“In fierce competition, it is nice if a project gains a 10 percent profit. But today airplanes have few accidents, and yet flight insurance makes a 600 to 700 percent of profit. Isn’t that overpriced?” asked Mao Yushi, the economist who attacked the huge profit made at airport coffee bars.
China has some 80 million air-passengers each year, and if everyone of those passengers were to buy the 20-yuan (US$2.41) life insurance, the airlines would take in some 1.6 billion yuan (US$193 million), said Mao who figures that because of the low cost of indemnity in recent years, aviation life insurance makes a profit of about 1.4 billion yuan (US$168 million) each year.
“Thus the insurance’s profit rate is as high as 700 percent. Although some passengers do not buy life insurance, they also need not to be compensated. So they do not affect the insurance’s profitability.”
Many passengers agree. A traveler whose surname is Li said it is reasonable to buy flight insurance, but passengers should be informed about the expense and how the rate is determined.
But Huang Huaming, director of Insurance Department of the University of International Business and Economics, said China’s flight insurance rates correspond with international standards. More over, insurance funds are used not only to compensate in case of accidents, but also to prevent accidents from occurring. Huang said the insurance rates are not decided by a single company but rather by regulatory departments according to industry-wide statistics. The aviation life insurance rate is one 10000th and other life insurance rate several 1000ths.
Another point of view came from Hao Yansu, director of the Insurance Department of the Central University of Finance and Economics: “Many people misunderstand, thinking that the profit of insurance is used to set up buildings, pay employees’ salaries or distribute freely. In fact, the insurance employee’s salaries are supervised by financial and tax departments and the profit must enter into rolling insurance funds.”
Hao added that insurance sellers can deduct 30 percent in the first year, but the percentage decreases year after year and the average income is only 8 percent. The insurance companies’ costs are similar to finance and securities companies, but an aviation accident may cost half a year or the whole year’s gross insurance income. The September 11 incident exhausted some companies’ insurance funds.
“In this case, the insurance companies put all profits into the insurance funds to prepare for the accidents, so we cannot determine whether the insurance industry has huge profits by a single insurance. Otherwise, insurance companies also need profits to develop,” Hao said.
Although many insurance experts differ with Mao Yushi, they also admitted many consumers regard aviation insurance as being overpriced, which reflected shortcomings in service and promotion. Some experts pointed out that some insurance sellers do deceive consumers, and some insurance companies have little regard for consumers. These experts would require the insurance companies to be honest and let consumers know the situation and operation of the business as well as its product -- insurances. Although the insurance rate is decided by a regulatory department, companies should enhance their services, which is the main area of competition.
(Wang Xu for 北京青年报[www.bjyouth.com], translated by Feng Yikun for china.org.cn, April 10, 2002)
