MTPL Business in Turkey Towers Watson Chief Underwriting Officers Event. Özlen Kandemirli Emrah Gökmen

Transcription

1 MTPL Business in Turkey Towers Watson Chief Underwriting Officers Event Özlen Kandemirli Emrah Gökmen Istanbul, November 2013

2 Agenda Agenda MTPL Business in Turkey: Time for profit? Turkish insurance market overview Challenges in the Turkish MTPL market Performance monitoring Current changes in the Turkish MTPL market Current improvements in the Turkish MTPL market What is next? Direct Settlement System Introduction Problems in current subrogation process How does DSS work? Abroad examples Potential impacts and getting prepared Summary Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

3 MTPL Business in Turkey: Time for profit? 2013 Towers Watson. All rights reserved.

4 MTPL Business in Turkey Turkish insurance market overview Turkey: A developing market with economic growth, changing demographics and low insurance penetration. Very attractive for insurance companies to operate in, due to high growth potential and expectations. Average economic growth of 5% since 2003 A population of 76 million Young population: 40% below 24 years old A non-life insurance penetration of 1.1% Big potential but what about profitability? A return on equity of 7% in non-life industry between , This has reduced to -5.5% in the last three years... Western Europe Americas Asia Pasific Central & Eastern Europe Middle East & Africa Minimum Aspirational Rate of Return on Capital 0% 5% 10% 15% 20% 17.2% for Middle East 16.7% for Eastern Europe 4

5 MTPL Business in Turkey Turkish MTPL market Compulsory MTPL market is the highest policy-volume market in Turkey. Policy Counts MTPL Compulsory MTPL (Traffic) ,604,457 10,757, ,643,507 11,652, ,226,019 13,099, ,031,849 13,862, % Combined Ratio 140.0% But MTPL is also the main contributor to the losses made! 130.0% 120.0% 110.0% 100.0% 90.0% 80.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q TRAFFIC MTPL 5

6 MTPL Business in Turkey Turkish MTPL market technical profit Market Technical Profit By Branch ,500,000,000 1,000,000, ,000, ,000,000-1,000,000,000-1,500,000,000-2,000,000,000-2,500,000,000-3,000,000,000-3,500,000,000 6

7 MTPL Business in Turkey Challenges in the Turkish MTPL market Main challenges in the Turkish MTPL market are: Bodily injury claims o The issues in the MTPL branch stem mainly from bodily injury claims o Even though most of the claim amounts come from damage claims, the majority of the reserves and the challenges- come from the injury claims Significant reserving changes in regulations o Sometimes effective retrospectively, e.g. transfer of medical treatment expenses SGK o Use of different assumptions between company actuaries and court actuaries for loss of support payments Increasing activity of claims management companies o They encourage the families of accident victims to claim and sometimes to claim for more o They uncover claims that may otherwise not come to the insurance companies o Can also be an opportunity to settle claims quicker and to reduce the uncertainty on claims reserves and interest on court settlements 7

8 Decision: Formal talk: Other branches: MTPL Business in Turkey What should underwriters do? Avoiding to make a decision is the same as saying «no»! How do the changes affect pricing? Formalise, e.g. monthly meetings, documentation Risk models: Split by subclasses to understand better e.g. Employers liability 8

9 MTPL Business in Turkey Performance monitoring Turkish companies are monitoring their MTPL performances closely. But are they looking at the right KPIs? While monitoring performance closely and taking actions as and when required is a key for success, the starting point should be to define the subclasses carefully. Traffic Compulsory transportation Compulsory bus seat Voluntary MTPL Compulsory MTPL included in "MTPL" for reporting purposes considered separately for reserving purposes Defining the product groups carefully and looking at the right KPIs are crucial for monitoring the MTPL performance reliably. 9

10 Billions TL MTPL Business in Turkey Current changes in the Turkish MTPL market MTPL Turkish Market GWP % 43% When have we done enough to be profitable? Technical loss made in 2012 MTPL Traffic (billion TL) ! but after the price increases we see a deterioration in penetration in 2012: 5.9% increase in the number of vehicles Only 0.5% increase in number of insured vehicles 10

11 MTPL Business in Turkey Current improvements in the Turkish MTPL market Since the end of 2011, MTPL average premium has increased significantly. Increase in the loss ratio? Quarterly Average Premium 34% 10% 39% 9% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q % 115% 110% 105% 100% 95% 90% 85% 80% Net Loss Ratio Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q MTPL Traffic TRAFFIC MTPL Other common actions taken by companies to improve their MTPL performance include: Distribution channels performance monitoring Bodily injury claims monitoring more closely 11

12 MTPL Business in Turkey What is next? Company improvements Monitoring Claims management Price increases Strategy TSB projects Loss of support Direct settlement system Fraud Spare parts Regulations Reserving Pricing Reporting Team structure Profit To answer the question: what s next? 12

13 MTPL Business in Turkey Voting question What do you think the loss ratio will be in the end of 2014? a) 60%-69% b) 70%-79% c) 80%-89% d) 90%-99% e) 100%+ 13

14 Voting question We believe it is crucial for the underwriting team to work with the actuarial team closely to understand and assess the MTPL claims more reliably. Are you aware of the change in the technical interest rate used by companies to calculate the loss of support payments? Have you applied this change in your company? a) Yes we are aware, we have applied b) Yes we are aware, we have not applied c) Yes we are aware, I don t know d) No we are not aware, we haven t applied 14

15 MTPL Business in Turkey Voting question If you have adjusted prices to allow for the change in technical interest rate, how much price increase did you apply? a) 1%-3% b) 5%-10% c) 10%-15% d) 15+ e) Don t know 15

16 Direct Settlement System 2013 Towers Watson. All rights reserved.

17 Direct Settlement System Introduction (1) There are several problems in Turkish MTPL market related to claims management, pricing & underwriting; Bodily injury claims Fraud Spare parts Claim processes Although the market view on material damage claims processes including subrogations are generally ok, there are still some structural problems which cause unbalanced incentives on claims management 17

18 Direct Settlement System Introduction (2) Insurance Association of Turkey started a project which focuses on these four major problems in MTPL market and Direct Settlement Systems were one of the subjects of this project Direct Settlement Systems (DSS) focus on subrogation processes and try to balance fundamental claims management incentives There are several different DSS models used in various other countries with different strengths and weaknesses 18

19 Direct Settlement System Problems in current subrogation process There are some important issues in current MTPL processes that affect the market effectiveness; MTPL customers having worse service for the same price compared to Casco customers Higher costs and lack of control in Casco subrogations Power on automotive industry Deals that increase the cost but not for market or customer benefit Repairs are in control of the repair shops MTPL companies having no customer ownership In summary, there is a lack of incentive in the market for optimization of cost and customer satisfaction For direct MTPL payments, cost is the focus For Casco subrogations, customer satisfaction is the focus 19

20 Direct Settlement System How does DSS work? Direct Settlement System; a tool to increase the process efficiency, and to incentivise focusing on both cost reduction and customer satisfaction Insurers pay to their own customer the full amount but recovers from the liable party a predefined market average. When fully implemented DSS could balance the service quality for all MTPL customers Calculations and transactions are handled by an IT system called as clearance room In a well structured system there should be a general market benefit, so it should not become a zero-sum-game 20

21 Direct Settlement System Voting question How do you feel about the success of Direct Settlement System in the Turkish Market? a) Very Positive: I m confident about DSS, it is needed and will be successful b) Positive: It might be successful with right implementation and preparation c) Neutral: DSS could be a good idea but it is not the right time d) Negative: I have concerns about DSS from general market perspective e) Very Negative: DSS is not suitable for Turkish market and it could be a failure 21

22 Direct Settlement System Abroad examples (1) Spain CIDE in introduced in 1988 and then ASCIDE as an extension, in 1990 Computer system CICOS was introduced later, in 1994 Agreements started voluntarily but then turned into a compulsory system Most of the claims (<99%) are settled in the friendly phase and only less than 0.01% are delegated to Supervision and Arbitration Commission Implementation was very successful. Claim payment period reduced to 8 days from 30 days after DSS Italy CARD system were introduced in 2007 System includes both material damage and bodily injuries One of the main objectives was to reduce the legal expenses which were increasing the market average by almost 20% A region-vehicle type matrix was used with one average for MD and slightly more complex calculations for BI 85% of claims are now processed within CARD system (%65 as amount) 22

23 Direct Settlement System Abroad examples (2) Greece DSS is effective since 2000 for material damages and since 2006 for bodily injuries In addition to general repair cost, compensations include a wide variety of covers such as expert fees, transportation of vehicle, medical cost, loss of income and non-economical losses Customers are free to request payment of the compensation from the insurer of the liable driver Three separate averages are calculated for three claim size group (i.e. percentiles) Percentiles are defined randomly in predefined intervals which reduces the manipulation risk Caps are 6,500 for MD and 15,000 for BI 23

24 Direct Settlement System Abroad examples (3) Latvia DSS was discussed in 2009 System was designed with a singleaverage and a single-cap Portfolio mix had a bigger impact on the outcome than relative claims handling capability Approach and portfolio mix were different between local and international insurers Discussions didn t go further because a number of the larger insurers voted against the introduction of DSS in Latvia Russia A compulsory DSS was introduced in 2009 with small number of averages over each of the regions (i.e. a regional matrix) It included only MTPL direct payments and allowed full subrogation for Casco Customers were free to approach to their own or liable 3 rd party s insurance company Legislation change followed by several manipulations in the market Casco elements in MTPL products Directing large claims to third party companies 24

25 Direct Settlement System Voting question How much do you think the market might benefit from Direct Settlement System in the long term? a) More than 5% improvement in combined ratio b) 1-5% improvement in combined ratio c) No change d) 1-5% worsening in combined ratio e) More than 5% worsening in combined ratio 25

26 Numbers Direct Settlement System Potential impacts and getting prepared (1) For certain segments the gap between the actual cost and market average could be big. However, there are several ways to reduce this impact (e.g., using segmented or more than one average) Some companies with different business mix may need to reshape their portfolio to neutralize the impact on the financials Claim cost 26

27 Direct Settlement System Potential impacts and getting prepared (2) Casco Subrogations COST OWNERSHIP INCREASE in COSTS and EARLY NOTIFICATION CUSTOMER SATISFACTION CLAIMS MANAGEMENT? MTPL CUSTOMER OWNERSHIP REDUCTION in COSTS ECONOMIES of SCALE ECONOMIES of SCALE NEGOTIATION POWER REDUCTION in COSTS MTPL Claims MTPL Direct Payments NEGOTIATION POWER REDUCTION in COSTS Transactional impact will affect immediately however strategic actions may require a transition time Depending on the portfolio mix, some companies may continue to win or lose for a certain period of time 27

28 Direct Settlement System Potential impacts and getting prepared (3) Developing and implementing the required business changes New pricing perspective Transformation of claims processes Actions Balancing portfolio mix New product opportunities Strategic response Strategic decision process for action planning Data & KPI reporting Tracking the performance on new environment with right indicators Impact analysis Understanding the gap between the DSS average and actual average for individual claims 28

29 Direct Settlement System Summary potential benefits & pitfalls There are many potential benefits of DSS which could lift up MTPL business quite substantially Process efficiency Customer satisfaction Market balance Repair costs But there might be some risks related to implementation options Winners & losers Manipulation risk Avg. cost & price increase risk 29

30 Direct Settlement System Voting question How much do you think your company might benefit from Direct Settlement System? a) Much more than the market average b) Slightly more than the market average c) Around the market average d) Below the market average e) We may lose significantly under DSS 30

31 Direct Settlement System Contact Özlen Kurt Kandemirli For any questions, please feel free to contact us at: Büyükdere Caddesi, No:127 Astoria İş Merkezi, A Kule 4. Kat 34394, Esentepe Istanbul T M Ozlen.Kurt.Kandemirli@ Emrah Gökmen Büyükdere Caddesi, No:127 Astoria İş Merkezi, A Kule 4. Kat 34394, Esentepe İstanbul T M Emrah.Gokmen@ 31