Trends in European motor insurance

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Trends in European motor insurance
Michael Neeb 19 March 2007
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Trends in European motor insurance

• Status quo of Romanian motor insurance
• Motor insurance rating and product development
• Claims Trends
• The fifth EU motor insurance directive - limits
  of liability
• Challenges for the Romanian motor insurance
  market

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Status quo of motor insurance in Romania

• Rapid growth, increasing value of cars
• Dominance of leasing companies
• Insufficient rate level
• Rather simple rating structures
• High claims frequencies and loss ratios
• No deductibles in MOD insurance
• Poor results

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Trends in European motor insurance

• Status quo of Romanian motor insurance
• Motor insurance rating and product development
• Claims Trends
• The fifth EU motor insurance directive - limits
  of liability
• Challenges for the Romanian motor insurance
  market

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Motor insurance rating

• Components of motor insurance premium
• Risk premium
• Expenses and profit loading
• Competitive positioning element
• Most analysis concentrates on risk premium ?
  homogeneous groups of risks
• Importance of statistics for calculation
• Increasing complexity of rating structures

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Rating factors used in Austria
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Rating factors

• Factors are not equally significant
• Sometimes correlations between factors
• Influence of factors may vary by country
• Risk of incorrect information (fraud) with some
  factors
• Risk of adverse selection
• Usually very important bonus malus

8
German bonus malus system risk premiums per
bonus malus class (Euro)
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Bonus malus systems

• Exchange of claims information essential for the
  working of bonus malus systems
• There is no benefit for insurers in refusing to
  exchange claims information
• Exchange of information could be handled
  electronically through a common database

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Deductibles

• Common in MOD insurance in virtually every market
• Incentive for policyholder to avoid claims
• Contributes to reducing claims frequency (casco
  frequency in Romania is unusually high)
• Contributes to reducing claims amounts

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Trends in European motor insurance

• Status quo of Romanian motor insurance
• Motor insurance rating and product development
• Claims Trends
• The fifth EU motor insurance directive - limits
  of liability
• Challenges for the Romanian motor insurance
  market

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MTPL Average claims in European markets ()
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Cost drivers

• Material damage claims
• Increasing cost of spare parts and labour cost
• Leakage and fraud
• Bodily injury claims
• In Western Europe, costs rise dramatically by c.
  10 p. a.
• Care costs account for c. 50 of the overall
  claims

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Inflation for bodily injury claims
UK
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Total claims inflation
F
12,7
UK
11
Care costs
F
13,6
UK
7
Loss of earnings
F
20,1
10
Legal Costs UK
Med. expenses F
10,9
0
10
20
5
15
Sources UK Bodily Injury Claims Inflation
Model, Dec. 2005 France MR analysis of
individual claims, Oct. 2005
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Importance for Romania?

• Green Card exposure
• Bodily injury claims are likely to gain
  importance
• Significant increases of bodily injury claims in
  Central Europe, in particular the Czech republic
• In CZ compensation for individuals occasionally
  exceeds 1 m

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Trends in European motor insurance

• Status quo of Romanian motor insurance
• Motor insurance rating and product development
• Claims Trends
• The fifth EU motor insurance directive - limits
  of liability
• Challenges for the Romanian motor insurance
  market

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European minimum limits

• Present EU limits (dated 1983) no longer adequate
• Considerable increase of limits due to the 5th
  directive in many countries

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Impact of increased MTPL limits

• Possible factors include
• Amendment to policy limits (minimum sums)
• Increasing compensation level
• An increased propensity to claim
• Greater expectations for the quality of life
• We have a possible example of likely trends with
  Greece became an EU member in 1981.

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Number of large claims (Greece)
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Trends in European motor insurance

• Status quo of Romanian motor insurance
• Motor insurance rating and product development
• Claims Trends
• The fifth EU motor insurance directive - limits
  of liability
• Challenges for the Romanian motor insurance
  market

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Challenges for the Romanian motor insurance market

• Increase rates to an adequate level
• Further improve data quality ? risk analysis and
  rating
• Establish a mechanism for the exchange of claims
  information? bonus malus systems
• Control repair costs and introduce deductibles ?
  reduce claims frequency and claims amounts
• Monitor development of compensation levels

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Thank You For Your Interest!

• Michael Neeb