CEA Statistics N 27 The European Motor Insurance Market

Transcription

1 CEA Statistics N 27 The European Motor Insurance Market December 2006

2 CEA member associations which took part in this study ISO CODE Country AT Austria Verband der Versicherungsunternehmen Österreichs (VVO) BE Belgium Assuralia - Union Professionnelle des Entreprises d Assurances Assuralia - Beroepsvereniging der Verzekeringsondernemingen CH Switzerland Schweizerischer Versicherungsverband Association Suisse d Assurances CY Cyprus Insurance Association of Cyprus CZ Czech Republic Česká asociace pojišt oven (ČAP) DE Germany Gesamtverband der Deutschen Versicherungswirtschaft (GDV) DK Denmark Forsikring & Pension (F&P) EE Estonia Eesti Kindlustusseltside Liit ES Spain Unión Española de Entidades Aseguradoras y Reaseguradoras (UNESPA) FI Finland Suomen Vakuutusyhtiöiden Keskusliitto FR France Fédération Française des Sociétés d Assurances (FFSA) GB United Kingdom The British Insurers European Committee (BIEC) GR Greece Association of Insurance Companies-Greece Association des Compagnies d Assurances- Grèce HR Croatia Croatian Insurance Bureau HU Hungary Magyar Biztositók Szövetsége (MABISZ) IE Ireland The Irish Insurance Federation (IIF) IS Iceland Samband Íslenskra Tryggingafélaga IT Italy Associazione Nazionale fra le Imprese Assicuratrici (ANIA) LU Luxembourg Association des Compagnies d Assurances du Grand-Duché de Luxembourg (ACA) LV Latvia Latvijas Apdrošinataju Asociacija MT Malta Malta Insurance Association NL The Netherlands Verbond van Verzekeraars (VVN) NO Norway Finansnæringens Hovedorganisasjon (FNH) PL Poland Polska Izba Ubezpieczen (PIU) PT Portugal Associaçao Portuguesa de Seguradores (APS) RO Romania National Association of Insurance and Reinsurance Companies from Romania (UNSAR) SE Sweden Sveriges Försäkringsförbund SI Slovenia Slovensko Zvarovalno Zdruzenje (SZZ) SK Slovakia Slovenská asociácia poistovni TR Turkey Türkiye Sigorta ve Reasürans Sirketleri Birligi Association of the Insurance and Reinsurance Companies of Türkiye

3 CEA Statistics w w w. c e a. a s s u r. o r g About CEA CEA is the European insurance and reinsurance federation. CEA s 33 national member associations represent more than 5,000 insurance and reinsurance companies. Insurance makes a major contribution to Europe s economic growth and development. European insurers generate premium income of 970bn, employ over one million people and invest more than 6,300bn in the economy.

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5 Contents Methodological note 6 Foreword 7 Thanks 7 Part 1 The European Motor Insurance Market 9 I. The size of the market 11 I.1 Number of vehicles 11 I.2 Vehicles per inhabitant 12 I.3 Vehicle categories 12 I.4 New registrations 13 II. Premiums 15 II.1 Evolution and growth rate 15 II.2 Motor premiums: Liability 16 II.3 Motor Premiums: Damage 17 II.4 Share of liability and damage in motor premiums 18 III Price of motor insurance 20 III.1 Evolution 20 III.2 Level of prices 21 IV. Claims expenditure 22 IV.1 Claims expenditure in motor (liability and damage) 22 IV.2 Claims ratio 24 IV.3 Number of claims 25 IV.4 Average expenditure per claim 26 V. Operating expenses 28 VI. Combined ratio 29 VII. Market operators 31 VII.1 Number of companies 31 VII.2 Concentration ratio 31 Glossary 33 Part 2 Country guide 35

6 European Motor Insurance Market Methodological note CEA collects, analyses and compiles annually a substantial amount of general, financial and technical data relating to insurance and obtained from its members. This financial information is collected in millions in each market s national currency. It is then converted into euros at the exchange rate on 31 December of each year for non-euro zone countries as published by the European Commission. (For 1992 to 1997 inclusive, the Ecu was the reference currency). The inflation-adjusted value is calculated on the basis of data in national currency converted by the price inflation rate published by the Eurostat. (Base 100 in 2005). Conversion into inflation-adjusted euros is done at the rate for the last year in order to cancel out variations in exchange rates. Variations on each market are then calculated for data in national currency for non-inflation adjusted variations and for data in national currency corrected for inflation for variations exclusive of inflation. Total variations per zone are calculated for euro and non-inflation adjusted euro totals. Year on year variations have been calculated by subtracting from the total data countries for which there was no information for the previous or following year. The average growth over time represents the average of the past year on year variations The market share of the figures presented is 100% for most market and slightly under this level for some others. Only Romania shows figures that represent between 70 and 80% of the market according to the year take into consideration and to the liability or damage insurance product. Figures have been rounded-up to the nearest thousand and are in million of euros, unless otherwise stated. Growth rate presented in the text are all inflation-adjusted unless otherwise stated. Thanks This publication would not have been possible without the active participation of the CEA Working Groups on Motor Statistics. We would like to thank the delegates on these groups for their active participation and their comments. Particular thanks are due to Mr F. Gudin du Pavillon, Chairman of the Working Groups on Motor Statistics for his efforts in the design of the publication. The work of CEA correspondents within the national associations in collecting and providing data relating to their market is the basis for the success of this undertaking. Thanks go to them for their participation. CEA Statistics N 27

7 Overview of the European Market Executive Summary Motor insurance is one of the most familiar and widespread products of the insurance industry. Being compulsory everywhere in Europe, it covers approximately 300 million vehicles, protecting European families from the consequence of motor accidents. With a total premium income of 127bn in 2005, the motor insurance market is the largest class of non-life insurance in Europe, representing 33.5% of the non-life business. Nevertheless, for the first time in a decade the motor premium income has recorded a negative growth rate (inflation-adjusted), demonstrating the high level of competition between insurers in this market. This development conceals two different results in motor liability and damage. Motor liability, which is compulsory and therefore predominant in the total premium income of motor insurance (60.4%), recorded a decrease of 1.1%, whereas motor damage insurance recorded a weak increase of 0.4% in High competition between insurers is confirmed by the evolution of the transport insurance price index which decreased by 0.8% in The stabilisation of premium income over the past few years and its reduction in 2005 have been made possible by the stable level of claim expenditure which reflects among other things the reduction in the number of road accidents. This general downward trend in the number of accidents is closely related to the commitment made by European countries to reduce by 50% the number of deaths on the roads between 2001 and 2010 and which has shown positive effects in many European countries. The diminution in claims expenditure and in premiums income has seen a reduction of the combined ratio. Indeed the underwriting result recorded in 2004 was positive, although the 10 year cumulative result shows a negative result of 44 billion borne by insurers. If the reduction in the number of accidents has enabled a reduction in premium, it has to be noted that the total claims expenditure are negatively affected by the increase in price of some products such as spare parts, motor repairs and medical intervention and by the trend of increased court compensations on some markets. A fact reflected in a recorded increase in the average cost of liability claims of 4.5% in CEA Statistics N 27 7

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9 Part I Overview of the European Market

10 European Motor Insurance Market 10 CEA Statistics N 27

11 Overview of the European Market I. The size of the market I.1 Number of vehicles With approximately 300 million vehicles on the road, the European market is the largest motor market in the world just ahead of the North American (US and Canada) market, which numbers approximately 250 million vehicles (including all types). The European market has experienced a regular growth rate of 1.5% to 3% between 2000 and 2004, to reach a total of 299 million vehicles. On average over the last five years, the market has grown by 2.4%. The total number of vehicles has grown by 2.9% in 2004 to reach approximately 300 million vehicles Millions Number of vehicles in Europe (Source CEA/Eurostat) 2.6% 2.4% 2.9% % Number of vehicles Growth rate 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% With more than 50 million vehicles, Germany and Italy are by far the largest markets in Europe, just ahead of France and the United Kingdom which have 38 and 30 million vehicles respectively on the road. Altogether, these four leading markets, which are also among the most populous, represent 58% of the vehicle stock. Repartition of the number of vehicles in European countries RO SE HU Others CH AT PT CZ DE BE GR TR NL PL IT ES GB FR CEA Statistics N 27 11

12 European Motor Insurance Market I.2 Vehicles per inhabitant The number of vehicles per 1000 inhabitants rose from 496 in 2000 to 535 in This level is still below that recorded in the US If, fairly logically, the most heavily populated countries are also the largest markets for motor vehicles, the ratio relating these figures to the population allows a comparison of the density of vehicles per inhabitant, and this shows great heterogeneity across Europe. The indicator ranges from 114 in Turkey to 867 vehicles per 1000 inhabitants in Italy. The CEA average stands at 535 against 496 in 2000, representing a growth of 8%. The level is nevertheless below the rate of 768 vehicles per 1000 inhabitants (source: OECD) observed in the United States, which is above most of the European countries.1 Though major differences between countries may be related to their economic development, some other differences seem to be more closely related to the characteristics of the country. The high level observed in Italy, for instance, is among other things due to the high proportion of motorcycles, while in Luxembourg the high number of company cars which are used by non-residents can in part explain the high ratio. Vehicles per 1000 inhabitants in IT LU AT MT CH IS DE CY FR ES NO CZ BE SE GR FI PT GB CEA NL SI EE IE DK PL HR SK LV HU LT RO TR I.3 Vehicle categories 80% of vehicles are personal and commercial 4-wheeled vehicles Private vehicles predominate on every market. The proportion ranges from 93% in Denmark to only 65% in Greece. The CEA average reveals proportions of 80% of personal and commercial four-wheeled vehicles, 10% of utility vehicles and 10% of motorcycles. The highest proportion of motorcycles is recorded in southern countries such as Italy (21%) and Greece (17%). 1 The indicator used in this study may be higher than similar indicators provided by other international institutions due tot the fact that it takes into account not only passenger vehicles but also utility vehicles and motorcycles. This is not always the case in other studies. 12 CEA Statistics N 27

13 Overview of the European Market Vehicle categories in 2005 GR IT NO EE ES* CH LV FR MT SE PL* CEA NL LU RO* HR BE DE PT GB SI FI DK 0% 20% 40% 60% 80% 100% Personal and commercial 4-wheeled vehicles Utility vehicles 2 or 3-wheeled motor vehicles *2004 I.4 New registrations New registrations indicate the dynamism of the motor market. As with the total number of vehicles, the highest levels of new registrations are found in the largest European countries such as Germany, Italy and the United Kingdom, all of which registered more than three million new vehicles. The ratio of new registrations/ number of vehicles provides a better comparison of the dynamism of the market. According to this indicator, Luxembourg and Estonia are by far the most dynamic markets, having a ratio above 10%. The lowest registration rate is recorded in Malta where it falls to 2.7%. The registration rate reached a level of 8.4% in 2005 and has been increasing over the last two years For the European market as a whole, the registration rate reached a level of 7.3% in 2005 and is close to the same level since 2002 but lower than in 2000 and This evolution, observed during this six year period, seems closely correlated to the growth rate of economic activity CEA Statistics N 27 13

14 European Motor Insurance Market Ratio :New registrations/number of vehicles in % 14% 12% 10% 8% 6% 4% 2% 0% LU * 2004 EE GB BE DK ES* HR SE CEA DE FR AT CY CH GR NL SI IT FI NO PT RO* MT Evolution of the registration rate 8.5% 8.0% 7.5% 7.0% 6.5% CEA Statistics N 27

15 Overview of the European Market II. Premiums II.1 Evolution and growth rate With a total premium income of 127bn in 2005, the motor insurance market is the largest class of non-life insurance in Europe. It represents 33.5% of total non-life premium income and 1.1% of the GDP2. For the first time since 1997, the motor insurance market experienced a negative growth rate of -0.3% in its premium income in A very low level had already been observed in 2004, when motor premium income showed a growth rate of only 0.5%. This development differs sharply from the increase in the number of vehicles observed over the same period. The reduction in motor premium income reflects the intense competition between insurers to attract drivers into their portfolio by reducing their prices, and also the reduction in claims which was also observed in 2005 (see section IV on claims). Finally, the higher level of return on investments observed on the financial markets in 2004 and 2005 has increased insurers investment revenues and allowed them to offer lower prices or better conditions to consumers. Premium income for motor insurance decreases by 0.3% in 2005 reflecting the high competition between insurers Taking the long term point of view, the 1990s were characterised by low increases in premium income due to higher returns on investment and strong competition between insurers. From 1999 to 2001, two different effects have contributed to a rise in premium income: on the one hand, the rise in claims expenditure and in accidents obliged insurers to adjust their premium levels and, on the other hand, the financial crisis of 2001 diminished the insurers financial revenues (particularly in motor liability where provisions are important). These losses of revenue have then been partially offset by price increases. Since this period, the growth rate has continually decreased through to the negative level recorded in Evolution of motor premium income (Euro million) Motor premium income 6.8% Growth rate (infl.adj.) 4.3% 3.6% 4.7% 0.5% 0.1% -0.4% -1.0% 1.3% 3.4% -0.3% % 6% 4% 2% 0% -2% The negative growth rate recorded in 2005 conceals a wide variety of growth rates across the different countries. The majority of the markets experienced a positive growth, nevertheless the negative development recorded in 2005 is 2 This last ratio does not represent the contribution of motor insurance to the GDP, but constitutes an indication of the development of motor insurance and allows comparisons between countries. CEA Statistics N 27 15

16 European Motor Insurance Market mainly due to leading players such as Germany, the Netherlands, Italy and France which all experienced negative growth. The highest growth rates are observed in several Eastern countries which are experiencing an economic upturn and which have the highest potential for growth. Growth rate in motor insurance per country in ,0% 15,0% 10,0% 5,0% 0,0% -5,0% -10,0% TR RO EE LV FI SI SK LT CY HU HR PL DK CH CZ GR SE AT GB ES NO BE CEA PT IS FR IT MT NL LU DE IE II.2 Motor premiums: Liability Motor liability premium income has decreased by 1.1% The premium income in motor liability represents a total of 64bn which has fallen by 1.1% compared to This growth rate is the lowest recorded for the last ten years. This reflects the intense competition between insurers to increase their market shares. This competition has given place to a wide range of premium reductions or advantages offered to insureds in order to attract more insureds without increasing too greatly the moral hazard and the risk of antiselection. These reductions have taken the form of lower prices for good drivers, lower prices for insureds who drive few kilometres, pay-as you-drive solutions, no change in bonus-malus for drivers who have few accidents, participation in profits for good drivers, All these advantages offered to insureds have substantially reduced the prices for motor third party liability, but have been made possible thanks to technical factors. On the one hand, the decrease in claims expenditure which is related to better road safety measures (see section IV.a on Claims expenditure) has enhanced competition between insurers and more specifically in terms of price reduction, on the other hand, the good financial results obtained by insurers since the end of the financial crisis at the beginning of this century have also improved the financial strength of the companies and therefore their ability to offer price reductions to insureds. In future, any further changes in market conditions on the technical or financial side will have to be carefully taken into account by insurers in their pricing levels in order to avoid any deficit in the motor liability class as was the case at the end of the 1990s in several countries. In the long run, the hard competition between insurers had already given place to a negative growth rate for motor liability premium income in the second half of the 1990s. This period has been followed by regular increases in premium income which reached its maximum in 2002 with a 4.6% growth rate (inflationadjusted). This process was made necessary by the rise in claims expenditure and the financial crisis of which reduced the revenue from investments, 16 CEA Statistics N 27

17 Overview of the European Market which constitute an important source of income in motor liability due to its longterm nature. Motor liability premium (Euro million) % 4.6% 3.7% 3.6% -0.3% -1.1% -0.6% 3.0% -0.5% 1.5% 1.5% % 4% 3% 2% 1% 0% -1% -2% Motor liability premium Growth rate (Infl. Adj.) As with the total motor premium income, the growth rates recorded in the different European countries appear contrasting. The lowest growth rates are recorded in the Western countries while the highest ones are encountered in the new member states which are in a catch-up phase. With a growth rate above 10%, Finland seems to be an exception. Growth rate in motor liability premium income in % 15% 10% 5% 0% -5% -10% -15% RO EE TR CY FI SI HU PL CH DK SE II.3 Motor Premiums: Damage HR SK NO CZ GR AT ES CEA BE FR IT MT DE LT NL LV LU The motor damage market, on which policies are not mandatory, represents a lower share of total motor premium income but shows a pattern of evolution which is similar to the one observed in motor liability. The premium income has grown by 0.4% in 2005, which is the lowest since 1998 but is still positive and higher than in liability. As with motor liability, the price of the damage insurance product is related to claims expenditure, which has decreased in recent years. In other respects, motor damage insurance is less dependent on financial income, which is lower due to the short-term characteristics of this product and consequently the proportion of provision is lower than in motor liability. Motor damage premium income increased by only 0.4% in 2005 whilst prices of repairs and maintenance of motor vehicles increased much more The prices of vehicles and of repairs are also important factors influencing the claims expenditure in this class. If the evolution of the price of spare parts and of vehicles has remained moderate in recent years, the prices of maintenance and repairs to cars has literally exploded, growing by 36% on a ten-year basis which represents an average growth of 3.5%. CEA Statistics N 27 17

18 European Motor Insurance Market Motor damage premium (Euro million) % -1.5% -0.8% -0.7% 3.6% 6.3% 4.4% 3.5% 2.5% 2.3% 0.4% % 6% 5% 4% 3% 2% 1% 0% -1% -2% Motor damage premium Growth rate (Infl. Adj.) Evolution in Price of Vehicles, Spare parts and Reparation Purchase of vehicles Spare parts and accessories Maintenance and repairs * 1997* 1998* II.4 Share of liability and damage in motor premiums The competition between insurers decreases the share of liability in the total motor premium income The share of the motor liability premium income has varied in the last ten years between 60% and 61.6%. Since 2002, the share has regularly decreased, reflecting the competition between insurers and also the high maturity level of the motor liability market. The motor liability product being mandatory everywhere in Europe, the potential for growth of this market is then logically more limited than other non-life markets and constrained by the growth in the number of cars on the market and the development of the technical and financial conditions applicable to the market. Share of motor liability in motor premiums 62,0% 61,5% 61,0% 60,5% 60,0% 59,5% 61,6% 60,4% 60,6% 59,9% 61,1% 61,2% 60,4% 60,8% 61,0% 60,8% 60,6% 60,4% 59,0% 58,5% CEA Statistics N 27

19 Overview of the European Market Along with economic development which is almost automatically accompanied by increases in the value of vehicles, we may expect a decrease in the share of liability premium income and consequently an increase in the share of damage premium income. The same hypothesis can be adopted when comparing the different European countries: the more a country is developed, the lower the expected share of liability in motor premiums. Amazingly, this is not exactly what was observed in the figures for The share of liability in motor insurance ranges from 35% in Turkey to 85% in Italy. The more developed countries do not show a uniform pattern with some like Italy, Greece and Portugal presenting a high ratio while others like France, Denmark, Luxembourg, Sweden and Switzerland show a lower ratio. The disparities between new member states are also significant. 90,0% Share of liability in motor premiums ,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% IT GR HR SI CY PT BE AT DE CEA CZ SK ES FI MT HU NL PL LT CH SE LU EE RO DK FR NO NO LV TR The mandatory and long-term nature of motor third-party liability makes this market more difficult to manage for insurance companies. Countries where the share of liability in the total motor premium income is high then offer less scope for reacting to changes in the market environment than markets in which the division between the two products is more balanced. This problematic issue is made worse by the growing intervention of the State in the management of motor liability due to its high political sensitivity for the public and to its mandatory nature. This sensitivity is well illustrated on the Belgian market, where the price for motor liability policies was still regulated by the State until the end of The intervention of the State to reduce the price for some categories of driver is also an illustration of the difficult compromises that companies have to make between social pressures and the need for appropriate financial and technical conditions. CEA Statistics N 27 19

20 European Motor Insurance Market III Price of motor insurance III.1 Evolution According to Eurostat data, the price of transport insurance has decreased by 0.8% in 2005 The price index of transport insurance, provided by Eurostat, offers a perfect illustration of the recent competition between insurers on the motor insurance market. The index, which has slowly risen since 2002, has for the first time fallen in This fall is limited to -0.8% but follows several years of weak and constantly slowing growth. Price index of transport insurance (Source Eurostat) % 7.7% % 0.4% 5.6% 1.9% 1.4% 4.0% -0.8% % 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Price index Growth rate The growth rate between 2004 and 2005 of the transport insurance price index shows contrasting situations across the different countries. The highest rates are encountered in the new member states and in Turkey, while at the other end of the ranking large markets such as Germany, France and the United Kingdom recorded a negative growth rate. Ireland and Germany show the largest price decreases, -7.7% and -5% respectively. As previously stated, the lowest growth rates are found on the more mature and saturated markets which have a long experience of motor insurance and where economic growth is lower than in new member states. Increase in the transport insurance price index between 2004 and 2005 (Source Eurostat) 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% RO LV SK CY TR EE HU SE SI MT LT FI GR AT DK ES NO IT PL BE NL LU EU25 IS GB FR CZ DE 20 CEA Statistics N 27

21 Overview of the European Market III.2 Level of prices If the price index gives a fair indication of the premiums paid by policyholders, the level of these premiums in the different countries can be estimated by the ratio between the premiums and number of insureds. This indicator also shows a large variation between different countries. In Luxembourg, the level of premiums is double that of the sample average, while in Romania it is one third of the sample average. More generally, the highest levels of premium are encountered in Western countries and the lowest level in the Eastern countries. The average premium shows a range of levels across Europe reflecting the development of each market Premium per insured in motor vehicle liability LU BE AT ES SI DE MT NO GR Two main conclusions may be drawn from this analysis of the evolution and level of motor insurance prices. On the one hand, the competition in mature markets has led to a decrease in prices on several markets, or at least a very low growth rate in premiums. On the other hand, the new member states which have the lowest price levels also have the highest increases in prices, demonstrating a catching-up effect in these markets which is closely linked to the expanding economic environment and to improvements in living standards. SE FR SK CEA HR FI HU EE LV PL LT TR RO CEA Statistics N 27 21

22 European Motor Insurance Market IV. Claims expenditure 3 IV.1 Claims expenditure in motor (liability and damage) Claims expenditures increased by 0.3% in 2004 Claims expenditure has evolved in a similar way to premium income. Its level has rapidly grown in at the end of the nineties and has then become stable or even decreased in the first half the current decade. In 2004, with a growth of 0.3%, claims expenditure recorded the largest increase in the last five years and showed the premises of upward trends which differs strongly from the decrease in the premium income Claims expenditure 6.2% 5.0% 4.8% -0.1% -0.3% 0.1% 0.3% -0.2% -0.9% -0.4% % 6% 5% 4% 3% 2% 1% 0% -1% -2% Claims expenditure Growth rate (infl. adj.) A decrease in claims expenditure in 2004 is observed in the majority of the European countries and more generally in Western Europe. High growth rates are still encountered in Turkey and several Eastern countries but also in Switzerland, Greece and Italy. Evolution in claims expenditure in Europe between 2003 and % 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% TR SI LV RO HU CH CY GR IT MT GB CEA NO FR NL BE SK AT PL SE ES DE DK PT FI LU HR The decrease in claims expenditure is amongst other things related to reduction in the number of accidents The decrease in claims expenditure recorded since the beginning of the 21st century is among other things related to the reduction in the number of accidents and naturally the number of claims observed over the same period. The figures recently published by the European Transport Safety Council show the reduction in the number of road deaths in Europe between 2001 and If this indicator does not reflect precisely the development of the claims paid by 3 As only limited 2005 data was available for the analysis of claims expenditure, most of the conclusions presented in this section relate to CEA Statistics N 27

23 Overview of the European Market insurers, it nevertheless gives an indication on the trends for the weighting of road accidents in motor claims expenditure. These figures show a noticeable reduction in the number of deaths on European roads in most European countries. The largest decrease is observed in France and Luxembourg, which both have a reduction in excess of 30%. The reductions are unfortunately not yet as significant in every country. Countries such as Poland, Ireland, Slovenia, the United Kingdom or Slovakia recorded a reduction in the number of road deaths with a rate inferior to 10%. On the other hand, some other states such as Lithuania, Malta, Cyprus, the Czech Republic and Hungary have recorded an opposite trend, with an increase in the number of road deaths. The general downward trends observed in Europe, are closely related to the commitment made by European countries to reduce by 50% the number of deaths on the roads between 2001 and These initial figures show that this objective has been taken seriously by many governments with some immediate effect, that this topic is a sensitive issue for the population and finally that the objective of a 50% reduction by 2010 seems achievable. National governments and have taken action to reduce by 50% the number of deaths on the roads between 2001 and 2010 To achieve such results, national governments have taken several types of action, such as increasing the number of radar and alcohol controls, better law enforcement, the implementation of prevention and awareness-raising campaigns, the upgrading of infrastructure, better information for the citizen on the consequences of road accidents, In line with this, in order to reach the objective of halving the number of road fatalities by 2010, the European Commission adopted two new proposals for directives on 5 October The first directive aims at improving safety on major roads, i.e. the trans-european transport network (TEN-T) through infrastructure measures and better engineering. The second directive provides for existing heavy vehicles to be equipped with blind spot mirrors in order to reduce the number of accidents involving cyclists and motorcyclists in particular.4 If all the measures taken so far have allowed a reduction in the human costs on the 10.00% Reduction in road deaths (in %) Source ETSC (+CARE and national data) 5.00% 0.00% -5.00% % % % % % % % FR LU BE PT CH SE NL DK DE LV AT ES NO IT EE GR FI SK GB SI CZ IE PL HU CY MT LT 4 European Commission, Press release on New directives for safer roads in the EU. 5 October CEA Statistics N 27 23

24 European Motor Insurance Market Price of medical care and costs of other factors influencing the price of motor insurance are increasing roads, it has to be emphasised that claims expenditure is not related solely to the number of accidents. Other variables play an important role, including the price of medical care which generally tends to grow faster than other price indexes, the price of vehicle repairs, prices of spare parts. These are all key variables that influence the cost of insurance, along with the return on investments, etc. In the same vein, the cost of compensation for cases dealt with by courts is also playing an increasing role in claims expenditure. Consequently, national governments should not expect to record decreases in premiums similar to those in the number of accidents. Nevertheless as shown previously the competition between insurers and the reduction in claims expenditure has rapidly given effect to a slowing of price increases and even ito reducing prices on the European markets in Evolution of medical prices in Europe Medical price index 130 All item price index * 1997* 1998* * estimate IV.2 Claims ratio The claims ratio settled at 74.5% in 2004 The claims ratio embodies the evolution of both claims and premiums. The ratio settled in 2004 at 74.5%, compared with 74.8% in A regular reduction in the ratio has been observed since 1999 when it reached the peak level of 91.2%. This reduction has been made necessary due to the need for insurers to recover some room for manoeuvre and to incorporate the reduction in investment income that occurred during the financial crisis of Claim ratio (Claim /premiums) in Motor 95% 90% 85% 80% 75% 70% 81.4% 80.8% 91.2% 89.3% 85.0% 86.2% 80.3% 81.8% 77.6% 74.8% 74.5% 65% 60% CEA Statistics N 27

25 Overview of the European Market The claims ratio varies greatly between countries. It ranges from 85.3% in Germany and Greece to 30.8% in Malta. Except for some new member states or non-eu states which show very low rates of claims ratio, most of the other countries showed a claims ratio above 65% in Claim ratio in % 80% 70% 60% 50% 40% 30% 20% 10% 0% DE GR CH IT SE CEA AT FI NL PT HU BE SI ES FR GB DK PL LU HR NO TR CY RO LV SK MT According to the partial figures available for both motor liability and damage, the decrease in the claims expenditure, observed in 2004 and presented above, conceals two different patterns in the two classes of business. The figures calculated for a sample of approximately 75% of the market show an increase of the claims expenditure in motor liability and a decrease in damage. IV.3 Number of claims The number of claims gives a more appropriate view of the frequency of accidents in Europe. According to the figures available for a sample of countries representing approximately 61% of the European motor insurance market, the number of accidents has not greatly reduced during recent years. It has increased by around 2% a year between 2000 and 2003 and decreased for the first time in The number of claims decreases for the first time in 2004 This development conceals two different developments in the liability and damage markets. The number of accidents has regularly been reducing in motor liability in recent years while the number of claims in damage, which is higher than in liability, increased strongly up to 2003 and decreased only slightly in Number of claims in motor insurance Number of claims Growth rate 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% CEA Statistics N 27 25

26 European Motor Insurance Market The claims frequency constitutes the ratio between the number of claims and number of vehicles insured. This ratio, which has only been calculated for a sample which represents approximately 58% of the European market and for motor liability contracts, confirms the preceding evaluation. It shows a slight decrease in the claims frequency from 8.4% in 2000 to 6.9% in Nevertheless, if the claims frequency decreases slightly, it must also be compared with the average claims expenditure. Evolution of the claims frequency in motor liability (calculated for a sample of European countries) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% IV.4 Average expenditure per claim The average cost of claim in motor liability has increased by approximately 4.5% in 2004 The average cost of a claim in motor liability, estimated on the basis of a sample which represents approximately 70% of the European market, has increased by approximately 4.5% in 2004 to reach an average cost of The average cost had already risen by 2.3% in It is then clearly the decrease in the number of claims that has allowed insurers to experience a decrease in the total cost of claims expenditure. The average cost of a claim is approximately 3000 in Europe, but this figure varies strongly across countries. It is above 4000 in Italy while it is less than 1000 in Latvia and Turkey. More generally, it can be stated that the level is lower in Eastern Europe than in Western Europe but, as can be seen on the second graph, the highest growth rates, observed between 2002 and 2004 are met with in the Eastern countries. It reflects a catching-up effect in these last countries that will certainly continue in the future along with economic development and the increase in car values Expenses per liability claim CEA Statistics N IT FI DE FR SI CEA SE NO GR AT ES HU PT HR SK MT PL EE LV TR

27 Overview of the European Market Difference in cost per claim between 2002 and % 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% TR MT HU SI FI FR LV IT ES CEA AT PT EE SE DE NO HR GR PL SK CEA Statistics N 27 27

28 European Motor Insurance Market V. Operating expenses The growth rate of operating expenses increases again The operating expenses represent technical costs borne by insurers to manage the motor insurance class. They include administrative expenses and acquisition costs. After a regular rise between 1998 and 2001, followed by a steep decrease in 2002, the growth rate of operating expenses again began to increase but at a slower speed than in The 2002 decrease is closely linked to the financially difficult year experienced by insurers and by the cost reduction measures taken at that time in order to restore profitability to the companies. Operating expenses % 0.9% 1.0% 2.2% 2.7% -0.7% -1.2% 0.7% 1.7% 0.0% % 5% 4% 3% 2% 1% 0% -1% -2% Operating expenses Growth rate (infl. Adj.) 28 CEA Statistics N 27

29 Overview of the European Market VI. Combined ratio Relating claims and operating expenses to the premium income, the combined ratio offers a synthesis of the evolution described above into a unique indicator. This ratio, which is essentially influenced by claims expenditure (operating expenses being relatively stable) increased strongly up to 1999 reflecting the increase in claims and the large technical deficit incurred by motor insurers during these years. The following years have been marked by a better environment which has been related to the decrease in the number of accidents. The prices of motor insurance have not decreased immediately, due to the need for insurers to retrieve some room for manoeuvre. In 2002, for the first time, the ratio has fallen below 100%, allowing insurers to reduce their financial dependence on investment revenues. The combined ratio decreases to 91.9% in 2004 Combined ratio 1994 to % 110.0% 100.0% 90.0% 103.9% 105.0% 103.4% 113.3% 110.2% 114.5% 107.1% 102.1% 97.0% 93.8% 91.9% 80.0% 70.0% 60.0% The decrease in the combined ratio, since 2000 can be observed on almost every market. On average the combined ratio has fallen by 17%. The strongest falls are recorded in Sweden and the United Kingdom. Italy, Belgium, Spain and Finland all recorded a decline of between -10% and -15%. The other countries showed a lesser decrease while Greece experienced an increase of 5.6% in its combined ratio. Evolution in combined ratio (in %) 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% SE CEA IT BE ES FI PT NL FR GB PL LV CY LU GR CEA Statistics N 27 29

30 European Motor Insurance Market Despite improvement in recent years, the cumulative underwriting results since 1994 show a loss of 44 bn If the underwriting result has been improving since 1999, it has to be emphasised that this result has been positive only since The cumulative underwriting results reflect the sum of the negative and positive underwriting results that have been recorded by the European motor insurers since Despite the improvement in recent years, the figure is still strongly negative with a cumulative result of 44 billion which has been borne by insurers. This means that the recent positive results have not yet compensated for the negative ones recorded in previous years. This critical situation explains the weaker decrease in premiums compared to the decrease in claims expenditure and therefore the current level of the combined ratio being below 100%. The high level of competition between insurers means we should expect that the price of motor insurance will certainly not increase and perhaps may even continue to decrease as was the case in The situation will lead to deterioration in the underwriting results and will certainly not help insurers to recover from the negative underwriting results recorded between 1995 and Cumulative underwriting result since 1994 (Euro million) CEA Statistics N 27

31 Overview of the European Market VII. Market operators VII.1 Number of companies The number of companies authorised on the European market in motor insurance has been falling regularly during the last decade from 1634 in 1994 to 1327 in This represents an average decrease of 2% over the full period. This concentration has been an ongoing process for several years and is a reflection of insurers increasing their critical size in order to operate on a large market such as the EU25 and the pursuit of economies of scale. The more that risks are pooled and diversified, the less capital is needed to cover the risks. The number of companies operating in motor insurance has decreased by 2% on average during the last decade The number of companies in each country varies considerably from country to country. The case of the United Kingdom is distinctive due to the fact that 350 companies are authorised to operate on the motor insurance market but only 67 companies and 13 Lloyd s syndicates are effectively active on this market. For most countries, it can be said that the number of companies is mainly related to the size of the market. The Netherlands constitutes an important exception to this rule: with only 16 million inhabitants, it is the leading market in terms of the number of companies. On the other hand, Poland and Turkey, which are both highly populated markets have only 29 and 31 companies operating on their markets. Nevertheless, these two countries have not yet reached the same development as other European markets. 400 Companies operating on the market in GB NL FR DE IT ES BE DK GR SE CH TR PL LU PT AT CY HR HU MT SK LV EE VII.2 Concentration ratio The market share of the 5, 10 and 15 largest insurers in each country constitutes another indicator of the concentration of activities on the motor insurance market. As a preliminary remark, it has to be emphasised that data are missing for Germany for all years. The market share calculated at the European level can then be only roughly estimated on the basis of other countries. Concentration on the motor insurance market appears rather stable The market share of the largest players on each market has been fairly stable over the last 3 years and shows that although the merger and acquisition process has continued over the past few years, it has not generated a sharp rise in the concentration ratio and even a very small decrease in the market share of the five, ten and fifteen leading players. CEA Statistics N 27 31

32 European Motor Insurance Market On average the 5 leading companies control approximately 57% of the motor business and the 10 leading companies 76%. The 15 leading companies attain a level of 83%. 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% leading operators 10 leading operators 15 leading operators Large countries have lower concentration ratio These figures have to be analysed with some reservations due to the large differences in market structures and characteristics. The large countries have many players and much room for risk diversification. Consequently, they generally present a lower concentration ratio as is the case in Italy, France or Turkey. Smaller and less populated or less developed countries do not have markets large enough for many players and then have a higher concentration ratio. This is particularly the case in Scandinavian and Eastern countries. 100% Market share of the 5 largest companies on each market in % 60% 40% 20% 0% SI SE NO EE SK LU FI RO HR PL LV IE CH DK AT GB PT CEA BE CY FR TR ES NL IT GR The evolution of the market share of the five leading players varies widely across European countries. It has increased by 13 points in United-Kingdom, by 7 points in the Netherlands, Romania and Austria, while it has decreased by 4 points in Poland and Portugal and by more than 10 points in Greece. Evolution of market share of the top 5 between 2002 and % 8.0% 4.0% 0.0% -4.0% -8.0% -12.0% RO AT NL BE ES IT HR CY IE EE LU NO TR SI SE FI FR SK LV PL PT GR 32 CEA Statistics N 27

33 Overview of the European Market Glossary Personal and commercial 4-wheeled vehicles: registered vehicles whose laden weight is less than 3.5 t (including ambulances, taxis, vans, etc.) Utility vehicles: registered vehicles whose laden weight is over 3.5 t. 2 or 3-wheeled motor vehicles: registered 2 or 3-wheeled vehicles with an engine of at least 50 cm³ Combined ratio: (claims expenditure + operating expenses)/gross premiums Premiums: refers to gross premiums written on home territory Claims expenditure: includes claims paid and changes in provisions for claims Operating expenses: include administrative expenses and acquisition costs Concentration ratio: refers to the market share of the 5, 10 or 15 largest companies Underwriting result: refers to premiums/claims expenditure operating expenses Claims ratio: claims expenditure/premiums Registration rate: number of new registrations/total vehicles on the road Claims frequency: number of claims/number of vehicles insured. CEA Statistics N 27 33

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35 Part II Country guide

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37 Country guide Austria I. Market developments There are currently 24 companies operating on the Austrian motor market, including one insurer that only offers vehicle damage insurance. The five largest insurers have a market share of just under 67% while ten providers have a market share of less than 1% each. In 2005 the motor fleet was 5.6 million registered vehicles, including approximately 4.15 million private vehicles. The number of registered vehicles continues to rise slightly. Premium income in motor liability insurance increased by 3.2 % to 1.79bn in 2005 and, in contrast to 2004, benefits fell by 1.2% from 1.31bn to 1.29bn. There was a continuing trend towards a slight decrease in the frequency of claims at 104 per 1,000 contracts. Premium income in vehicle damage insurance increased by 4.2% to 994 million euros in The number of risks insured was 1.67 million and benefits fell by 3.5% to 674bn. The claims frequency of 383 per 1,000 contracts may have fallen slightly as against 2004, but it is still worryingly high. II. Developments in 2005 In Austria, motor insurance continues to be marketed mainly through salaried intermediaries. Only a small part is distributed by insurance brokers and independent agents. The share of distribution via the Internet or telephone is negligible. It is particularly noticeable among the new motor liability insurance products that the bonus/malus systems used by the individual insurers are becoming more and more different and are moving away from the structure of the previously uniform system. The reduction of repair costs also remained a major concern of Austrian motor insurers in The increase in repair costs was 4.47% in 2005 compared with an inflation rate of 2.3%. The average hourly labour price increased by 3.8% and is now on average 96 euro. The use of alternative, cost-saving repair methods, such as plastic or spot repairs (in the paint sector) is to be increased as a result of organised events and training. In addition, the insurance industry is seeking to a large extent to handle communications with the workshops electronically (requirement for inspection, sending the expert s report and the invoice). The current minimum sum insured in motor liability insurance is a flat rate of 3m for material damage and bodily injured combined. Levels of cover of 10m or 15m are, however, generally sold. Unlimited cover is still not an issue in Austria. CEA Statistics N 27 37

38 European Motor Insurance Market III. Future developments The development in many markets of marketing own-brand insurance together with new vehicles has not yet reached Austria. One insurance company has tried out mileage-based rating, under which the distance travelled was determined by modern vehicle telematics. It remains to be seen whether telematics, apart from use in the field of assistance insurance or the recovery of vehicles, will also find its way into the field of rating in motor liability or vehicle damage insurance. The transposition of the 5th Motor Liability Directive will not cause any problems in Austria. As far as the new minimum sums insured are concerned, the legislator will opt for the flat rate sum insured per claim in the case of bodily injury. We are assuming that the minimum amounts specified in the Directive will be laid down in law, i.e. 5m for bodily injury and 1m for material damage, per claim in each case. The higher sums will enter into force in June Austria will not make use of the option for transitional periods. As far as the compensation of material damage by unidentified vehicles within the scope of the guarantee fund is concerned, Austrian legislators will align themselves with the concept of serious bodily injury in criminal law in the definition of considerable bodily injury. This is an injury which involves an impairment of health or incapacity for work of more than 24 days. 38 CEA Statistics N 27