Motor Insurance

Motor insurers are preparing for another price war in the private motor insurance segment. Motor insurance for corporate clients, however, is set to become more expensive: insurance rates for vehicle fleets are set to rise, as insurers want. This is due to the losses which insurers in the business fleet insurance segment have been recording for years. Progress in vehicle technology and digitisation will shape the motor insurance line of the future, bringing about fundamental changes. New players in the market and brand-new mobility concepts may become dangerous for well-established motor insurers.

Market Situation

According to a large number of forecasts, motor insurers will receive noticeably less in motor insurance premiums in the foreseeable future, thanks to new mobility concepts such as car sharing. Figures for the motor insurance market, however, still reveal a different picture: The premium income of motor insurers, rising constantly since 2009, is likely to reach EUR 27.8bn this year.

This income figure would be the highest ever reached in the motor insurance line. The number of insured vehicles, too, has been growing for many years. According to initial calculations, insurers are expected to underwrite motor third-party policies for 65.2 million vehicles in 2018, compared with 64.3 million policies in 2017.

Claims expenses have also been rising constantly since 2014. Insurers are likely to have to pay EUR 24.6bn for claims in 2018, compared with EUR 20.6bn in 2014. Even if the number of claims continues to decline thanks to driving assistance systems, this new technology will mean higher costs for repair damage. As a result, the increasing average damage or loss currently more than offsets the decreasing loss frequency.

For the motor insurance market as a whole, the combined ratio is expected to rise slightly this year, at 99 per cent. It was just 98 per cent in 2017. With a combined ratio for vehicle fleets of 105 per cent in 2018, motor insurers are still operating in the red.

Trend in premiums and claims …

… in motor insurance

* Projection

Source: GDV

Outlook

There is evidence of future competition for direct access to motor insurance customers over the next few years. While many well-established insurance companies are pursuing digitisation too slowly, new providers are entering the market, ready to win clients' favour. Motor vehicle manufacturers and fully digitised insurers are seeking to enter the motor insurance market, while Internet groups are having initial talks about joining the motor insurance market as underwriting agents. As a result, another price war is likely.

Thanks to the move from semi-automated driving to highly and fully automated driving, the combination of fewer accidents and higher costs per accident will mean higher claims expenditure at the outset. This trend should reach its peak by 2035. By then, if not sooner, automated vehicles will have achieved a high level of market penetration. The motor insurance market will then start to shrink. Because of their technology, motor vehicle manufacturers will have to assume ever greater responsibility for accidents, transferring the liability for their products to insurers. Furthermore, insurance cover for vehicle hacking risks is set to play an increasingly important role.

Market Trends

The telematics tariffs offered by many motor insurers have yet to penetrate the German market. These tariffs are only welcomed by young tech-savvy customers who may enjoy attractive premium reductions if they show good driving behaviour. Many customers also fear that the disclosure of their site data would entail digital monitoring and surveillance.

Although the trend towards autonomous vehicles cannot be stopped, lawmakers do not want to deviate from the proven system of owner liability in the foreseeable future. With continuing advances in automation, motor insurers will, in future, have to assert their clients' claims against vehicle manufacturers.

Motor fleet insurers are well advised to have their service processing systems completely digitised in the near future in order to save costs and resources. Most motor fleet insurers, however, are still far away from achieving that. The problem has been recognised. As a result, co-operation between established insurers and "insurtechs" is on the increase. Insurtechs are young start-ups in the insurance industry using digital technologies. The current generation of insurtechs is also focussing on co-operation with established insurers to optimise business processes, developing digitisation methods for the insurance industry.

Claims management for vehicle fleets continues to play an important role. Here, too, insurers are often still not keeping pace with digitisation. They frequently offer front-end solutions only, with no digital processes and structures in place. Professional loss adjusters are normally able to provide fleet operators with far better solutions.

Claims assessment through self-learning software will be another new trend in the area of claims. Based on images, claims will, in future, be accurately assessed by fully automated "motor vehicle experts".