Author: Lawyer Chen Xin, December 28, 2016

The new "Road Traffic Safety Law" has been implemented since May 1, 2004, replacing the original "Measures for Handling Road Traffic Accidents" and has had a significant impact on people's lives. The new law embodies the people-oriented concept and clarifies the principle that the right to life is greater than the right to road. The legislative ideology has shifted from emphasizing the protection of motor vehicles to protecting pedestrians. The principle of liability has evolved from the principle of fault adopted in the past to the principle of no fault now. Undoubtedly, it is a great progress. The recognition of traffic accidents increases the responsibility of the dominant motor vehicle party, strengthens the protection of the interests of pedestrians and non motor vehicle drivers in a disadvantaged position, and enhances the responsibility of insurance companies in traffic accidents. However, in judicial practice, there have also been many new controversies, among which the issue of determining the nature of third-party liability insurance previously introduced by insurance companies has a certain representativeness.

According to the first paragraph of Article 76 of the Road Traffic Safety Law, "If a traffic accident occurs on a motor vehicle that causes personal injury or property damage, the insurance company shall compensate within the scope of the compulsory third-party liability insurance liability limit of the motor vehicle." According to this paragraph, if a traffic accident occurs on a motor vehicle that causes personal injury or property damage, Insurance companies bear compensation liability within the liability limit of compulsory third-party liability insurance for motor vehicles, regardless of whether the parties are at fault. It can be seen that insurance companies should bear no fault liability within the liability limit of compulsory third-party liability insurance for motor vehicles. This new principle of accountability fully embodies the people-oriented ideology and provides more humanistic care to every citizen. However, China's "Regulations on Compulsory Third Party Liability Insurance for Motor Vehicles" are still in the legislative stage. The current insurance related to third party liability is "Motor Vehicle Third Party Liability Insurance". Is this insurance the "Third Party Liability Compulsory Insurance" stipulated in the "Road Traffic Safety Law"? The author believes that there is a significant difference between holding a negative attitude:

1、 The current "third party liability insurance for motor vehicles" belongs to commercial insurance.

（1） Due to the fact that the State Council has not yet promulgated the "Regulations on Compulsory Third Party Liability Insurance for Motor Vehicles" and the "Measures for the Administration of Social Assistance Funds for Traffic Accidents", two administrative regulations that are in line with the "Road Traffic Safety Law". Due to the advancement of laws and the lag of relevant administrative regulations, there are many defects in the application of laws in the trial practice of Articles 75 and 76 of the Road Traffic Safety Law. At present, many provinces in China have implemented third-party liability insurance for motor vehicles, although it has certain mandatory measures, this mandatory measure is only reflected in the sanctions on the management of motor vehicles that do not purchase third-party liability insurance, which is different from the nature of the third-party mandatory insurance system stipulated in the Road Traffic Safety Law. Therefore, the insurance contract signed between the insurer and the insured is fundamentally a commercial insurance contract, and at the same time, the contract terms signed between the insurer and the insured do not stipulate that the insurance company can directly compensate insurance benefits to third parties. Therefore, without the consent of the insured, the insurer shall not be directly liable for compensation to the victim, but shall only be liable for compensation to the insured in accordance with the provisions of the insurance contract. Because there is currently no compulsory third-party liability insurance, and equating third-party liability insurance with compulsory third-party liability insurance is somewhat misleading.

（2） Analyzing the difference between commercial insurance and compulsory insurance: (1) the former is voluntary; The latter is mandatory, i.e. statutory. (2) The purpose of the former is to gather danger and disperse losses; The latter not only includes the functions of the former, but more importantly, it is to compensate for the damage suffered by the victim and enable them to receive prompt and fair compensation. (3) The former is aimed at profit by insurance companies; The latter, on the other hand, should not aim for profit and should generally achieve a minimum profit between premiums and compensation. (4) The former belongs to voluntary insurance, so the insurer has a choice whether to underwrite, how to underwrite, or how much to underwrite; The latter belongs to compulsory or statutory insurance, and the insurer cannot refuse the policyholder to purchase insurance, which is a compulsory contract. (5) The former belongs to commercial insurance, and insurance companies can bundle and sell other insurances; The latter belongs to statutory liability insurance, and insurance companies are not allowed to bundle sales with other insurances. (6) The insurance amount and premium of the former are generally determined through consultation between the parties involved; The latter is guided by the China Insurance Regulatory Commission and adjusted in a timely manner with economic development. The compulsory third-party insurance for motor vehicles stipulated in the Road Traffic Safety Law, as a special economic compensation system, has its inherent characteristics. Its function is not only to transfer risks as a general insurance, but also to provide quick and timely economic compensation to victims, reflecting the people-oriented concept and implementing a "no fault liability compensation" approach to protect the interests of victims. Insurance companies are commissioned by the State Council to establish compulsory insurance for non-profit purposes, and generally achieve a balance between premiums and compensation payments. And there are mandatory regulations on how to purchase insurance and how much to determine the insurance amount. The premium rate is uniformly formulated by the insurance appraisal committee. As a statutory liability insurance, it cannot be bundled with other insurances for sale. The state reduces or exempts the compulsory insurance of insurance companies from business tax, and vehicles participating in compulsory insurance must be labeled with "insurance labels". However, the third-party compulsory insurance of motor vehicles operated by insurance companies currently does not have the above characteristics, It should belong to commercial insurance.

2、 At present, China has not implemented a compulsory third-party insurance system for motor vehicles.

(1) From a legal perspective, the Road Traffic Safety Law stipulates that "the state implements a compulsory third-party liability insurance system for motor vehicles and establishes a road traffic social assistance fund. The specific measures shall be formulated by the State Council." It can be seen that the law grants the power to formulate this system to the State Council, which shall regulate it in the form of administrative regulations. Obviously, the State Council has already started the formulation of the "Regulations on Compulsory Third Party Liability Insurance for Motor Vehicles" and has now announced the draft. This indicates that the compulsory third-party liability insurance system for motor vehicles in China has not yet been truly established, and also indicates that the current third-party insurance system for insurance companies is not the compulsory third-party liability insurance system for motor vehicles referred to in the Road Traffic Safety Law, otherwise there is no need for new legislation.

(2) Analyze from a factual perspective. With the significant increase in traffic accidents, many victims are unable to receive effective treatment and compensation due to the limited economic capacity of the perpetrators. Therefore, many places have implemented mandatory third-party liability insurance for motor vehicles through local administrative regulations. Local public security and vehicle management departments have just passed annual review measures to ensure the implementation of relevant regulations. However, it cannot be assumed that this form of insurance is the compulsory third-party liability insurance system for motor vehicles referred to in the Road Traffic Safety Law, and the two differ in nature and supervision methods.

In summary, the author believes that there is a fundamental difference between the current "third-party liability insurance for motor vehicles" and the "compulsory third-party liability insurance" stipulated in the Road Traffic Safety Law. If the two are confused, it may seem that they reflect the people-oriented legislative idea of the Road Traffic Safety Law on the surface, but in fact, it deviates from the original intention of the legislation and causes confusion in the application of the law. It also infringes on the legitimate rights and interests of insurance companies, increasing the burden on insurance companies, and this risk will ultimately be passed on to policyholders. To solve the above problems, the key is for the country to construct a complete "third-party liability compulsory insurance" system in legislation. The urgent task is to hope that the State Council will introduce the "Regulations on Compulsory Third Party Liability Insurance for Motor Vehicles" as soon as possible.

Contributed by Lawyer Chen Xin