Bad drivers? We have nothing on China

This post comes from Des Toups at partner site CarInsurance.com.

Well, this is one way to solve the trade deficit.

Vice President Joe Biden announced Tuesday during meetings with his Chinese counterpart, Xi Jinping, that China has agreed to open its auto insurance market to foreign competition.

A few months of accident surcharges should balance the books in no time.

China's roads are widely believed to be the most dangerous in the world.  No one knows for sure, because many observers believe the reported fatality rate is only a fraction of actual deaths. Even using China's official numbers, twice as many people died on its roads in 2009 as on roads in the United States -- which has far more cars racking up many more miles.

And mere nonfatal accidents? Few even bother to report them. (Here's an eye-opening tour of the dangers of Chinese roads.)

The chaos is only beginning

In car culture terms, China is a child behind the wheel of a speeding Ferrari.

The Chinese government didn't encourage private car ownership until 1994, but by 2009, China had surpassed the U.S. as the world's largest new-car market. Even so, with 1.3 billion potential drivers and only about 100 million vehicles, the potential for growth is huge. Post continues below.

The International Bodyshop Industry Symposium forecasts as many as 450 million vehicles on the road in China by 2040. Its 2011 report cites many reasons for body-shop owners to be excited, among them that:

• Pretty much all Chinese drivers are newly licensed, and that means accidents. "The majority of the population has not driven before," Desmond Chan, the president of Wedge Clamp, told IBIS. "Drivers treat the rules of the road as if they are walking or cycling." (See "Why teen drivers are expensive: They're bad drivers.")
• Pretty much all Chinese cars are new. (The favorite last year: the General Motors-built Buick Excelle.)
• Between 60% and 90% of Chinese vehicles are involved in a collision each year, the report estimates.

Insuring the world's deadliest drivers

China does have a homegrown auto insurance industry, but it is learning the ropes along with the country's drivers. A 2007 report from McKinsey Quarterly finds that "most carriers have yet to invest in business processes that would let them distinguish between high- and low-risk customers."

Liability insurance is mandatory, but insurance companies are allowed to offer big discounts to lure new customers, and drivers switch insurance companies frequently.

And while Chinese driving-test requirements are fairly stringent (See "Are US teens the world's worst-trained drivers?") and traffic rules firmly prohibit most bad behavior, enforcement is erratic. Many drivers invest in devices that cloak their license plates from speed cameras. Drivers who get nabbed can pay other drivers with clean records to take points for them.

U.S. car insurance companies have developed sophisticated ways to judge risk: They check your driving record, your credit, your ZIP code, even how hard you brake.

In China, clearly, the rules will be very different.

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