German Motorists Face Significant Insurance Premium Increases Amid Rising Claims and Accident Rates

In recent years, however, many things have been mixed up. With the outbreak of the corona pandemic, the volume of traffic fell and with it the frequency of accidents. The claims volume fell significantly in 2020, which in turn meant high profits for insurers.

The trend also continued in 2021, even though the flood disaster in the Ahr Valley alone in Huk-Coburg caused damage to over 9,000 cars with comprehensive insurance. With a total of around 13.7 million insurance contracts, this was still a manageable number.

Motor vehicle insurers therefore held back from raising prices and were then surprised last year by the sharp rise in inflation and the higher frequency of claims. As a result, many providers slipped into the red.

According to Heitmann, the combined ratio of the industry should be between 108 and 110 percent this year. To put it bluntly, for every 100 euros in income there would now be 110 euros in expenses, Heitmann explains the situation. That is of historical magnitude.

The premium increases that are too low are now becoming a problem. Because even at the turn of the year 2023, the average contributions in the industry had only increased by two to three percent. Most recently, Jörg Asmussen, general manager of the insurance association GDV, warned that the only slight increase in premium income could not compensate for the high claims costs.

He should probably be right. “Huk will also be in the red in 2023,” explains Heitmann. But you can deal with it relatively well, since the company has a high degree of fluctuation reserve.

“In order to return to profitability in the long term, companies would have to adjust the contributions in the double-digit percentage range,” said Dennis Wittkamp from the rating agency Assekurata only recently. A premium increase of nine to eleven percent would be necessary for a claims/expenses ratio of 100 percent, and even 14 to 17 percent for a ratio of 95 percent.

Huk-Coburg boss: “A monopoly market to which we are at the mercy”

It is questionable whether the providers will dare to approach such price increases in the coming changing season. “Because the competition remains high, there will be a tightrope walk in the industry between competitiveness and necessary restructuring measures,” expects Huk boss Heitmann.

Instead of passing on the prices to customers, which would be economically necessary, many providers are likely to try countermeasures such as savings in-house or tapping into the reserves that have been built up in recent years.

But these measures are unlikely to be enough to offset the sharp rise in prices: according to calculations by Huk, the prices for car parts have risen by more than twice the inflation rate on average over the past ten years.

“Here we have a monopoly market that we are at the mercy of to a certain extent,” says Heitmann. “With a workshop connection, we still see hourly wages that are around 100 euros. In special cases, other workshops already charge more than 300 euros per hour.”

Alliance: Repair more instead of using new parts

In addition, workshops in Germany have to use the original parts of the manufacturer for visible parts on vehicles, in contrast to countries such as France or Great Britain. There will only be a change here in future model generations.

Competitor Allianz, number two in the German car market with almost nine million contracts, had called for parts to be repaired more in the interest of more sustainability, instead of replacing them with new parts. Huk sees this as more of a long-term solution: “We also look at used spare parts,” says Heitmann. But here the relevant supplier market is not yet sufficiently developed. Consumer acceptance should also be taken into account.

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The first consequences are already becoming apparent on the market for motor vehicle insurance. Above all, the insurtechs, who had tried in previous years to break into what was then a lucrative market, are reducing business.

For example, Wefox has suspended the particularly cheap switch tariffs, which were intended to encourage customers to switch. Getsafe has even completely stopped new business in car insurance.

“Start-ups have now realized that access to new customers is very expensive,” observes Huk boss Heitmann. You would have to buy the business through comparison portals. You have to be cheap there to get the bid.

Huk Coburg penetrates into the business of manufacturers and car rental companies

In general, insurers are noticing massive changes in the way customers deal with mobility. The proportion of electric cars is increasing. From the insurer’s point of view, this means that the previous differences in claims experience compared to combustion engines are disappearing. Because drivers of e-cars were initially very careful when driving, Huk-Coburg granted them “generous discounts” on the premium, reports Heitmann: “We are currently offering a five percent discount and may abolish this completely in the future.”

In order to withstand the pressure from manufacturers and car rental companies, Huk-Coburg wants to penetrate further into their business in the future. “We are building an ecosystem around the topic of mobility,” announces Heitmann. The insurer has already set up a used car business and has acquired a quarter of the Pitstop workshop chain.

If you want to sell your car, you can drive it up there for an inspection in the future. There is also a subscription model for cars, as offered by manufacturers and rental companies. “They are also our direct competitors in this case,” says Heitmann.

More: Motor vehicle insurers must adapt to these new business fields

First publication: 06/27/2023, 13:42 (last updated: 06/28/2023, 08:53).