Motorists must be prepared for strong price increases for their vehicle policies for 2023. In the opinion of the reinsurer E+S Rück, which belongs to Hannover Re, the premiums must rise by at least ten percent if the insurers do not want to end the coming year deep in the red.
For consumers, this means they have to compare prices, because not all providers are increasing at the same rate. Switching is often worthwhile, especially for drivers who have been with one provider for several years. Because most insurers offer new customers significantly lower prices than their existing customers. Those who remain loyal to an insurer are usually penalized for doing so. Insurers believe that young drivers in particular will also think about telematics tariffs.
“We expect significant tariff increases in motor vehicle liability and comprehensive insurance,” said division manager Stefan Schmuttermair at the reinsurers’ meeting in Baden-Baden. E+S insures 60 percent to 70 percent of the motor vehicle insurance market in Germany against major losses and is very knowledgeable.
In the Corona years 2020 and 2021, motor vehicle insurers had achieved good results with around 2.8 billion euros and 1.5 billion euros respectively – also because the Germans mostly worked at home, drove less cars and caused fewer accidents. Now the damage frequency is picking up again. Added to this is inflation, which has made spare parts in particular much more expensive.
It is true that motor vehicle insurers had slightly increased their tariff contributions on average in recent years. But after adjustments to type and regional classes and the crediting of no-claims discounts, nothing was left of it. On the contrary: average contributions have been falling for years.
The E+S managers warned that if car insurers continue as before, it will not end well. For the current year, the reinsurer expects a minus of 200 million euros for all motor vehicle insurers.
The competitive pressure in the division is great
Without price increases, the loss will increase to 2 billion euros in 2023. In order to prevent this and end up in the black, prices would need to be increased by at least ten percent at the turn of the year, they calculate. “We appeal to all providers to maintain market discipline in order to avoid a loss,” said Schmuttermair. However, it is unclear whether all companies really follow this. “All auto insurers will raise prices, it’s just a matter of how much,” he said. Because the competitive pressure in the division is great. Allianz has been trying unsuccessfully for years to catch up with the market leader HUK-Coburg. Others also want to gain market share.
Sharply rising prices in car insurance could make telematics tariffs attractive again, expects E+S boss Michael Pickel. With these contracts, drivers have their driving style monitored by the insurer. If you drive with little risk, the insurer grants a discount on the premium. At the moment, the contracts are still niche in Germany: E+S expert Schmuttermair estimates that they make up less than five percent of the market. However, he sees much more potential here for the future. “In the medium term, we believe that telematics contracts will have a market share of just over ten percent.”
Telematics solutions are an important topic for insurers. It’s about handling large amounts of data and how they calculate their tariffs in the future. “We assume that data will be more important in the future than it has been up to now,” says Schmuttermair. The data from the telematics contracts can help to better understand how damage occurs and how it can be avoided.
After a short phase in which some insurers such as HUK-Coburg and Allianz very actively advertised the contracts, it has recently become quiet about telematics. “We are currently seeing some reluctance on the market,” said Schmuttermair. He suspects that some insurers now have enough of these policies in stock to draw conclusions from the data and are not promoting sales for the time being. Telematics contracts have to be brought to the customer with some effort, they hardly sell themselves.
But a sharp price reversal in traditional auto policies could make the contracts more attractive again. E+S Rück is prepared for this and has developed a solution for insurers who shy away from the expense of the complex telematics structure and prefer to buy the service from the reinsurer.
A main topic at the meeting in Baden-Baden is the sharp increase in inflation. Primary insurers such as Signal-Iduna or R+V, who do business with end customers, negotiate prices and conditions for protection against major risks in 2023 with their reinsurers here. Inflation and high natural catastrophe losses, most recently from Hurricane “Ian” in Florida, have driven up the price demands of reinsurers globally. E+S Rück also believes that higher prices are necessary – and not only in car insurance.
Property insurance prices are likely to rise the most, including for residential and industrial buildings. Due to the exploding construction costs, the reconstruction of buildings after a fire is significantly more expensive, which makes noticeable price increases necessary, said E+S expert Jonas Krotzek. In liability insurance, insurers and reinsurers are not yet feeling the consequences of inflation directly, but only with a delay. But there are effects here too. This makes personal injury significantly more expensive.