The China Insurance Regulatory Commission announced a new measure, reducing the maximum discount on auto insurance premiums to as low as 33.75 percent from 43.35 percent.

The move is the latest development of China's ongoing reform of the auto insurance market, which was initiated by the regulator in 2015. The limit on the discount rate was 70 percent prior to the reform.

Liu Feng, at senior official at the CIRC, said the rate cut was a market-oriented measure aimed at improving the pricing mechanism and encouraging greater market competition.

Average auto insurance premiums have dropped by 5.3 percent from the level prior to the 2015 reform and the rate cut has reduced the consumers' auto insurance costs by 25 billion yuan ($3.7 billion) over the past year, Liu said.

"The regulator will continue to push the reform to let market forces a play greater role and the government will gradually exit from intervening in the market," Liu told a news conference in Beijing.

China launched the auto insurance reform in 2015 by expanding the insurance coverage, simplifying the compensation process and improving the premium pricing mechanism to address the problem of "high premiums and low compensation".

The new premium pricing mechanism takes into consideration a range of factors, including the value of the vehicle, its safety condition and car owners' driving record, replacing the old system that was solely based on the insured value of a policy and the price of a vehicle.

The further reduction in the auto insurance rates will likely lead to greater industry competition and smaller insurers will face more challenges from their bigger rivals, leading industry figures said.

Hu Wu, chairman of AXA Tianping P&C Insurance Co Ltd, said the reform would prompt insurers to focus on their specialties and offer differentiated products to stay competitive.

Hua Shan, vice-president of PICC Property and Casualty Co Ltd, said the new policy would force insurers to improve the value of their products and services instead of simply competing for cheaper prices.

Ren Xiaojin contributed to this story.