The reinsurers are putting pressure on their customers, the insurers, to sharply increase the prices for motor vehicle policies. “Price increases of 20 percent would be necessary to ensure a return to profitability,” said Michael Pickel, head of the reinsurer E+S, which is part of Hannover Re, at the world reinsurance meeting in Monte Carlo. Many German car insurers buy reinsurance protection from E+S, with which they share high risks.
In the Corona years of 2020 and 2021, motor vehicle insurers still made high profits because people traveled less often and caused less damage. In 2022 they had to spend more on damages and costs than they received in premium income. Things are likely to get even worse in 2023. The insurer association GDV expects a loss of 2.5 billion euros. However: The motor vehicle insurers have billions in provisions and have invested this money. With the change in interest rates, their income increases significantly. When they talk about losses, these profits are left out.
According to the industry, providers would have had to increase their prices by at least ten percent in 2022. But on average they have only increased by three percent. The strong competition among providers is to blame. Many customers don’t even have to threaten to cancel in order to remain insured at the same or even a lower price. Motor vehicle insurers have every reason to charge higher prices. They suffer from rapidly rising spare part prices and workshop costs.
Insurers could be in a much better position, believes Pickel from the reinsurer E+S. The fact that they only implemented small increases in 2022 is now taking revenge because the pressure to adapt for the coming year is even higher. The good news for customers: Even if it becomes more expensive, no provider will increase prices by 20 percent in one fell swoop, otherwise they would lose too many customers. “We will see a gradual development,” said Pickel.
In 2025, policy prices could fall again
Higher prices are a big issue for reinsurers in many areas. After years of falling prices, reinsurance protection has become more expensive again in the last two years. The drivers are high catastrophe losses and inflation. In addition, the reinsurers were able to change the contractual conditions in their favor. “That means more market power for them,” said Johannes Bender from the rating agency Standard & Poor’s. At the industry meeting in Monte Carlo, Hannover Re, Munich Re, Swiss Re & Co are doing a lot to maintain their strong position and are demanding further increases.
But the high could soon end. “In 2025 the market will start to soften again,” believes Brian Schneider from the rating agency Fitch. By this he means falling prices. The good market conditions attract investors such as pension funds, which invest large sums in the insurance market through bonds. Traditional reinsurers are also deploying more capital and new providers are emerging.