German motor market
Market allocation
Distribution channels
Pricing trends
Alexandra Mayr
Casualty Actuaries of Europe Winter 2007 Meeting
29 November 2007
© 2007 Towers Perrin
Agenda

Market allocation

Distribution channels

Pricing trends
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German motor market
Dominated by Allianz and HUK-Coburg
Allianz
17,5%
HUK-Coburg
11,1%
*
Öffentlich-rechtliche Versicherer
10,6%
R+V
6,4%
AXA
5,7%
AMB Generali
5,6%
Talanx
5,4%
Zürich
4,6%
VHV
4,2%
LVM
4,0%
DEVK
3,4%
ERGO
3,4%
W&W
2,8%
Nürnberger
2,0%
Gothaer
1,6%
Signal Iduna
1,4%
WGV
1,4%
Concordia
1,3%
Continentale
0,8%
Mecklenburgische
0,8%
Rest
0%
Source: Tillinghast KfZ-Studie – KfZ Versicherung 2005
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6,2%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
* All grouped together
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Direct and Mutual Insurers gain market share
Largesize Publicly Traded Insurers lose market share
Market share development (gross premium income)
35%
30%
25%
20%
15%
10%
5%
Reunification
Largesize Mutual Insurers
Allianz Group
Public Law Insurers
Mid- and Smallsize Publicly Traded Insurers
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
0%
Deregulation
Largesize Publicly Traded Insurers
Mid- and Smallsize Mutual Insurers
Direct Insurers
Source: Tillinghast estimation based on published market data
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Turnaround in 2004 – How good is the markets memory?
Development of gross premium income (in billions €)
25
23
21
19
17
15
13
11
9
7
motor insurance
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comprehensive cover
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
5
third party, fire and theft cover
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MTPL:
Average claim size is increasing – claim per customer decreasing due to
declining frequency.
claims size
claims frequency
(pro 1.000 insured)
0
2005
1000
2003
20
2001
3000
1999
40
1997
5000
1995
60
1993
7000
1991
80
1989
9000
1987
100
1985
11000
1983
120
1981
13000
1979
140
1977
15000
1975
Claims Size (in 000s €)
Claims frequency and claims size - motor insurance
claims frequency
Source: Tillinghast estimates based on GDV data
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Agenda

Market allocation

Distribution channels

Pricing trends
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Distribution channels Motor
 Tied agents still dominate the market
 The broker and direct distribution channels gain market share
 Importance of Bankassurance remains stable
100%
4%
5%
1%
2%
1%
90%
13%
12%
80%
70%
17%
22%
2%
60%
1%
50%
40%
30%
62%
57%
20%
10%
0%
2005
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2006
Tied Agents
Linked pyramid sales
Independent Broker
Direct channels
Dependent Brokers
Other
Banks
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Expected importance of distribution channels over the next five years
Brokers
45.8%
Banks
37.5%
43.5%
Tied Agents
30.4%
16.7%
Linked Pyramid Sales
20.8%
25.0%
26.1%
Dependent Insurance Brokers
29.2%
Large Technical Brokers
10.0%
Other
34.8%
8.3%
58.3%
4.3%
65.2%
4.2%
66.7%
15.0%
75.0%
9.1%
0%
54.5%
10%
20%
16.7%
33.3%
43.5%
8.3%
Non-linked Pyramid Sales 4.3%
30%
Increase
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12.5%
45.8%
21.7%
12.5%
26.1%
54.2%
Internet
Direct channel
4.2%
9.1%
40%
Stable
50%
60%
70%
Decrease
No significance
27.3%
80%
90%
100%
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Conclusions
 Tied agents organizations are a subject of strategy projects / under scruteny
 Short term increase in tied agents is based on a delayed implementation of EU
Directive on Insurance Mediation
 Brokers‘ market will gain importance
 Banks are expected to become more significant according to study‘s
participants, however this still has to appear in the data
 Internet and direct distribution will gain importance , especially in motor
insurance (standardized product and increased price sensitivity)
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Agenda

Market allocation

Distribution channels

Pricing trends
© 2007 Towers Perrin
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Pricing capabilities are converging
Motor loss ratios by top four territories in Europe
105.0%
100.0%
15.7%
90.0%
85.0%
6.7%
Loss Ratio
95.0%
80.0%
75.0%
70.0%
1999
2000
GERMANY
2001
2002
ITALY
2003
2004
UK
2005
FRANCE
Source: Axco, Tillinghast analisys
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Ultimate goal is shifting this curve
Cumulative
contribution to
value added
20% destroy
value
200%
180
160
140
120
50% don’t
create
value
100
80
60
40
20
0%
0%
30%
generate
150%
of20value
40
60
80
100%
Percentage of customers
Good customers
at risk
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Managing
actively
‘Up or out?’
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Price Optimisation Process
claim propensity
models
competitive market
analysis
constraints
optimisation
new
premiums
customer behaviour
models
customer value
models
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Final aim: understand price elasticity of
Mr ‘X’ and adjust your tariff accordingly
% Lapse rate
100%
80%
Price opportunistically
by identifying pockets
of price indifference
60%
40%
20%
0%
0%
20%
40%
60%
80%
100%
% Difference in rates relative to competition or
% Change in rates relative to former tariff
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Sophisticated Pricing capabilities are
‘Needed to win’
Competitive capabilities
Inferior
Parity
Superior
Claim propensity
Needed
to PLAY
Fatal
Other factors
decide your
fate
Marginal
benefit
Competitive market
analysis
Needed
to WIN
Underperformance
Superior profit
and growth
Customer
behaviour models
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Conclusions

Advanced statistical techniques are now necessary for managing the portfolio

More and more companies are adopting the techniques we describe

Implementation and managing the change are key to success
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Thank you for your attention!
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