Overview of House & Motor Insurance

Transcription

1 Overview of House & Motor Insurance Prepared by Graeme Adams, Finity Consulting June Finity Consulting Pty Limited

2 Insuring the Great Australian Dream Presented by Graeme Adams 2014 Finity Consulting Pty Limited

3 Agenda 1. Market Snapshot 2. Motor Recent history Challenges Predictions 3. Home Recent History Strata Opportunities and Challenges Predictions 4. Wrap Up 3

4 Product Positioning Within the Life Cycle The Graeme Adams Product Positioning View Home Motor? 4 Time

5 2. Is there a future for Car insurance? Experience, Challenges and Predictions 5

6 Number of Cars Participation Rate GWP ($bn) The motor insurance industry has had very stable growth Number of Cars / Participation Rate Motor GWP Pool $M Total Number of Cars Participation Rate 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: ABS / APRA / Deutsche Bank 6

7 Growth in Motor GWP Motor GWP pool growth is steady 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Annual Growth Growth (decade) Some of the growth in the 2000s was due to industry re-structuring and re-pricing to improve profitability The current growth rate of 5% is estimated to be due to: Source: Deutsche Bank, APRA 7 2% in the car pool 3% in premium

8 km/car ('000s) Claim Frequency (%) Less mileage but not fewer collisions Distance Travelled vs Collision Frequency 20% 15% We are driving less, but claiming the same Average km travelled Claim frequency 10% 5% 0% Why? Demographic changes and inner city living Greater take-up of protected NCB leading to higher propensity to claim Driving more collision-prone kilometres Source: ISA, ABS 8

9 Claim Size Change in Collision Size Claim sizes are increasing 3,500 3,000 2,500 2,000 1,500 1, Collision Claim Size Annual Change in Collision Claim Size 10% 8% 6% 4% 2% 0% -2% -4% Source: ISA Collision claims costs are rising despite significant changes to the smash repair model by the majors. 9

10 % of Gross Earned Premium Although, it remains inherently profitable 100 U/W margin needed for 15% return Motor: Underwriting Performance Estimated at 20% of GWP Claims from ISA Experience Collision Theft Wscreen Expense + Net Cost of R/I Events (Gross) 10 Source: ISA

11 Challenger brands will continue to grow Now taking around an additional 1-2% share of the market each year At this rate, in 2014, we expect Challenger brands may write close to $1 billion of the $8 billion market 11

12 GWP ($ Billion) Loss Ratio (%) Premium pool will increase but profit pool may shrink for the traditional players Source: ISA, APRA Industry Premium Pool Loss Ratio Total premium pool may increase by around $2.5b over the next 6 years to 2020 Total contribution to profit pool may increase by $300m But 1/3 of this increase will go to challengers. 12 Assumptions are: Total number of cars and average premium will grow in accordance with the average annual growth rate for the previous 3 years Cost Per Policy will increase by 3% p.a. Market participation will not change Challengers continue to capture 1% additional market share per year

13 Thoughts on motor premium and profitability The motor premium pool is growing slowly now Challengers may almost double their market share by 2020 Challengers will cap/reduce the profitability of traditional insurers

14 The Headwinds Commoditisation and competition, yes Demographics, yes Technology the disruptor? 14

15 The Headwinds Commoditisation puts pressure on the margin Changing customer metrics Technology Challenger brands Internet Supply chain rationalisation & metrics Fewer people owning cars/driving cars More urbanisation go gets etc Cars are worth less, so why insure them? More connected technology Pay as you drive/ the connected car Smarter cars won t crash so much The autonomous car 15

16 Proportion of New Vehicles With Technology as Standard New premium safety technologies quickly become a standard feature of new cars 100% Progression of Technology Implementation 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Year of Manufacture Airbags ABS Brake Assist Electronic Stability Control 16

17 New technologies take some time to become a significant part of in-force 100% Airbags 100% Electronic Stability Control 90% 90% 80% 80% 70% 70% 60% 50% 40% % of New Cars % of inforce policies 60% 50% 40% 30% 30% 20% 20% 10% 10% 0% % ABS 100% Brake Assist 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 17 10% 0% %

18 Where will this technology lead us? We ll have fewer claims but more expensive claims Cars will be cheaper to buy but more expensive to own Manufacturers will shift focus from sales to the vehicle s usage / maintenance / insurance 18

19 Thoughts on what the future may hold Technology will change the way we drive Liability to others will become more important than protecting the asset (the car) Car ownership not as critical as car use/availability. Manufacturers will own the car...and the customer? Motor insurance morphs into mobility insurance

20 3. Is there a future for home insurance? 20

21 GWP ($Billion) Growth Home has had fairly significant growth in GWP recently % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Home GWP Growth (decade) Source: Deutsche Bank, APRA Can this level of growth be sustained? 21

22 Combined Ratio Profitability Home Insurance profitability is back on track 140% 130% QLD/VIC Cats and Re-insurance increases Sophisticated repricing, leading to reduced losses 120% GFC 110% 100% Recent Stability in Expenses 90% 80% Combined Ratio % Target Combined Ratio (95%) 22 Data: APRA Stats, Finity Pendulum

23 Relative size of the home insurance pie Buildings ~$2.05 Billion Package ~$2.4 Billion Strata ~$700 million? Contents ~$1.1billion 23 Figures are using GWP exclusive of stamp duty, GST and FSL Data: ISA, Strata Community Title

24 Average Occupants per Household Household sizes have been in decline The ABS projects household sizes to decrease just below 2.3 per household by Source: ABS Year Book Australia

25 Dwellings Index (Base = 1991) while growth in units / flats more than doubles that of houses Census Year Houses Units/Flats Source: ABS 25

26 We predict that the Strata Insurance market will grow But potentially at the expense of the Buildings Insurance market How is your business positioned? 26

27 Meanwhile, there has been increased focus on pricing natural perils Risk Based Pricing Typical Breakdown of a Buildings Premium To Address Level 26% 36% Flood Cover and Other Disaster Pricing Other Drivers Flood and Other CAT Pricing Disaster Mapping Natural Peril Risk Attritional Claims Reinsurance Costs Operating Costs Margin Source: ICA 27 LAGIC and other changes in Capital adequacy Inflationary Rises

28 Loss Ratio As a result, buildings insurance no longer in the sick bay BLD 1 Year Rolling Avg BLD Target LR (65%) Data: ISA 28

29 Loss Ratio (1 Year Rolling Avg) Meanwhile, contents Insurance continues to perform well Buildings Contents consistently achieving loss ratios below 50% Contents Data: ISA

30 Possible headwinds for home insurers Reduced Growth in Buildings Insurance The challenger brands will become more interested in home insurance Unpredictability Regarding cat events Big players struggle to control a fragmented supply chain and widely distributed market 30

31 Thoughts on what the future may hold Capital management and risk aggregate management will become critical Supply chain management will become a new battleground The banks and retailers will become more aggressive distributors of home insurance Relative stability will make home insurance a reasonably attractive proposition for some years to come.

32 4 The wrap up

33 What could stop the show? Potential issue Motor Home Comments Market size growth Technology disruption Pricing power diminishes Customer demand/need Ability to extract value from supply chain Availability of capital Alternative risk carriers Strata and contents Auto makers, google Gradual slippage in duopoly power Natural perils a constant reminder Car insurance largely done, Home insurance supply chain a bigger challenge Auto makers, google 33

34 The sun sets slowly in the west for car insurance 34

35 But it s looking good for home insurance 35

36 Distribution & Use This presentation has been prepared for the Finity Pricing Seminar held on 22 May It is not intended, nor necessarily suitable, for any other purpose. Third parties should recognise that the furnishing of this presentation is not a substitute for their own due diligence and should place no reliance on this presentation or the data contained herein which would result in the creation of any duty or liability by Finity to the third party. Reliances & Limitations Finity wishes it to be understood that the information presented at the seminar is of a general nature and does not constitute actuarial advice or investment advice. While Finity has taken reasonable care in compiling the information presented, Finity does not warrant that the information provided is relevant to a particular reader s situation, specific objectives or needs. Finity does not have any responsibility to any attendee at the seminar or to any other party arising from the content of this presentation. Before acting on any information provided by Finity in this presentation, readers should consider their own circumstances and their need for advice on the subject Finity would be pleased to assist.

37 Contact Graeme Adams Tel: Mobile: