Struggle for data – The motor insurance of tomorrow will be driven by technology

European insurers are preparing for a new era in motor insurance. On January 24, Insurance Europe and the Association of Mutual Insurers (Amice) launched a campaign data4drivers. They demand that the data generated by semiautonomous and autonomous cars shall belong to the drivers and not to the manufacturers of the cars. The petition is, among others, backed by the German Insurance Association GDV and by British ABI. Germany’s car producers such as Mercedes-Benz, BMW, Volkswagen (Audi, Porsche and others) and their suppliers (Bosch, ZF and others) are investing heavily in technology for autonomous cars. Volvo recently announced that it is “fairly confident” it can start selling autonomous vehicles in 2021.

Starting in April this year new cars sold in the EU must have a gadget called e-call. After an accident this system is supposed to contact the emergency services. It is a major concern of the German insurer HUK Coburg that manufacturers will use e-call to manoeuvre cars after an accident directly into the service stations of the car manufacturers. With margins under pressure car producers and their trading partners are eager to compensate with additional services in financing, insurance and repair. Huk Coburg has a market share of 14,3 percent in the German motor insurance market. One of its key competitive advantages is a network of independent service stations, which allows the insurer to control claims cost. If damaged cars were directed to car manufacturers service stations, Huk Coburg would lose the control of claims costs.

Motor insurance pricing has reached its peak

At EU level politicians seem to have forgotten the side effect of e-call, which is primarily directed to lower the number of fatalities on the roads. Access to car data will be a major business opportunity. The Chinese insurtech Zhong An is trying to get into the motor insurance business. Now it has presented a big data platform called Data Cube to create a big data ecosystem in the industry and serve its vehicle-sector partners by sharing data with other insurers. The success of Zhong Ans initiative will most probably depend on the support Chinese government is willing to give. Data has become so important that it seems to be unlikely that any car producer would hand them out unless they are forced to do that.

Motor insurance has seen an up-trend in many markets, but it seems that the cycle has reached its peak. In January, the German Huk Coburg announced that Allianz is putting pressure on the German motor market. This might be the beginning of a new price war. German motor insurers have seen two profitable years in a row and 2017 the insurers had good results again with a combined ratio of about 99,0 percent according to German GDV. In UK, motor insurance has seen price increases of nine percent last year, the Association of British Insurers (ABI) reports. Government has lowered the Ogden rate for discounting motor reserves to a record low of -0,75 percent. Motor insurers were forced to strengthen reserves and this has put them under significant financial stress. They were forced to demand much more premium than before.

With premiums rising British insurers fear that motor insurance becomes unaffordable and campaign to lower claims. In January, ABI demanded of government to reform the way whiplash claims are handled and they want a freeze of the insurance premium tax at 12%. Since 2014 motor premium has gone up 29 percent, ABI reports. But in last year premiums have risen at their slowest rate in recent years and have even declined (– 1,3%) in the last quarter.

Scandinavian insurers look for cost cutting opportunities

In Denmark, third liability motor premium is going down since 2007 and margins become tighter every year. However, insurers manage to compensate with motor hull where premiums are going up. The big insurance companies of Scandinavia had very good results in 2017 with combined ratios far below 90 percent. 2017 was a benign year on the claims side but the big insurers have done a lot to lower their own expenditures. Danish Tryg operates with a cost ratio of 14 percent, Norwegian Gjensidige has a cost ratio of 15 percent, at Finnish If costs are at 16,4 percent of premium income and at Danish Topdanmark at 16,1 percent.

Tryg does not see any possibility or necessity to cut costs even further. However, the Danish market leader intends to streamline its business. Last year Tryg has announced that it will acquire the competitor Alka, a low-cost insurer. This transaction will take place this year. In Norway Tryg has bought the insurtech Troll which has won 12.000 clients in seven years but has made huge losses. Troll is a low cost insurer which sells only via Internet and offers an account to manage the deductibles.

Insurers in Scandinavia are going forward in digitalisation. They want to increase self-service by improving the usability and functionalities of their client portals. Tryg calls its strategy “digital empowerment of the customer”. It has launched a low cost insurtech Undo in Denmark which offers sales and claims in an automatized way. Undo has just one customer touchpoint: The mobile phone. If this business model works Tryg would launch a second enterprise in the Norwegian market. Digitalisation was important in the last three years and it will become even more important. Insurers have paid a lot of attention to customer satisfaction and feedback. There was a special focus on claims handling. Gjensidige implemented a super-fast claims handling mechanism. Now the insurers plan to enhance their analytical skills, Topdanmark is focussing much on automatization and robotics.

Successful cooperation of insurers and insurtechs

Robotics is becoming popular in Germany, too, where virtually every insurer is looking for a digital strategy. It’s a common belief among German insurers that there won’t be a sharp rise of direct sales and that the insurance business will be dominated by agents and brokers for a long time. Unlike in Scandinavia and UK direct sales have a market share far below ten percent in Germany. But sales people are old and the number of agents is decreasing significantly. In January there were 220.000 insurance sales people registered in Germany. That was a decrease of 3,3 percent in one year. Since 2011 the German insurance industry has lost 43.000 sales people and the number will shrink even more.

Trying to make insurance sales more efficient German insurers are creating new portals for clients and agents and adding new functionalities to them. It has become popular to develop skills for the voice detector and speaker Alexa provided by Amazon. Deutsche Familienversicherung was the first company to offer that, now Zurich Germany and D.A.S. UK follow and there will be many more.

Like their Scandinavian counterparts German insurers are experimenting with automatization tools and some of the insurers take a first look at artificial intelligence. Insurers have purchased insurtechs and those cooperations show results. Basler owned insurtech Friday has acquired 15.000 clients since its start three months ago, the insurtech Element is close to make a major deal with the football club Borussia Dortmund, offering private insurance to football fans. The insurtechs Clark and Friendsurance (a peer-to-peer insurtech which has changed its business model to an online broker) are approaching banks to have better access to new clients. Bancassurance has been offline only until now and German banks were cooperating mostly with one insurer. With insurtech getting a foothold we see how business models are changing in this sector, too.

Run-off causes public outcry in Germany

In January, the German market leader Allianz revealed more details of its plan to hand over its self-developed insurance core system ABS to other insurers in an open source platform. Allianz invites German insurers to co-develop the software and to be part of a community. Allianz is implementing ABS in its subsidiaries all over the world but not all of them welcome that. The open source ABS is supposed to work like the Apple store inviting software developers to add new service items to it. However, the factual introduction of ABS causes a lot of troubles at the health insurer of Allianz which currently has difficulties to process ongoing business. To help customers Allianz introduced online forum where clients can bring forward their complaints and assistants solve the problems.

Insurance premium went up 1,7 percent last year in Germany according to the GDV and is lower than GDP growth (+2,2 percent). P&C growth was strong (+ 2,9 percent) but life insurance was stagnating. In life insurance Germany is underinsured. Life insurers have given generous guarantees to their clients in the past. Now they are struggling to earn the money they need to meet these guarantees and have got into profound financial stress. Insurers address their legacy business and the situation seems to be stabilising. But recent moves of insurers to sell with-profit business to run-off providers have caused a major outrage in the German public. CDU politicians even threatened to prohibit these deals and with the new government in power this threat might become real. The German Bafin is under political pressure and the supervisor gives permissions for run-off deals with stricter obligations. There has been another mid-size deal with Frankfurter Leben which belongs to the Chinese conglomerate Fosun. But this kind of deal will probably become more difficult in the future.