Drivers will have to take out third-party insurance if the State Council approves a draft decree that has gone before the public for advice.

The State Council's Legal Affairs Office published a draft decree on mandatory third-party liability insurance for motor vehicles on its website on Monday, calling for public opinion before the end of next month.

The insurance would become mandatory rather than optional, as it is, and insurance companies would have to work out "no gain, no loss" premiums, which would be approved by the China Insurance Regulatory Commission, the industry's watchdog.

The rule is a bid to improve the current traffic insurance system, which has become obsolete since a traffic law effective in May 2004 redefined drivers' liability.

"I was ordered to pay compensation of 160,000 yuan (US$19,300) but only got 20,000 yuan (US$2,418) or so from my insurer and had to pay the rest myself," said Liu Huan, a 33-year-old Beijinger who was driving a car that killed a pedestrian in May on the main artery of Beijing's Second Ring Road, where pedestrians are strictly forbidden.

Liu's case was the first one to go before the courts since a controversial traffic law took effect.

The law makes drivers liable in any accidents where pedestrians or cyclists are hurt. The liability can be mitigated if the driver is found to have made no error, but existing third-party insurance policies only pay out if the driver was definitely at fault.

The draft decree said the mandatory insurance should always cover personal injury and property damage.

It also requires insurance companies to pay rescue costs for the injured in advance before the insured driver pays it back.

"The draft has made some progress," said Liu, who under it would have been entitled to more from his insurance company.

"But why can't the decree move a step further and cover all the compensation a driver has to pay when he has made no error at all?" Liu said.

Some articles in the draft are expected to arouse controversy in the insurance industry.

"For example, the clause on insurance firms paying rescue fees in advance flies in the face of the common practice of finding liability first and then paying up," said Tuo Guozhu, a professor at the Capital University of Economics and Business.

It was difficult to calculate premiums so that insurance companies earned enough to break even, Tuo said.

"It is understandable that the draft puts human lives and a smooth resolution to conflicts as the first priority," he said.

"But the new third-party insurance rule must be studied very carefully to make it practical and acceptable to all the parties involved."

(China Daily January 13, 2005)