German motor market

© 2007 Towers Perrin

German motor market

Market allocation

Distribution channels

Pricing trends

Casualty Actuaries of Europe Winter 2007 Meeting29 November 2007

Alexandra Mayr

© 2007 Towers Perrin 2Proprietary and ConfidentialNot for use or disclosure outside Towers Perrin and its clients

Agenda

Market allocation


Pricing trends


German motor marketDominated by Allianz and HUK-Coburg

2,0%

2,8%

3,4%

4,0%

4,2%

4,6%

5,4%

5,6%

5,7%

6,4%

10,6%

11,1%

17,5%

1,4%

1,4%

1,3%

0,8%

0,8%

6,2%

1,6%

3,4%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Rest

Mecklenburgische

Continentale

Concordia

WGV

Signal Iduna

Gothaer

Nürnberger

W&W

ERGO

DEVK

LVM

VHV

Zürich

Talanx

AMB Generali

AXA

R+V

Öffentlich-rechtliche Versicherer

HUK-Coburg

Allianz

Source: Tillinghast KfZ-Studie – KfZ Versicherung 2005* All grouped together

*


Direct and Mutual Insurers gain market share Largesize Publicly Traded Insurers lose market share

Market share development (gross premium income)

0%

5%

10%

15%

20%

25%

30%

35%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Largesize Mutual Insurers Largesize Publicly Traded InsurersAllianz Group Mid- and Smallsize Mutual InsurersPublic Law Insurers Direct Insurers

Mid- and Smallsize Publicly Traded Insurers

Reunification Deregulation

Source: Tillinghast estimation based on published market data


Turnaround in 2004 – How good is the markets memory?

Development of gross premium income (in billions €)

5

7

9

11

13

15

17

19

21

23

25

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

motor insurance comprehensive cover third party, fire and theft cover


MTPL:Average claim size is increasing – claim per customer decreasing due to declining frequency.

Claims frequency and claims size - motor insurance

1000

3000

5000

7000

9000

11000

13000

15000

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Cla

ims

Siz

e (in

000

s €)

0

20

40

60

80

100

120

140

clai

ms

freq

uenc

y(p

ro 1

.000

insu

red)

claims size claims frequency

Source: Tillinghast estimates based on GDV data


Agenda

Market allocation


Pricing trends


Distribution channels Motor

Tied agents still dominate the market

The broker and direct distribution channels gain market share

Importance of Bankassurance remains stable

57%62%

1%

2%

22%17%

12%13%

2%1% 1%5%4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006

Tied Agents Linked pyramid sales Independent Broker Banks

Direct channels Dependent Brokers Other


Expected importance of distribution channels over the next five years

9.1%

10.0%

4.3%

8.3%

21.7%

45.8%

16.7%

43.5%

45.8%

54.5%

15.0%

29.2%

26.1%

25.0%

43.5%

20.8%

54.2%

30.4%

37.5%

9.1%

4.2%

4.3%

8.3%

12.5%

4.2%

27.3%

75.0%

66.7%

65.2%

58.3%

34.8%

33.3%

16.7%

26.1%

12.5%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

Large Technical Brokers

Dependent Insurance Brokers

Non-linked Pyramid Sales

Linked Pyramid Sales

Direct channel

Internet

Tied Agents

Banks

Brokers

Increase Stable Decrease No significance


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)


Agenda

Market allocation


Pricing trends


70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

1999 2000 2001 2002 2003 2004 2005

6.7%

15.7%

Source: Axco, Tillinghast analisys

Pricing capabilities are converging

Lo

ss

Ra

tio

GERMANY ITALY UK FRANCE

105.0%

Motor loss ratios by top four territories in Europe


Ultimate goal is shifting this curve

Cumulative contribution to value added

0%

20

40

60

80

100

120

140

160

180

200%

0% 20 40 60 80 100%

Percentage of customers

Good customers at risk

Managing actively

‘Up or out?’

20% destroy value

30% generate

150%of value

50% don’t create value


Price Optimisation Process

claim propensitymodels

competitive market analysis

customer behaviour models

optimisationnew

premiums

constraints

customer value models


Final aim: understand price elasticity ofMr ‘X’ and adjust your tariff accordingly

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

% Difference in rates relative to competition or

% Lapse rate

Price opportunistically by identifying pockets of price indifference

Price opportunistically by identifying pockets of price indifference

% Change in rates relative to former tariff


Sophisticated Pricing capabilities are ‘Needed to win’

Competitive capabilities

Inferior Parity Superior

Needed to PLAY

FatalOther factors decide your

fate

Marginal benefit

Needed to WIN

UnderperformanceSuperior profit

and growth

Claim propensity

Customer behaviour models

Competitive market analysis


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


Thank you for your attention!

Documents

German motor market