Considerations on the development of frequency and severity of MTPL losses in Italy

Transcription

1 Considerations on the development of frequency and severity of MTPL losses in Italy Armin Dahr MRI Reinsurance Forum, 2 nd April 2014

2 Agenda Development of MTPL claims frequency in Italy Inflation of severe bodily injury claims in Italy Impact of the 5 th European Motor Directive on Italy Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 2

3 DEVELOPMENT OF MTPL CLAIMS FREQUENCY IN ITALY

4 Road traffic accidents involving an injury or fatality Comparison with other EU peers Number of accidents, injuries and fatalities steadily decreasing throughout Europe, e.g. due to Technological progress More numerous and severe laws Improved infrastructure Increased safety awareness Enhanced by Road Safety Action Programme of the European Union Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 4

5 Road traffic accidents causing an injury or fatality Italy General reduction throughout Europe Ratio Fatalities per Accident decreasing in line with EU average, but No positive long-run trend of the ratio Injuries per Accident in Italy Italy does not share in the EU-wide positive long-run trend of the ratio Injuries/Accident Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 5

6 Frequency of MTPL claims in Italy Real downward trend visible only since % in % in % in 2012 Frequency decrease by ca. 3.9% p.a. on average Accelerated in 2012 (by ca. -5%) Crucial potential driver for recent acceleration: economic crisis? Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 6

7 Frequency of MTPL claims in Italy Impact of economic crisis Mileage is a better exposure measure than vehicle years Can be indirectly measured by fuel consumption per vehicle year. Reduction accelerated since 2012, by -6.9% in 2012, -3.4% in H which approximately should indicate the mileage reduction Should contribute to the decrease in claims frequency Further effect of the economic crisis: revised claiming behaviour (lower value claims not reported anymore to avoid premium increases) Absolute figures on fuel consumption taken from: Centro Studi Promotor 2013 Normal trend : -1.9% p.a How long will this trend continue? Will mileage stabilize? Or will the development even revert?? Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 7

8 Road traffic accidents involving an injury or fatality Claims frequencies Comparison with EU peers Frequency decreases throughout Europe Strong convergence visible Italy has been ranging above its peers But seems to catch up What is the reason for this strong improvement? Will it be sustainable? Why are Italy s peers better off? Italian MTPL frequencies above all its peers! Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 8

9 INFLATION OF SEVERE BODILY INJURY CLAIMS IN ITALY

10 Heads of damage Severe bodily injury claims in Italy Non-patrimonial damage, i.e. compensation for biological and moral damage as well as in the case of dead victims the awards granted to surviving dependants Temporary disablement Loss of earnings Costs of care Medical costs Property damage Legal and claims adjustment expenses Legal interests Average composition * of a severe bodiliy injury MTPL claim in Italy Source: estimate by Munich Re * Before legal interests Non-patrimonial damage main driver Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 10

11 Heads of damage Comparison with other EU peers In most other countries either the the costs of care (e.g. F, D, UK) or the loss of earnings (e.g. CZ, NL) clearly prevail, whereas the non-pecuniary damage plays a minor role. Risk of change in Italy? Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 11

12 Heads of damage Their meaning in Italy Loss of earnings Costs of care Medical expenses Legal fees and expenses Legal interests Only for self-employed injured persons and cases of severe permanent disablement Simplistic approach to determining the quantum with multipliers from a table from the 1920s Settled on a lump-sum basis Domestic care still prevailing in Italy High inflation also in Italy, but SSN covers also treatments in case of negligently caused injuries Usually between 5% and 10% of the ultimate loss amount Usually higher for out-of-court settlements If the insurer goes to court he will if found liable have to pay interests for the delayed payments, accrued since the date of loss. Annual interest rate is fixed (in the 1990 s: 5%-10%, since then in line with economical realities) Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 12

13 What has been the inflation in the past? Non-patrimonial damage Before 2011: variety of court tables in place, but widely used were the tables of Milan and Rome (which always ranged amongst the most expensive ones) Compensation of non-patrimonial damage harmonized nationwide General development of these tables followed CPI ( Prezzi al Consumo, ISTAT) But: Crucial one-off effects in the past! Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 13

14 Past claims inflation Significant one-off effects over the past decade 2007 Compensation levels of Rome tables increased significantly for both bodily injuries and fatalities Impact of change or Rome table in 2007 Example: Death of a 30 year old man 2009 compensation levels of Milan Tables for surviving dependents significantly increased 2011 Application of the expensive Milan tables mandatory nationwide (though in Lazio the Rome tables are still in use) Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 14

15 One-off effects What do they mean for the insurance industry Impact of change of Milan table in 2009 Compensation of relatives in mn ( middle of band ) in case of death What do they mean for claims severity frequency? and frequency from the ground up? Obviously hardly any impact on from-ground-up frequencies Impact on claims award may be considerable for individual cases (e.g. Milan step 2008/2009 estimated to be ca. +10% on the average assuming stable inflation for the other heads of damage) Lower impact on overall portfolio Will also cause significant increases of xs-frequencies Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 15

16 One-off effects What do they mean for the insurance industry Leverage effect Inflation of portion xs 1mn: +100%! What do they mean for xsfrequency and xs-severity? Enormous increase of xsamount (i.e. high xs-inflation ) 1mn 0.1mn 0.2mn Loss Loss without after inflation: inflation: 1.1mn 1.2mn Inflation from ground up: +9% Effect partially counterbalanced by indexation clause, but usually not to its full extent, especially not in the case of one-off effects. Considerable impact on xsfrequencies Appropriate assessment of inflation crucial for tariff making and for XL pricing Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 16

17 Is there evidence in the observed data? Frequencies * xs 1.2mn After indexation to UWY ** 2014 with CPI Indexed to UWY 2014 accounting for one-off effects and general frequency decrease Strong increase since UWY 2000 Accelerated since UWY 2006 Not allowing for general trend will lead to overestimation of frequency * per VY converted to mn GNPI ** Underwriting year Increase dampened, but potentially still underestimated Still a residual upward trend visible, likely to stem from gradual erosion of policy limits Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 17

18 Future claims inflation Is there a risk of change? Non-patrimonial damage Loss of earnings Costs of care and assistance Medical expenses Stable development of the Milan Tables expected Lately a nationwide legal table was discussed, but has not been improved; it would have provided considerably lower compensation levels. To what extent do the simplistic calculation and the applicable parameters actually compensate the true economical loss of earnings? The low lump-sums currently awarded would not reflect the true economic expenses required for professional service The SSN contribution from each policy ensures ongoing cost cover from the national health system Value of life Sentence of the Corte di Cassazione dated 23 rd Jan 2014: new head of damage at the horizon regarding the compensation awarded to the road victims heirs (in addition to the moral and potentially pecuniary damage)? Final decision still outstanding Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 18

19 THE 5 TH EUROPEAN MOTOR DIRECTIVE

20 Another essential one-off effect 5 th European Motor Directive Development of limit profile Stepwise increase of the statutory minimum sums insured of MTPL policies Before 2009: 0.75mn From 2009: 2.5mn for bodily injuries plus 0.5mn for property damage, each per event Since 2012: 5mn for bodily injuries plus 1mn for property damage, each per event Source: Munich Re How to read the profile? E.g. the green part reflects all policies that had limits above 775,000 up to 1,500,000. Will there be an impact on the insurance industry? Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 20

21 What do these effects mean A theoretical consideration Assume two subportfolios A and B with identical risk characteristics, but different policy limit profile. Subportfolio A: Policy limit 5mn Subportfolio B: Policy limit 2.5mn Joined portfolio A & B: Unique policy limit 5mn Losses 2.5 mn 2 insured losses xs 2.5mn 4 insured losses xs 2.5mn Frequency in xs of 2.5m would double by rule of proportion! Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 21

22 Is there evidence in the observed data? Pareto curve of Italian market (logarithmic axis scaling) After indexation with CPI Reflects subportfolio with reporting threshold 0.75mn (nominal) Several steps visible stemming from former standard limits MTPL insurance so far benefitted from the limits below 5mn Without these limits the curve would fluctuate around the straight red line Market Pareto alpha , still a bit above other MTPL markets (probably due to neglected one-off effects and other policy limits) Past loss experience must not be regarded anymore as representative for the future xs-frequencies and average xs-losses will increase! Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 22

23 Take aways Italy s MTPL claims frequency still above all its peers Recently accelerated improvement likely to be only temporary as mainly driven by macro-economic environment Past claims inflation underwent several one-off effects. Future outlook stable? 5th European Motor Directive will change distribution of large losses (both in terms of frequency and severity) and thus drive loss costs Munich Re Italia: Frequency and Severity of MTPL Losses in Italy 23

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