers’ data from vehicle-mounted smart products, IoV enterprises can select the valued insurance clients for insurance companies through real-time data analysis and help the insurance companies adjust their marketing policies, and formulate the targeted premium rate of auto insurance.

Xia Yibin Partner AnJie Law Firm
Xia Yibin
AnJie Law Firm

The insurance companies purchase vehicle-mounted smart products for their client, and pay the procurement fees and technical service fees to the IoV enterprises.

Second, the insurance relationship between the insurance companies and the clients of car insurance. The IoV enterprises recommend clients who are willing to purchase the vehicle-mounted smart products, the car owners cover the insurance with the insurance companies directly, and the insurance companies determine whether to underwrite the insurance or not after the assessment, and settle the claims of the car owners after the insured events.

Third, the legal relationship between the IoV enterprises and the car owners. The vehicle-mounted smart products of the IoV enterprises, used by the car owners, collect the mileage, driving situation, car conditions, driving habits and other data with real-time data analysis. These products give timely feedback to car owners and provide early warnings to help reduce accident rates.

The IoV also grants car owners rewards for safe driving, as long as they use the smart products for a certain period during which no accidents occur.

Q: How can the IoV enterprises co-operating with the insurance companies on the variants of UBI be considered as running the insurance business?

A: China Insurance Regulatory Commission (CIRC) has issued many policies on the internet insurance business of insurance companies and imposed strict supervision. According to the Interim Measures on Internet Insurance Business, out for public comment, the internet insurance business refers to business such as conclusion of insurance contracts, providing insurance services served by the insurance institutions through the proprietary trading internet platform or third-party internet platform, relying on the internet, mobile communications, and other techniques.

The third-party internet platform refers to the internet platform providing supporting services to insurance customers and insurance institutions in the internet insurance business, other than the proprietary trading internet platform. It can be seen from the definition above that one of the major characteristics of the internet insurance business is that insurance services – such as the conclusion of the insurance contract, the collection of premiums and the settlement of claims – are all operated and realised on the internet.

The IoV enterprises are undoubtedly the third-party internet platform, as the co-operation of the IoV enterprises and insurance companies sets up a high threshold for market access for the IoV enterprises, especially those who participate in the underwriting of insurance, settlement of claims, rescinding of insurance, claims and other insurance services that would require certain insurance qualifications.

Therefore when those enterprises that have not obtained the relevant insurance qualifications actively engage in brand and product promotion of co-operative insurance companies on the internet, they should try to avoid misleading publicity such as conducting the insurance sales and settlement of claims.

Meanwhile, the IoV enterprises should post the notice in a prominent position, emphasising that they are neither insurance companies nor the agent of insurance institutions, and if the car owners would like to purchase UBI products they should directly negotiate with the insurance companies recommended by the IoV enterprises. On the conclusion of the insurance contracts, the settlement of claims after the insured events, and other rights and obligations related to insurance services are limited to the car owners and the insurance companies.

Q: How do you avoid the relevant fees paid by the insurance institutions to the IoV enterprises being considered as commissions? How do you avoid the rewards granted by the IoV enterprises to the green and safe drivers being considered as refunding the premium?

A: The insurance laws and regulations have strictly restricted the insurance companies to paying the handling fees, commissions or similar fees to the institutions or persons without insurance intermediary qualifications. Therefore in the co-operation agreement concluded by the IoV enterprises and the insurance institutions, defining the nature of relevant fees paid by the insurance institutions to the IoV enterprises as essentially important – “commissions”, “refund the premium” and other sensitive words should be avoided.

In the clauses concerning the rights and obligations in the co-operation agreements, the following points are recommended to include: the IoV enterprises have the advantage of collecting the driving data of car owners through the vehicle-mounted smart products, and they can select valued clients for the insurance companies through the real-time data analysis.

They can also give feedback to car owners and provide early safety warnings, enabling fewer accidents, which helps the insurance companies reduce losses. Given the above services, the IoV enterprises charge fees for the procurement and technical servicing of vehicle-mounted smart products.

Insurance laws and regulations also strictly confine the insurance institutions to refunding the premium to the policyholder. Therefore, it is necessary to differentiate the co-operative fees paid by the insurance institutions to the IoV enterprises, and the rewards granted by the IoV enterprises to the green and safe driving car owners in the agreements concluded by the IoV enterprises and car owners. It should be clarified that the rewards granted for safe driving should be paid from equity capital, and the relevant rights and obligations only exist between the IoV enterprises and car owners.

Xia Yibin is a partner at AnJie Law Firm


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