Final Report for the Project Car Insurance Tariffs. Part III

Final Report - Part III: Economic-Statistical Situation (Prof. Meyer, U.) 1 Final Report for the Project Car Insurance Tariffs Part III Motor Liability Insurance in Europe Comparative Study of the Economic-Statistical Situation Prof. Dr. U l r i c h M e y e r, Bamberg

Contents 2 CONTENTS TABLE OF CONTENTS 3 CHAPTER 1 INTRODUCTION 7 CHAPTER 2 THIRD PARTY MOTOR INSURANCE RATING 9 CHAPTER 3 EXPLANATORY REMARKS ON THE NATIONAL REPORTS 34 CHAPTER 4 NATIONAL REPORTS 39 4.A Report on Austria 40 4.B Report on Belgium 46 4.CH Report on Switzerland 52 4.D Report on Germany 57 4.DK Report on Denmark 64 4.E Report on Spain 68 4.F Report on France 72 4.GB Report on Great Britain 78 4.GR Report on Greece 84 4.I Report on Italy 89 4.IRL Report on Ireland 93 4.J Report on Japan 97 4.L Report on Luxembourg 101 4.N Report on Norway 105 4.NL Report on the Netherlands 109 4.P Report on Portugal 114 4.S Report on Sweden 119 4.SF Report on Finland 124 4.USA Report on the United States of America 127 CHAPTER 5 COMPARATIVE CHARTS 131 CHAPTER 6 FINAL CONSIDERATIONS 143 Appendix 1: Questionnaire Rating System 147 Appendix 2: Used Abbreviations 153 Appendix 3: Explanation of terms 154 Sources of Information 156

Table of Contents 3 Table of Contents CONTENTS 2 TABLE OF CONTENTS 3 CHAPTER 1 INTRODUCTION 7 CHAPTER 2 THIRD PARTY MOTOR INSURANCE RATING 9 1 Foreword 9 2 The actuarial equivalence principle 9 3 Calculation of a fair premium for a homogenous collective 10 4 Premium differentiation 11 5 Risk criteria 12 6 Selection of tariff criteria 13 7 Calculation of tariffs by means of tariff factors 15 8 Explanation of the calculation with tariff factors by means of examples 19 9 Tariff criteria: Causes or indicators 23 10 On the fairness of risk indicators 27 11 Incentive effects of tariff criteria 29 12 Experience-based rating 30 13 Rating and competition 32 CHAPTER 3 EXPLANATORY REMARKS ON THE NATIONAL REPORTS 34 1 General remarks 34 2 Structure and contents of the national reports 35 3 Sources of Information 37 CHAPTER 4 NATIONAL REPORTS 39 4.A Report on Austria 40 1 General Statistical Data 40 2 General Information on the Motor Insurance Market 40 3 Third Party Motor Insurance Rating 42 4 Final Remarks 44

Table of Contents 4 4.B Report on Belgium 46 1 General Statistical Data 46 2 General Information on the Motor Insurance Market: 46 3 Third Party Motor Insurance Rating: 47 4 Final Remarks 50 4.CH Report on Switzerland 52 1 General Statistical Data 52 2 General Information on the Motor Insurance Market 52 3 Third Party Motor Insurance Rating 53 4 Final remarks 56 4.D Report on Germany 57 1 General Statistical Data 57 2 General Information on the Motor Insurance Market 57 3 Third Party Motor Insurance Rating 58 4 Final Remarks 63 4.DK Report on Denmark 64 1 General Statistical Data 64 2 General Information on the Motor Insurance Market 64 3 Third Party Motor Insurance Rating 65 4 Final Remarks 67 4.E Report on Spain 68 1 General Statistical Data 68 2 General Information on the Motor Insurance Market 68 3 Third Party Motor Insurance Rating 69 4 Final Remarks 71 4.F Report on France 72 1 General Statistical Data 72 2 General Information on the Motor Insurance Market 72 3 Third Party Motor Insurance Rating 73 4 Final Remarks 77 4.GB Report on Great Britain 78 1 General Statistical Data 78 2 General Information on the Motor Insurance Market 78 3 Third Party Motor Insurance Rating 80 4 Final Remarks 83 4.GR Report on Greece 84 1 General Statistical Data 84 2 General Information on the Motor Insurance Market 84 3 Third Party Motor Insurance Rating 85 4 Final Remarks 88

Table of Contents 5 4.I Report on Italy 89 1 General Statistical Data 89 2 General Information on the Motor Insurance Market 89 3 Third Party Motor Insurance Rating 90 4 Final Remarks 92 4.IRL Report on Ireland 93 1 General Statistical Data 93 2 General Information on the Motor Insurance Market 93 3 Third Party Motor Insurance Rating 94 4 Final Remarks 96 4.J Report on Japan 97 4.L Report on Luxembourg 101 1 General Statistical Data 101 2 General Information on the Motor Insurance Market 101 3 Third Party Motor Insurance Rating 102 4 Final Remarks 103 4.N Report on Norway 105 1 General Statistical Data 105 2 General Information on the Motor Insurance Market 105 3 Third Party Motor Insurance Rating 106 4 Final Remarks 108 4.NL Report on the Netherlands 109 1 General Statistical Data 109 2 General Information on the Motor Insurance Market 109 3 Third Party Motor Insurance Rating 110 4 Final Remarks 113 4.P Report on Portugal 114 1 General Statistical Data 114 2 General Information on the Motor Insurance Market 114 3 Third Party Motor Insurance Rating 115 4 Final Remarks 118 4.S Report on Sweden 119 1 General Statistical Data 119 2 General Information on the Motor Insurance Market 119 3 Third Party Motor Insurance Rating 120 4 Final Remarks 122

Table of Contents 6 4.SF Report on Finland 123 1 General Statistical Data 123 2 General Information on the Motor Insurance Market 123 3 Third Party Motor Insurance Rating 124 4 Final Remarks 125 4.USA Report on the United States of America 126 CHAPTER 5 COMPARATIVE CHARTS 130 1 Country and traffic 130 2 Gross premium revenues in the insurance industry 132 3 Third party motor insurance regulations in the various countries 134 4 Bonus-malus systems of the various countries 136 5 Primary tariff criteria 139 6 Premium level in the individual countries 140 CHAPTER 6 FINAL CONSIDERATIONS 142 1 Calculation principles 142 2 Binding rating factors 142 3 Franchise 143 4 Transparency of the rating factors 143 5 Special competition barriers 144 6 National Statistics 145 7 Information Pool 145 8 Access to Third Party Motor Insurance 145 Appendix 1: Questionnaire Rating System 146 Appendix 2: Used Abbreviations 152 Appendix 3: Explanation of terms 153 Sources of Information 155

Chapter 1 Introduction 7 Chapter 1 Introduction The economic-statistical part of the project undertakes a study of the extent and the choice of the criteria employed by the motor insurance companies of the various EU member states to differentiate their third party motor insurance premiums, i.e. to what extent underwriters demand different premiums from different groups of policyholders. The study is largely restricted to the insurance of private motor vehicles which are not used for commercial purposes. It also disregards other types of motor vehicle insurance (in particular fully comprehensive and comprehensive insurance). In part, however, it is not possible to look only at third party motor insurance for privately used motor vehicles as the data available are not sufficiently differentiated. The reason for the project was the introduction of the Single European Market for third party motor insurance which also involves the EEA member states as well as Switzerland. In the course of the introduction of the freedom of service principle in the insurance industry, the insurance control was partially harmonised, which led to a deregulation of third party motor insurance for many of the states involved. Although the insurance products continue to underlie strong regulation (for example, insurance companies are bound by a statutory minimum level of insurance coverage), the motor insurance companies of the EU have largely been free to set their own premiums since the deregulation. National legislators and supervisory authorities now have only very limited means of interfering with the premium policy of the underwriters (it is essentially restricted to a general supervision of grievances). Deregulation has led to a strong increase of competition in most European countries in the third party motor insurance sector. This resulted in a reduction of the premium level and of company profits as well as in an intensified differentiation of the premiums. We are seeing a competition for good risks (i.e. policyholders with substandard loss expectations), which insurers are trying to attract by offering low premiums. This competition is based on the application of tariff criteria, i.e. properties in connection with the insured risk, which are employed in differentiating the premiums. Third party motor insurance within the EU constitutes a compulsory insurance. The chance for all groups of persons to obtain a third party motor insurance coverage which they can afford has a great influence on the mobility and thus also on the economic development of a society. Moreover, state imposition of an obligation to insure also implies a special responsibility of the state for the consumer policy, namely to ensure a satisfactory market result. This study analyses the third party motor insurance situation of the individual EU member states as well as of Switzerland and Norway. In addition to appraising the competitive situation in the motor insurance market, the emphasis of the study is on the methods applied by the various insurers in fixing their third party motor insurance tariffs, in particular with regard to the application of tariff criteria. For comparative purposes, the study also looks at the USA and Japan as examples of countries where rating underlies much stricter legal regulation than in the EU. The comparative analysis shows that there are hardly any differences between the individual countries regarding the methods employed for the calculation of third party motor insurance tariffs. Chapter 2, therefore, outlines the foundations of rate-making in third party motor insurance in general terms, i.e. not broken down to the various countries.

Chapter 1 Introduction 8 Major differences exist in the practical design of the tariffs, i.e. with regard to the specific primary and secondary tariff criteria applied, as well as concerning the situation of the third party motor insurance markets of the individual countries examined. Chapter 4 thus constitutes the main part of the study, which is devoted to an appraisal of the third party motor insurance markets also in terms of regulation as well as to the design of tariffs in the third party motor insurance sector for each of the countries included, using a standardised structure (national reports). Chapter 3, in preparation of chapter 4, contains some information on the structure and contents of the national reports as well as on the sources of the data employed. The chapter also includes explanations of some of data set out in the national reports. Chapter 5 presents a synopsis of some of the data contained in the national reports of chapter 4 in the form of diagrams or tables for all countries. Chapter 6 contains some final considerations. Three appendices provide some additional information: Appendix 1 contains the questionnaire used for the procurement of the required data of the insurance companies. Appendix 2 lists the abbreviations used in the study. Appendix 3 explains some of the terms employed in the national reports.

Chapter 2 Third Party Motor Insurance Rating 9 Chapter 2 Third Party Motor Insurance Rating 1 Foreword The insurance premium payable by the policyholder ( gross premium ) comprises a number of components, which are frequently broken down as follows. net risk premium + safety loading }gross risk premium + loading for management expenses + profit surcharge + insurance tax = gross premium The net risk premium is the element calculated to cover the expected loss (measure of indemnity), i.e. the amount of compensation which would be expected. The safety loading is made in view of the possibility of loss in excess of the expected amount. On average, the safety loading is not required as indemnity, i.e. on average, in any insurance period the amounts calculated as safety loading will remain as surplus. If they are not returned to the insured in some way, for example as a refund, they enhance company profits. 1 The loading for management expenses is intended to cover the costs of drawing up the contract, the administrative costs and the costs of claims processing. In addition, where applicable, a profit surcharge and tax on insurance are also components of the gross premium. Differentiated premiums, where groups of insurance consumers are offered premiums which differ from group to group, can be based on differences in the individual components of the premium. This tends mostly to apply to differences in the net risk premium and differences in the profit surcharge. Different net risk premiums are used in the premium calculation if the groups of policyholders differ in their average loss expectations; a differentiation which is therefore founded on actuarial conditions. Differences in profit surcharges, on the other hand, are applied in accordance with the sales situation (market factors). If the drivers of luxury cars, for example, evidence less price elasticity in their demand for insurance than other policyholders, it makes sense for an insurance company to apply a higher profit surcharge in the case of luxury car premiums. In the following appraisal of premium calculation, differentiation and fairness in third party motor insurance, we refer only to the net risk premium. 2 The actuarial equivalence principle According to the actuarial equivalence principle, the net risk premium (p) is to be calculated at the level of the expected loss (expected level E of loss S): p = E[S]. 1 There are problems associated with this (the whole of an amount calculated ex ante as security becomes ex post part of profits, in the long run) which cannot, however, be dealt with here.

Chapter 2 Third Party Motor Insurance Rating 10 If this equation is applied to a collective of risks 2, the term collective equivalence principle is used: Σp = E [ΣS]. According to this principle, the loss which can be expected for a collective (E[ΣS]) must be covered by the entirety of the premium revenues calculated for this collective (Σp). If the above equation is applied to an individual policyholder i, whose possible loss is expressed by the random variable S i, the individual equivalence principle is achieved. p i = E[S i ]. The premium p i determined in this way is termed risk-adequate or fair. The individual equivalence principle corresponds in some respects to the law of causation. The premium p i corresponds to the proportion of the total expected loss caused by the policyholder i. 3 Calculation of a fair premium for a homogenous collective In this section we suppose that all of a collective s individual risks are the same with respect to the loss which can be expected from them. In such a case, we refer to a homogenous collective. In this section the following (fictitious) example is used: a homogenous collective comprises 100 000 risks which, in a given period in the past, were observed to lead to losses 3 as set out in table 1. level of indemnification per individual loss number of losses absolute in %* total indemnification average indemnification 1 1 000 5 000 5% 2 500 000 500 1 001 4 000 3 000 3% 6 000 000 2 000 4 001 10 000 1 800 1.8% 9 000 000 5 000 10 001 200 0.2% 10 000 000 50 000 Total 10 000 10% 27 500 000 2 750 * in % of the total number of insured (100 000) Table 1: Losses among 100 000 insured (figures in ) First, let us assume that the risk situation for the future period (for which the premiums are to be calculated) does not differ from the risk situation in the past. According to the collective equivalence principle, the sum of all premiums to be calculated is Σp i = 27.5 million. In the case of a homogenous collective, this results in a premium for the individual p i which is calculated as follows: p i = 27.5 m / 100 000 = 275 (calculation by division). 2 The term risk is used here to refer to the individual insurance contract (from the point of view of the insurer: the risk, within the framework of this contract, of having to pay compensation). Synonymous we use the term policyholder. 3 We do not distinguish here between loss and indemnification. It is assumed throughout that the indemnification corresponds to the level of the losses.

Chapter 2 Third Party Motor Insurance Rating 11 The random variable S i, which describes the loss involved for each risk, can be described, in accordance with table 1 (and simplified slightly 4 ), as: S i 0 500 2 000 5 000 50 000 = 0.90 0.05 0.03 0.018 0.002. This notation indicates that the expected loss to the policyholder i will be 0, 500, 2 000, 5 000 or 50 000 and that the respective probabilities are 0.90, 0.05, 0.03, 0.018 and 0.002. From this, the expected loss value E[S i ] can be calculated as 275. In the case of a homogenous collective, the individual fair premium corresponds to the premium derived by division from the fair premium for the collective. In reality, it cannot normally be assumed that the risks are immutable over time. In order to take this fact into account in the calculation, it is advisable to split the expected loss according to mean loss level and loss probability. Thus E[S ] n mean loss mean loss level loss per policyholder probability n Si S i i=1 i=1 a = =, 14243 n 14243 a 14243 n with n as the total number of insured and a as the number of losses occurring. In the example dealt with above, this would mean: 27.5 m 27.5 m 10 000 275 = =. 100 000 10 000 100 000 14243 14243 14243 275 2 750 0.10 The development of the mean loss level over time (here: 2 750) can be forecast with the aid of suitable trends (e.g. in relation to price development); the development of loss frequency (or loss probability, in this case 10%) can be extrapolated using other indicators (e.g. numbers of vehicles registered). This allows a better estimate of the expected future loss value than is possible by undifferentiated examination of the mean indemnification per policyholder. 4 Premium differentiation In third party motor insurance there are no homogenous collectives, but the individual risks differ considerably. If a company set a uniform premium p for all the individual risks it covered (risks being different), two significant consequences would result. This can be illustrated by assuming a collective which can be divided into two groups A and B on the basis of a criterion observable by the insurance company. Following roughly the example in the previous section, let us say that for Group A the mean loss probability is 8%, whereas for Group B it is 12%, with a mean loss (for the sake of simplicity) of 2 750 in both groups. The fair premiums p A and p B for both groups would be: p A = E[S A ] = 0.08 2 750 = 220, 4 The simplification is the assumption that a possible loss cannot be of an arbitrary amount, but must conform to the mean values given for four different classes in the final column of table 1 (or must be zero).

Chapter 2 Third Party Motor Insurance Rating 12 p B = E[S B ] = 0.12 2 750 = 330. (1) Premium stability: An insurer who, in this situation, calculates a uniform premium for all policyholders, say p = 275, has not, as a rule, implemented a fair premium p for its whole collective, as this would depend on the proportional representation of A and B, expressed as α and β, in this collective: p = α 220 + β 330. Only in the case of equal proportions (α = β = 0.5) would 275 be the fair premium. For α = 0.3 and β = 0.7, for example, the fair premium would be 297. In the case of α = 0.7 and β = 0.3 the fair premium would be 253 (for the collective as a whole). A company with uniform premiums thus faces the problem that it can only be observed ex post whether the rated premium is fair (with respect to the collective). In the case of variations over time in the proportions of groups A and B in relation to the whole, there will be variations in the actuarial results wherever uniform pricing is in operation. If, on the other hand, a company sets different premiums for the two groups, distinguishing premiums p A and p B as above, these premium levels are fair, irrespective of the group s share of the whole, both for the two groups and for the collective as a whole. A tariff developed in this way is stable and does not need modifying to account for a change in the respective proportions of the groups as part of the whole. (2) Risk selection: More important still is the effect of risk selection. If an insurer U 1 distinguishes the two premiums p A = 220 and p B = 330, while another insurer U 2 applies the uniform premium p = 275, there is an incentive for all those insured who belong to group A to choose p A with U 1 in preference to p with U 2. Policyholders in group B, however, are more likely to choose the uniform premium p offered by U 2 than the high premium p B offered by U 1. Assuming that the two groups of policyholders, i.e. those insured with U 1 and those with U 2, are initially of the same structure, the introduction of differentiated premiums creates a distinction. Actuarial losses force company U 2 to make constant adjustments and raise its premium p. This process is only halted when the uniform premium offered by U 2 has risen to the level of p B. In this situation, U 2 has become the specialist insurer of bad risks, whereas, U 1 with its differentiated premiums, insures members of both groups, A and B. Risk selection in particular forces companies to offer differentiated premiums. As soon as one company differentiates, all companies which do not are at a competitive disadvantage. Competition thus leads to differentiated premiums wherever a difference is discerned between different groups (however they are defined) with respect to loss expectation. 5 Risk criteria To prepare for premium differentiation, the risks must be divided into groups with different levels of expected loss. For this, risk criteria come into play. A risk criterion can be defined as a characteristic (a property) of the risk to be insured which holds the following conditions: (1) Correlation with the loss: The criteria must evidence a clear statistical correlation with the probable loss [e.g. annual mileage, engine power, region of registration, type of use].

Chapter 2 Third Party Motor Insurance Rating 13 (2) Ease of ascertainment: The criterion for the individual insured risk must be objective and ascertainable at low cost [e.g. type of car, place of abode of the car owner; this condition would not be fulfilled by a criterion such as frequency of drink-driving incidences ]. (3) Resistance to manipulation: It must not be possible for the policyholder, (easily) to manipulate the criterion, i.e. to influence the criterion in any way which runs counter to the terms and conditions of the insurance contract 5. For a characteristic (such as region of registration) to be suitable as a risk criterion it is not necessary for all policyholders to whom a particular characteristic of the criterion applies (e.g. registration in Munich) to be affected by it in the same way, in their capacity as risks in third party motor insurance (e.g. loss probability 20% higher than average). It does not depend on whether the causal connections are known on which the loss differences between the groups are based, nor even does it depend on the existence of a causal connection between the risk criterion and the expected loss level. Rather, suitability is given if the groups of policyholders defined by the criteria differ significantly from each other as groups with respect to loss expectation. Then the effects described in section 4 come into play (cf. also section 10 below). This can be illustrated using the criterion garage use 6 : The group garage users may evidence a probable loss level 10% below that of the non-garaging group. Let us assume that the figures indicate an adequate level of statistical significance. Naturally, not every garage user has ceteris paribus 7 a probable loss level which is 10% lower than that of a non-user. Among garage users there are definite bad risks, with loss expectation levels significantly above those of non-users. Conversely, there are bound to be particularly good risks among nongarage users, with low loss probability. It has not been ascertained why garage users cause (on average) fewer third-party losses than non-users. It is doubtful that there can be a causal relationship. 8, 9 Nevertheless, it applies that the fair premium of an insurer who does not differentiate on garaging varies in line with the respective share of garage users in the insurance collective (lack of stability), and an insurer who does not differentiate on garaging is open to adverse risk selection. This applies if there is no further criterion (or more precisely: if no further criteria are known) which could serve to distinguish loss expectations better than that of garaging. If there were such criteria, they would be used in place of or in addition to the garaging criterion. 6 Selection of tariff criteria In third party motor insurance, there is a wide range of risk criteria to choose from. They can be grouped into personal criteria [e.g. gender, age of car owner], car-specific criteria [e.g. 5 Manipulation in this sense would be, for example, if mechanical work were carried out to change (increase) the engine power of a vehicle (without informing the appropriate authorities/the insurer). It is not a case of manipulation, however, if a policyholder decides to buy a car with a less powerful engine as a result of premium differentiation. 6 The above condition (2) for risk criteria is only partially fulfilled in this case. But it has been adopted as a criterion in a large number of countries. 7 In this comparison we assume that all other relevant risk criteria such as type of a car, region, occupation, mileage, claims history,... have already been considered. In other words, with respect to the garaging criterion we distinguish two types of policyholder who are the same in all other criteria. 8 There appears to be a connection in the UK, where increased susceptibility to joyriding in the absence of a garage is cited as justification for a surcharge. Joyriding is the stealing of a car in order to drive around at high speeds for pleasure. It is particularly common in certain areas, and often associated with third party losses. For many other countries, however, this is not likely to be relevant. 9 Even if there is no (direct) causal relationship between garage use and third party losses, there must be indirect connections leading to the observed correlation between garaging and loss expectation. Perhaps there is a third, as yet unknown criterion which has a positive correlation with garage use and cautious driving.

Chapter 2 Third Party Motor Insurance Rating 14 engine power in kw, empty weight of car in kg] and criteria relating to the use of the car [e.g. region of registration, annual mileage]. On pages 3 of the questionnaire reproduced in Appendix 1, 40 risk criteria are listed. The design of a specific third party motor insurance tariff depends on the selection of suitable items from among the possible criteria, the creation of classes or subdivisions identifying characteristics within each of the criteria and the fixing of a premium for all possible combinations of the classes for all criteria. Those criteria which are used in the design of a tariff are also called tariff criteria. This section will address the selection of tariff criteria, in the next section the setting of differentiated premiums will be discussed. 10 The selection of tariff criteria is a task which can be solved using the methods of econometrics. In the following, the method of selection is explained by an example using regression analysis. First a list of all feasible risk criteria r 1,..., r n is drawn up and for each criterion the classes (with respect to the characteristics of the criterion) are fixed. As abridged example we use the vector of risk criteria r = (r 1, r 2,..., r 10 ), where r 1 = gender (male car owner: r 1 = 0, female car owner r 1 = 1) r 2 = age of car owner (in years) r 3 = length of licence to date (in years) r 4 = educational level of car owner (GCSE: r 4 = 1, A-Level: r 4 = 2, university degree: r 4 = 3; highest achieved level counts) r 5 = region of registration (r 5 = 1, 2,... or 12; country subdivided in 12 regions) r 6 = annual mileage (r 6 = 1, 2, 3, 4 or 5 for less than 5 000, 10 000, 15 000 or 20 000 and more than 20 000 km respectively) r 7 = type of use (r 7 = 0 : private use only; r 7 = 1 includes commercial use) r 8 = engine power (in kw) r 9 = cubic capacity (in ccm) r 10 = empty weight (in kg) E[S r ] indicates the expected loss for a policyholder with criteria r. For example, E[S (0, 37, 10, 2, 11, 2, 0, 88, 1 600, 895) ] would indicate the expected loss for a policyholder/car owner with the following traits: (r 1 = 0) gender: male (r 2 = 37) age: 37 (r 3 = 10) driver s licence: 10 years (r 4 = 2) educational level: A-level (r 5 = 11) region of registration: 11 (r 6 = 2) annual mileage: less than 10 000 km (r 7 = 0) type of use: private only (r 8 = 88) engine power: 88 kw (r 9 = 1 600) engine capacity: 1 600 ccm (r 10 = 895) empty weight of car: 895 kg. With the help of regression analysis it can now be explored whether, and how well, the probable loss level E[S r ] of a policyholder can be explained by the characteristics r 1, r 2,..., r n. For this the hypothesis is posited that the loss S r follows the equation 10 The fixing of classes to cover the characteristics of the individual tariff criteria (cf., for example, the three classes in table 3a in the following section 7 for the criterion engine power) is not discussed further here.

Chapter 2 Third Party Motor Insurance Rating 15 S r = f (r 1, r 2,..., r n ) + U. Here f (r), as a systematic component, describes the influence of the deterministic values r 1, r 2,..., r n on the loss, and U (stochastic variable with the anticipated value 0) represents the stochastic influence on the loss. The actual loss S r is the sum of the systematic components f (r) and the random component U. 11 The systematic component represents the expected loss value: E[S r ] = f (r 1, r 2,..., r n ). In the simplest case, the functional relation expressed by f is formulated as a linear equation thus: E[S r ] = f (r) = a 0 + a 1 r 1 + a 2 r 2 +... + a n r n. (1) Other formulations are possible, e.g. using multiplication: b1 b2 b 0 1 2 n n E[ S ] = f( x) = b r r K r (2) r or others. With the help of regression analysis, if the functional form of f is given, for instance as (1) or (2), the coefficients of the chosen functional form, such as a 0, a 1,..., a n or b 0, b 1,..., b n, can be determined. For this purpose, for each policyholder in a sufficiently large group, over a given period, the actual losses S r (which could be zero) are contrasted with the policyholder s risk criteria r = (r 1, r 2,..., r n ). By statistical means (e.g. the lowest square method) the coefficients (a i or b i, respectively) are determined in such a way that the observed losses are approximated by the function f in the best possible manner. Using this method it can be established which risk criteria are best suited for prognosis of the expected loss. In particular, for any subset R of {r 1, r 2,..., r n } and any risk criterion r z not contained within it, the level of (additional) explanation which would result, if the criterion r z were added to those in R as a tariff criterion, can be ascertained. If, for example, the criterion engine power (in kw) is already contained in subset R, the criterion cubic capacity will hardly supply significant additional information. The reason for this is the close correlation of the two criteria, i. e. (multi-) colinearity. Cubic capacity is thus not normally used as a tariff criterion in addition to engine power in kw. 7 Calculation of tariffs by means of tariff factors When the criteria have been selected for inclusion in the tariff, the premium rate must be set for every possible combination of their characteristics. If numerous tariff criteria are used, problems can easily occur, given the large number of possible combinations requiring specific premiums. In Germany, for example, in the premium recommendations drawn up by the insurers association, five primary tariff criteria are distinguished, and a bonus-malus system is applied. Table 2 lists the criteria and the number of classes (for their characteristics) within each criterion. 11 Alternatively, instead of using addition, f can be related to the interference variable U by multiplication.

Chapter 2 Third Party Motor Insurance Rating 16 tariff criterion number of classes r 1 : type of car/model n 1 = 16 r 2 : regional class n 2 = 12 r 3 : occupation n 3 = 3 r 4 : annual mileage n 4 = 5 r 5 : garaging n 5 = 2 r 6 : Bonus-Malus System n 6 = 29 Table 2: The major tariff criteria in Germany The number of possible tariff classes ( cells ) is n 1 n 2 n 3 n 4 n 5 n 6 = 16 12 3 5 2 29 = 167 040. Evidently it is not feasible to set a premium for each and every one of these cells simply by referring to observed losses in the past for the individual cell alone. This would involve a vast quantity of calculations (approx. 167 000 calculations to determine 167 000 figures). In addition, the database is inadequate (even if the data of all of the approx. 50 million registered vehicles in Germany were to be used), as a large number of the cells comprise just a small number of policyholders and some are empty sets. Even if the calculations were possible ( 10 000 policyholders in each cell ), the procedure would not be reasonable, as the calculation could be improved by including information about similar risks ( neighbouring cells ). One way of making the calculation easier and at the same time better is to develop a tariff using tariff factors 12 (also termed marginal factors). In a tariff with tariff factors, the premium is determined for each individual cell by means of a basic premium plus tariff factors for each tariff criterion. This can be illustrated by the following example. Let us assume that the basic premium (p) is set at 100. Two tariff criteria will be used, namely engine power (3 classes) and the gender of the car owner. There will be 3 tariff factors for the classes subsumed under the criterion of engine power, x 1, x 2 and x 3, and 2 tariff factors for the criterion of gender, y 1 and y 2. The values are set out in table 3a/b. characteristic tariff criterion engine power engine power in kw tariff criterion gender tariff factor characteristic tariff factor class 1 up to 50 x 1 = 0.80 female y 1 = 0.90 class 2 51 100 x 2 = 1.00 male y 2 = 1.05 class 3 more than 100 x 3 = 1.25 Table 3a/b: Tariff factors: an example Given this data, the tariff consists of the calculation p ij = p x i y j, by means of which the premium p ij can be determined for each cell ij. The tariff is set out in table 4. 12 The term tariff factor is sometimes used in the literature as a synonym for risk criterion or tariff criterion. Here it is used with a separate meaning, as the following paragraphs will show.

Chapter 2 Third Party Motor Insurance Rating 17 tariff criterion gender female male tariff criterion engine power tariff factors y 1 = 0.90 y 2 = 1.05 class 1 x 1 = 0.80 72.00 = 100 0.80 0.90 84.00 = 100 0.80 1.05 class 2 x 2 = 1.00 90.00 = 100 1.00 0.90 105.00 = 100 1.00 1.05 class 3 x 3 = 1.25 112.50 = 100 1.25 0.90 131.50 = 100 1.25 1.05 Table 4: Premiums in a tariff with two tariff criteria The tariff factors x i indicate, in the case of the criterion engine power, the proportion of reduction or augmentation which is given for the characteristics of the criterion which are to be regarded as particularly low (class 1) or high (class 3) in risk. In this example, measured against the middle class 2, there is a 20% reduction and a 25% augmentation. These variations are and this is specific to this type of tariff design applied equally to women and men. Similarly, the tariff factors y j yield a certain reduction in percentage terms for women, applicable to all classes of engine power in the same extent. A tariff which uses tariff factors (also known as a multiplicative tariff 13 ) is arrived at by determining a basic premium plus one tariff factor for each class of a tariff criterion. In general, i.e. for a tariff with m tariff criteria r 1, r 2,..., r m, each individual criterion r μ (μ = 1,..., m) having n μ classes, a multiplicative tariff is described as follows: The multiplicative tariff comprises a basic premium p and tariff factors x i, y j,..., z k for each class of each tariff criterion, i.e. the amount p and the figures x i for each class i = 1,..., n 1 of tariff criterion r 1, y j for each class j = 1,..., n 2 of tariff criterion r 2,... z k for each class k = 1,..., n m of tariff criterion r m. Thus, the premium for each cell (which is characterised by a single class of a tariff criterion i, j,..., k for each of the m criteria) is determined as p ij...k = p x i y j... z k. The task of tariff calculation is to determine the n 1 +n 2 +...+n m +1 values x i, y j,..., z k, and p. It is easy to be seen that, for systematic reasons (lack of uniqueness) it is sufficient to determine m values less than that. Note on lack of uniqueness for basic premium and tariff factors: The quantities p, x i, y j,... z k are not unique to be determined. Given any α > 0, for example, for all i x i can be replaced by (αx i ) and for all j y j could be replaced by (y j /α) without yielding different premiums p ij...k within the tariff. In particular, the values p, x i, y j,..., z k can equivalently be replaced by the values px %, % i, y% j, K, z% k where p% = p x 1 y 1... z 1, x% i = x i /x 1, y% j = y j /y 1,..., z% k = z k /z 1. The m values x% 1, y% 1, K, z% 1 do not need to be determined (as they each have the value 1, according to the design), thus the number of quantities to be determined is reduced by m. As the basic premium p is not unique, it can be set in different ways. Three special cases are of particular importance: (1) It often makes sense to set the basic premium as an aver- 13 An additive tariff can also be developed, using tariff summands or marginal summands. This is not discussed here.

Chapter 2 Third Party Motor Insurance Rating 18 age premium for all policyholders; (2) in the above construction, the value p% = p x 1 y 1... z 1 for the basic premium corresponds to the cell with classes (1, 1,..., 1); (3) occasionally it is convenient to set p at 1, as it then no longer needs to be included in the formulae. The following example (with one tariff criterion only) can serve as an illustration for the lack of uniqueness: a tariff premium is to be set at 400 for women and 500 for men. The basic premium can be determined as 500, and the tariff factors for women/men given as x 1 = 0.80 / x 2 = 1.00 ( women s bonus: 20% ). Alternatively, the basic premium can be set at 400, with the tariff factors given as x 1 = 1.00 / x 2 = 1.25 ( men s surcharge: 25% ). For the example of the German tariff given above, with six tariff criteria (cf. table 2), a tariff with tariff factors requires a calculation with n 1 + n 2 + n 3 + n 4 + n 5 + n 6 + 1 - m = 16 + 12 + 3 + 5 + 2 + 29 + 1-6 = 62 values (as opposed to 167 040, see above). There are a number of different statistical procedures by which suitable tariff factors can be computed. 14 These include, for example, the Simon Bailey method and the marginal sum method. In the following illustration we confine ourselves to the case with just two tariff criteria, but the procedure in general can be easily deduced from this. Tariff criterion r 1 has the classes (characteristics) i = 1,..., n 1, tariff criterion r 2 has the classes j = 1,..., n 2. The drivers with the different combinations of characteristics can be put in the cells of a table (matrix) the rows of which are numbered by index i, while the columns are numbered by index j (cf. table 4). Further, s ij a ij z ij indicates the entirety of observed losses in cell ij indicates the number of policyholders in cell ij and = s ij /a ij indicates the average loss in cell ij. The tariff factors x i, i = 1,..., n 1 and y j, j = 1,..., n 2 are determined by means of the Simon Bailey Method by the condition that the quantity D, 2 2 ( sij aij xi yj ) ( zij xi yj ) D = = aij axy xy i j ij i j i j i j is at its minimum. In this method, the basic premium is implicitly equated with 1 (cf. the note on the lack of uniqueness for basic premiums and tariff factors on the previous page). zˆij = x i y j is to be interpreted as an estimate for the loss per policyholder for cell ij. z ˆij is thus the premium calculated in the tariff for this cell: p ij = z= ˆij x i y j. D can be seen as a measure of distance: D describes the distance between the losses observed in the individual cells s ij and their estimates sˆij = a ij x i y j as the sum of the squares of the differences, divided by the estimated value s ˆij. In other words, in the Simon Bailey method, the tariff factors are selected in such a way that the estimated losses for cells ij, s ˆij, are, in a certain way (specified in the quantity D), as similar as possible to the observed losses s ij. 14 As often in Statistics, there is not the one sole correct method. In this instance, this means there is not one sole set of correct tariff factors, instead various methods in general yield ( slightly ) different values. Statements on the correctness of a method can only be made on condition that additional assumptions are made about the nature of the underlying stochastic quantities. Cf. also Mack, Thomas: Schadenversicherungsmathematik. No. 28 in the series Angewandte Versicherungsmathematik. Karlsruhe 1997. Section 2.4, p. 159ff.

Chapter 2 Third Party Motor Insurance Rating 19 Another method by which tariff factors can be determined is the marginal sum method. This computes the tariff factors x i, y j in such a way that the sums of the columns and rows of the estimated losses sˆij = a ij x i y j match the corresponding sums of the columns and rows of the observed losses s ij, that is: sˆ ij = sij for all i = 1,..., n 1, j j sˆ ij = sij for all j = 1,..., n 2. i i Thus, the focus of the marginal sum method is that the part of the policyholder collective with a specific characteristic (class) of a tariff criterion should contribute exactly that amount of premiums which corresponds to the expected losses for this part of the collective. If s ˆij is substituted by a ij x i y j these equations can be easily reformulated as xi = sij aijyj for all i = 1,..., n 1, (*) j j y j = sij aijxi for all j = 1,..., n 2. (**) i i In this form the equations can be used to obtain tariff factors x i and y j by an iteration procedure. 8 Explanation of the calculation with tariff factors by means of examples In this section the calculation of tariff factors, which was presented in abstract terms in the preceding section, will be outlined in specific terms, using a simple example (in three variants I, II and III). In so doing, attention will be drawn to some possible misunderstandings, too. The example involves a (fictitious) motor insurance company with 4 000 insured risks rated according to two tariff criteria with two specific characteristics (classes) each. To be concrete, we will call the criteria annual mileage (low mileage, high mileage) and region (region A and region B). Table 5 lists the available data for a preceding year (for variant I). region A region B total low-mileage drivers high-mileage drivers total loss 150 000 100 000 250 000 policyholders 1 500 1 000 2 500 loss average 100.00 100.00 100.00 total loss 100 000 200 000 300 000 policyholders 500 1 000 1 500 loss average 200.00 200.00 200.00 total total loss 250 000 300 000 550 000 policyholders 2 000 2 000 4 000 loss average 125.00 150.00 137.50 Table 5: Loss statistics I regarding a twice classified third party motor insurance rate Those cells containing figures give three sets of data: the total loss caused by the policyholders with the respective characteristics, the number of the respective policyholders and the resulting loss average (= total loss/policyholders). The figures chosen for this example are based

Chapter 2 Third Party Motor Insurance Rating 20 on a loss average of 100 for the low-mileage drivers in region A as well as in region B, with the loss average for high-mileage drivers being 200 in both regions. Let us assume that the insurance company is faced with the task of calculating a multiplicative tariff from the illustrated loss statistics, i.e. with the task of calculating tariff factors x 1 and x 2 for low-mileage and high-mileage drivers respectively, and tariff factors y 1 and y 2 for region A and region B respectively, plus a basic premium. Let us first concentrate on the tariff factors. Let us start the discussion of this example by employing another (false, meaningless) method instead of those outlined in the preceding section. (This false method is in particular not the marginal sum method.) When looking at the marginal sums (the row and column named total ), you will find that, on an average, high-mileage drivers cause 100% more losses than low-mileage drivers (200/100 = 2) and drivers of region B cause 20% more losses than drivers from region A (150/125 = 1.20). This finding might suggest a determination of tariff factors in such a way that the premium for high-mileage drivers is twice as high as that for low-mileage drivers, and the premium for drivers from region B is 20% higher than that for drivers from region A. The tariff factors deduced from the marginal sum ratios in this manner would then read, for example: x 1 = 1, x 2 = 2 and y 1 = 1, y 2 = 1.2. 15 Given a premium of 90 for cell 1.1, that would result in the rating structure p x i y j as shown in table 6. region A region B tariff factors y 1 = 1 y 2 = 1.20 low-mileage drivers x 1 = 1 90 = 90 1 1 108 = 90 1 1.20 high-mileage drivers x 2 = 2 180 = 90 2 1 216 = 90 2 1.20 Table 6: (False) Premium structure concerning the situation of table 5 (using marginal sum ratios as tariff factors) This rating structure is obviously not a meaningful one. Although it shows correctly that highmileage drivers have an expected loss which is twice that for the low-mileage drivers, it assigns higher premiums to low-mileage and high-mileage drivers in region B than it does to those in region A, something which is absolutely unjustified. While it is correct that policyholders in B cause a higher loss than in A on average, this is in our example only the result of the fact that there are relatively more high-mileage drivers living in B than there are in A. If high-mileage drivers pay a premium which is twice as high as that for the low-mileage drivers, this automatically implies that the premium payments of region B correspond to the losses caused by the policyholders of region B (20% higher than in A). Thus, calculating the tariff factors by means of the marginal sum ratios does not make sense. It leads to a certain dual coverage of the higher losses caused by the high-mileage drivers. These are first covered by the criterion high-mileage driver (correctly, directly). In addition, they are covered once more by the criterion region. This is an indirect type of coverage, adding up to more than 100% together with the direct coverage. 15 The example used here is x 1 = 10, x 2 = 20, y 1 = 0.1, y 2 = 0.12, but the tariff factors x i and y j could also read differently, without affecting the tariff. Cf. the annotation on the lack of single values for basic premium and tariff factors in section 7 above.

Chapter 2 Third Party Motor Insurance Rating 21 This effect is achieved because the two criteria mileage and region are correlated with each other (rather than being independent from each other): Region B has, relatively speaking, more high-mileage residents than region A, while low-mileage drivers live primarily in region A. This is a frequent phenomenon of the tariff criteria employed in the third party motor insurance sector, for example, with regard to the criteria gender, garaging and mileage, if more women than men tend to be garage owners and low-mileage drivers. In such cases it is important not to base the tariff factors on the marginal sum ratios. Let us now discuss a meaningful manner of determining the tariff factors and thus the premiums in the loss statistics example set out in table 5: As the expected loss obviously does not 16, 17 depend on the criterion region, premiums should not be differentiated according to region. Rather, the only meaningful premium differentiation is (obviously) one which is solely based on mileage. Both methods described in section 7 would result this is stated here without going into a detailed calculation in tariff factors such as 18 x 1 = 1, x 2 = 2 and y 1 = 1, y 2 = 1 and in premium levels of 100 for low-mileage drivers and 200 for high-mileage drivers. Hence, the rating structure would be as illustrated in table 7. region A region B tariff factors y 1 = 1 y 2 = 1 low-mileage drivers x 1 = 1 100 = 100 1 1 100 = 100 1 1 high-mileage drivers x 2 = 2 200 = 100 2 1 200 = 100 2 1 Table 7: (Correct) premium structure concerning the situation of table 5 For variant II let us look at the loss statistics illustrated in table 8, where the numbers of policyholders in the individual cells are the same as in table 5, while the overall loss figures (and related loss averages) of the individual cells are slightly different. region A region B total low-mileage drivers high-mileage drivers total total loss 150 000 150 000 300 000 policyholders 1 500 1 000 2 500 loss average 100.00 150.00 120.00 total loss 100 000 300 000 400 000 policyholders 500 1 000 1 500 loss average 200.00 300.00 266.67 total loss 250 000 450 000 700 000 policyholders 2 000 2 000 4 000 loss average 125.00 225.00 175.00 Table 8: Loss statistics II on a twice classified third party motor insurance tariff In this variant II the expected loss levels of the individual cells vary according to mileage as well as according to region. Also in this example the figures have been chosen so as to make it easy to find the required multiplicative tariff: The expected losses for the high-mileage drivers are (exactly) twice as high as those for the low-mileage drivers, this is true for both regions A and B. 16 Incidentally, no method of determining significant criteria under the situation of table 5 would identify the criterion region as a significant one. The regression analysis method indicated in section 6 would, for example, put the additional influence of the region at zero, if the mileage criterion is already taken into consideration. 17 However, cf. also section 10. 18 As for the lack of uniqueness, see again footnote 15.

Chapter 2 Third Party Motor Insurance Rating 22 In region B expected losses are (exactly) one and a half times as high as those in region A, which applies equally to low- and high-mileage drivers. 19 Obvious tariff factors are x 1 = 1, x 2 = 2 and y 1 = 1, y 2 = 1.5 which, together with a premium level of p = p 11 = 100 for cell 1.1, leads to the rating structure p x i y j under table 9. Both approaches (Simon Bailey and marginal sum method) outlined in section 7 lead to the same rating structure. 20 region A region B tariff factors y 1 = 1 y 2 = 1.5 low-mileage drivers x 1 = 1 100 = 100 1 1 150 = 100 1 1.5 high-mileage drivers x 2 = 2 200 = 100 2 1 300 = 100 2 1.5 Table 9: Premium structure concerning the situation of table 8 The loss statistics example illustrated in table 8 is not typical either, as it results (quasi by accident) in the same percentage of additional losses (100%) for high-mileage drivers (independent of the region) and the same percentage of additional losses (50%) for region B (regardless of the mileage). 21 Loss statistics which do not contain such accidental elements, thus constituting a typical example, are illustrated in the third variant in table 10. region A region B total low-mileage drivers high-mileage drivers total total loss 150 000 123 000 273 000 policyholders 1 500 1 000 2 500 loss average 100.00 123.00 109.00 total loss 106 000 227 000 333 000 policyholders 500 1 000 1 500 loss average 212.00 227.00 222.00 total loss 256 000 350 000 606 000 policyholders 2 000 2 000 4 000 loss average 128.00 175.00 151.50 Table 10: Loss statistics III on a twice classified third party motor insurance tariff Here again, high-mileage drivers have an expected loss which is roughly twice as high as that for the low-mileage drivers. However, the loss ratio in region A (212/100 = 2.12) differs from that in region B (227/123 = 1.85). Similarly, the loss level per policyholder in region B is about 15% higher than in region A. However, this higher value varies between low-mileage drivers (123/100 = 1.23) and high-mileage drivers (227/212 = 1.07). 19 In such a case causes (which are not known in detail) such as higher traffic density, poorer road and weather conditions or similar aspects would be suspected for region B. 20 It should be noted that here, too, calculating tariff factors from marginal sum quotients (see above) would lead to meaningless results. 21 This leads to a simple, self-evident solution of the rating problem and to identical solutions of the Simon- Bailey and the marginal sum method. You may also say that this is an exact solution exact in the sense that the premiums calculated by means of the tariff factors for each cell are exactly identical to the loss expectations for the corresponding cell (or exact in the sense that the minimum D value under the Simon Bailey method is zero)

Chapter 2 Third Party Motor Insurance Rating 23 In this situation it is not easy to find a solution for the rating problem. The application of the marginal sum method here leads to the premium p = p 11 = 103.20 for cell 1.1 and to the tariff 22, 23 factors x 1 = 1, x 2 = 1.96 and y 1 = 1, y 2 = 1.145, which form the basis of table 11. region A region B tariff factors y 1 = 1 y 2 = 1.145 low-mileage drivers x 1 = 1 103.20 = 103.20 1 1 118.20 103.20 1 1.145 high-mileage drivers x 2 = 1.96 202.40 103.20 1.96 1 231.80 103.20 1.96 1.145 Table 11: Premium structure concerning the situation of table 10 Table 12 lists the premium revenues available for the coverage of the respective losses, which result from the premiums in table 11. A comparison with table 10 shows that the overall loss level (column and row total ) for the partial collectives of regions A and B as well as for the partial collectives of the low- and high-mileage drivers are exactly identical to the calculated premium revenues. (That is precisely the defining condition of the marginal sum method.) region A region B total and premium average low-mileage drivers high-mileage drivers total premium revenues 154 800 118 200 273 000 policyholders 1 500 1 000 2 500 premium 103.20 118.20 109.00 premium revenues 101 200 231 800 333 000 policyholders 500 1 000 1 500 premium 202.40 231.80 222.00 premium revenues 256 000 350 000 606 000 policyholders 2 000 2 000 4 000 premium (average) 128.00 175.00 151.50 Table 12: Premiums and premium revenues concerning the situation of table 10 9 Tariff criteria: Causes or indicators Some tariff criteria are considered to be unfair or are rejected for other reasons by parts of the population; they lack acceptance. Therefore, this section looks at tariff criteria from another, non-actuarial viewpoint. Let us first introduce the new term risk cause. Risk cause is to be understood as a criterion (a property) of the insured risk which has considerable relevance for the expected loss value, in the sense of a cause-and-effect relationship between risk cause and loss. For example: state (of health) of the driver [strength of vision, fatigue, power of concentration], behaviour of the driver [talking, talking on the phone, smoking, eating while driving, driving under the influence of alcohol], personality of the driver [readiness to take risks, carelessness], 22 Actually, the computations took additional decimal points into consideration: p 11 = 103.2018, x 2 = 1.96115, y 2 = 1.14530. 23 In accordance with the formulas (*) and (**) at the end of section 7, (other, not clearly defined) values result: x 1, x 2, y 1 and y 2 (and the implicit equation for the basic premium is: p = 1). By equating p 11 = x 1 y 1, x% i = xi / x1 for i = 1. 2 and y% j = yj / y1 for j = 1. 2, the resulting x i and y j values are (definitely) those set out above.

Chapter 2 Third Party Motor Insurance Rating 24 condition of the car [brakes, lights, tyres], ambient factors [weather, road condition, traffic density]. Some of the characteristics of those risk causes are permanent (enduring) driver-, car- or userelated characteristics [readiness to take risks, strength of vision of the driver, condition of the tyres (pending the next change of tyres)]; in part they refer to the situation of a single use of the car [weather, fatigue]. In actuarial terms the relevant criterion in the second case is the frequency of the individual risk causes involved in the use of the car, for example frequency of trips at night or on icy roads, predominant area of use of car (regarding road condition and traffic density), average road worthiness of the car. The term Risikoursache (risk cause) is not common in literature. Instead, some different terms were used not always in the same sense, mostly the term Schadenursache (loss cause), but frequently the terms Tariffaktor (tariff factor) or Risikomerkmal (risk criterion). 24 These latter terms are used in a quite different meaning in this study. In this study the term risk cause is preferred to the term loss cause, as the related characteristics do not necessarily lead to an (increased) loss ( loss cause ), but are only the cause of a higher expected loss, thus being the cause of an increased risk. Unfortunately, there are only few risk causes which are suitable as tariff criteria (cf. conditions (1) to (3) in section 5). Some examples are annual mileage, colour of car (light/bright colours are easier to be seen at dawn or in darkness, hence causing fewer accidents), weight of car (heavy cars cause greater damage on the part of the other party in an accident). Most of the risk causes, however, cannot be monitored or examined (at least not easily enough). 25 They are thus unsuitable for the allocation of a specific policyholder to a tariff group; instead, the risk criteria employed are those described in section 5, which have only a statistical relevance for the expected loss value, without having a causal connection. Illustrations 1 and 2 are designed to underline the differences in the interconnection between tariff criterion and expected loss for those cases where the tariff criterion as such constitutes the risk cause and/or where the tariff criterion is merely a risk indicator. The tariff criterion engine power (in kw) has a highly significant positive correlation with the expected loss. However, obviously there is no direct (causal) connection between high engine power and a high expected loss. Rather, this connection is an indirect one: 26 On average, peo- 24 See, for example, headings such as Schadenursachen (loss causes) and Schadenursachenmodell (loss cause model) in Gablers Versicherungslexikon (insurance dictionary), Wiesbaden 1994. 25 Advances in the engineering sector continually lead to changes. Thus, a big insurance company in the USA (Texas) introduced time, place and manner of use as tariff criteria in the year 2000 after a one-year test phase. In addition to other criteria the third party motor insurance premium thus also employes the criteria specific time of use (time of the day, day of the week and season), the specific used roads and the driving speed. Obviously, the discounts for driving during slack hours, driving on roads with a low accident record and driving at slow speed, can only be realised ex post (monthly accounts) by setting them off against a (flat) premium which has to be paid in advance. This is made possible by a complete registration (control system autograph ) of each use of the insured car by means of satellite-based navigation systems (GPS). 26 To the extent that high engine power offers an extended scope for reaction in critical driving situations, for example, through fast acceleration while overtaking another car, high engine power as a risk cause would lead to a lower loss probability. We shall disregard this aspect for our purposes, since the other indirect effects are clearly predominant.

Chapter 2 Third Party Motor Insurance Rating 25 ple driving cars with powerful engines tend to drive faster than those driving other cars. The criterion driving speed can be considered as a risk cause (influencing the probability as well as the extent of a loss), but is not a tariff criterion by itself (cf. illustration 1). tariff criterion (example: engine power) is correlated with risk cause (example: fast driving) influences expected loss Illustration 1: Indirect effect of a tariff criterion which is not a risk cause By contrast, the effect of a tariff criterion such as annual mileage, which itself constitutes a risk cause, is of a direct nature (cf. illustration 2). Whereas not every driver of a powerful car drives faster than the average, (thus, to that extent) constituting a greater risk, no driver can elude the effect of a tariff criterion which constitutes a risk cause: The driver covering twice the mileage is ceteris paribus exposed twice as long to the risk of causing a liability loss; thus his risk is twice as great. tariff criterion = risk cause (example: annual mileage) influences expected loss Illustration 2: Direct effect of a tariff criterion which is itself a risk cause A differentiation of the tariff criteria in terms of whether they also constitute a risk cause or merely a risk indicator is an interesting topic for the discussion of justice or fairness of premiums (or premium differentiation): The premium paid by a cautious (responsible) driver of a powerful car (engine power not being a risk cause) is in a certain sense too high. The premium paid by a civil servant 27 displaying a risky and sporty driving style (profession not being a risk cause) is in a certain sense too low. For tariff criteria constituting simultaneously a risk cause this type of premium unfairness does not exist. This argumentation supports the opinion that risk causes are better tariff criteria in terms of premium fairness so that, under this viewpoint, risk causes should be given preference as tariff criteria. Unfortunately, the prevailing (direct and indirect) connections are in reality very complex so that a simple assumption of this kind appears doubtful. Although risk causes always have a direct effect, this effect can be partially, fully or even over-compensated by indirect channels of effect. Thus the antilocking system, though ceteris paribus permitting better control of the car, especially in critical situations (to this extent the tariff criterion antilocking system does constitute a risk cause), it loses its justification as a 27 In most countries civil servants pay a lower premium in motor insurance.

Chapter 2 Third Party Motor Insurance Rating 26 tariff criterion if persons driving a car with an antilocking system tend to take more risks than those driving a car without an antilocking system. 28 Similar arguments apply to the factor weight of car: Although it is correct that ceteris paribus a car having a greater weight causes greater damage than a lighter car, the direct connection between weight and expected loss value is possibly reversed if heavier cars tend to be equipped with much better brakes (brake mechanism). 29, 30 A further example of a risk cause for which essential counter-effects exist is annual mileage. For if drivers covering more annual mileage are better drivers for example, because they have more driving experience the increased risk in terms of more miles covered is reduced due to the special road worthiness. Because of the complexity of the cause-and-effect ratios, one can, therefore, probably not claim that risk causes are generally superior to other risk criteria as tariff criteria. tariff criterion risk criterion risk cause. not risk criterion, not tariff criterion [power of concentration of driver] risk criterion, not tariff criterion [engine size: cubic capacity] risk cause risk cause, not tariff criterion [empty weight of car in kg] risk cause. also risk criterion risk cause, also tariff criterion [annual mileage in km] risk criterion, used as a tariff criterion Risk indicator tariff criterion, risk criterion, not risk cause [engine power in kw] non-risk-related tariff criterion [additional contract with the insurer] Illustration 3: Tariff criteria, risk criteria, risk causes Illustration 3 is designed to summarise once more the interconnection prevailing between tariff criteria, risk criteria and risk causes. The square brackets present one criterion each as an example of the respective category. The illustration indicates the factor engine size (cubic capacity) as a risk criterion which is not used as a tariff criterion, whereas the factor engine power (kw) is indicated as a tariff criterion. As both factors are closely correlated, it is not recommended that both criteria be used alongside each other as tariff criteria (cf. section 6). Of course, it would also be possible to use the cubic capacity, rather than the engine power, as a tariff criterion. Similarly, the illustration arbitrarily lists the risk cause annual mileage as a 28 This, again, could rest on two different chains of effect: Firstly, the existence of an antilocking system might cause the driver to take more risks since the antilocking system guarantees safety even in the event of a risky driving behaviour ; secondly, drivers liable to take risks for reasons vested in their personality (risk cause) might tend to buy cars equipped with an antilocking system more frequently than other drivers. In both cases the positive correlation between a car equipped with an antilocking system and a lower loss frequency tends to be lost or even to be reversed. 29 In addition, other assets may be quoted, such as better lighting, better vision, better seats (to make driving less tiring), which an over-proportionally greater number of heavier cars may be equipped with, or the fact that heavier cars tend to be serviced better (heavy cars tend to be more expensive, are bought by a different sort of customer, ) 30 Employment of the tariff criterion empty weight of car is very common, for example, in the Netherlands (in the sense that premiums for heavier cars are higher). It is not known to what extent this factor is in itself a risk cause and to what extent it appears suitable only because of its correlation with other risk causes.

Chapter 2 Third Party Motor Insurance Rating 27 tariff criterion, whereas the factor empty weight is set out as an example of those risk causes not employed as tariff criteria. The far right column of illustration 3 sets out the non-risk-related type of tariff criteria which have not been discussed so far. To this type belong criteria which are employed for the purpose of premium differentiation within a tariff, without having any relevance to the risk. Examples are additional contracts with the same company (example: 5% discount if the car owner has taken out a household insurance policy with the third party motor insurer), as well as so-called arbitrary discounts (mostly granted by an insurance agent at the point of contractmaking in order to prevent the policyholder from changing to a competitor). 10 On the fairness of risk indicators As there are hardly any risk causes which might be used as tariff criteria, one has to resort to risk criteria, which are merely risk indicators, as an aid for premium differentiation. This may imply unjust treatment of individual policyholders (of the cautious policyholder driving a powerful car or, in the reverse sense, of the civil servant sporting a risky driving style). This section shows, however, that, on balance, rate fairness also increases with the use of tariff criteria which are not at the base of a risk. To simplify matters, let us explain this by means of the figures contained in the loss statistics of table 5, which we will now, however, interpret differently: region A region B total cautious drivers careless drivers total total loss 150 000 100 000 250 000 policyholders 1 500 1 000 2 500 loss average 100.00 100.00 100.00 total loss 100 000 200 000 300 000 policyholders 500 1 000 1 500 loss average 200.00 200.00 200.00 total loss 250 000 300 000 550 000 policyholders 2 000 2 000 4 000 loss average 125.00 150.00 137.50 Table 13: Loss statistics Region can be monitored, driving behaviour cannot Let us assume that the criterion driving behaviour, which involves the two characteristics cautious driving and careless driving, is the only relevant factor for the losses caused in third party motor insurance. Cautious drivers (regardless of the region in which the car is registered) cause an average loss of 100, while careless drivers cause an average loss of 200. As the distribution of cautious and careless drivers in the regions differs (relatively speaking, region B has more careless drivers), the average of the losses caused by the policyholders in region B, which is 150, is 20% higher than in region A ( 125). Let us now assume that the criterion driving behaviour cannot be monitored. Thus the greyshaded part of table 13 is unknown, i.e. this information cannot be used in the tariff rating. The only information which can be monitored and thus used in the tariff rating is that shown in the bottom row of table 13. Uniform premium: If, in this situation, the insurance company charges all policyholders the uniform premium of 137.50, the amount which corresponds to the loss average of all policyholders, the cautious drivers will pay 37.50 (= 137.50-100) too much (more than corresponds to their expected loss), while the careless drivers pay 62.50 (= 200-137.50)

Chapter 2 Third Party Motor Insurance Rating 28 too little (less than corresponds to their expected loss). Table 14 sets out the resulting overand under-coverage of the loss, respectively. region A p A =137.50 region B p B = 137.50 total cautious drivers careless drivers total overall difference + 56 250 + 37 500 + 93 750 policyholders 1 500 1 000 2 500 average difference + 37.50 + 37.50 + 37.50 overall difference - 31 250-62 500-93 750 policyholders 500 1 000 1 500 average difference - 62.50-62.50-62.50 overall difference + 25 000-25 000 0 policyholders 2 000 2 000 4 000 average difference + 12.50-12.50 0.00 Table 14: Over-/Under-coverage of loss based on a uniform premium Our illustration shows that the group of cautious drivers as a whole pay 93 750 too much premiums and the group of careless drivers as a whole 93 750 too little premiums. (As we assume, however, that this is something the insurance company cannot see.) As a result, the premium revenues in region A are 25 000 too much, and 25 000 too little in region B. (This is something the insurance company can see.) Regional premium differentiation: Table 15 presents a case where the insurance company differentiates the premium regionally into p A = 125 and p B = 150 in accordance with the differences in the loss statistics (table 13). In this case the cautious drivers pay 25 (= 125-100) too much in region A and 50 too much in region B (= 150-100); the sum of premium payments made by the cautious drivers is 87 500 too great. In contrast, the careless drivers pay 75 (= 200-125) too little in region A and 50 (= 200-150) too little in region B; there is a shortfall of 87 500 in the sum of premium payments made by the careless drivers. The premium revenues of regions A and B correspond to the respective loss expectations. region A p A =125.00 region B p B = 150.00 total cautious drivers careless drivers total overall difference + 37 500 + 50 000 + 87 500 policyholders 1 500 1 000 2 500 average difference + 25.00 + 50.00 35.00 overall difference - 37 500-50 000-87 500 policyholders 500 1 000 1 500 average difference - 75.00-50.00 58.33 overall difference 0 0 0 policyholders 2 000 2 000 4 000 average difference 0.00 0.00 0.00 Table 15: Over-/Under-coverage of the loss in premium differentiation The ratings shown in table 14 and that in table 15 contain both unfair elements: The cautious drivers pay too much, while the careless drivers pay too little. For some individual groups premium differentiation increases premium unfairness: Under the differentiation, the cautious drivers of region B have to pay 50 instead of 37.50 too much; conversely, the careless drivers of region A pay 75 instead of 62.50 too little. For other groups premium differentiation leads to a reduction of premium unfairness. On balance, premium differentiation improves the situation in terms of fairness:

Chapter 2 Third Party Motor Insurance Rating 29 In case of uniform premium, the sum of payments, which are either too much or too little, amounts to 93 750. If the premium is differentiated regionally, this sum is reduced to 87 500. Differentiation of the criterion region, which does not constitute a risk cause (but can be monitored), thus enhances the fairness of the premium as far as the tariff criterion driving behaviour is concerned, which constitutes a risk cause (but cannot be monitored). If only one tariff criterion is used which does not constitute a risk cause, individual policyholders are bound to experience unfair treatment. However, if several, quite different criteria are applied to rating, these unfair aspects tend to offset each other as it is very unlikely for one individual policyholder to lose out with regard to all (or most) tariff criteria employed. 11 Incentive effects of tariff criteria Tariff criteria also differ in that they either have a risk-influencing effect on the driver/owner or not. Tariff criteria with a risk-lowering effect are, for example: Tariff criterion annual mileage: If annual mileage is applied as a tariff criterion, it provides an incentive for the policyholder at least with regard to the limitations of the mileage classes to make less use of his car; in this sense the tariff criterion (the use of the tariff criterion in tariff rating) has a risk-lowering effect on the behaviour of the policyholder. Tariff criterion engine power (similarly type of car): Application of the tariff criterion engine power in third party motor insurance provides an incentive to the policyholder buying a new car to decide in favour of a not too powerful car, as the insurance premium for higher engine power is greater. If we assume that persons driving less powerful cars cause fewer losses (as they drive more slowly or more carefully), this type of response on the part of the policyholder also constitutes a risk-lowering effect. Examples of tariff criteria without an incentive effect 31 are gender of driver/owner, age of driver/owner, age of driver s license. If the company employs such a tariff criterion without an incentive effect, this will not lead to a risk-relevant change of behaviour on the part of the policyholder, as he has no means of influencing the classification of such a tariff criterion by changing the characteristics of the tariff criterion. As far as the incentive effect in this context is concerned, a strict distinction must be made between the desired incentives resulting in a change of the insured risk (risk/loss lowering effect) and incentives for (legal or illegal) manipulation (only premium-lowering effect to the policyholder). Thus the policyholder can influence his annual mileage, for example, by using his car more or less frequently. In this sense he exercises an influence on the extent of the insured risk (loss probability). This is the desired risk-lowering incentive effect of the tariff criterion annual mileage. On the other hand, the characteristic of this tariff criterion can also be manipulated by means of (inadmissible) mechanical interference with the mileometer in order to falsify the mileage covered, the sole purpose of which is to be classified in another risk group (premium-lowering effect), without changing the risk itself (intensity of use). Another example is the tariff criterion gender of car owner: Application of this factor as mentioned above has no incentive effect for the use-related risk; however, it may lead to 31 In terms of an all-or-nothing decision even such tariff criteria may have an incentive effect, e.g. the high third party motor insurance premium may keep a driver who has only recently acquired his license from buying a car, thus reducing his risk as a car owner to zero. This aspect will be disregarded in the following statements.

Chapter 2 Third Party Motor Insurance Rating 30 manipulation, for example, to the effect that a married couple registers the car which is (mainly) used by the husband in the name of the wife (as the owner of the car), in a case where women ceteris paribus pay a lower third party motor insurance premium (legal manipulation). Tariff criteria with an incentive effect should be preferred to other tariff criteria in the interest of the collective of policyholders (and from an overall economic point of view). 12 Experience-based rating Even upon classification of the policyholders in the third party motor insurance sector by means of primary tariff criteria, the established tariff classes are still clearly inhomogenous, and it is not possible to enhance the degree of homogeneity essentially by resorting to additional new primary tariff criteria. In this situation the principle of experience-based rating 32 is applied. The aim is to find systematic (i. e. not accidental) differences between risks, which, ex ante, appear identical, by analysing the loss experience of the individual policyholders, and to use these differences in tariff rating. This approach (also referred to as the credibility method) is advisable in cases where the loss incidents per policyholder are not too infrequent, which is the case in third party motor insurance. Experience-based rating in third party motor insurance employs the scheme of Bonus-Malus Systems (BMS), whereby loss experience is used as secondary tariff criterion for the differentiation of premiums. The establishment of classes in this context is usually based on the number of claims-free insurance years (bonus classes) in the past and/or on the number of losses caused during the preceding insurance years (malus classes). Specific examples can be found in the national reports under chapter 4, third section, in particular in table 5. In principle, the tariff criterion loss experience (or BMS) is a tariff criterion just like the others, which means that the above statements (cf. sections 7 and 8) apply to the determination of the BMS tariff criteria. It is especially inadmissible to determine the tariff factors (mostly referred to as no-claims discounts or claim surcharges in this context) simply in accordance with the loss average of all policyholders belonging to a specific bonus or malus class. ( If the group of all drivers having been claims-free for a period of 10 years cause half as many losses as the group of drivers having made no claims for just 1 year, the related premium is half as high ). That would correspond to a calculation using the marginal sum ratios, which section 8 showed to be unsuitable (if there is a correlation between the tariff criteria) (cf. tables 5 and 6). Rather, the tariff factors for all tariff criteria should be determined by a simultaneous calculation method (e.g. Simon Bailey or marginal sum method). In practice, the tariff criterion (past) loss experience proves to be highly correlated with the (future) expected loss value in all countries. Accordingly, the spread for this particular criterion is mostly very big (order of magnitude up to 1 to 8). The criterion loss experience enjoys the reputation of being a fair tariff criterion since the past loss experience is essentially influenced by the behaviour of the policyholder and an objective one, i. e. there are no problems in monitoring or measuring the characteristics of this criterion. Nevertheless, the factor loss experience does not constitute a risk cause in the sense outlined in section 9. Rather, here again it is only possible to make statistical pronouncements with respect to future claims for instance of that kind, that in the group of policyholders who have 32 The term experience-based rating can be misunderstood. Every other type of rating or premium differentiation is also based on experience in the sense that the loss experience of the past for suitable collectives of policyholders forms the basis of premium calculation.

Chapter 2 Third Party Motor Insurance Rating 31 made no claims for the past 10 years, on average, one out of 17 policyholders is likely to cause a loss during the following year. It cannot be said that the group of policyholders having made no claims during the last 10 years ceteris paribus (i. e. in this context that the characteristics are the same also for all the other tariff criteria) constitutes a homogenous group so that the probability of causing a loss during the following year, ceteris paribus, is 1/17 for each individual policyholder within this group. The reason lies in the stochastic nature of the occurrence of a loss: On the one hand, the group of those drivers having been claims-free for 10 years also includes policyholders who actually do not constitute a good risk, but who happen to have caused no loss during the past 10 years simply because they were lucky. On the other hand, some policyholders who, in accordance with their respective risks, would actually belong to the group of drivers having been claimsfree for 10 years (because their personal loss probability is exactly 1/17), do not belong to this group, because they happened to have caused a loss in the preceding year (for example, because of a momentary failure or through an accumulation of adverse circumstances). To this extent the tariff criterion loss experience, too, is just a risk indicator rather than a risk cause in a strict sense. The non-homogeneity of the group of drivers with a 10-year no-claims record also becomes evident if one imagines that most (in fact almost all, in the above example 16/17) of those drivers having made no claims for 10 years in a specific calendar year will belong to the group of drivers with a 11-year no-claims record in the following year, while a small number of them (those drivers causing a loss in that year, 1/17 of the drivers in the above example) will be assigned to another class due to downgrading. In other words: As far as other criteria are concerned, a specific characteristic (e.g. use of a car with an engine power between 80 and 90 kw) can be ascertained objectively; the characteristic remains constant (for the criterion engine power: until the driver buys another car). However, most of these criteria have per se no (great) causal connection with the real risk (of causing a loss). Conversely, the criterion loss experience shows that a certain causality (past claims-free state future claims-free state) is plausible; however, the allocation to a specific class (e. g. class of drivers with a loss probability of 1/17 in the BMS the class of drivers with a 10 year no-claims record) is generally stochastic, thus underlying a lower degree of objectivity. Contrary to most of the other tariff criteria, the characteristic of the criterion loss experience changes from year to year for many policyholders. If the number of claims-free years is used as a criterion for a division into classes (at least in the bonus area of the BMS classes), a one year claims-free record results in a promotion by one class. 33 In the event of one insurance loss in the course of one year, the respective contract is classified in another ( lower ) class. The BMS class to which the contract is to be allocated with regard to its future loss expectations must be determined empirically. 34 Often, there are not enough data available for a fundamental analysis of this aspect. 35 Such an analysis can only be made by very big insurance companies or by an association which has the records of many underwriters at its disposal. 33 With the exception of the best class case (lowest premium), where no further promotion is possible. This class is usually the one with the greatest number of policyholders. A good 50 % of all policyholders in Austria, for instance, are in one of the best classes, i.e. 0 or 1 (at least 8 claims-free years, 50% premium ). Cf. chapter 4.A, section 3. 34 Downgrading upon a claim must not be seen in terms of punishment for poor driving. Rather, the exclusive purpose of this measure is to take due account of the new information which the loss incurred means for the criterion loss experience. If, for example, the data of the preceding years show that the loss probability of those drivers having been claims-free for 10 years before causing a loss in the 11 th year is 0.10, those drivers should be downgraded to a BMS class with a loss probability of (approximately) 0.10. 35 Records on the further insurance experience are required for the group of those drivers who were claims-free for x years before causing y losses in the year (x+1), with x taking the values 1, 2, 3... 20, for example, (depending on the BMS) and y taking the values 1, 2, 3, 4.

Chapter 2 Third Party Motor Insurance Rating 32 13 Rating and competition The use of tariff criteria is of central importance for competition in the third party motor insurance market. As outlined in section 4, an insurance company which differentiates less than its competitors is subject to an adverse selection of risks in competing for customers. This means that its proportion of bad-risk policyholders rises, which has a negative impact on its profit situation. This section discusses three aspects of the pressure to differentiate premiums, which is exerted by competition to each single insurance company. (1) Competition and premium fairness. A demand to be made on third party motor insurance rating from an economic and ethical viewpoint is that the premiums should be fair. This means, for one thing, that nobody must be discriminated against because of ethnic origin, gender, confession of faith, place of abode or because of other characteristics that bear no relation to the risk to be insured, such that the person either cannot obtain insurance coverage or has to pay more than others for the same type of coverage because of these characteristics. On the other hand, fairness obviously also implies that policyholders who for different reasons represent different risks in third party motor insurance have to pay different premiums. There are many reasons for risk differences (careless driving, use of a car with a high hazard potential,...); most of the real reasons (risk causes) cannot be monitored by the insurer. Given these facts, premium fairness can only mean that the insurance companies fix the premiums for each individual policyholder to the best of their knowledge and belief, i. e. using all relevant information at their disposal. Economic reasons (transaction costs, i. e. costs for the registration, preparation, evaluation and application) set limits to the use of a steadily increasing quantity of information. Competition forces the companies to do just that, i.e. to take such tariff criteria into account which enable the risks of the individual policyholders to be identified though incomplete, but by using many tariff criteria together in the best way possible. If a criterion existed which has not been used so far and which would supply essential additional information on an individual policyholder s risk (at reasonable costs), competition would force it to be introduced into the rating procedure. If, conversely, an insurance company applied a tariff criterion which did not correspond to the risk, competition would punish it by yielding poorer market results. In this respect, competition also and particularly with regard to the application of tariff criteria does enhance premium fairness. (2) Competition and over-differentiation. However, competition does not automatically lead to an optimal degree of premium differentiation, but tends to result in over-differentiation. Optimal degree of differentiation is meant in the sense that the introduction of additional tariff criteria for premium differentiation is not worthwhile from an overall economic point of view. That is the case if, because of the related transaction costs, a further differentiation raises the premium level (with a benefit-lowering effect) by more than is justified by the additional benefit of a further differentiation. The increase in benefit must be seen in terms of a greater premium fairness or a loss-lowering effect (incentive effect) of premium differentiation. In an optimal situation understood in these terms, the introduction of additional tariff criteria would still pay off for each individual insurance company, as it would realise additional profits because of the related risk selection. Therefore, some insurers are bound to introduce additional tariff criteria, which in turn forces the other companies to go along (with the effect that the advantages for the pioneering company are lost). The introduction of a further differentiation, after all, only leads to excessive overall economic costs and premiums, due to the additional transaction costs.

Chapter 2 Third Party Motor Insurance Rating 33 Even if each insurer is aware of these interconnections, the above trend can hardly be avoided since, under the dictate of competition, the actions of the individual underwriter are governed by their own specific interests. 36 (3) Competition and market transparency. An increase in premium differentiation imposed by the rules of competition leads to a restricted market transparency. 37 If the number of tariff criteria applied in different ways by the different third party motor insurers to the differentiation of their premiums increases, it becomes more and more difficult for a client seeking insurance coverage to get an information about the insurance offers for his particular situation. Surveys about third party motor insurance companies, which served as a good basis for decision-making in a world of standardised offers, loses its relevance if the premiums are increasingly calculated by using the special characteristics of the individual policyholders. A comparison of premiums among the various suppliers can only refer to a specific policyholder (with his specific personal, car- and use-related characteristics). In principle, each policyholder could carry out a new market study every year in order to find an underwriter who offers the best insurance cover for himself. But in order to do that he would have to obtain one offer each from all relevant insurers, involving a great amount of effort. 38 Large parts of the population, therefore, refuse to go to this kind of trouble, but make the best of a very incomplete information on the relevant offers. However, the consequence of a market transparency restricted in this way is that competition can unfold its positive implications only to a very limited degree. 36 This is a constellation which is typical of the phenomenon of the so-called prisoners dilemma: Each one of them knows that a certain behaviour is good for himself and bad for the others and he also knows that, if all of them were to opt for this type of behaviour, all of them would be worse off. Yet all of them opt for this type of behaviour out of selfishness unless everybody involved has the chance to make a binding contract (= cartel) which rules this choice of behaviour out. 37 This applies regardless of the over-differentiation outlined under (2). 38 This holds true in spite of the chance to obtain information via the Internet. Because of the great number of tariff criteria which are used differently by the different insurers, it is time-consuming and costly to obtain third party motor insurance offers via the Internet as the consumer has to supply a great quantity of data for each individual company.

Chapter 3 Explanatory Remarks on the National Reports 34 Chapter 3 Explanatory Remarks on the National Reports 1 General remarks Chapter 4 contains a national report for each of the countries surveyed, with information on the country (in particular the traffic situation), the insurance market and the tariffs employed in third party motor insurance. The countries surveyed are the 15 EU member countries plus Norway and Switzerland, as the insurance markets of these two countries largely correspond to those of the EU countries. Moreover, for comparative purposes, the analysis also includes Japan and the United States of America. The countries are sometimes referred to by means of their nationality plates and as such frequently listed in alphabetical order (cf. table 1). nationality plate country ISO code units of currency per euro A Austria ATS 13.7603 1 B Belgium BEF 40.3399 1 CH Switzerland CHF 1.6003 2 D Germany DEM 1.95583 1 DK Denmark DKK 7.4355 2 E Spain ESP 166.386 1 F France FRF 6.55957 1 GB Great Britain GBP 0.65875 2 GR Greece GRD 325.8 2 I Italy ITL 1 936.27 1 IRL Ireland IEP 0.787564 1 J Japan JPY 121.32 2 L Luxembourg LUF 40.3399 1 N Norway NOK 8.3104 2 NL Netherlands NLG 2.20371 1 P Portugal PTE 200.482 1 S Sweden SEK 8.8075 2 SF Finland FIM 5.94573 1 USA United States of America USD 1.0658 2 1 official exchange rate as per 31 December 1998 2 Annual average 1999 Table 1: Countries and exchange rates underlying the study All values contained in chapter 4 are based on the euro ( ). For those countries which do not belong to the European Monetary Union, conversion from the national currency is based on the mean exchange rate against the euro in the year 1999. The exchange rates for the national currencies against the euro are set out in table 1.

Chapter 3 Explanatory Remarks on the National Reports 35 All statistics, unless specified otherwise, refer to the year 1998. Where no data were available for 1998, those of 1997 or 1996 were used 39. Some terms are specified in appendix 3 Explanation of terms. Their first appearance in this chapter is marked with an asterisk (*). 2 Structure and contents of the national reports (Almost) all countries are structured in the same way: 1 General statistical data 2 General remarks on the motor insurance market 3 Third party motor insurance rating 4 Final remarks The only countries not structured in the above manner are Japan and the USA, as their conditions differ completely from those in the other countries. On Section 1 General statistical data : Table 1 of the respective national report sets out some figures concerning the traffic situation of the country. The columns containing the data per 1 000 inhabitants and per 1 000 motor vehicles make it easier to compare the data of the various countries. An x is used to mark a cell where an entry would have no relevance; a cell for which no data are available is marked with a dot.. On Section 2 General information on the motor insurance market : Table 2, entitled Third party motor insurance within the insurance industry, sets out the total number of insurance companies, as well as the number of insurers in non-life insurance, in motor insurance and in the third party motor insurance sector, together with the corresponding gross premium revenues (GPR). This set-up underlines the position of third party motor insurance within the insurance industry, and particularly within the non-life insurance sector. The quantity (total) GPR per inhabitant may serve as an indicator of the insurance penetration of a country. The quantity GPR (third party motor insurance) per motor vehicle indicates the premium level of the third party motor insurance sector of the respective country. On the numbers of companies: The row number in the table shows, in principle, for all countries the number of insurance companies under domestic supervision. These are insurers based within the country as well as settlements of companies with their seats outside the Economic European Area (EEA) and Switzerland. Companies doing business in the respective country, which are under the control of the supervisory authorities of their home country in the scope of the Single European Market (i.e. foreign insurers from the EEA and Switzerland), have not been accounted for, because the statistics for such underwriters although they are actually part of the insurance market of the respective country are mostly incomplete. 40 For countries underlying a separation of business lines (*), the distinction made between life- and non-life insurance companies is unambiguous. For the other countries all composite insurers are subsumed under the non-life insurance sector. On the GPR: These are the booked gross revenues of the first insurers (prior to reinsurance) under domestic supervision, i.e. the direct GPR. For some contries, however, the GPR also include the (total) gross revenues of the reinsurers. 39 The annotations y7 and y6 in connection with the statistics always denote year 1997 and year 1996, i.e. the data marked thus do not relate to the year 1998, but to the year 1997 or 1996. 40 An overview of the significance of the foreign business in selected countries is provided by Sigma 7/99, p. 5.

Chapter 3 Explanatory Remarks on the National Reports 36 Section 2 also contains information on the following items: structure of the insurance industry, cross-border insurance business, situation of the motor insurance market, motor insurance sale. Table 3 Motor insurance statistics sets out the number of the insured risks, the GPR, the loss ratio (*) as well as the cost ratio (*) for the motor and third party motor insurance sectors. On the number of insured risks: The insured risks are either set out in terms of the existing insurance contracts or where these figures were not available in terms of the total of registered motor vehicles in the sector of third party motor insurance. This number roughly corresponds to that of the third party motor insurance contracts as in all countries there is a legal obligation to insure. Differences may be due to the exclusion of certain groups of motor vehicles (e.g. government vehicles) from that obligation as well as to the fact that not all motor vehicles are duly insured. Actuarial losses: If the sum of loss and cost ratio is greater than 100%, actuarial losses result. (claim payments + administrative costs are in excess of the GPR). However, as insurance premiums are payable in advance and the time periods for the settlement of claims in part is very long, insurers realise considerable interest revenues (non-actuarial profits), possibly generating profits even in cases where the loss plus the cost ratio is, say, 110%. On Section 3 Third party motor insurance rating : The first paragraphs of this section provide information on items such as regulation development, current regulating situation, insurance cover for bad risks, role of the associations. This is followed by detailed information on the primary tariff criteria, with specified data on the rating systems employed by the companies in the various countries under table 4 Primary tariff factors employed. The first column indicates the criteria used for premium differentiation, broken down into driver/owner-, use- and car-related criteria. The second column contains the number of the various characteristics (classes) for this criterion. Data such as 3-8 indicate that the companies of this particular country normally employ 3-8 classes. An asterisk ( ) in this column means that the number of classes is not available. If data in this column are put in brackets, i.e., for example (3-8), this means that the respective criterion is not very significant for the premium differentiation (i.e. this criterion has a low spread or is employed by few insurers). The third column provides data on the spread of the corresponding criterion. For those criteria broken down into two classes it is expressed in per cent, e.g. criterion women s bonus, classes 2, spread 5% (premium for women 5% less than for men). If there are more than two classes, the spread is set out as the ratio between the highest and the lowest premium for the respective criterion, e.g. the criterion place of registration (region), classes 17, spread S: 2.3 (premium in the most expensive region 2.3 times that in the least expensive region). Where no information was available for the customary spread, the corresponding column is left empty. The overall spread with regard to the primary tariff criteria is indicated after table 4. This spread refers to the tariffs (tabular premiums) (*) of the individual underwriters, giving the ratio between the highest and the lowest premium. The figure indicates the highest customary spread in that particular country.

Chapter 3 Explanatory Remarks on the National Reports 37 The overall spread regarding the primary tariff criteria does not result from the spread for the individual criteria arrived at by multiplying all spreads of the individual criteria in table 4. The reason is that, for one thing, not all company tariffs are arrived at by mere multiplication (i.e. by a multiplicative tariff, cf. section 7 of chap. 2), and for another, the figures in table 4 refer to all insurance companies of that particular country. Hence, the set of the tariff criteria is the union of all criteria used in that country, but not every insurer applies all these tariff criteria. Table 5 Bonus-Malus-System illustrates the design of the experience-based rating (*) customary for (or predominant in) a country with regard to third party motor insurance. In the first column the various classes are numbered consecutively. The second column contains the typical designations for the classes employed by the particular country. The third column contains the premium rate for the class, i.e. the tariff percentage payable in the respective class. After one claims-free year, policyholders are generally upgraded by one class (with individual exceptions, mentioned in the respective national report). The remaining four columns indicate the degree of downgrading within the Bonus-Malus System (BMS) which occurs upon one, two, three or four claims within one year for the individual bonus-malus classes. Some countries have BMS s without fixed classes. These systems are outlined within the related context. Section 3 finally sets out the spread with regard to the BMS as well as the overall spread. The overall spread results as the spread for the primary tariff criteria multiplied with that for the BMS. On Section 4 Final Remarks : The last section points out some particularities of the individual countries. 3 Sources of Information The national reports are based on several sources of information. These include literature which is generally accessible, in particular publications by the various statistics bureaux, the supervisory authorities and the associations of business enterprises. In addition, surveys were conducted with insurers, associations and supervisory authorities, with further data collected through individual contacts. The statistics presented in the national reports for the purpose of describing the situation prevailing in the individual countries (table 1) are based on data provided by the statistics bureaux. Additional use was made of information supplied by the organisations of the countries surveyed dealing with questions of road traffic. The insurance market data (in particular tables 2 and 3) are for the most part based on the annual reports of the insurance supervisory authorities, supplemented by statistical publications of the insurer associations (they partly refer only to the members of this association, but these generally cover more than 90% of the market). Furthermore, the study employed the statistics of Eurostat and CEA compiled for all EU member states. For specific issues, the study further resorted to answers supplied by supervisory authorities and insurer associations in response to written requests. Especially in order to get up-to-date information, Internet data from these and other organisations were obtained in addition to the written sources. Due to the differences in the statistics maintained in the various countries, the data are not always consistent from country to country. This applies even to some of the sources within a country, which it is not always possible to explain. In cases of doubt official sources were given more credence.

Chapter 3 Explanatory Remarks on the National Reports 38 An example of these inconsistencies can be seen in relation to the obligation to contract in third party motor insurance in one of the countries surveyed: When asked On what grounds may an insurance provider decline an application for insurance?, the supervisory authority answered, None, except failure to pay the premium. The association of insurers of the same country answered the same question (put and answered in French), Because of the freedom of trade principle, the company is free to reject coverage, for example, if the risk to be insured is a bad one or part of a risk category the company does not wish to insure. Company survey: 41 The survey involved the entirety of the motor insurance companies 42 in the European countries included in the comparative study (cf. table 1 in Section 1). The purpose of the company survey was to find out how the rating systems in the individual countries are designed. The main question was about the tariff criteria used for primary differentiation. In addition, the questionnaires contained questions on secondary premium differentiation by means of Bonus-Malus Systems (and on refunds). The study refers to the gross premium, disregarding the security surcharge, overhead costs and taxes as well as any other possible premium components. In a covering letter, the companies were informed about the purpose of the research project and the significance of their participation in the survey. Covering letter and questionnaire are contained in Appendix 1 Questionnaire Rating System. To obtain a high feedback, both covering letter and questionnaire were set out in German, English and French. Insurance companies in countries where none of the three languages is spoken received the documents in all three languages, and the underwriters were asked to answer the questionnaires in one of these languages or in their national language. Most of the questions in the questionnaire required closed-set responses. Open-set answers were requested only with respect to the particularities of the rating system; the companies were also given an opportunity to answer the open-set questions by submitting information material. A total of about 950 questionnaires were sent out, a total of 35 were sent back, which is a very low feedback. Obviously many companies refused to co-operate because they reject the objective of the research project (fear that the study may lead to EU-wide regulation measures). The questionnaire feedback varied greatly between the various countries. In particular from the countries France, Norway, Sweden and Spain, not one insurer responded. The information situation with regard to Norway was especially unsatisfactory, as in addition both the supervisory authority and the association of insurers failed to answer (the respective questionnaires of Prof. Schwintowski, cf. footnote 3). Internet research: In order to improve upon the situation concerning the questions contained in the questionnaire, detailed Internet searches were carried out for a great number of countries. Efforts focused on analyzing the tariff calculators (*) available in the Internet regarding the tariff criteria used (including their spread) as well as the BMS. The search led to satisfactory results with the exception of the countries Finland and Greece (language problems) as well as Luxembourg (no Internet tariff calculator). 41 Parallel to that, Prof. Schwintowski carried out a survey of part of the insurance companies of all countries concerning the judicial-normative foundations for an international comparison of third party motor insurance. Details of this survey and of the request for information addressed to supervisory authorities and insurer associations are outlined in his statements. 42 The German supervisory authority provided lists containing the names and addresses of insurance companies in the surveyed countries. Additional companies were found by our own research.

Chapter 4 National Reports 39 Chapter 4 National Reports Chapter 4 contains a national report on each of the following countries: section country 4.A Austria 4.B Belgium 4.CH Switzerland 4.D Germany 4.DK Denmark 4.E Spain 4.F France 4.GB Great Britain 4.GR Greece 4.I Italy 4.IRL Ireland 4.J Japan 4.L Luxembourg 4.N Norway 4.NL Netherlands 4.P Portugal 4.S Sweden 4.SF Finland 4.USA United States of America

Chapter 4.A Report on Austria 40 4.A Report on Austria 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles Gross Domestic Product 190.55 bn 23 588 thou 35 891 thou 1 discounting 100 000 km private roads y7 1997 data population 8.08 m x 1.52 thou area (sq. km) 83 858 10.38 15.80 railway network (km) 6 443 y7 0.80 1.21 road network total (km) 129 000 y7,1 15.97 24.30 motorways only 2 000 y7 0.25 0.38 persons-km railway 8.10 bn 1 003 thou 1 526 thou persons-km road... total no. of motor vehicles 5.31 m 657 x passenger cars only 3.89 m 481 732 road accidents 39 225 4.86 7.39 no. of casualties 963 0.12 0.18 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance number 1 62 50 32 30 GPR 10.13 bn 2 6.04 bn 2 2.08 bn 3 1.40 bn 3 - per inhabitant 1 254 748 257 173 - per motor vehicle x x 392 264 Table 2: Third party motor insurance within the insurance industry 1 Insurers under Austrian control, discounting small companies 2 Gross Premium Revenues (GPR) of insurers under Austrian control 3 GPR from domestic business Structure of the insurance industry: In 1998 62 insurance companies were under Austrian control, 60 of them located in Austria and 2 foreign underwriters from outside the European Economic Area (EEA). Discounted are 65 smaller insurance companies, whose GPR total less than 1% of all GPR. The 60 Austrian insurers are 55 joint-stock companies and 5 mutualassurance societies. During the last 10 years, the number of insurers has remained largely unchanged (1989: 57 insurers located in Austria). However, there has been a marked shift towards the legal structure of a joint-stock company (in 1989 23% of insurers were still mutualassurance companies). Most of the underwriters are active in the life as well as in the non-life insurance sectors. In 1998, 50 of the 60 Austrian underwriters were engaged in the indemnity and accident insurance business (17 of them exclusively), 9 in the health insurance and 40 in

Chapter 4.A Report on Austria 41 the life insurance sector (6 of them exclusively). 4 of the companies are reinsurers. In 1998 non-life insurance business still accounted for much more than half of the entire GPR. However, due to the increased growth rates of life insurance its relative importance has diminished during the last few years. In 1998 the premium growth rate in the life insurance sector amounted to 10.6%, in the health insurance sector the GPR remained largely unchanged, and in the indemnity and accident sectors premiums even declined by 0.9%. Cross-border insurance business: In 1998, 16 settlements of companies from the EEA were active in the Austrian market, 9 from Germany, alongside the two foreign settlements under Austrian control (both from Switzerland). Besides, 327 insurers from the EEA were engaged in the service industry in Austria, most of them from Great Britain and Germany. The importance of foreign insurers for the Austrian market, however, is as yet negligible. Foreign insurers from the EEA held no more than 0.7% of the market share in 1997. The foreign business of domestic insurers within the EEA is also insignificant. In 1998 no more than 0.4% of the premium revenues of Austrian underwriters stemmed from foreign business within the EEA, most of which was earned in Germany. Situation of the motor insurance market: In 1998 30 Austrian insurers were engaged in the motor insurance sector. GPR in that sector made up one fifth of overall GPR, a little more share of the 3 greatest motor insurers 43.0% share of the 5 greatest motor insurers 63.7% share of the 10 greatest motor insurers 84.0% Concentration of the motor insurance market in terms of GPR than one third of the GPR in the non-lifeinsurance sector. A little more than two thirds of the non-life-insurance revenues were generated in the third-party motor insurance business in 1998. The market leader in the motor insurance sector is Allianz Elementar, holding almost 17% of the direct domestic business. Given a market share of 43% for the 3 greatest insurers, the concentration of the motor insurance market is relatively great. motor insurance third party motor insurance y7 1997 data insured risks 7 518 310 5 142 265 GPR 2.08 bn 1.40 bn loss ratio 76.5% 76.4% cost ratio 29.3% y7 26.9% Table 3: Motor insurance statistics There has been very stiff competition in the Austrian motor insurance market during the last few years, which has led to a differentiation of the rating systems as well as to a reduction of average premiums: 15.9% in the third party motor insurance sector from 1994 to 1998. Claim payments also declined during this period, albeit to a much lesser extent, raising the loss ratio by some percentage points, i.e. to 76.4% in the third party motor insurance and 76.5% in the motor insurance sector (average of the last 10 years: 69.2% in the motor insurance field). As the cost ratio is relatively high at almost 27%, major actuarial losses were in part experienced in the motor insurance area. Motor insurance sale: While the life insurance business is largely conducted via the banks, most of the non-life as well as motor insurance is sold by one-company agents, who obtain relatively high fees in Austria.

Chapter 4.A Report on Austria 42 3 Third Party Motor Insurance Rating Regulating development: Before the year 1994, the Austrian motor insurance market counted among those markets within the EEA with the highest degree of regulation. Until the year 1987, rates (including BMS) were laid down by regulations. Since August 1, 1987 only the rating structure, but not the amount of the premium have been subject to regulation. Until December 31, 1993, insurers were obliged to stick to their business rates (fixed rates), and they were only allowed to use those rating factors permitted by the regulation. From January 1, 1994 on, insurers were allowed to lower their business rates (maximum rates). On September 1, 1994, rates were completely deregulated. However, even before that date, companies had already granted numerous bonuses (e.g. for women or civil servants), without intervention by the supervisory body. Present regulating situation: Since the deregulation of 1994, Austrian insurers have been completely free to lay down their own rating factors as well as their own premiums. There is no general obligation for equal treatment of the various policyholders, except for insurers having the legal structure of a mutual insurance society, who have to observe a nondiscrimination principle. There are no absolutely binding or prohibited rating factors. The general franchise instrument is admissible without limitation. A particularity of the Austrian regulation is the so-called split rate, which is binding on the insurers, cf. table 4, annotation 7. Insurance cover for bad risks: In Austria there is no contractual obligation for the third party motor insurance sector. Insurance cover for all risks is ensured by an institution entitled Versicherungsnotstand (underwriting emergency). If a person seeking insurance proves that he has been rejected by at least 3 underwriters, he can turn to the association of insurers. The latter will refer him to an insurer who is then obliged to take him on. The premium laid down by the insurer for a consumer assigned to him in this manner must not exceed 50% of the general rate; alternatively, the underwriter may claim a franchise amounting to no more than the rate of an annual premium. Role of associations: The Austrian association of insurers ( Verband der Versicherungsunternehmen Österreichs ) is not involved in the rating of its members in the motor insurance sector. Primary rating factors: The major rating factor in Austria is engine power, measured in kw. In addition, insurers apply a great variety of different criteria.

Chapter 4.A Report on Austria 43 Premium differentiation Classes Spread Driver/owner classification women s bonus 2 10% - 15% age group surcharge 1 7 6% - 40% occupational group bonus 2 5% - 10% further insurance contract with same company 2 10% surcharge for recent licence holders 2 2 10% bonus for automobile club members 2 10% loyalty bonus 3 2 10% Use classification place of registration/residence (region) 4 commercial use surcharge 2 150% low-mileage bonus 2 5% garaging bonus 2 5% second car bonus 2 10% Vehicle classification age of car 5 2-3 10% - 15% engine size/power 7-126 6 S: 2.54-13.5 vehicle without catalyst 2 +20% Additional classification no rental car 7 2-20% acquisition without intermediary 2-7% Table 4: Primary rating factors applied 1 Young drivers pay much more (male drivers under the age of 21 up to 40%), older drivers a little more (approx. 6%) than middle-aged drivers (approx. 40 years) 2 Typical example: The general franchise of drivers holding probationary driving licences (test goes back less than 2 years) driving a powerful car (more than 0.09 kw engine power per kg empty weight) is 50% of their premium. 3 Is granted e.g. if the insured has held the contract with the same insurer for at least 3 years. 4 Abolished by individual insurers in 1999 as not being significant (any more); others consider its introduction. Not employed by any of the insurers in 1999 according to the supervisory body. 5 Typical example: the so-called youth privilege (10% or 15% discount for young drivers (up to 25 years), if the age of the car insured does not exceed 8 and 4 years, respectively. It should be noted that under the premium differentiation young drivers pay much higher premiums than older persons. 6 Based on individual kw (1 class = 1 kw difference) ranging from 34 to 159 kw, the number of classes is 126. 7 So-called split rate: Rental car expenses claimed in the framework of third party motor insurance are refunded by the consumer s own third party motor insurance (insurer of the claimant). If the insured has waived refund of these expenses beforehand, a 20% discount is granted on the third party motor insurance premium. Spread (primary rating factors) 1 : 20 The spread with regard to the primary premium differentiation is approx. 1 to 20. Bonus-Malus System: The BMS applied in Austria is largely uniform, which simplifies the calculation of acquired no-claims bonuses (cf. annotation 2 in table 5, however).

Chapter 4.A Report on Austria 44 Downgrading 1 after 1 after 2 after 3 after 4 No. class premium-% claims into the class 1 17 200% 17 17 17 17 2 16 200% 17 17 17 17 3 15 170% 17 17 17 17 4 14 170% 17 17 17 17 5 13 140% 16 17 17 17 6 12 140% 15 17 17 17 7 11 120% 14 17 17 17 8 10 120% 13 16 17 17 9 9 A 100% 12 15 17 17 10 8 100% 11 14 17 17 11 7 80% 10 13 16 17 12 6 80% 9 12 15 17 13 5 70% 8 11 14 17 14 4 70% 7 10 13 16 15 3 60% 6 9 12 15 16 2 60% 5 8 11 14 17 1 50% 4 7 10 13 18 0 2 50% 3 6 9 12 Table 5: Bonus-Malus System 1 Downgrading is generally 3 classes per claim 2 Additional classes exist in part: -1, -2,,-6, making up a premium-rate of 45% (super bonus) which can only be obtained, however, within the insurance company (i.e. which cannot, in contrast to the classification in the BMS, be transferred in the case of a change of companies). Class -6 constitutes a protected discount scheme even after 2 claims because of the fact that downgrading is by (just) 3 classes. A: Initial classification In the year 1999 more than half of all insured persons (54%) were in the bonus classes 0 or 1 (premium rate 50%), with just 2.4% being in one of the malus classes 10 to 17 (premium rate 100% to 200%). Spread (Bonus-Malus System) 1 : 4 The spread with regard to the BMS is 1 to 4, which puts the overall possible spread with regard to the premium differentiation at about 1 to 80. Spread (total) 1 : 80 4 Final Remarks Austria points up some particularities with regard to third party motor insurance. Split rate: The rental-car expenses claimed by the claimant in connection with a liability case, are not paid by the company of the party having caused loss or damage (in some way in violation of the system), but by the insurer of the claimant. If a policyholder waives recourse to his insurance for the costs of a rental car when signing the contract, he is granted a 20% discount. Insurance companies are obliged by law to offer this bonus (so-called split rate). Interchangeable licence plates: It is possible in Austria to insure several (up to 3) motor vehicles of a holder under one contract by means of a premium for just one motor vehicle. Upon registration, the holder receives so-called interchangeable licence plates. Just one of the motor vehicles insured under this contract may be used at any one time and must be furnished with the interchangeable license plates. The premium is based on the motor vehicle classified in the highest premium category.

Chapter 4.A Report on Austria 45 No premium differentiation according to regions: In contrast to almost all other countries (with the exception of Luxembourg), third party motor insurance premiums in Austria are not differentiated according to specific regions.

Chapter 4.B Report on Belgium 46 4.B Report on Belgium 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y7 1997 data Gross Domestic Product 225.51 bn 22 126 thou 43 259 thou population 10.19 m x 1.96 thou area (sq. km) 30 528 3.00 5.86 railway network (km) 3 436 0.80 1.21 road network total (km) 144 914 y7 14.22 27.80 motorways only 1 679 y7 0.16 0.32 persons-km railway 7.10 bn 696 thou 1 361 thou persons-km road... total no. of motor vehicles 5.21 m 511 x passenger cars only 4.49 m 441 862 road accidents 50 078 y7 4.91 9.61 no. of casualties 1 364 y7 0.13 0.26 Table 1: Country and transport 2 General Information on the Motor Insurance Market: total non-life insurance motor insurance third party motor insurance number 1 157 126 71 68 GPR 15.03 bn 2 6.71 bn 2 2.39 bn 3 1.68 bn 3 1 Insurance companies under Belgium control 2 GPR from Belgian business - per inhabitant 1,477 6,587 2,347 165 - per motor vehicle x x 458 322 Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: In 1998, 157 insurers were under Belgian control, 150 of which were located in Belgium. The number of insurance companies has distinctly declined during the last few years. There is no requirement in Belgium to separate the various business classes. Thus, insurance companies may engage in the life as well as in the non-life insurance business. Of the 150 Belgium underwriters 26 conduct only life insurance and 85 only nonlife-insurance business, and 39 are composite insurers, offering life as well as non-life insurance products. There are no reinsurers having their seats in Belgium. The life insurance business is somewhat more significant than the non-life insurance business, and the relative weight of life insurance has strongly increased in the course of the last few years. In 1994 the share of life insurance business in the overall GPR was still below 40%. The growth of GPR derived from life insurance was about 40% in 1998, whereas the GPR derived from non-lifeinsurance operations increased by just 2.3% - following a stagnation in 1997.

Chapter 4.B Report on Belgium 47 Cross-border insurance business: The non-belgium insurance companies from outside the EEA operating in the Belgium market are 5 life and 2 composite insurers. In addition, numerous non-belgium insurance companies from the EEA operate in Belgium, which are of special significance for the industrial insurance as well as for the life insurance business. In 1998 there were 77 foreign settlements from the EEA. Of these settlements 68 were active in the non-life insurance market, 8 in the life insurance, and one in both business sectors. In addition, some hundred insurers are registered in the scope of the free movements of services, with the majority made up by underwriters from Luxembourg. The business conducted via foreign settlements (in particular in France and the Netherlands) in the non-life-insurance sector plays a relatively great role also for Belgium insurers. Situation of the motor insurance market: In 1998 more than 100 insurance companies were active in the Belgian motor insurance market, i.e. 68 Belgian companies as well as 44 settlements of foreign insurers. Premium revenues in the motor insurance sector in 1998 amounted to a little less than one fifth (approx. 19%) of overall premium revenues of Belgian insurers. About two thirds of the premium revenues in the motor insurance sector were generated by the third party motor insurers. The five greatest insurance groups held a market share of 42.8% in 1996. Deregulation led to intensified competition in the motor insurance market. In spite of the increase in the number of motor vehicles insured, the increased competition entailed a stagnation and in some of the last few years even a decrease of the premium level. Albeit, insurers also profit from a decline in the number of accidents. motor insurance third party motor insurance 1 Number of motor vehicles, only roughly identical with the number of insured risks. y7 1997 data insured risks - 5 212 946 1 GPR 2.39 bn 1.68 bn loss ratio 75.3% y7 77.7% y7 cost ratio 30.0% y7 29.7% y7 Table 3: Motor insurance statistics Motor insurance sale: The domineering sales channels for motor insurance are brokers and one-company agents. Bank sale, which plays an increasing role in the life insurance business, is of no importance for motor insurance. Direct sale holds a market share of no more than 2% of overall GPR. The commission fees paid in the Belgian motor-insurance business are very high compared to the other countries of the EEA. In 1997 they made up a good 13% of GPR. 3 Third Party Motor Insurance Rating: Regulating development: Traditionally, the Belgian third party motor insurance rates underlie strong regulation. In 1971 a rate was statutoried for each motor vehicle category, which was not to be exceeded by the insurers and was not to fall below 10%. For passenger cars a binding BMS with 18 categories was introduced. In 1992 a basic reform of the rating system occurred, which granted insurers greater freedom in fixing their rates, while continuing to involve strong government intervention. Present regulating situation: The regulation of third party motor insurance rates introduced in 1992 continues to apply to passenger cars and small lorries (admissible overall weight up to 3.5 tonnes). There is a minimum rate, essentially differentiated in terms of engine power (kw), for the net premium (i.e. premium without operating charges), which varies for twowheelers, passenger cars and small lorries, as well as the obligation to apply a BMS which is

Chapter 4.B Report on Belgium 48 also prescribed by the government. With regard to the use, there are additional statutory charges for (free) passenger transportation (amount per seat) as well as for the transportation of hazardous goods (percentage charge depending on the hazard category). Beyond that, insurers are free to employ additional criteria, such as age, region, annual mileage or gender, for their rates. Before being applied, the established rates must be communicated to the controlling authority, including the calculation bases showing the influence of any additional rating factors. If additional rating factors are used, the net premium must never fall below the minimum premium. The minimum rate is reviewed regularly (at least every 5 years) by the government and adapted to the economic development. However, the insurance companies are not obliged to fix their rates so as to meet all risks, nor do they have to observe any nondiscrimination principle. There is no explicit prohibition of specific rating factors. However, rating regulations restricting insurance coverage to one or several named individuals are not allowed. That implies a restricted application of the user group factor for rating purposes. General franchise is admissible only to a minor extent. Belgium thus points up the highest degree of regulation for third party motor insurers within the EU. However, the country is presently discussing a deregulation as the admissibility of this strict regulation under EU law is in dispute. Insurance cover for bad risks: There is no contractual obligation in Belgium, nor is there a government regulation with regard to a pool for bad risks. Although the increasing competition of the last few years has led to a reduction of average premiums, it is difficult, due to the high degree of differentiation, to find reasonably priced insurance coverage or any coverage at all for the bad risks (e.g. individuals having had several accidents). This constitutes a new trend for Belgium. There is a pool made up by several insurance companies designed to insure those risks for which no contracts can be found in the open market. However, this solution is considered to be unsatisfactory, and discussions are underway to replace the present pool by a rating office which, together with representatives from both the insurer and the insured side, lays down conditions under which consumers looking for insurance may obtain a binding insurance coverage. Role of associations: The association of insurers ( Union Professionelle des Entreprises d Assurances ) supports its members by making rating recommendations. Primary rating factors: For passenger cars used for private or partially commercial purposes, the minimum premium statutoried by the government on the basis of the engine power (in terms of kw) is calculated in accordance with the following regulation: Basic premium: 159.90 plus: 7.94 for each kw up to 52 kw plus: 2.42 for each additional kw up to 184 kw plus: 17.70 for each seat from the 7 th seat on (for free passenger transportation). Premiums are thus generally differentiated according to engine power. Building up on that, insurance companies may apply additional rating factors for a more detailed differentiation of the premiums. A typical business rate using the additional factors age, region and type of car (ordinary passenger/sports car), is illustrated in table 3.a.

Chapter 4.B Report on Belgium 49 ordinary passenger car sports car age region 1 region 2 region 3 region 4 region 5 region 1 region 2 region 3 region 4 region 5 < 23 years 140 140 140 140 140 196 196 196 196 196 23-25 years 105 115 115 125 130 131 144 144 163 163 26-29 years 93 100 100 110 120 112 120 120 144 144 30 years 85 89 93 100 105 98 107 107 121 121 Table 3.a: Rating factors according to age, region as well as type of car Table 4 illustrates the mainly applied primary rating factors. The highest spread is generated by the statutory factor engine power. Premium differentiation Classes Spread Driver/owner classification women s bonus 2. age group surcharge 1 4 S: 1.65 evidence of safety training 2 ( ). Use classification place of registration/residence (region) 5 1.25 surcharge for commercial use. user group. Vehicle classification type of car 3 2 S: 1.4 engine capacity/power (kw) 4 5 S: 3.0 Table 4: Primary rating factors applied 1 cf. also the classification in table 3.a. An additional differentiation results from the fact that young drivers (under 23) have a general franchise of 149 per damage claim. 2 For example, young drivers (under 26) holding a diploma for defensive driving which is recognised by the insurance company are classified one age group better than they would be in table 3.a. That applies only to normal passenger cars, not to sports cars. 3 Sports car, normal passenger car 4 The engine power expressed in kw is part of the statutory minimum net premium. 5 The number of classes here is more than 160, as the kw figure (> 185) enters into the formula for calculation of the minimum net premium so that a separate class is created for each kw figure. Spread (primary rating factor) 1 : 7 The spread with regard to the primary rating factors is about 1 to 7, thus being comparatively small.

Chapter 4.B Report on Belgium 50 Bonus-Malus System: The statutory BMS is structured as illustrated in table 5. Downgrading 1 after 1 after 2 after 3 after 4 No. class premium-% claims into the class 1 22 200% 22 22 22 22 2 21 160% 22 22 22 22 3 20 140% 22 22 22 22 4 19 130% 22 22 22 22 5 18 123% 22 22 22 22 6 17 117% 22 22 22 22 7 16 111% 21 22 22 22 8 15 105% 20 22 22 22 9 14 A2 100% 19 22 22 22 10 13 95% 18 22 22 22 11 12 90% 17 22 22 22 12 11 A1 85% 16 21 22 22 13 10 81% 15 20 22 22 14 9 77% 14 19 22 22 15 8 73% 13 18 22 22 16 7 69% 12 17 22 22 17 6 66% 11 16 21 22 18 5 63% 10 15 20 22 19 4 60% 9 14 19 22 20 3 57% 8 13 18 22 21 2 54% 7 12 17 22 22 1 54% 6 11 16 21 23 0 54% 5 10 15 20 Table 5: Bonus-Malus System 1 If a policyholder is in a malus class (premium higher than 100%), although he has had no accidents in four consecutive years, he is put in class 14 (100%). A1: Initial classification if the car is mostly used for private purposes and to a limited extent for commercial purposes. A2: Initial classification otherwise (i.e. for commercial use) Downgrading in case of a claim is generally by 5 classes. Some insurers downgrade policyholders reporting the first claim within one year by just 4 classes. There is no protected discount scheme. Spread (Bonus-Malus System) 1 : 3.7 The spread with regard to the BMS is about 1 to 3.7. Spread (total) 1 : 25.8 The spread for all rating factors is about 1 to 26. 4 Final Remarks Belgium points up very strict national rating regulations (statutory minimum rate for the net premium and a binding statutory BMS). Admissibility of this strict regulation is in dispute.

Chapter 4.B Report on Belgium 51 Rates restricting insurance coverage to one or several named individuals are not allowed. Therefore, there is no trend away from insurance of the car towards insurance of the driver, something which can be observed in many countries. The approach to the problem of finding insurance cover for bad risks (no coverage in the open market) is currently considered as being unsatisfactory (pool of some insurers).

Chapter 4.CH Report on Switzerland 52 4.CH Report on Switzerland 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles Gross Domestic Product 237.46 bn 33 335 thou 54 599 thou y5 1995 data y6 1996 data y7 1997 data population 7.12 m x 1.64 thou area (sq. km) 41 285 y5 5.80 9.49 railway network (km) 5 041 y6 0.71 1.16 road network total (km) 71 086 y7 9.98 16.34 motorways only 1 638 0.23 0.38 persons-km railway 13.68 bn y6 1 920 thou 3 144 thou persons-km road 82.15 bn y5 11 532 thou 18 888 thou total no. of motor vehicles 4.35 m 611 x passenger cars only 3.38 m 475 778 road accidents 22 232 3.12 5.11 no. of casualties 597 0.084 0.14 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life Insurance motor insurance third party motor insurance number 1 132 74 26 22 GPR 2 30.23 bn 8.39 bn 2.45 bn 1.22 bn - per inhabitant 4 244 1 178 344 171 - per motor vehicle x x 563 281 1 Insurance companies located in Switzerland 2 Direct Swiss business of all insurers, discounting the GPR of the reinsurers Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: In 1998 there were 132 insurance companies located in Switzerland. Furthermore, 29 companies from the EU and 3 underwriters from other countries were engaged in the Swiss insurance market. The 132 Swiss companies consist of 28 reinsurers, 30 life-insurers and 74 indemnity and accident insurers. From 1990 to 1998 the number of insurers active in Switzerland increased considerably, namely from 129 to 164. Life-insurance business is of much greater significance in Switzerland than non-life-insurance business. The last few years saw intensified competition in the non-life insurance sector. In 1998 premium revenues in the non-life insurance sector rose by just 1%, as opposed to 10% in the lifeinsurance sector. This high growth rate for life insurance, however, is partly attributable to special tax factors. Cross-border insurance business: In terms of premium revenues the foreign insurance companies engaged in the Swiss market are of minor importance. The 3 insurers not stemming from the EU are only active in the non-life-insurance sector. The 29 foreign insurers from the

Chapter 4.CH Report on Switzerland 53 EU consist of 28 non-life insurers and one life insurer. Of more importance in quantitative terms than the business of foreign insurance companies in Switzerland is the foreign business of Swiss insurance companies. Situation of the motor insurance market: In 1998, 26 Swiss companies and 4 companies from the EEA presented themselves in the Swiss motor insurance market. 22 Swiss insurers share of the 3 greatest motor insurers 53% share of the 5 greatest motor insurers 68% share of the 10 greatest motor insurers 88% Concentration of the motor insurance market in terms of GPR and all foreign businesses from the EEA offer third party motor insurance. The motor insurance GPR make up less than 10% of overall GPR of Swiss direct insurers because of the great role played by life insurance. However, they amount to almost 30% of the non-life insurance GPR. About half of the GPR generated by motor insurers must be attributed to the third party motor insurance sector. The Swiss motor insurance market is dominated by stiff competition which led to a reduction of the premiums in the third party motor insurance sector in the years 1996-1998. Due to increased claim expenses, most insurance companies have since raised their premiums. The degree of concentration in the Swiss motor insurance market is high. The market leader is Winterthur with a market share of almost 24% of the GPR achieved in the direct Swiss business (1998). The 10 greatest motor insurers held a market share of 88%. Of the motor insurance GPR indicated in table 3, about 5 million in the third party motor insurance sector are generated by foreign insurers. In the motor insurance business as such, the amount is about 9 million, which corresponds to a market share of 4%. motor insurance third party motor insurance 1 written information of the Swiss association of insurers y7 1997 data insured risks. 4 349 000 1 GPR 2.45 bn 1.22 bn loss ratio 61.7% y7 68.1% y7 cost ratio ca. 30% 1. Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development: Rates in the third party motor insurance sector in Switzerland were subject to strict regulation until the end of 1995. The supervisory body (BPV = Bundesamt für das Privatversicherungswesen) and the Swiss Association of Liability and Motor Vehicle Insurers (HMV = Haftpflicht- und Motorfahrzeugversicherer) calculated a so-called standard rate on the basis of annual overall statistics, i. e. the premium level as well as the rating structure were dictated by law. This standard rate was rescinded at the end of 1995. Present regulating situation: At present, motor insurers in Switzerland are almost completely free to lay down their own third party motor insurance rates. There is neither a nondiscrimination principle nor are there binding or prohibited rating factors. Nor does the state restrict insurers with regard to the application of a general franchise. Insurance cover for bad risks: There is no contracting obligation in Switzerland. During the sixties, a pool of insurers existed for risks for which no insurance was to be found in the open market. The pool was replaced by an agreement among underwriters regarding the distribution of risks not insurable by ordinary policies. The deregulation of January 1, 1996 terminated that agreement. Since then there has been no fall-back device for bad risks whatsoever. Nevertheless, so far there have been no problems in this connection, which is surely due to the

Chapter 4.CH Report on Switzerland 54 fact that since 1996 insurers have ceased to inform each other on the loss experience in the scope of a previous insurance, so that it is harder for underwriters to recognise bad risks. Role of associations: In Switzerland associations are not directly involved in the rating of tariffs. However, the Schweizerische Versicherungsverband (Swiss association of insurers) prepares documents on the burden of losses to be expected for the next year, which it makes available to its members. Primary rating factors: The basic rating factors in Switzerland are the car-related parameters engine size (cubic capacity) and the power-weight ratio (empty weight of car divided by engine power in terms of kw), with cubic capacity constituting the greatest differentiation factor at a spread of about 1 to 6. Likewise, the other car-related factors, i.e. type of car/car model and Diesel surcharge, are generally employed to determine the specific rates. Discounts based on the other factors (owner/driver and use classification) in terms of preferential rates are in part granted only if the contract is in the bonus area (premium 100%). Premium differentiation Classes Spread Driver/owner classification women s bonus 2 7% - 11% age group bonus 1 2 3% - 5% foreigners surcharge 2 2 30% new licence holder 3. loyalty bonus 4 2 3% Use classification place of registration/residence (region).. commercial use surcharge.. low-mileage bonus 5 2 3% - 10% region of use.. Vehicle classification type of car/model 6 S: 1.15 engine size (cubic capacity) 4-5 S: 5.5 6.6 Diesel surcharge 2 ca. 10% power-weight ratio 7 7 S: 1.35 weight of car 8. S: 1.11 colour of car? 9. safety equipment. Table 4: Primary rating factors applied 1 The age group bonus may consist, e.g., in a 3% discount for all policyholders aged 25 to 59 or in a 5% discount for all policyholders from 30 years onward. In addition, young drivers (e.g. up to 25 years) often have to accept a deductible (or a higher deductible than the other policyholders), cf. also table 4.a. 2 The foreigners surcharge does not apply to Switzerland and EU countries; in some cases a few other European countries as well as North America, Australia and New Zealand are also exempt from the foreigners surcharge. 3 New licence holders (licence acquired during the last 2 years) mostly have to accept a deductible (or a higher deductible than the other policyholders), (based on the same premium). Cf. also table 4.a. 4 A loyalty bonus is granted, for example, if the contract has been in place with the present insurer for at least 5 years on a claim-free basis. 5 The usual limits are 8 000 or 10 000 km per year. In some cases the low-mileage bonus is not granted in addition to the women s bonus. 6 For example, surcharges or discounts based on normal rates for specific individual models by specific individual producers. 7 The lower the weight-power ratio, (i.e. the greater the engine power based on a given weight), the higher the rate. 8 For example, a surcharge raised for off-road vehicles may be broken down into normal and especially heavy off-road vehicles. 9 Some insurers are considering the introduction of colour as a rating factor. Spread (primary rating factors) 1:15 The spread with regard to the primary rating factors is about 1 to 15. It varies greatly from one insurer to another. Another differentiation of rates results from the widely used possibility to contract third party motor insurance rates containing a franchise (which becomes due per claim). The normal rate usually involves franchises for young drivers and new licence holders, but not for the other consumers. Alternatively, higher or even lower franchises can be negotiated (cf. table 4.a, higher franchises are also possible).

Chapter 4.CH Report on Switzerland 55 Franchise in for young drivers 1 new licence holders 2 other rate1 3 312 0 0 1 e.g. until age 25 2 e.g. licence obtained during the last 2 years 3 The rates rate1 or rate2 are contracted upon the customer s request. normal rate 625 312 0 rate2 3 937 625 312 Table 4.a: Examples for franchise rates Bonus-Malus System: Table 5 contains a customary Swiss BMS. Downgrading after 1 after 2 after 3 after 4 no. class premium-% claims to class 1 20 240% 21 21 21 21 2 19 200% 21 21 21 21 3 18 160% 21 21 21 21 4 17 140% 21 21 21 21 5 16 120% 21 21 21 21 6 15 A 100% 20 21 21 21 7 14 100% 19 21 21 21 8 13 100% 18 21 21 21 9 12 90% 17 21 21 21 10 11 80% 16 20 21 21 11 10 75% 15 19 21 21 12 9 70% 14 18 21 21 13 8 65% 13 17 21 21 14 7 60% 12 16 20 21 15 6 55% 11 15 19 21 16 5 50% 10 14 18 21 17 4 45% 9 13 17 21 18 3 40% 8 12 16 20 19 2 35% 7 11 15 19 20 1 35% 6 10 14 18 21 0 35% 5 9 13 17 Table 5: Bonus-Malus System A: For initial classification see below In addition to the class 0, some insurers employ additional no-claims classes (also at a 35% premium rate) so that in the case of a downgrading by 4 classes per claim a protected discount scheme results. Other insurers offer their customers the possibility to acquire a protected discount scheme against payment of an additional charge of about 20 to 35 per year in the most favourable bonus class, which implies that no downgrading occurs after one claim (or even 2 claims) within a specific period of time. The limits of the BMS applied by the insurance companies vary. Thus the least favourable classifications (upper limit) also permit 200%, 270% or 350% premiums in the malus area, while the most favourable classifications (lower limit) also provide for 30% or 40% premium rates in the bonus area. Spread (Bonus-Malus System) 1 : 7.5 The spread with regard to the BMS is about 1 to 7.5, taking also the somewhat more comprehensive BMS into account.

Chapter 4.CH Report on Switzerland 56 Initial classification: Underwriters classify customers insuring a car for the first time according to their previous driving experience as well as to the number of third party claims caused by them so far. This classification takes account of all time periods since the date of issuance of the driving license, during which the policyholder (to be) has driven a car on a major scale (even without having insured a car himself). For example, - years during which he drove less than 1 000 km per year are not counted at all - years during which he drove between 1 000 and 5 000 km per year are counted half - and years during which he drove more than 5 000 km per year are counted fully. For each of the third party claims caused by the policyholder (to be) during the last 5 years, 4 years are deducted from the years to be counted. Classification is then based on class 15 (100%) corrected by the years (classes) resulting from his driving experience and third party claims. When classifying a customer within the scope of an insurance contract, insurers rely only on the information provided by the customer. Information by the previous insurer is not provided. Of late insurers have taken to using the instrument of classifying a policyholder in a certain bonus-malus class in connection with a new contract (e.g. purchase of a new car) as a means to acquire new customers. Spread (total) 1:112 The spread with regard to all rating factors is about 1 to 112. 4 Final remarks Compared to the other countries reviewed, Switzerland points up a very low degree of rate regulation. The rating system employs the rare factor power-weight ratio (empty weight in kg divided by engine power in kw). Furthermore, certain foreigners must pay a surcharge. Preferential rates are largely applied only as long as a contract is in the bonus area. Classification in the BMS is only based on data provided by the consumer. Mutual information on a possible previous insurance among insurers was discontinued in 1996 in the course of the deregulation. It is possible in Switzerland to issue just one set of licence plates for two vehicles of one holder ( exchangeable licence plates ). Thus only one insurance premium needs to be paid for third party motor insurance, and only one of the two cars may be used at any one time. The premium is based on the vehicle bearing the higher premium. Another particularity in Switzerland is the fact that, in the private liability insurance sector, insurance coverage can be acquired even for the occasional use of a vehicle owned by someone else against payment of a surcharge. As the owner of that vehicle must have third party motor insurance coverage (covering liability claims vis-à-vis third parties), this protection covers damage to the used car as well as a possible bonus loss suffered by the holder of the used vehicle through the liability claim to be settled by the insurance company.

Chapter 4.D Report on Germany 57 4.D Report on Germany 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles Gross Domestic Product 1 942.60 bn 23 683 thou 39 176 thou population 82.02 m x 1.65 thou area (sq. km) 357 021 4.35 7.20 railway network (km) 38 100 0.46 0.77 road network total (km) 656 000 8.00 13.23 motorways only 11 427 0.14 0.23 persons-km railway 66.5 bn 811 thou 1 341 thou persons-km road 755.7 bn 9 213 thou 15 240 thou total no. of motor vehicles 49.59 m 605 x passenger cars only 41.67 m 508 840 road accidents 377 300 4.60 7.61 no. of casualties 7 792 0.095 0.16 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance number 672 1 320 1 124 121 GPR 2 124.95 bn 70.42 bn 19.92 bn 12.27 bn 3 - per inhabitant 1 523 859 243 150 - per motor vehicle x x 402 247 Table 2: Third party motor insurance within the insurance industry 1 underwriters operating under federal control 2 domestic and foreign direct business of German insurance companies and of the settlements of non- German insurance companies from outside the EEA 3 earned GPR Structure of the insurance industry: In 1998 there was a total of 672 insurance companies operating under German federal control; an additional 47 companies, though licensed by the federal supervisory body (BAV = Bundesaufsichtsamt für das Versicherungswesen), did not do business. The 672 companies referred to consist of 634 direct insurers and 38 reinsurers. The direct insurers are broken down into 314 underwriters with life-insurance business (lifeinsurance companies, pension funds and burial funds), 57 health insurers (in Germany the health insurance sector is subject to line separation) and 263 indemnity and accident insurers. The number of companies under federal control has remained largely consistent during the last few years. Next to the insurers under federal control, there are numerous companies which are subject to control by the federal states (Bundesländer) (1998: 1 318 direct insurers). These comprise primarily small underwriters, but also some major companies under public

Chapter 4.D Report on Germany 58 law, whose operations are restricted to one Land. The number of insurers under the control of a Land has declined in the course of the last few years. The non-life insurance business is of greater significance in Germany than the life insurance business (in 1998 about 56% of GPR were generated in the direct insurance sector). However, the percentage of life insurance has been on the increase for the last few years, as premiums in the non-life insurance sector are stagnating (growing GPR in the health insurance sector meet with declining GPR for the accident and indemnity insurers), while the life insurance business continues to grow. Cross-border insurance business: In 1998 the German insurance market counted 85 settlements from the EEA (14 life insurers, 71 non-life insurers) and 496 non-german insurance companies from the EEA operating in the framework of the free movement of services. Added to that must be 4 settlements of non-german insurance companies from outside the EEA engaged in life and 8 in non-life insurance operations. The foreign companies, however, make up but a very small percentage of the German business. The foreign operations of German insurance companies contained in the GPR in table 2 have so far also been negligible, amounting less than 1% of GPR in the year 1998. Situation of the motor insurance market: About 120 underwriters under German control have motor insurance licenses. Motor insurance share of the 3 greatest motor insurers 22.7% business makes up about 16% of overall direct share of the 5 greatest motor insurers 31.2% GPR and about 28% of GPR in the direct non-life share of the 10 greatest motor insurers 47.3% insurance business. The third party sector generates a little over 60% of motor insurance GPR. The Concentration of the motor insurance market in terms of GPR market leader in the motor insurance business is Allianz, which holds a market share of 12%. During the last few years a keen price competition has developed in the motor insurance market, which led to a reduction of the premium level and a more detailed differentiation of the rating structure. In the year 1998 alone, motor insurance GPR fell by 4%, in spite of an increase in the number of contracts and rising claims expenses. As a consequence of the stiff competition, the loss ratio has increased considerably in spite of operational cost reductions and most of the motor insurers ran into great deficit. In the year 2000 many underwriters, therefore, raised their premiums. motor insurance third party motor insurance 1 number of insurance contracts insured risks 1 104 190 000 54 197 000 GPR 19.92 bn 12.27 bn loss ratio 99.5% 112.8% cost ratio 17.2% 13.4% Table 3: Motor insurance statistics Motor insurance sale: Motor insurance for private car owners is mainly sold by onecompany agents, with other sales channels being of minor importance. Although the market share of direct sales has increased in the course of the last few years, it continues to be very small, making up but a few per cent. A major change in the market shares of the individual sales systems is not to be expected, as direct insurers do not offer a major price advantage due to the existence of low-cost underwriters with agency business.

Chapter 4.D Report on Germany 59 3 Third Party Motor Insurance Rating Regulating development: Until 1961 the German insurance companies had to accept a very simply structured standard rate (so-called Einheitstarif ) for their third party motor insurance contracts. In 1962 a deregulation occurred. Underwriters now calculated business rates, which were, however, largely based on community statistics, although they took individual loss and cost parameters into consideration. Prior to their application, these rates had to be approved by the supervisory body. The rating structure was in fact dictated to the insurers; a differentiation of premiums was initially allowed only via a Bonus-Malus System and the consideration of the engine power. From the 70 s on, the rating factors region and occupational group were also accepted. A major price competition failed to materialise. The establishment of the Single European Insurance Market in 1994 implied a major deregulation for the German third party motor insurance business. Present regulating situation: The rates are currently subject to a comparatively low degree of regulation in Germany. Underwriters are free to calculate their own rates, all they have to observe is a limited non-discrimination principle in terms of a beneficiary prohibition (companies in the legal form of a mutual-insurance society, however, have to observe a general non-discrimination principle for all business lines), and they are not allowed to apply the rating factors nationality and ethnic group. There are no binding rating factors, and even the use of a general franchise is not restricted by law; however, so far no insurer has applied a general franchise scheme. Insurance cover for bad risks: The German insurance companies are subject to a modified obligation to contract, which means that insurers have to present offers to all customers unless a limited number of factors prevails, such as previous termination of contract for default in premium payment. In principle, these offers must be based on the general business rate. Only in cases where the insurer can prove that he is incurring increased risk, may he call for a higher risk-covering premium. There is no pool for bad risks (e.g. for risks where an underwriter may deviate from the general business rates due to a proved higher risk, making it impossible for him to finance the resulting excessive premium, or where other exceptions prevail, such as default in premium payment). However, so far there has been no obvious uninsurability problem, as companies abstain from availing themselves of the possibility to demand a higher premium than that provided under the general business rate system (e.g. because of the related high transaction costs as well as the undecided legal situation). Besides, passenger car drivers have alternatives at their disposal (e.g. registering the car in the name of a relative with a better classification). It remains to be seen whether the trend towards a more driver-specific (as opposed to the ownerspecific) differentiation will bring about a change of the situation. An uninsurability problem might arise out of the fact that during the last few years the premium spread has become much wider than before due to the greater degree of differentiation so that some individuals may have a hard time financing their premiums at the general business rates. Role of associations: A major role in the rating system is played by the association of insurers (GDV Gesamtverband der Deutschen Versicherungswirtschaft = head organisation of the German insurance industry), which compiles annual joint statistics to serve as a rating basis, which take account of the most common rating factors (see below). These statistics are prescribed by law, thus obliging insurers to furnish them with data. The joint statistics are forwarded together with a net risk premium recommendation to the individual underwriters who can then calculate their rates freely on that basis.

Chapter 4.D Report on Germany 60 Primary rating factors: The rating recommendation of the association takes account of the 5 primary rating factors, i.e. type of car, region, occupation, annual mileage and garaging. Insurers use these factors as a basis for the calculation of their rates. They provide the major basis for the premium differentiation, with the rating factor type of car (spread factor 5 to 6) playing the greatest role. Major insurance companies (sufficiently big number of policyholders for reliable calculation) partly employ their own classifications (e.g. for the factors region and occupation). In addition, all insurers employ additional factors for a more detailed differentiation. In the course of the past few years some calculation associations have established themselves which offer sufficient statistical data for rating purposes going beyond the factors contained in the GDV recommendation even to those companies with small data bases. Some factors applied, however, appear to lack exact calculation (e.g. membership in an environmental club, possession of a collective railway ticket). They also include the enticement bonus, i.e. the policyholder is offered a premium which undercuts that of his previous underwriter by a certain amount. Premium differentiation Classes Spread Driver/owner classification women s bonus 1 (2) 5% age group surcharge 2 2 10% occupational group bonus 3-4 7% - 15% marital status bonus 3 2-4 5% - 10% living in own house 4 2 5% - 10% additional contract with same insurer 5 2 5% - 10% recent holder of driving license 6 ( ). proof of safety training (2) 5% - 10% public transport commuter (2) 5% - 10% member of an automobile club (2) 5% - 10% loyalty bonus. Use classification place of registration/residence (region) 12-14 S: 1.5 commercial use surcharge 2 10% low-mileage bonus 3-7 S: 1.2 1.6 user group (number of drivers) 2-3 5% - 10% garaging 2 (- 3) 5% - 10% use as second car 2 10% Vehicle classification type of car, model 7 16 S: 5-6 age of car 8 3-5 S: 1.1 1.25 fuel consumption per 100 km (2). construction modifications with resp. to the car. Table 4: Primary rating factors applied Some of the rating factors named in the table (classes in brackets) are used by few companies only. 1 The women s bonus is directly granted by just a few insurers; an indirect discount for young women (as opposed to young men), is more common, cf. annotation 2, third paragraph. 2 The border line for young drivers having to pay a surcharge is mostly 23 or 25 years; occasionally the surcharge is raised also for consumers (usually new customers) aged over 65 or 70. Frequently higher premiums for young drivers also result from the fact that they are excluded from additional bonuses (marital status, low mileage, user group discount ). This exclusion is sometimes restricted to male consumers. 3 This bonus refers to the state of marriage or the existence of children (mostly under 16 years) and is often linked to a limitation of the user group. 4 This factor is frequently linked to the garaging criterion (it is not possible to use both factors independently of each other). 5 This is partly dependent on another 2 or even 4 contracts. 6 A separate rating factor entitled age of driving license is used very seldom. However, the factor plays a great role in connection with the initial classification within the BMS (e.g. initial classification at a 230% premium for recent license holders as opposed to 140% if the license was acquired at least 3 years ago). 7 All common passenger cars in Germany are listed in a Typenklassenverzeichnis (register listing all car types/models (which currently includes 11 000 different models), and each model is assigned to one of 16 classes in accordance with the liability losses caused. (In addition, there are two further classifications for all car models, i.e. with regard to fully comprehensive and partial coverage insurance). The use of these classes as rating factors implies indirect consideration of the vehicle classification such as engine capacity, engine power, car weight, maximum speed, type of fuel. 8 This classification is partly based on the age of the car at the time of acquisition and partly on the age of the car at the time the contract is signed; for older cars the premium is higher.

Chapter 4.D Report on Germany 61 The rating conditions of underwriters using many individual factors which may lead to a discount sometimes quote a ceiling for the discount, which results from the total of all discounts to be employed. Spread 1 : 30 The spread with regard to the primary rating factors is about 1 (primary rating factors) to 30, thus being very high in comparison to other countries. Individual insurance companies show an even greater spread for the primary rating factors. Bonus-Malus System: The BMS s applied in Germany are very much alike, resting on a BMS recommendation of the association (GDV). Table 5 presents this recommendation (SF = Schadenfreiheit, which means no-claims). Downgrading after 1 after 2 after 3 1 after 4 1 no. class premium-% claims to class 1 M 3 245% M M M M 2 0 2, 3 A1 230% M M M M 3 S 3 155% M M M M 4 SF 1/2 2 A2 140% S M M M 5 SF 1 100% SF 1/2 M M M 6 SF 2 85% SF 1 S M M 7 SF 3 70% SF 2 S M M 8 SF 4 60% SF 2 SF 1/2 S M 9 SF 5 55% SF 3 SF 1/2 S M 10 SF 6 55% SF 3 SF 1/2 S M 11 SF 7 50% SF 4 SF 1/2 S M 12 SF 8 50% SF 4 SF 1 S M 13 SF 9 45% SF 5 SF 1 S M 14 SF 10 45% SF 5 SF 1 S M 15 SF 11 40% SF 5 SF 1 S M 16 SF 12 40% SF 6 SF 1 S M 17 SF 13 40% SF 6 SF 2 SF 1/2 M 18 SF 14 40% SF 7 SF 2 SF 1/2 M 19 SF 15 40% SF 9 SF 2 SF 1/2 M 20 SF 16 35% SF 9 SF 2 SF 1/2 M 21 SF 17 35% SF 9 SF 2 SF 1/2 M 22 SF 18 35% SF 9 SF 3 SF 1 M 23 SF 19 35% SF 9 SF 3 SF 1 M 24 SF 20 35% SF 9 SF 3 SF 1 M 25 SF 21 30% SF 10 SF 4 SF 2 M 26 SF 22 30% SF 10 SF 4 SF 2 M 27 SF 23 30% SF 10 SF 4 SF 2 M 28 SF 24 30% SF 11 SF 4 SF 2 M 29 SF 25 30% SF 11 SF 4 SF 2 M Table 5: Bonus-Malus System (recommendation of the association of insurers) General comment: Germany as opposed to most other European countries uses the calendar year as the BMS period. 1 The recommendation of the organisation only contains recommendations for a downgrading in the case of 1 or 2 claims within one year. The last two columns illustrate common downgrading rules. 2 Particularity in the classes 0 and SF 1/2: Class 0 applies only to the initial classification of new license holders. Otherwise class 0 cannot be reached by either up- or downgrading. If a contract classified in class 0 has been in place less than 1 (calendar) year, but more than a half (calendar) year claimsfree, it will be classified for the next (calendar) year in class SF 1/2. (Without this rule a consumer having signed a new contract valid as of the second January of a year who has no driving experience would have to pay the high 230% premium for almost 2 years). Correspondingly, a consumer initially classified in class SF 1/2 will be promoted to the class SF 1 for the next year after (at least) 6 months of accident-free driving. 3 After 1 (calendar) year of claims-free driving, every contract from the classes M, 0, S (and SF 1/2) is put in class SF 1. A1: Initial classification of recent license holders A2: Initial classification of other consumers Initial classification: In contrast to most other countries, where initial classification takes place at a premium rate of 100%, a customer in Germany insuring a car for the first time is rated much higher, with the 100% premium (the same for all underwriters) being reserved to the class SF 1. In accordance with the recommendation of the organisation, initial classification is always in class 0 (230% ). Under certain conditions (e.g. evidence that the driving license was acquired at least 3 years ago), initial classification in class SF 1/2 (140% ) is possi-

Chapter 4.D Report on Germany 62 ble. De facto initial classification in class 0 is relatively rare, as this unfavourable classification is easy to avoid. (The car of the 18 year old son is insured for some years by the father in terms of a second car, which implies an initial classification, for example, in class SF 1/2). The BMS contains 29 classes, thus extending over a very long period of time compared with the BMS of other countries. A policyholder from the beginners classes 0 or 1/2 obtains the lowest rate (30% in class SF 21) only after 21 years of claims-free driving. The even better situation (SF 24) in terms of a possible downgrading can be reached only after 24 years of claims-free driving. The BMS employed by the individual underwriters are all based on the recommendation of the association of insurers as illustrated in table 5, while often deviating from it in individual cases. Thus various insurance companies use very different rates in the malus area (premium > 100%, including the class SF 1/2) than those recommended by the organisation, with premiums in the malus class M going up to 275%, cf. table 5.a, which lists some BMS examples in the malus area. class association insurer A insurer B insurer C insurer D M 245% 275% 260% 245% 245% 0 230% 240% 230% 240% 200% S 155% 160% 160% 160% 160% SF 1/2 140% 125% 120% 120% 120% Table 5.a: Premium-rates in the malus area In the field of the claims-free classes, deviations from the recommendation of the organisation mostly do not exceed 5 percentage points. The most conspicuous deviation consists in policyholders reaching a 30% premium after as little as 17 years of accident-free driving (in the class SF 17, organisation: SF 21) and the lowest premium of 25% or 28% at the bottom of the claims-free bonus scale (organisation: 30% ). In addition, some insurance companies have supplied the most favourable class with a discount protection scheme (downgrading only to class SF 21 at 30% ). Many underwriters downgrade much less in the upper SF classes than the organisation recommends, e.g. from classes SF 23 to SF 25 (30% ) down to class SF 16 (35% ), which has a similar effect as the discount protection scheme. Some insurance companies always downgrade their consumers to class M after 3 claims per year, while others do not immediately downgrade their clients immediately from the most favourable SF classes back to class M even after 4 claims. The classifications of the insurance companies which are more favourable than those provided in the recommendation of the organisation are not always based on the insurers own calculations for their own clientele (the composition of which differs from that of the organisation s average). Rather, they are partly based on marketing considerations. That surely also applies to the enticement classification, where (similar to the enticement bonus) classification of a policyholder lured away from another insurer is generally one class better than in the insurance company abandoned. The effect of the BMS in the malus area (classes S, O and M, occasionally also class SF 1/2 or even class SF 1) is mostly reinforced by the fact that a number of discounts in the scope of primary rating factors must be based on a claims-free discount (at least SF 1/2, occasionally also SF 2).

Chapter 4.D Report on Germany 63 Spread (Bonus-Malus System) 1 : 8.2 The spread with regard to the organisation s BMS is about 1 to 8.2; for individual companies the spread is even greater. Spread (total) 1 : 246 The spread with regard to the primary rating factors plus the BMS is about 1 to 246, thus being the greatest spread of all countries reviewed. 4 Final Remarks The overall spread in Germany with regard to the premium differentiation is the greatest of all countries reviewed, as both the spread with regard to the BMS as well as that with regard to the primary rating factors is very high. Application of the factors nationality and ethnic group is explicitly prohibited by law. A legal provision obliges all third party motor insurers to keep joint statistics. Currently, these statistics distinguish between the 5 major rating factors, where the data base is very well established. These statistics which are accessible to all underwriters form the basis for the rates laid down by all insurance companies. The joint statistics also underlie the BMS, with regard to the premiums of the individual BM classes as well as regarding downgrading in case of a claim (both are deduced from the joint statistics). Initial classification within the BMS (class 0) is very unfavourable compared to the other countries (about 8 times as high as the most favourable classification). The time it takes to reach the most favourable class is the longest (25 years) among all countries studied. On the other hand, it is possible to rise very quickly to class SF 1, i.e. the claims-free range, from the malus classes S and M, namely after just one year of claims-free driving. As the claims-free state is based on BMS calendar years (in other countries mostly insurance years), there is a separate class 1/2 which is reached after 6 months of claims-free driving (cf. table 5). Following the deregulation of rates in the year 1994, Germany experienced an especially keen competition in the third party motor insurance sector, which led to major actuarial losses.

Chapter 4.DK Report on Denmark 64 4.DK Report on Denmark 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y7 1997 data Gross Domestic Product 157.13 bn 29 675 thou 53 648 thou population 5.29 m x 1.81 thou area (sq. km) 43 094.39 8.14 14.71 railway network (km) 2 743 0.52 0.94 road network total (km) 71 437 13.49 24.39 motorways only 855 0.16 0.29 persons-km railway 5.18 bn y7 979 thou 1 770 thou persons-km road 76.85 bn y7 14 514 thou 26 240 thou total no. of motor vehicles 2.93 m 553 x passenger cars only 1.78 m 337 609 road accidents 7 698 y7 1.45 2.63 no. of casualties 481 0.091 0.16 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance number 1 238 147 41 40 GPR 2 11.29 bn 3.79 bn 1.13 bn 0.37 bn - per inhabitant 2 132 716 213 71 1 Insurance companies under Danish control 2 Domestic and foreign business of Danish insurance companies - per motor vehicle x x 384 128 Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: In 1998, 238 insurance companies were under Danish authority. These consist of 147 non-life insurance companies and 91 life insurance companies, 31 of which are multiple employer pension funds (those are counted among life insurance in Denmark). In Denmark, the life insurance business is of a greater significance than the nonlife insurance business. At present, there is strong competition in the Danish non-life insurance market. Cross-border insurance business: Many foreign insurance companies are active in the Danish insurance market. On April 1 st, 1999, in Denmark there were 5 life insurance and 37 nonlife insurance branches of non-danish insurance companies from the EEA and some hundred further insurance companies were authorized for free services exchange. The market share of these insurance companies, however, is currently still very small. Furthermore, the business of

Chapter 4.DK Report on Denmark 65 Danish insurance companies via settlements and in free services exchange within the EEA is still not very significant at present. Situation of the motor insurance market: In 1998, 41 Danish insurers companies offered the motor insurance. The degree of concentration is high. The market leader (Tryg-Baltica) holds share of the 3 greatest motor insurers 55.4% share of the 5 greatest motor insurers 70.1% share of the 10 greatest motor insurers 88.5% Concentration of the motor insurance market in terms of GPR a market share of about 25%, the 10 biggest insurance companies share about 90% of the market between them. The Danish motor insurance market made up 30% of the non-life insurance market and about 10% of the overall insurance market. Of the motor insurance rates, the biggest part is taken up by comprehensive insurance. The share of the third party motor insurance only amounted to for a third in 1998. About 85% of private cars have complete vehicle insurances; this is accounted for by the high purchasing price of cars and the high repair costs. At present there is strong competition on the Danish motor insurance market and the actuarial results are bad. In 1998, the loss ratio in the third party motor insurance was 111%; since 1992, the loss ratio has been above 100%. In the remaining motor insurances (excluding the third party motor insurance), however, the loss ratio is significantly lower and has decreased in the last few years to 70.5% in 1998. motor insurance third party motor insurance 1 Number of passenger cars, equals only approximately the number of insured risks insured risks. 2 928 824 1 GPR 1 125.7 m 374.6 m loss ratio 84.0% 111.0% cost ratio.. Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development: Even before the establishment of the EU insurance home market, insurance companies in Denmark were not bound in their rating system, so that in 1994 no deregulation measures concerning rate regulation were necessary. Present regulating situation: In Denmark, insurance companies are hardly subject to regulating influences in third party motor insurance rating. There are neither compulsory nor unauthorized rating factors. The insurance companies, however, have to follow a nondiscrimination principle, and franchise is not possible. Insurance cover for bad risks: On the Danish motor insurance market, the insurance companies underlie an obligation of contract in third party motor insurance. Yet, they are free in their calculation of premiums, which can result in a financing problem for bad risks. Role of the associations: The Danish Association of Insurers plays no role in rating. Primary rating factors: The basic primary rating factors are classified according to the vehicle type (sometimes substituted by the net weight of the car) and to the use-related factor, the region. As a rule neither show a great spread. Apart from these, a number of other factors are employed, although some insurance companies get by on surprisingly few factors (3).

Chapter 4.DK Report on Denmark 66 Premium differentiation Classes Spread Driver/owner classification women s bonus ( ). age groups 2-4 S: 1.3 occupational group bonus ( ). marital status bonus 10% further insurance contract with same insurer 2 10% entries in motoring fine register. member of an automobile club. Use classification place of registration/residence (region) 2-3 S: 1.25 use 2-5 S: up to 1.5 low mileage bonus ( ). Vehicle classification type of car/model 1 6-8 S: 1.5 4.5 age of car 2 2-3 S: 1.08 1.33 empty weight of car 2-5 S: 1.3 safety equipment ( ) 10% Table 4: Primary rating factors applied 1 Type classes and premium differences among type classes vary between individual insurance companies. 2 Premiums for older cars are lower. The age classification and the extent of premium reduction (for one and the same insurer) vary for different motor vehicle types. Spread (primary rating factors) 1 : 7 For some insurance companies with few primary factors, the spread related to the primary rating factors is partly only 1 to 2.7. For other insurance companies, the spread reaches a spread factor of 7.5. Bonus-Malus system: In Denmark, different BMS are used. In the tables 5.a and 5.b 2 systems are compared. Downgrading after 1 2 3 4 No. class premium-% claims into the class 1 1 150% 1 1 1 1 2 2 120% 1 1 1 1 3 3 A 100% 1 1 1 1 4 4 90% 2 1 1 1 5 5 80% 3 1 1 1 6 6 70% 4 2 1 1 7 7 60% 5 3 1 1 8 8 50% 6 4 2 1 9 9 40% 7 5 3 1 A: Initial classification Tabelle 5.a: Bonus-Malus-System Downgrading after 1 2 3 4 No. class premium-% claims into the class 1 1 150% 1 1 1 1 2 2 130% 1 1 1 1 3 3 110% 1 1 1 1 4 4 A 100% 2 1 1 1 5 5 90% 3 1 1 1 6 6 80% 4 2 1 1 7 7 70% 5 3 1 1 8 8 60% 6 4 2 1 9 9 50% 7 5 3 1 10 10 40% 8 6 4 2 1 11 11 30% 9 7 5 3 1 A: Initial classification 1 With more than 4 claims: downgrading in class 1 Table 5.b: Bonus-Malus System Spread (Bonus-Malus System) 1 : 4.5 The spread for the described BMS has a spread factor of 150/40 = 3.75 rsp. 150/30 = 5, therefore an average of 4.5. Spread (total) 1 : 31.5 The spread relating to all rating factors is 1 to 31.5.

Chapter 4.DK Report on Denmark 67 4 Final Remarks The third party motor insurance in Denmark with about 33% of the GPR has relatively little significance within motor insurance. Traditionally, there is relatively little rate regulation. Although the insurance companies are obliged to contract, this might amount to nothing, as on the other hand the insurance companies are free in their premium calculation and could therefore (instead of refusing an application) ask for a prohibitively high premium. Denmark fixes rates according to the otherwise relatively rarely used factor of the net weight of the vehicle.

Chapter 4.E Report on Spain 68 4.E Report on Spain 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y5 1995 data y7 1997 data Gross Domestic Product 521.98 bn 13 258 thou 25 028 thou population 39.37 m x 1.89 thou area (sq. km) 505 992 y5 12.85 24.26 railway network (km) 12 284 0.31 0.59 road network total (km) 347 000 y7 8.81 16.64 motorways only 9 000 y7 0.23 0.43 persons-km railway 17.47 bn 444 thou 838 thou persons-km road 22.02 bn 559 thou 1 056 thou total no. of motor vehicles 20.86 m 530 x passenger cars only 16.05 m 408 770 road accidents 92 265 2.34 4.42 no. of casualties 5 747 0.15 0.28 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 392 316 90 1 third party motor insurance GPR 2 26.04 bn 13.57 bn 5.13 bn 3.30 bn 1 written information from the supervisory body 2 direct business - per inhabitant 661 345 135 84 - per motor vehicle x x 254 158 Table 2: Third party motor Insurance within the insurance industry Structure of the insurance industry: In 1998, about 400 insurance companies were active, of which more than half were non-life insurance companies. The overall business in 1998 was divided about 50% : 50% into life insurance and non-life insurance business. At present there is strong competition on the Spanish insurance market. Nevertheless, there has been a strong growth of the gross premium revenue which is among other things due to the fact, that the saturation by insurances in Spain is comparatively low and is only just beginning to increase. In 1998, the growth of the entire direct business amounted to 8.2%, the growth rate in the non-life insurances was 8.39 % and that of life insurances 8%. Cross-border insurance business: At present, the insurance business of non-spanish insurance companies from the EEA in Spain is of no significance, besides which the foreign business of Spanish insurance companies is little and is mainly focused on Portugal.

Chapter 4.E Report on Spain 69 Situation of the motor insurance market: The gross premium revenue in motor insurance amounts to about 20% of the overall insurance business in Spain and to about 40% of the nonlife insurance business. About 60% of the gross premium revenue in motor insurance falls to third party motor insurance. It is customary, when finalising a contract for motor insurance, to also include other covers besides the third party motor insurance. The combination of unlimited third party motor insurance together with legal expenses insurance, passenger insurance and travel insurance is widespread. The motor insurance market has been very competitive in the last years, with actuarial losses as far back as 1988. Furthermore, there is an increase in premiums revenue, as the number of licensed cars has risen. In 1998, the direct premium revenue in motor insurance rose by 7.93%, the growth of contracts concluded rose by 8%. Concentration in the Spanish motor insurance market is low; the 10 biggest insurance companies held only a market share of under 50% in 1998. The strong competition, though, is combined with a process of consolidation, with the number of domestic suppliers decreasing in the last years. Sales in the motor insurance market: In Spain, motor insurances are offered particularly by exclusive agents, regular members of the sales staff, brokers and in direct sales. The significance of direct sales is still small at present, but is strongly increasing. motor insurance third party motor insurance insured risks. 20.86 m 1 1 No. of motor vehicles, equals only approximately the no. of insured risks y7 1997 data GPR 5.31 bn 3.30 bn loss ratio 77.8% y7 83.7% y7 cost ratio 29.7% y7 30.8% y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Present regulating situation: Spanish insurance companies are to a large degree free in their rating, yet the premiums have to be adequately calculated and are required to follow the principle of non-discrimination. There are no prohibited or compulsory rating factors. An overall franchise is not allowed. Insurance cover for bad risks: On the Spanish motor insurance market, the insurance companies don t underlie an obligation of contract. Bad risks are assumed by the Consorcio de Compensacion de Seguros, a state organisation, which also functions as a guarantee fund and as the insurer for all state vehicles. Role of associations: The Association of the Insurers makes a recommendation for rating. Primary rating factors: In Spain, the majority of insurance companies uses the following rating factors: sex, age of the insured person, period of holding the driving licence, region, user group and car model. Few further factors are used besides. The rating factors customarily used are listed in table 4.

Chapter 4.E Report on Spain 70 Premium differentiation Classes Spread Driver/owner classification women s bonus 1 2. age group surcharge 2 2-3 20% occupational group bonus. marital status bonus. further insurance contract with same insurer. recent license holder 3 2-3 20% loyalty bonus 4 3 30% Use classification place of registration/residence (region) 3-17 S: 1.8 commercial use surcharge 3. low-mileage bonus 2. user group 3. garaging 2. Vehicle classification car model, type of class S: 2.2 used or new car 2. colour of motor vehicle 5 ( ). Table 4: Primary rating factors applied 1 Individual insurance companies advertise with a women s bonus of 40%. A bonus for women up to the age of 24 years often also results from the age group surcharge, compare annotation 2. 2 Surcharge for young drivers (usually under 25 years, sometimes also a second age limit of 30 years is considered). Often the sex is considered when fixing the surcharge for young drivers. The surcharge for young drivers is often determined in connection with the rating factor recent holder of driving licence. 3 There commonly is a differentiation according to whether the period of holding a driving licence is less than 2 years (sometimes also 4 years). 4 Example: Long-standing customer bonus of 20% after 2 years, of 30 % after 3 years. 5 There are companies, which ask for the colour when concluding a contract (e.g. insurance contracts via the Internet). The rating factors which contribute most to a differentiation of premiums are those concerning the car model and the region. Spread (primary rating factors) 1 : 7 The spread relating to the primary rating factors is about 1 to 7. Bonus-Malus System: In Spain, there are very varying BMS. In table 5, one of the formerly used systems with comparatively few classes, without Bonus-Malus system (rate above 100%) and with rigorous downgrading regulations is described. It shows a spread of only 100 to 70, i. e. a spread factor of 1.4. Downgrading A: Initial classification after 1 after 2 after 3 after 4 No. class premium claims into the class 1 1 A 100% 1 1 1 1 2 2 100% 1 1 1 1 3 3 90% 1 1 1 1 4 4 80% 1 1 1 1 5 5 70% 1 1 1 1 Table 5: Bonus-Malus system, without a malus area Today, there are also BMS with an enlarged bonus spectrum (up to a rate of 45 % or 40 %). Furthermore, there are also malus areas, e.g. up to a rate of 140%, 200%, 300% or 400%. Spread (Bonus-Malus System) 1 : 5 The spread relating to the newer BMS is much greater than before; with the lowest and highest rate of 50% and 400%

Chapter 4.E Report on Spain 71 respectively, the spread would be 1 to 8. However, the number of inclusions in the classes with very high malus rates should be relatively low. Within the BMS-limits 50/250% or 40/200% there is a spread of 1 to 5. Spread (total) 1 : 35 The spread relating to all rating factors, using one of these newer BMS, is at about 1 to 35. 4 Final Remarks In Spain it is compulsory to calculate the third party motor insurance premiums adequately. The risks with problems to be insured are covered by a state organisation, which is at the same time the insurer of all state vehicles and also functions as a guarantee fund. The share of uninsured cars is very large (estimations say: 10%). Available long-service bonuses are very high at 30%.

Chapter 4.F Report on France 72 4.F Report on France 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y7 1997 data 1 without agricultural roads Gross Domestic Product 1 305.7 bn 22 235 thou 43 048 thou population 58.72 m x 1.94 thou area (sq. km) 543 965 9.26 17.93 railway network (km) 31 852 y7 0.54 1.05 road network total (km) 964 577 y7 1 16.43 31.80 motorways only 8 596 y7 0.15 0.28 persons-km railway 61.9 bn y7 1 054 thou 2 041 Tsd. persons-km road 685.1 bn y7 11 667 thou 22 587 Tsd. total no. of motor vehicles 30.33 m 517 x passenger cars only 25.50 m 434 841 road accidents 125 202 y7 2.13 4.13 no. of casualties 7 989 0.14 0.26 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 1 462 1 340 1 158 2 third party motor insurance GPR 110.25 bn 38.75 bn 4 13.92 bn 6.35 bn - per inhabitant 1 877 660 237 108 - per motor vehicle x x 459 209 1 insurance companies under French control 2 written information from supervisory body 3 direct French business of insurance companies under French control 4 Table 2: Third party motor insurance within the insurance industry The classes health and accident, which belong to the life insurance business in France, have been assigned to the non-life insurance companies according to international standards. Structure of the insurance industry: In 1998, there were 462 insurance companies under French control, 439 of which were direct insurance companies and 23 reinsurers. The direct insurers consisted of 99 life insurers, 33 composite insurers and 307 non-life insurance companies. 423 of the direct insurers were French insurance companies, 256 of which were jointstock companies, 164 mutual insurance associations and 3 companies under public law. A French particularity is the co-existence of traditional insurance companies which sell their products via a network of agents, and the mutual insurance associations with sales via employees. The mutual insurance associations are characterized by their specializations (e.g. special occupational groups) and the low acquisition costs. At present, there is a tendency towards consolidation in the French insurance market; in the last few years the number of insurance companies has significantly decreased. In contrast to the other reviewed countries, the significance of the life insurance has decreased in France (in 1998 there was a decline of

Chapter 4.F Report on France 73 the GPR by 14%), which results mainly from the tax reform which is unfavourable for life insurances. Also the income from premiums in the non-life sector declined in 1998, but only by 1.7 %. Cross-border insurance business: The activity of non-french insurance companies form the EEA in France via settlements and in the service sector business has up to now been of little significance (in 1998 with a market share of far below 1%), even though, in 1998, 100 of those settlements existed and 561 insurance companies were registered for free movement of services. Also the foreign business of French insurers via settlements and in free movement of services is of little significance; for the foreign business the French insurers primarily employ subsidiaries allowed abroad. Situation of the motor insurance market: Motor insurance covers a third of the non-life insurance business in France and about 10% of the overall direct business. Approx. 46% of the motor insurance GPR results from third party motor insurance. Besides the third party motor insurance and hull insurance (which is taken out by 80% of all motor vehicle owners) there is the driver s insurance as a special form of motor insurance, which pays for the driver s injuries in the case of accident caused by his/her own fault, and is requested by 50% of motor insurance customers. The mutual insurance associations play an important role in the motor insurance market. In 1998, the market share of the five biggest groups in the motor insurance market amounted to 44,1%. Particular to France are the high tax expenses in the motor insurance premium, which exceeds the net premium by 35%. They consist of the insurance tax, a social security tax and a contribution for two different guarantee funds. There has also been an intensification of competition in the French motor insurance market. In 1998, despite an increase of new licensed motor vehicles, the premiums revenue in motor insurance decreased because the premium level fell by 3%. As there was an increase in claims expenses of 5% in 1998, the profit situation deteriorated in the insurance companies. Sales of motor insurances: In France, motor insurance is sold in very different ways. Besides sales through exclusive agents, employees and brokers, the direct sales play a big (and increasing) role and the sales via banks and car manufacturers are currently gaining significance. motor insurance third party motor insurance insured risks - 30 331 546 1 1 amount of motor vehicles, only approximately equivalent to the number of insured risks y7 1997 data GPR 13.92 bn 6.35 bn loss ratio 86.1% y7 102.6% y7 cost ratio 19.8% y7 20.2% y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development : Until 1970, the rating in French third party motor insurance was calculated exclusively according to primary rating factors. A uniform rate was calculated by the Association of Insurers and was controlled and authorized by the Ministry of Finance. Only for the mutual insurance associations without an agents network was there a preferential system which made it possible for them to gain market shares with low premiums. This

Chapter 4.F Report on France 74 meant a big competitive advantage for the mutual insurance associations, so to eliminate it in 1970, a controlled rating freedom was introduced: the insurers association continued to fix rates, but the insurance companies could depart from the agreed rate in the case of relevant technical justification with official approval. In 1976, a binding BMS was introduced which was reviewed twice (1983 and 1992). In 1986, the control of rates was lifted; since then the insurers can determine the rate structure as well as the premium level themselves to a large degree, however, there are still strong regulating interventions from the state. Present regulating situation: According to the law, each insurance company must calculate a reference rate, which takes into consideration the rating factors vehicle type, region and classification of use (alternatively mileage per year). Furthermore, the insurer can also use other factors such as occupation, sex, circle of users to fix a reference rate. The fixed reference rate, which must be presented to the Ministry of Economics and Finance, is the basis for the legally determined BMS. Bonus-Malus classifications are transferable in the case of a change of vehicle or a change of insurance company. A second car of an insurance holder is classified in the same class as the first one. Some of the negative factors listed explicitly by law, such as hit-and-run driving, drunken driving and others ( circonstances aggravantes ) can only be taken into consideration beyond the reference rate by means of surcharges within exactly determined individual upper limits. Moreover, the surcharge for persons who have had their drivers licence for less than three years or have not had an insurance in the last three years is limited, and has to be reduced annually in case of no claims. An increase or a reduction of the premium within the BMS framework does affect these surcharges. The insurance companies are obliged to treat each request for insurance coverage in the same way according to the individually relevant factors in their reference rate. General franchise is permitted, but uncommon. Insurance cover for bad risks: Insurance companies are not principally obliged to contract.(the reference rate can mean a refusal of insurance coverage in the case of certain coinages of the factors.) If a person cannot obtain any insurance coverage on the free market, he can have an insurance company assigned to him by the Bureau Central de Tarification (BCT), (usually the one which refused the insurance coverage last); this insurer then has to accept the conclusion of an insurance contract. The rating is calculated by the BCT. Risk surcharges and prescribed policy franchise in case of loss are possible. Approximately 2 000 to 3 000 requests for insurance coverage are made annually in this way. Role of associations: The Association of the Insurers sets up rating recommendations. For this purpose, 10 motor vehicle classes and 17 regions are determined and the use factor also included (alternatively the mileage per year). The association is currently elaborating a new rating system which is to be the basis for the association s recommendation. It will include the factors power-weight ratio (net weight/engine capacity), (maximum) speed, mass, technical index (which is assigned according to individual technical characteristics such as anti-lock braking system, servo braking, stabilizers). The driver-related and use-related factors will no longer be part of the association s recommendation, but wholly be the affair of insurance companies. Primary rating factors: Even after the lifting of rates control, the insurance companies follow the rate recommended by the association. The classification of the various motor vehicles in one of the ten vehicle classes is at present made by the association on the basis of the following factors of the individual motor vehicles: engine capacity, maximum speed, drive (front, back, four-wheel), braking system, price and fuelling. Hence, when applying the association s factor motor vehicle type these factors are considered implicitly. Next to the other statutory

Chapter 4.F Report on France 75 rating factors, the insurance companies use a lot of further factors differing from insurer to insurer. Premium differentiation Classes Spread Driver/owner classification women s bonus 1 2. age group surcharge 2 3. occupational group bonus 3-8 S: 1.4 marital status bonus 4. further contract with same insurer 2 5% learner driver 3 3 S: 2.0 motoring fines surcharge 4 S: 5.0 proof of safety training ( ). member of automobile club ( ). Use classification place of registration/residence (region) 17 S: 2.3 commercial use surcharge 2-7 S: 1.5 low mileage bonus 5 3-5 S: 2.75 user group (number of drivers) 3. Vehicle classification type of car 10 S: 2 age of car. type of fuel 2-3. safety equipment ( ). construction modifications ( ). Table 4: Primary rating factors applied 1 Individual insurers advertise with a women s bonus of up to 40%. A discount for young women or new female licence holders is often results from the fact that young men are rated more unfavourably than women with respect to other factors. 2 Often young drivers (or young male drivers) under 25 years get no insurance coverage at all. Old drivers (older than 70) often get no insurance coverage either, although some insurers explicitly offer a pensioners discount. 3 A beginner driver is someone, who has had his licence for no longer than 3 years or who cannot show an insurance coverage for a period of at least 3 years. The statutory surcharge is a maximum 100% of the reference rate and is reduced after each no-claim year by half of the start premium. 4 The sum of all surcharges for circonstances aggravantes (not only traffic offences count) by law may exceed 400% and may only be imposed for a period of 2 years. 5 The discount for a lower mileage driver is not usually granted for beginners. Spread (primary rating factors) 1 : 30 The spread relating to the primary rating factors is approx. 1 to 30. The possibly high surcharges for traffic offences are not taken into account. Bonus-Malus-System: The statutory BMS has no rigid division of classes; moreover the premium is determined annually for each insurance holder individually according to the following rules: (1) Upgrading: after each no-claim year there is a reduction of the premium by 5%. (2) Downgrading: After each year with claims there is an increase of the premium by 25% per claim. The increase is only 12.5%, if the driver is only partially to blame for in the claim. (3) Special rule for the Malus-area: After 2 consecutive no-claim years, each contract in the Malus area (premium rate > 100%) is limited to a maximum premium rate of 100%. (4) Limits: The premium rate is at least 50% and at most 350%. (5) Protected discount scheme: After at least 3 no-claim years of 50%, the premium is not increased after the first claim. The percentages of 5% and 25% (12.5%) of the rules (1) and (2) always relate to the prevailing premium. (The percentages do not mean percentage points.) In table 5 this BMS is shown.

Chapter 4.F Report on France 76 Downgrading after 1 after 2 after 3 1 after 4 1 No. class premium-% claims to premium-% 1-350% 350% 350% 350% 350% 2-303% 350% 350% 350% 350% 3-243% 303% 350% 350% 350% 4-195% 243% 303% 350% 350% 5-156% 195% 243% 303% 350% 6-125% 156% 195% 243% 303% 7 - A 100% 125% 156% 195% 243% 8-95% 118% 147% 183% 228% 9-90% 112% 140% 175% 218% 10-85% 106% 132% 165% 206% 11-80% 100% 125% 156% 195% 12-76% 95% 118% 147% 183% 13-72% 90% 112% 140% 175% 14-68% 85% 106% 132% 165% 15-64% 80% 100% 125% 156% 16-60% 75% 93% 116% 145% 17-57% 71% 88% 110% 137% 18-54% 67% 83% 103% 128% 19-51% 63% 78% 97% 121% 20-50% 62% 77% 96% 120% Table 5: Bonus-Malus System (for privately used vehicles) Explanation of the table: Although no classes exist in this BMS, a representation in this table has been chosen which equals a representation of a BMS with fixed classes (fixed premium rates). In the table, the column premium-% shows on the one hand how, based on a premium rate of 100%, the classification of the contract in case of no-claim driving changes from one year to the next (line No. 7 to No. 20). On the other hand it shows how, starting from the initial classification of 100%, the classification of the contract changes in case of one claim per year (line No. 7 to No. 1). (All resulting percentages have been rounded off to whole percentages.) Depending on the individual claim development other premium rates can also result, differing from those listed in the table. 1 3 or more claims count as circonstances aggravantes. In addition to the effect in the BMS rating, in this case there will be an other surcharge (of 50 percentage points at most). A: Initial classification The premium percentage resulting from this BMS is applied to the premium derived from the reference rate. The reference rate takes into account all surcharges and deductions which result from the rating factors applied by the insurance companies (compare table 4), but not however the surcharges due to circonstances aggravantes or a lack of driving practice. These are always added above and beyond the BMS as percentages of the reference rates (after application of the BMS so to speak). Spread (Bonus-Malus System) 1 : 7 The spread for this BMS amounts to 1 to 7 and is therefore relatively high by European comparison. The BMS illustrated in table 5 is for motor vehicles for private use. For vehicles used commercially, there is a special BMS, in which the premium rate is reduced by 7% (instead of 5%) in case of no-claim driving and in which a claim increases the premium rate by 20%/10% (instead of 25% / 12.5%). Spread (total) 1 : 210 The spread relating to all rating factors is approx. 1 to 210.

Chapter 4.F Report on France 77 4 Final Remarks The regulation of rates is highly pronounced in France. Each company is required to fix a reference rate according to specific requirements (and to present it to the Ministry of Economics and Finance) and may not deviate from this rate in its policy of acceptance of customers. A statutory BMS is prescribed. For some precisely specified factors ( circonstances aggravantes, e.g. motoring fines), premium surcharges are possible within maximum limits.

Chapter 4.GB Report on Great Britain 78 4.GB Report on Great Britain The data unless specified otherwise always refer to Great Britain including Northern Ireland. 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles 1 without Northern Ireland y7 1997 data Gross Domestic Product 1 280.80 bn 21 622 thou 46 468 thou population 59.24 m y7 x 2.15 thou area (sq. km) 244 046 4.12 8.85 railway network (km) 17 500 1, y7 0.2954 0.63 road network (km) 394 183 y7 6.65 14.30 motorways only 3 405 0.0575 0.12 persons-km railway 40.7 bn 1, y7 687 thou 1 477 thou persons-km road 670 bn 1, y7 11 311 thou 24 308 thou total no. of motor vehicles 27.56 m y7 465 x passenger cars only 23.45 m y7 395 851 road accidents 247 238 y7 4.17 8.97 no. of casualties 3 421 0.0577 0.12 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance 1 number 832 656 72 insurers/18 Lloyds Syn. 2 GPR 3 116.77 bn 46.08 bn 12.67 bn. - per inhabitant 1 971 778 214. - per vehicle x x 460. Table 2: Third party motor insurance within the insurance industry 1 For Great Britain no separate data have been established for the motor insurance sector. 2 Insurance coverage in Great Britain is also offered by Lloyds Syndicates. 3 Domestic business Structure of the insurance industry: In 1998 a total of 832 insurance companies were under British insurance control (this figure disregards a great number of small friendly societies ). These are 668 British and 164 foreign underwriters. 594 of them are non-life insurance companies, 176 life and 62 composite insurers (there is no line separation for life insurance in

Chapter 4.GB Report on Great Britain 79 Great Britain). Life insurance is of much greater significance for Great Britain than non-life insurance business, one of the reasons being that retirement pension insurance has been partially privatised. At present there is stiff competition especially in the non-life insurance market. Cross-border insurance business: The insurance business of British underwriters via settlements in the EEA and in the scope of the free movement of services has been totally insignificant so far. Likewise, the business of foreign insurers from the EEA in Great Britain makes up no more than a small portion of the British insurance market. Situation of the motor insurance market: Motor insurance in Great Britain is a combination of driver and vehicle insurance. On the one hand, the insurance contract covers the car owned share of the 3 greatest motor insurers 33% share of the 5 greatest motor insurers 51% share of the 10 greatest motor insurers 69% Concentration of the motor insurance market in terms of GPR by the insured, involving a specific agreed-upon user group; on the other hand, consumers under the common insurance contracts are also insured when driving another person s car (with the owner s consent) albeit only with regard to liability losses. With regard to the insured motor vehicle, a separate third party insurance is not customary. Almost all contracts comprise, in addition to the obligatory third party motor insurance, additional elements, such as comprehensive motorcar insurance. Thus 82% of motor insurance contracts signed in 1998 contain comprehensive insurance, i.e. full-coverage. Vehicle damage after an accident is usually settled by the policyholder s own comprehensive insurance (even if caused by someone else). If need be, the insured s own underwriter resorts to the third party insurance of the driver having caused the damage. In 1998 motor insurance in Great Britain was handled by 72 underwriters. In addition, motor insurance is also offered by Lloyds Syndicates, who hold a market share of approximately 15%. In 1998 about 27% of GPR in the non-life insurance sector were generated by motor insurers. The motor insurance companies are oriented towards various groups of clients. They try to offer a competitive price-performance ratio for their desired clientele, whereas other clients seeking coverage are frequently offered deterrent conditions. This results in great premium differences for a specific risk. In the last few years the British motor insurance market has been characterised by a competition with a cut-throat tendency. The stiff competition was initiated by the entry of direct insurers into the British market about 15 years ago. It is reinforced by a great frequency of underwriter changes on the part of clients as well as by new market entries, e. g. banks. Insurance contracts in Great Britain are so-called expiring policies, i. e. the contract is not automatically extended, whereas it is automatically extended in the other EEA countries, unless it has been terminated. As a consequence, more than 50% of British consumers change companies each year. From 1993 through 1996 premiums in the motor insurance market were lowered. Since then the premium level has increased again, albeit not adequately. The keen competition leads to frequent changes of premium levels and structures. In part direct insurers change prices several times per day. 1998 has been the year with the highest level of actuarial losses for British motor insurers so far, amounting to several billions of euros. The difficult market situation for underwriters leads to concentration processes. Following mergers and take-overs during the last few years, the degree of concentration in the market has increased. Yet the concentration in the British motor insurance market is still relatively small compared to other European motor insurance markets. In the year 1998 the market leader Royal & SunAlliance shared in only about 11.5% of the market, while the 10 greatest underwriters held a market share of about two thirds.

Chapter 4.GB Report on Great Britain 80 motor insurance third party motor insurance 1 insured risks. 27 563 000 y7 1 Great Britain does not determine separate data for the third party motor insurance sector. y7 Number of motor vehicles in 1997, only roughly identical with the number of insured risks. GPR 12.67 bn. loss ratio 94.1%. cost ratio 24.9%. Table 3: Motor insurance statistics Motor insurance sale: Motor insurance in Great Britain is sold by a great number of sales bodies. Lately, banks and supermarkets, next to the traditional sale by brokers and agents, have also entered into the game. Direct sellers have been able to raise their market share considerably during the last few years, which has to do with the major cost advantages of this sales channel of about 30% over the traditional channels. Meanwhile, even the traditional insurance companies have taken to acquiring part of their motor insurance contracts by way of direct sale. Currently, the market share of direct motor insurance sale is about one third. 3 Third Party Motor Insurance Rating Regulating development: At no time did Great Britain experience government intervention in the rating systems of the insurance companies. Hence, the introduction of the Single European Insurance Market did not require any changes in rating regulations. Until 1968, voluntary rating agreements existed between underwriters, which, however, did not involve all insurance companies. Those societies not taking part offered insurance coverage at lower premiums, thus continuously expanding their market share. This led to a collapse of the rating agreements. Present regulating situation: Insurance companies in Great Britain are free to fix their own rates. There are no rating factors of a binding or prohibitive nature, nor is there a nondiscrimination principle. However, insurers have to observe a general non-discrimination principle, with the limits of its application being unclear. The stiff competition has recently led to a greater differentiation of factors, the admissibility of which is in dispute, e.g. race and disabilities. General franchise in the third party motor insurance sector is not permitted. Insurance cover for bad risks: There is no obligation to contract in Great Britain. Bad risks can be insured with a special insurer. In addition, some ordinary insurance companies also offer coverage for bad risks. There are situations, however, where insurance coverage is hard to get or only at a very high premium, for example, for those with alcohol-based motoring fines. According to the supervisory body, 4 6% of drivers are not insured. This great extent of non-insurance, in spite of a prevailing insurance obligation, surely also has to with the fact that the insurance certificate does not require a transportation obligation so that effective control of the obligation to insure is hardly possible. Role of associations: The association of insurers plays a lesser role for motor insurance rates in Great Britain than in most of the other European countries. However, the Association of British Insurers divides all motor vehicles into 20 classes ( car group rating system ), which underwriters employ for the determination of their rates.

Chapter 4.GB Report on Great Britain 81 Primary rating factors: The basic primary rating factors are those with regard to the vehicle. In addition, there is an abundance of further common criteria in Great Britain. Also, the number of factors applied by an individual insurer in Great Britain is much greater than in most of the other countries studied. Premium differentiation Classes Spread Driver/owner classification women s bonus 1 2 12% age groups 5-16 S: 2.0 3.5 occupational group bonus 13 S: 1.8 foreigners surcharge 2. marital status bonus 3 4 S: 1.19 living in own house ( ). recent license holder. surcharge for motoring fines 4 3 20% - 100% proof of special driving experience. public transport commuter ( ). automobile club member ( ). state of health. sign of zodiac ( ). Use classification place of registration/residence (region) 12-20 S: 1.9 type of use 2-5 S: 1.07 1.55 low-mileage bonus 5 S: 1.4 user group 4 S: 1.25 lack of garage surcharge 6 3 5% second car. region of use 2. Vehicle classification type of car/model 15-35 S: 3-7 age of car. used or new car. purchase price. engine capacity/power. safety equipment 7. construction modifications. Additional classification sales channel 8 20 S: 1.25 surcharge for left-hand driving 2 15% Table 4: Primary rating factors applied 1 The bonus listed is a mean value. Individually, the rating factor sex is often applied in unison with other factors; cf. also illustration no. 1 below depicting the age factor. 2 Nationality plays a role in so far as the period of time an insured has been living in Great Britain is sometimes used as a rating factor. 3 Some insurers impose a surcharge on the premium for women who are married or living in a partnership, whereas they offer a discount to men in a corresponding situation. 4 Individuals with a record of serious motoring fines in particular those not yet counting among the insurer s clients are often rejected, whereas lighter offences either have no effect on the rating or require a surcharge. 5 Rates are partly broken down very neatly, following a classification in terms of 1 000 miles (= 1 609 km). 6 Some insurers take the lack of a garage only in certain regions into consideration. 7 e.g. 5% discount in the event of a recognised theft prevention system (third party motor insurance) 8 For example, direct insurers lay down different premiums, depending on the medium through which the contract was acquired (internet, automobile magazine, mailing, telephone, radio, television, carselling magazines, car-racing magazines, listed here in the order of premium increases). The reason given in Great Britain for surcharges in the absence of a garage in the third party motor insurance sector is joyriding, common in certain regions. This means that a car is stolen, for example, in order to go on a pleasure ride over the weekend, something which often leads to third party claims. The same reason can be given for the employment of theft prevention as a rating factor in the third party motor insurance sector. Spread (primary rating factors) 1 : 31 The spread with regard to the primary rating factors within the individual insurance companies is great, namely 1 to 31, compared to the other countries studied.

Chapter 4.GB Report on Great Britain 82 premium index 250 200 150 men 100 women 50 0 15 25 35 45 55 65 75 age Illustration 1: Premium indexes according to age and sex Bonus-Malus System: Great Britain has a great number of different BMS variants existing side by side. Their major common feature is the fact that they comprise relatively few classes and do not contain a malus element (premium > 100% ). Tables 5.a to 5.c show some examples of common systems. Downgrading after 1 after 2 after 3 No. class premium-% claims to class 1 0 100% 0 0 0 2 1 A 75% 0 0 0 3 2 65% 1 0 0 4 3 55% 2 0 0 5 4 45% 2 0 0 6 5 40% 3 1 0 7 6 33% 3 1 0 A: Initial classification Table 5.a: Bonus-Malus System Downgrading after 1 after 2 after 3 No. class premium-% claims to class 1 0 A 100% 0 0 0 2 1 80% 0 0 0 3 2 70% 0 0 0 4 3 65% 1 0 0 5 4 60% 2 0 0 6 5 50% 3 1 0 A: Initial classification Table 5.b: Bonus-Malus System Downgrading after 1 after 2 after 3 No. class premium-% claims to class 1 0 A 100% 0 0 0 2 1 70% 0 0 0 3 2 60% 1 0 0 4 3 50% 2 1 0 5 4 40% 3 2 1 Table 5.c: Bonus-Malus System A: Initial classification Spread (Bonus-Malus System) 1 : 3 The spread with regard to the BMS for the common systems in Great Britain ranges only between 1 to 2 and 1 to 3.3, i.e. an average of 1 to 3.

Chapter 4.GB Report on Great Britain 83 Many insurance companies offer their customers the possibility to choose a protected discount scheme, which must be paid separately in terms of a premium surcharge (5 10% ). Its typical effect is (not necessarily only in the most favourable bonus class) that a policyholder is not downgraded in case of a claim, provided that he has had no more than 2 claims within a period of 5 years. Consumers are normally first classified (first third party motor insurance contract) in the least favourable class. Some insurers consider years spent claims-free in the scope of commercial driving as claims-free years (certificate from the employer). Spread (total) 1 : 93 The entire rating spread in Great Britain is about 1 to 93. 4 Final Remarks The character of motor insurance in Great Britain is somewhat different from that in the other countries studied. Third party motor insurance is a combination of vehicle and driver insurance. In most cases it is acquired together with other components (e.g. comprehensive insurance). Traditionally, premiums are very finely differentiated (most primary rating factors of all countries), including unusual factors such as state of health (disabilities), sign of zodiac, length of stay in Great Britain and sales channel. There are many underwriters whose offer is primarily directed at specific groups of customers. Some underwriters (direct insurers) change their premiums very often, depending on the prevailing market situation, in extreme cases several times per day. The BMS traditionally contains very few classes. A common phenomenon are expiring policies which means that the policyholders have to sign a new insurance contract every year. That leads to a high rate of company changers.

Chapter 4.GR Report on Greece 84 4.GR Report on Greece 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y6 1996 data y7 1997 data Gross Domestic Product 109.23 bn 10 392 thou 25 266 thou population 10.51 m x 2.43 thou area (sq. km) 131 944 y7 12.55 30.52 railway network (km) 2 474 y6 0.24 0.57 road network total (km) 117 000 y6 11.13 27.06 motorways only 470 y6 0.0447 0.11 persons-km railway 1.70 bn y6 162 thou 393 thou persons-km road 100 bn 9 514 thou 23 131 thou total no. of motor vehicles 4.32 m 411 x passenger cars only 2.68 m 255 619 road accidents 24 836 2.36 5.74 no. of casualties 2 226 0.21 0.51 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance 1 direct business number 1 126 104 78 GPR 2.02 bn 1 987 m 617 m 534 m - per inhabitant 192 94 59 51 - per motor vehicle x x 143 122 Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: In 1998, there were a total of 126 insurance companies in Greece. 22 of these were life insurance companies, 87 were non-life insurance companies and 17 composite insurance companies. In the last few years there has been a decline in the number of insurance companies. The insurance business in Greece has been much less developed than in the most other EEA countries, as can be seen in the very low insurance premium, which on average is paid annually in Greece. In the last few years, however, there has been rapid growth in the non-life insurance sector as well as in the life insurance sector, in most cases by well over 10%. In 1998, the GPR from the life insurance business were for the first time higher than the GPR from the non-life insurance, as the growth rates in the life insurance business are higher.

Chapter 4.GR Report on Greece 85 Cross-border insurance business: The details concerning the cross-border business of Greek insurance companies, or foreign insurance companies in Greece, are not available, but it can be assumed that this business is still insignificant at present. Situation of the motor insurance market: In Greece, the relative significance of motor insurance and particularly of third party motor insurance is much greater than in other EEA states. Motor insurance made up for about 60% of the GPR of the non-life insurances and more than 30% of the GPR on the whole. 85% of the motor insurance GPR fell to third party motor insurance. Motor insurance coverage which goes beyond third party motor insurance is rare in Greece. In the Greek motor insurance market there has been strong competition in the last few years, which has led to a consolidation. Thus, the 5 biggest insurance groups on the Greek motor insurance market have increased their market share from about 40% in 1994 to 53% in 1997. Competition leads to bigger premium differentiation. Although the premiums have risen in the last few years (among other things because of an increase in the legal liability sums), the bigger increase in claims expenses have lead to an increase in the loss ratio. motor insurance third party motor insurance insured risks. 3 508 915 1 1 details from the joined statistics of the association, do not equal the entire insurance market 2 written information from the association GPR 617 m 534 m loss ratio 71.3% 1. cost ratio 18.8% 2. Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulation development: Until the creation of the EU home market for insurances, the regulation of rates was very intensive in Greece. There was a uniform rate for vehicles up to 1 400 cm 3 cubic capacity. The implementation of the third principle for claims insurance was therefore combined with a strong deregulation in rating. In 1997, however, as a result of the EU harmonisation process, the control of finances was reinforced, with the consequence, that some insurance companies lost their authorisation for motor insurance contracting. Present regulation situation: At present, the insurance companies are hardly restricted at all in their third party motor insurance rating. They do not have to follow a principle of equality and there are no prohibited or compulsory rating factors, although the principle of nondiscrimination, which is based on the constitution, has to be followed. A general franchise is not permitted. Furthermore, a Gentleman s Agreement exists between the control authority and the insurance companies to waive premium increases in order to keep inflation low. Insurance cover for bad risks: The Greek insurance companies don t underlie a clearly defined obligation to contract, but they can be sanctioned by the state (with fines or with a withdrawal of their registration), if they refuse a conclusion of a contract or the prolonging of a contract without a good reason. In practice, conclusions of contracts are only refused by the insurance company if e.g. the insurance holder had many claims in the past or if he violated his obligations to report. If someone cannot get insurance coverage on the free market, he can make a request to a commission of the Ministry for Trade to fix a premium for him which he can ask for in the conclusion of a contract with any insurance company.

Chapter 4.GR Report on Greece 86 Role of the associations: The association plays an important role in rating by drawing up joint statistics on behalf of the state. This is carried out by the Insurance Companies Statistical Services (ICSS) founded in 1978 by the Association of the Insurers. Primary rating factors: The most important primary rating factors in Greece are engine capacity and the region of licensing. Premium differentiation Classes Spread Driver/owner classification women s bonus. age group bonus. recent license holder. entries in the motoring fine register. Use classification place of registration/residence (region) 1. commercial use surcharge. region of use. Vehicle classification car model. engine size/power. Table 4: Primary rating factors applied 1 The region does not necessarily relate to the place of residence of the owner but is possibly the region in which the vehicle is used most of the time. Spread (primary rating factors) 1 : 2.2 The spread relating to the primary rating factors is approximately 1 to 2.2 and is therefore very low. Bonus-Malus-system: A common BMS in Greece is represented in table 5.a. It contains 6 bonus classes (classes 9 to 4) the premium rates of which differ by 8 percentage points each, and 10 malus classes (classes 11 to 20) the premium rates of which also differ by 8 percentage points each.

Chapter 4.GR Report on Greece 87 Downgrading after 1 after 2 after 3 after 4 No. class premium-% claims into the class 1 20 180% 20 20 20 20 2 19 172% 20 20 20 20 3 18 164% 20 20 20 20 4 17 156% 19 20 20 20 5 16 148% 18 20 20 20 6 15 140% 17 19 20 20 7 14 132% 16 18 20 20 8 13 124% 15 17 19 20 9 12 116% 14 16 18 20 10 11 108% 13 15 17 19 11 10 A 100% 12 14 16 18 12 9 92% 11 13 15 17 13 8 84% 10 12 14 16 14 7 76% 9 11 13 15 15 6 68% 8 10 12 14 16 5 60% 7 9 11 13 17 4 52% 6 8 10 12 Table 5.a: Bonus-Malus System with fixed classes A: Initial classification Spread (Bonus-Malus System) 1 :3.5 The spread relating to this BMS is only 1 to 3.5. Therefore it is relatively low. Furthermore, the downgrading rules (downgrading by 2 classes per claim made) are very mild, so that an insurance holder in the most favourable class 4 (52%), who makes one claim a year, only ends up in the most unfavourable class 20 (180%) after 8 years. In similarly mild fashion, an insurance holder in the most favourable class 4 who makes 4 claims in one year is only downgraded in class 12 (116%). Besides the system shown in table 5.a, other systems are also applied. In table 5.b, a BMS is illustrated which has no fixed division of classes; moreover the fixing of rates is calculated annually for each insurance holder individually according to the following rules: (1) Upgrading: After each no-claim year there is a reduction of the premium by 10%. (2) Downgrading: After each year with claims made, there is a rise of the premium by 20% per claim. (3) Limits: The premium is at least 64% and at most 613%. The percentages of 10% and 20% of the rules (1) and (2) always relate to the prevailing premium. (The percentages do not mean percentage points.) In table 5.b this BMS is shown.

Chapter 4.GR Report on Greece 88 Downgrading after 1 after 2 after 3 after 4 No. class premium-% claims to premium-% 1 20 613% 613% 613% 613% 613% 2 19 511% 613% 613% 613% 613% 3 18 426% 511% 613% 613% 613% 4 17 355% 426% 511% 613% 613% 5 16 296% 355% 426% 511% 613% 6 15 247% 296% 355% 426% 511% 7 14 206% 247% 296% 355% 426% 8 13 172% 206% 247% 296% 355% 9 12 144% 172% 206% 247% 296% 10 11 120% 144% 172% 206% 247% 11 10 A 100% 120% 144% 172% 206% 12 9 90% 108% 129% 154% 184% 13 8 81% 97% 116% 139% 166% 14 7 72% 86% 103% 123% 147% 15 6 64% 76% 91% 109% 130% Table 5.b: Bonus-Malus-System without fixed classes Explanation of the table: Although there are no fixed classes in this BMS, a representation in the table opposite has been chosen, which equals the representation of a BMS with fixed classes (fixed premium rates). In the table, the column premium-% illustrates on the one hand how, based on an initial premium rate of 100%, the classification of the contract in case of no claims changes year by year (line No. 11 to No. 15). On the other hand, it illustrates how, starting from the initial classification of 100%, the classification of the contract changes in case of one single claim per year (line No. 11 to line no. 1). (All resulting percentages have been rounded off to whole percentages.) Depending on the way the individual claims develop, other premium rates can also result differing from those listed in the table, therefore one cannot speak of fixed classes. However, following this classification in systems such as illustrated in table 5.a, the term classes is also often used in this BMS. A: Initial classification The (theoretical) spread relating to this BMS is about 1 to 9.6. However, the very high rates in the upper classes are hardly used in practice. As long as there are enough insurance companies with a definitely clearly more limited malus area who are willing to insure insurance policy holders with a comparatively high number of claims in the past, no insurance holder will accept a rate of 613%. At the beginning of 2000, an insurance company introduced a BMS which is similar to that represented in table 5.b, but which differs in the respect that it contains an upgrading of 8% per no-claim year and a downgrading of 16% per claim. With these percentages the BMS in the tables 5.a and 5.b are more similar to each other. Spread (Bonus-Malus System) Spread (total) 1 : 4 1 : 8.8 For an average examination one can assume a BMS area of 50 to 200% out of which results a spread of 1 to 4. Based on this, the spread relating to all rating factors is approximately 1 to 8.8. 4 Final Remarks Motor insurance taking up just under a third share made up a large section of the Greek insurance industry (a fact which is accounted for by the low saturation as yet in insurances of the Greek economy (compare table 2)). Deregulation was particularly significant for the Greek insurance industry, as up until 1994 regulation had been intensive (a uniform rate for all small and medium-sized motor vehicles).

Chapter 4.I Report on Italy 89 4.I Report on Italy 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y6 1996 data y7 1997 data Gross Domestic Product 1 045 bn 18 138 thou 27 787 thou population 57.61 m x 1.53 thou area (sq. km) 301 341 y7 5.23 8.01 railway network (km) 16 014 y6 0.28 0.43 road network total (km) 308 000 y6 5.35 8.19 motorways only 6 444 y7 0.12 0.17 persons-km railway 50.30 bn y6 873 thou 1 338 thou persons-km road... total no. of motor vehicles 37.61 m y7 653 x passenger cars only 31.00 m y7 538 824 road accidents 190 031 y7 3.30 5.05 no. of casualties 6 226 y7 0.11 0.17 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 1 212 129 96 third party motor insurance GPR 2 50.99 bn 24.50 bn 14.40 bn 11.84 bn - per inhabitant 885 425 250 206 - per motor vehicle x x 328 315 1 Insurance companies with headquarters in Italy, March 1998 2 GPR of Italian insurers and settlements of insurance companies from outside the EEA Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: In March 1998, there were 212 insurance companies with headquarters in Italy. Of these insurers, 77 were in the life insurance business, 108 in the non-life insurance business and 21 were composite insurers. The premium revenue in Italy has increased significantly in the last few years, particularly in life insurance. In 1998, the GPR growth in life insurance was 36.4%, in non-life insurance 8.4%. Life insurance and nonlife insurance continue to be of roughly equal importance. Due to bigger growth rates however the relative significance of life insurance is growing, its share having increased strongly in the last years. The profit situation of insurers is clearly more favourable in life insurance than in non-life insurance. Cross-border insurance business: In the Italian insurance market, alongside a few non-italian insurance companies from outside the EEA there are many non-italian insurance companies from the EEA. In 1999, these earned GPR of about 1 bn, two thirds of which fell to non-life

Chapter 4.I Report on Italy 90 insurance. Quantitatively, however, this is of no importance. The foreign business of Italian insurers via EEA settlements and in the free movement of services is also insignificant. Situation of the motor insurance market: The relative significance of motor insurance in Italy is much greater than on average in the EU. The GPR in motor insurance amounts to approximately 30% of the overall business and nearly 60% of non-life insurance business. Hull insurance is of lesser importance than in most other EEA countries; more than 80% of GPR in motor insurance falls to third party motor insurance. For the Italian market the creation of the EU insurance home market meant strong deregulation. Whereas before 1994 competition was hardly possible, there has been intense competition in the last years which can be seen, among other things, in a big differentiation in rates. The profit situation in motor insurance is unfavourable, especially in third party motor insurance. In 1998, the loss ratio in third party motor insurance was 102%, in hull insurance however only 48%. Despite increasing competition, the premiums in third party motor insurance have risen sharply in the last few years, which is, among other things, the result of the higher compensation regulations for persons introduced in 1997 and the new burden on premiums due to government taxes for the health system and the guarantee fund. However, in the public discussion, the companies are reproached for prearranged agreements in their pricing policies. Concentration in the Italian motor insurance market is relatively low. In 1996, the market leader (Allianz-RAS) held a market share of 15.6%, the four biggest insurers a market share of more than 46.5%. Sales: In Italian motor insurance, sales via single company agents with a market share of 95% of the consumer business clearly dominate the market. Direct sales have only been permitted in recent years and are insignificant. motor insurance third party motor insurance 1 written information from the Association of the Insurers insured risks. about 40 m 1 GPR 14.40 bn 11.84 bn loss ratio 92.3% 102.0% cost ratio 19.9% 18.8% Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulation development: Before the creation of the insurance home market within the EEA, rating in Italian third party motor insurance was strongly regulated. There was a uniform rate for all insurance companies, which was fixed annually by a special commission of the Ministry of Industry. Political and social aspects were also taken into consideration in fixing the rate, which led to premiums not always being adequately calculated. The insurers were obliged to transfer 2% of their third party motor insurance holdings to the Istituto Nazionale delle Assicurazioni (INA) which on the basis of its claims settlements drew up joint statistics, which formed a reference base for the fixing of rates by the government. Present regulation situation: Insurers in Italy have to follow a principle of nondiscrimination and are obliged to take the claims history into consideration when fixing rates, either by a BMS or by another system. There are no prohibited rating factors and the insurance companies can also use the instrument of general franchise freely.

Chapter 4.I Report on Italy 91 Besides, as a consequence of the big premium increases in the last few years, brought about a price regulation for the year 2000: with the introduction of the Regulation for binding rates in third party motor insurance aimed at preventing further large premium increases the freedom of motor insurance companies to increase premiums was greatly restricted. The government justifies this measure by its anti-inflationary intentions and with its suspicion of implicit price-fixing of the insurers. Because of this regulation measure which in their opinion violates existing EU law the Italian Association of Insurers Associazione Nazionale fra le Imprese Assicuratrici (ANIA) has made an appeal to the EU Commission to institute proceedings against the Italian government. Insurance cover for bad risks: In Italy there is an obligation to contract. Role of associations: The Italian Association of Insurers collects data for ist members as a basis for rate-fixing. Primary rating factors: The two central primary rating factors in Italy are engine capacity and region. Alongside these, a number of other quantitatively less significant factors are used. Premium differentiation Classes Spread Driver/owner classification women s bonus 1 10% age group bonus 1 10% marital status bonus. further insurance contract with same insurer 2. Use classification place of registration/residence (region) 10 S: 1.7 2.1 low-mileage bonus 7 S: 1.2 user group (number of drivers) 3 S: 1.1 garaging 2. Vehicle classification engine size/power 10. safety equipment. Table 4: Primary rating factors applied 1 In some instances the women s bonus and the age group bonus are rated jointly, e.g. with regard to the rule 120% for men under 24 years, 100% for other insurance holders. Spread (primary rating factors) 1 : 8 The spread resulting from the primary rating factors ranges from approx. 1 to 5 up to 1 to 10. Bonus-Malus-System: In Italy it is compulsory to take the claims history into account either by means of a BMS or in some other form. The concrete terms are left to the insurers. In practice, there are numerous different systems, which sometimes have only malus classes and sometimes only bonus classes. A widely used BMS is described in table 5.

Chapter 4.I Report on Italy 92 Downgrading after 1 after 2 after 3 after 4 1 No. class premium claims into the class 1 18 200% 18 18 18 18 2 17 175% 18 18 18 18 3 16 150% 18 18 18 18 4 15 130% 17 18 18 18 5 14 A 115% 16 18 18 18 6 13 100% 15 18 18 18 7 12 94% 14 17 18 18 8 11 88% 13 16 18 18 9 10 82% 12 15 18 18 10 9 78% 11 14 17 18 11 8 74% 10 13 16 18 12 7 70% 9 12 15 18 13 6 66% 8 11 14 17 14 5 62% 7 10 13 16 15 4 59% 6 9 12 15 16 3 56% 5 8 11 14 17 2 53% 4 7 10 13 18 1 50% 3 6 9 12 Table 5: Bonus-Malus System 1 With more than 4 claims, the same method is applicable, i.e. per claim there is upgrading by three classes. A: Initial classification Spread (Bonus-Malus System) 1 : 4 The spread of this system is 1 to 4. Spread (total) 1 : 32 The spread in Italy is therefore in total 1 to 32. 4 Final Remarks Up until deregulation, which derived from allowing free movement of services in the insurance industry, third party motor insurance in Italy was very strictly regulated (statutory uniform rate by the government). In the last few years despite stronger competition due to deregulation there were big premium increases, partly initiated by newly introduced government taxes in third party motor insurance towards a guarantee fund and for the health system. These premium increases resulted in massive controversial interventions by the government in the rating freedom of insurance companies. In Italy, the inclusion of claims history in assessment is absolutely compulsory. For this purpose very different BMS are used (in some cases even within one and the same insurance company).

Chapter 4.IRL Report on Ireland 93 4.IRL Report on Ireland 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y6 1996 data y7 1997 data Gross Domestic Product 75.72bn 20 439 thou 50 119 thou population 3.70 m x 2.45 thou area (sq. km) 70 273 18.97 46.51 railway network (km) 1 947 y6 0.53 1.29 road network total (km) 92 351 y7 24.93 61.13 motorways only 94 y7 0.0254 0.06 persons-km railway 1.41bn 380 thou 933 thou persons-km road 45.59 bn 12 305 thou 30 175 thou total no. of motor vehicles 1.51 m 408 x passenger cars only 1.20 m 323 792 road accidents 13 228 y7 3.57 8.76 no. of casualties 413 0.11 0.27 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 117 69 y7 19 third party motor insurance 1 GPR 3 9.56 bn 2 3.26 bn 2 1.06 bn 3. - per inhabitant 2 581 880 287. - per vehicle x x 703. Table 2: Third party motor insurance within the insurance industry 1 Separate data on third party motor insurance are not available. 2 GPR of insurance companies with headquarters in Ireland for the overall business and GPR of settlements in Ireland 3 GPR of insurance companies with headquarters in Ireland for Irish business and GPR of settlements in Ireland y7 1997 data Structure of the insurance industry: At the end of 1998, there were 117 insurance companies under Irish authority, including 114 with headquarters in Ireland and 3 settlements of non- Irish insurance companies from outside the EEA. Most (approximately 60%) are non-life insurance companies, however the life insurance business in Ireland with two thirds of the premium revenue is of much greater significance than the non-life insurance business. In the last few years, there has been a rapid growth in premium revenue. In 1998, the GPR of Irish insurance companies and of foreign settlements in Ireland increased by 36%. Furthermore, the non-life insurance business grew rapidly by 15%. Cross-border insurance business: In 1998, alongside the 3 insurance companies from within the EEA, there were also 42 foreign insurance companies from outside the EEA with settle-

Chapter 4.IRL Report on Ireland 94 ments in Ireland. 476 non-irish insurance companies from the EEA were registered for free movement of services in Ireland. Measured against the GPR however the Irish business of non-irish insurance companies from the EEA is insignificant. The foreign business of Irish insurance companies on the other hand plays a large role. In 1998, 23% of the total GPR of Irish insurance companies fell to the free movement of services business of Irish insurers in other EEA-countries (in non-life insurance business even 35%); the business in Great Britain plays by far the biggest role. Moreover, foreign business is linked to a much bigger growth than the Irish business. The high significance of foreign business of Irish insurers is explained by the basic conditions for taxes and legal insurance control, which are considered by the insurance companies to be very favourable in Ireland. Present regulation situation: In Ireland, the motor insurance and its rating system are more in the public eye than in other EU countries, a fact which can be explained by the comparatively high premium levels. There is no restriction by the government in the use of rating factors and in the determination of premiums, and in the application of franchise the insurance companies are also free. The use of the factor handicapped however is restricted by a self-regulating measure of the industry (more than 10 years ago an agreement was made between the insurance companies and the organisations for the handicapped). The maximum surcharge for a handicap is 20% in the first year of insurance and 15% in the second, if the handicapped per- Situation of the motor insurance market: In 1998, 18 insurance companies with headquarters share of the 3 greatest motor insurance companies 48% in Ireland and one insurer from outside the EEA were active in the Irish market. In share of the 5 greatest motor insurance companies 63% addition, motor insurance was also offered share of the 10 greatest motor insurance companies 89% by 11 settlements of non-irish insurance Concentration of the motor insurance market in companies from the EEA. Concentration in terms of GPR the market is very high. The market leader (Guardian PMPA) holds a market share of 28%. In the Irish market there is strong competition. Nevertheless, there have been increases in premiums in the last few years which have resulted from higher claims expenses caused, among other things, by greater traffic density. The loss ratio is high so that there have been continued underwriting losses in the last few years (approximately 125 m in 1998). The premium level in Ireland is comparatively high, as high compensation claims are granted and the number of accidents is also high. motor insurance third party motor insurance insured risks. about 1.4 m 1 1 Number of motor vehicles in 1998 minus the approximate share of uninsured motor vehicles. y7 1997 data GPR 1.06 bn. loss ratio 96%. cost ratio 15.5% y7. Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulation development: Even before 1994, there was no direct government regulation of rating in Ireland, so that no changes were necessary concerning regulation by the EU insurance home market.

Chapter 4.IRL Report on Ireland 95 son was claim-free in the first year). From the third claim-free year onwards, a surcharge is not required anymore. Insurance cover for bad risks: Irish insurers do not underlie an obligation to contract. However, there is an agreement by all insurers ( Declined Cases Agreement ), that persons requesting insurance coverage who have provably been refused by 5 insurers, have to be assigned to an insurer which then has to offer them third party motor insurance. The organisation of this mechanism is executed by the Insurance Information Service (part of the Association of the Insurers). The high premium level in Ireland and the strong premium differentiation lead to problems in financing the motor insurance premium for bad risks requesting insurance coverage. In Ireland, there is a comparatively large share of supposedly compulsory insurance holders (approx. 5%) without any insurance at all although the showing of third party motor insurance under the windshield is obligatory. Primary rating factors: The most important factor is the engine capacity. Premium differentiation Classes Spread Driver/owner classification women s bonus 2 7.5% age group surcharge 1 7 S: 1.3 recent license holder 2 25% surcharge for motoring fines 2 4 bis 250% state of health 3 S: 1.2 Use classification place of registration/residence (region) 4 S: 1.3 commercial use surcharge 4 S: 1.6 user group (number of drivers) 4 S: 1.4 Vehicle classification type of car 4 3 S: 1.5 age of car 5 2 +25% engine size/power (cubic capacity) 7 S: 2.2 type of fuel 6 4 S: 1.11 Table 4: Primary rating factors applied 1 Applications of young drivers (e.g. younger than 25 years) are sometimes refused on principle. The surcharge paid by the group of the 25 to 29 year olds is approx. just as high as that of old insurance holders (75 years upwards). 2 e.g. 50% surcharge for dangerous driving, 250% surcharge for drunk driving 3 In the case of health restrictions there is sometimes insurance coverage without a premium surcharge, in some cases there are surcharges according to special handicap-lists, others are refused on principle. E.g. there is no surcharge for light diabetes, but the contract is refused in the case of severe diabetes. 4 Surcharge for sportive variations of a car as compared with the standard model. 5 e.g. surcharge for cars older than 12 years. 6 Diesel-fuelled vehicles (but not vehicles with a Turbodiesel engine) are sometimes cheaper than petrol-fuelled cars. The spread relating to the primary rating factors is about 1 to 30. Spread (primary rating factors) 1 : 30 Bonus-Malus System: The BMS typically only considers a few claim-free years. An example is given in table 5.

Chapter 4.IRL Report on Ireland 96 Downgrading after 1 after 2 after 3 No. class premium claims to the class 1 0 A 100% 0 0 0 2 1 90% 0 0 0 3 2 80% 0 0 0 4 3 70% 1 0 0 5 4 60% 2 0 0 6 5 50% 3 0 0 Table 5: Bonus-Malus System A: Initial classification Many insurers offer their customers the possibility - against a premium surcharge - to get a protected discount scheme for the BMS. This has the effect for instance that there is no downgrading in the case of loss if there has been no more than one claim in 3 consecutive years. Spread (Bonus-Malus System) 1 : 2 The spread relating to the BMS is approximately 1 to 2. Spread (total) 1 : 60 The spread relating to all rating factors is approximately 1 to 60. 4 Final Remarks There is very little government regulation, in some cases the Association takes over the regulating function, e.g. by making a surcharge for handicapped drivers. Traditionally, the premium differentiation is very pronounced. There are many insurers whose offers are mainly focused on specific customer groups. A high premium level (and stunning premium increases in the last few years) as well as a large scale premium differentiation lead to financing problems for some insurance holders, 5% of which do not comply with the requirement of compulsory insurance coverage. The spread of the BMS with 1 to 2 is relatively low.

Chapter 4.J Report on Japan 97 4.J Report on Japan Preliminary remarks: The motor insurance market and the third party motor insurance rating system in Japan are fundamentally different from those of the EEA; they are therefore described here for the purpose of comparison. On account of the very great differences, it is not helpful either to apply the structure of the EEA national reports also to Japan. Instead, a description of third party motor insurance and its development since the end of the Nineties is given. Up until recent years, the Japanese third party motor insurance was subject to very strict regulation which left insurance companies very little scope for rating. In 1998, because of the pressure of the USA, among other things, deregulation came about which now allows the insurance companies flexibility in structuring their rating system in some domains of the third party motor insurance. However, there are still strict defaults on rating and the insurance companies must have their third party motor insurance rating approved before applying them. Going by the general deregulation efforts in Japan, further deregulation measures in third party motor insurance can be expected in the next few years. The two-part system of Japanese motor insurance: The Japanese third party motor insurance consists of two partial systems, one of which is compulsory for the vehicle owner, and the second (quantitatively more significant) optional. The compulsory system ( Compulsory Automobile Liability Insurance, CALI) came into effect in 1956. For certain groups of persons it is possible to substitute CALI by Compulsory Automobile Liability Mutual Aid (CALMA). For CALMA, the same rules and regulations apply as for CALI; therefore there is hardly any further mention of CALMA in the following. CALI only covers bodily injuries, and in fact only up to a legally determined amount; this amount is often not sufficient to cover the compensation claims resulting from an accident. Besides that, it is also possible to take out an optional third party motor insurance, which approximately 70% of the vehicle owners do. The optional third party motor insurance can be structured in various ways and is often combined with additional motor insurance coverages. It provides compensation for damage to property and assets and for bodily injuries which are not fully covered by CALI. In January 1999, 31 Japanese and 14 foreign insurance companies were authorized to offer CALI. CALMA is provided by numerous small cooperative insurance facilities. In the last few years, the relative significance of CALI within motor insurance has decreased considerably. In 1998, the optional motor insurance (third party motor insurance and other motor insurance classes) made up 80% of the direct GPR of motor insurance compared to 60% in the year 1978. Insurance cover for bad risks: In Japan there is a strict obligation to contract for CALI. Only in cases of few, specific procedures (e.g. delayed payment of premiums), can the acceptance of a contract by an insurance company be refused or the contractual relationship ended. It is therefore possible for virtually any person requesting coverage to acquire the statutory basic coverage. In optional third party motor insurance, however, there is no obligation to contract. The way CALI works: In the system CALI the individual insurance companies do not carry any risks. Those offering cover are rather obliged to transfer 60% of their insurance to a state reinsurer for motor insurance and to cede the remaining 40% to the reinsurance pool of the insurance industry ( Mutual Reinsurance Pool ). In this way, it is possible to spread the risks over the entire market so as to prevent individual insurance companies from being at a disadvantage in the event of an unfavourable portfolio arising from the obligation to contract and the nevertheless very narrow differentiation of premiums (compare the following paragraph). In this way, bad risks are indirectly spread evenly over all companies offering insurance.

Chapter 4.J Report on Japan 98 Rating in CALI: For CALI, all those offering it use a uniform rate which is determined by the Automobile Insurance Rating Organisation of Japan (AIRO), an association of all motor insurances, which is supplied with data from all of its members. Strict statutory rules apply. The premiums must be reasonable, adequate and not unfairly discriminatory. Furthermore they must comply with a No-Loss-No-Profit-Rule, i. e. the premiums are to be calculated in a way that no profit can be expected on the part of the insurance company. If there are profits nevertheless, because the claim expenses are below their expected value, these are set aside for purposes of balancing risks temporarily or for traffic safety promotion purposes or they are used for other public services. The No-Loss-No-Profit-Rule is based on the idea that a basic third party motor insurance coverage is part of the social security system and should therefore not underlie any profit orientation. Vehicle type, vehicle size and vehicle use and region are the used rating factors. There is no fundamental inclusion of claims history; only if the insurance holder causes the death of another road user is a surcharge levied for the current remaining insurance period. The fixed rates are registered with the supervisory body which, under inclusion of the so-called CALI- Council, a counselling commission consisting of different interest groups, examines them. If there are no objections by the supervisory body within 90 days, the insurance companies can apply these rates. Premium differentiation Classes Spread Use classification place of registration/residence (region) 4. use. Vehicle classification type of car 30. size of car. Table 4.a: Primary rating factors used in compulsory Japanese third party motor insurance Structure of optional motor (third party) insurance: In optional motor insurance, various products are offered which, relating to third party motor insurance, complement CALI and often include different additional insurance components (e.g. hull and passengers accident insurance). As for the insured liability, various sums insured are possible. For drivers, who do not own a car themselves, the Automobile Driver s Liability Policy is offered which covers liabilities when driving other cars. Such a coverage can also be part of the third party motor insurance for one s own car. A motor insurance can also be had on the market by which capital stock can be saved up and then paid out to the insured person at an agreed point in time (this form of saving is also common in other insurance classes such as fire insurance and personal accident insurance). Rating in the optional third party motor insurance: Up until the last few years, the rating in the optional third party motor insurance was also very strongly regulated. AIRO determined a uniform rate on the basis of the data supplied by its members, which was compulsory for the insurance companies. Since 1998, the insurance companies can develop their own rates for optional third party motor insurance, AIRO now only makes recommendations for net premiums. For the rates of optional motor insurance there are the same requirements as for CALI, that premiums must be reasonable, adequate and not unfairly discriminatory. There is also the obligation to notify the supervisory body before using the rates, which checks the compliance with the statutory regulations. The motor insurances can furthermore, with the approval of the Financial Reconstruction Commission, found other rating organisations which collect data and give net premium recommendations. However, the insurance companies must submit their rating for approval in every case before applying them, and they are extremely limited in the use of their rating factors. General franchise is allowed.

Chapter 4.J Report on Japan 99 Primary rating factors: Only 9 factors are statutory: age of the driver, sex, region, use category, annual mileage, vehicle type, multi-car ownership, safety fittings and damage experience. Therefore a BMS is allowed within the framework of the optional third party motor insurance; in fact, the use of a BMS is very common in optional third party motor insurance. General franchise is allowed, too. Premium differentiation Classes Spread Driver/owner classification sex 2 S: 1.5 age groups S: 3.0 Use classification place of registration/residence (region) 7 S: 1.5 use. annual mileage. multi-car ownership. Vehicle classification type of car/model. safety equipment. Table 4.b: Primary rating factors used in voluntary Japanese third party motor insurance The numbers marked with are statutory upper limits. During the period of the uniform rate there was hardly any competition in third party motor insurance. Now that the companies have had more opportunities to fix premiums, there has been a strong competition in optional third party motor insurance and a decline in the premium level in motor insurance, as some (foreign) insurance companies reduced their premiums dramatically and other market participants had to follow. Because of decades of strict limitations in rating, the rating know-how of Japanese insurance companies is still small. For instance, the application of multivariate methods, which are standard in other developed countries, is only just beginning to find its way in Japan. Bonus-Malus System: Table 5 shows a BMS commonly used in optional third party motor insurance in Japan.

Chapter 4.J Report on Japan 100 Downgrading after 1 after 2 after 3 after 4 No. class premium claims into the class 1 1 150 % 1 1 1 1 2 2 140 % 1 1 1 1 3 3 130 % 1 1 1 1 4 4 120 % 1 1 1 1 5 5 110 % 2 1 1 1 6 6 A 100 % 3 1 1 1 7 7 90 % 4 1 1 1 8 8 80 % 5 2 1 1 9 9 70 % 6 3 1 1 10 10 60 % 7 4 1 1 11 11 50 % 8 5 2 1 12 12 45 % 9 6 3 1 13 13 42 % 10 7 4 1 14 14 40 % 11 8 5 2 15 15 40 % 12 9 6 3 16 16 40 % 13 10 7 4 Table 5: Bonus-Malus System A: Initial classification Spread (Bonus-Malus System) 1 : 3.75 The spread relating to this BMS is 1 to 3.75.

Chapter 4.L Report on Luxembourg 101 4.L Report on Luxembourg 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y7 1997 data Gross Domestic Product 14.55 bn 34 342 thou 49 293 thou population 0.42 m x 1.44 thou area (sq. km) 2 586 6.10 8.76 railway network (km) 274 0.65 0.93 road network total (km) 2 863 y7 6.76 9.70 motorways only 115 y7 0.27 0.39 persons-km railway 0.30 bn 708 thou 1 016 thou persons-km road... total no. of motor vehicles 0.30 m 697 x passenger cars only 0.24 m 576 827 road accidents 1 017 2.40 3.44 no. of casualties 60 0.14 0.20 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 75 21 8 third party motor insurance 1 GPR 3 5.06 bn 0.69 bn 0.20 bn 0.11 bn - per inhabitant 11 945 1 619 475 269 - per vehicle x x 681 386 Table 2: Third party motor insurance within the insurance industry 1 Initial insurance companies with headquarters in Luxembourg 2 GPR of the overall business of Luxembourg insurance companies and foreign settlements in Luxembourg; a major part of the GPR of life insurance business falls to foreign business. Structure of the insurance industry: In 1998, there were 75 initial insurance companies with headquarters in Luxembourg. Moreover, 18 settlements of foreign insurance companies from the EEA and 393 EEA insurance companies, which were authorized for business in Luxembourg within the framework of free movement of services, were active in the Luxembourg insurance market in 1998. Furthermore, there are numerous reinsurers with headquarters in Luxembourg (1997: 255), most of which are Captives. The majority of Luxembourg initial insurers (54) are active in life insurance business. By far the biggest part of the overall business falls to life insurance, however in 1998 nearly 90% of the life insurance business came from abroad. Approximately two thirds of the domestic GPR in 1998 fell to non-life insurance. However, the GPR in non-life insurance has stagnated in the last few years. Cross-border insurance business: For Luxembourg insurance companies, the cross-border insurance business is of paramount importance. By far the largest part of the GPR earned by insurance settlements in Luxembourg falls to foreign risks. The GPR, which was generated by the Luxembourg business in 1998 amounted to only 0.65 bn, the overall business therefore

Chapter 4.L Report on Luxembourg 102 is nearly 8 times that of Luxembourg business. The by far biggest part of the foreign business falls to life insurance. In non-life insurance, the GPR for the domestic business in 1998 amounted to 0.43 bn, so foreign business in this case constituted only approximately 38% of the overall business. The most important market for Luxembourg initial insurers is Belgium. Foreign business is characterized by growth rates clearly higher than in the Luxembourg domestic business. The large share of foreign business, particularly in life insurance, can be explained by the fact that from the point of view of insurance companies, Luxembourg s regulation and tax systems are very favourable. Situation of the motor insurance market: In 1998, 8 insurance companies with headquarters in Luxembourg were active in the Luxembourg insurance market; moreover, in addition 7 EEA settlements and 23 foreign insurance companies from the EEA which had registered for free movement of services were also authorized for motor insurance business in Luxembourg. Related to the overall business, the share of motor insurance of about 5% is insignificant, but in relation to non-life insurance business, motor insurance holds a share of just under 30%. On account of strong competition, the GPR for Luxembourg motor insurance business was in decline. Therefore, combined with an increase of claims expenses, there was a deterioration of the actuarial result. Thus, the loss ratio in third party motor insurance is definitely more unfavourable than in hull insurance. motor insurance third party motor insurance 1 written information from the supervisory body insured risks. about 250 000 1 GPR 0.20 bn 0.11 bn loss ratio 76.9% 1 91.6% cost ratio 30.0% 28.7% Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Present regulation situation: According a regulation dating back to 1994, Luxembourg insurance companies must use a certain BMS. There are no further compulsive rating factors. There is no general principle of equality. Resulting from the general principle of nondiscrimination however the rating factors citizenship and sex are not permitted. A general franchise (per insurance case) is permitted up to an amount of 1 239 for natural persons and up to an amount of 4 958 for corporate bodies as insurance policy holders. Insurance cover for bad risks: In Luxembourg there is a strict obligation to contract. Insurance companies can only refuse continued insurance coverage, if an insurance holder does not pay his premiums. Role of associations: The Luxembourg Association of Insurers supports its members in third party motor insurance rating by establishing joint statistics (STATAULUX). Primary rating factors: The most important rating factor in Luxembourg is engine capacity. For table 4, Primary rating factors employed there is not enough data available. Bonus-Malus-System: The BMS in Luxembourg is statutory as described in table 5. For upgrading in the Malus-area (premium rate > 100%) there is an additional rule: An insurance policy holder who is in the Malus-area and has been claim-free in 4 consecutive years, is classified at the lowest in class 11 (100%).

Chapter 4.L Report on Luxembourg 103 Downgrading after 1 after 2 after 3 after 4 No. class premium-% claims into the class 1 22 250% 22 22 22 22 2 21 225% 22 22 22 22 3 20 200% 22 22 22 22 4 19 180% 22 22 22 22 5 18 160% 21 22 22 22 6 17 140% 20 22 22 22 7 16 130% 19 22 22 22 8 15 120% 18 21 22 22 9 14 115% 17 20 22 22 10 13 110% 16 19 22 22 11 12 105% 15 18 21 22 12 11 A 100% 14 17 20 22 13 10 100% 13 16 19 22 14 9 90% 12 15 18 21 1 15 8 85% 11 14 17 20 1 16 7 80% 10 13 16 19 1 17 6 75% 9 12 15 18 1 18 5 70% 8 11 14 17 1 19 4 65% 7 10 13 16 1 20 3 60% 6 9 12 15 1 21 2 55% 5 8 11 14 1 22 1 50% 4 7 10 13 1 23 0 47.5% 3 6 9 12 1 24-1 45% 2 5 8 11 1 25-2 45% 1 4 7 10 1 26-3 45% 0 3 6 9 1 Table 5: Bonus-Malus System 1 For each additional claim per year there is further downgrading by 3 classes, at most into class 22. A: Initial classification Due to the mild downgrading rule downgrading by 3 classes per claim, an insurance policy holder in the most favourable class -3 (45%), who incurs one claim per year, will not be classified into the most unfavourable group 22 (250%) until after 9 years. Class -3 is almost a protected discount scheme, as downgrading in the case of one claim only causes a premium increase of 2.5 percentage points. Spread (Bonus-Malus System) 1 : 5.6 The spread relating to the BMS is approximately 1 to 5.6. 4 Final Remarks With 34 343 (just below Switzerland), Luxembourg not only has the highest gross domestic product per capita, but with 11 942 it also has by far the highest GPR per inhabitant (ahead Switzerland with 4 244 and Denmark with 2 132 ). However, the GPR are the revenues of Luxembourg insurance companies as well as settlements of non-luxembourgian insurance companies from the EU. The high amount derives from the relatively important foreign busi-

Chapter 4.L Report on Luxembourg 104 ness connected with Luxembourg s location (similar for Switzerland).This hardly applies to third party motor insurance however. The insurance companies follow a statutory BMS. The characteristics citizenship and sex are not authorized as rating factors.

Chapter 4.N Report on Norway 105 4.N Report on Norway 1 General Statistical Data absolute per 1.000 inhabitants per 1.000 motor vehicles y7 1997 data Gross Domestic Product 133.22 bn 30 156 thou 41 006 thou population 4.42 m x 1.36 thou area (sq. km) 306 253 69.33 94.27 railway network (km) 4 021 y7 0.91 1.24 road network (km) 91 254 20.66 28.09 motorways only 26 610 6.02 8.19 persons-km railway 2.92 bn y7 660 thou 897 thou persons-km road 52.43 bn y7 11 869 thou 16 139 thou no. of motor vehicles 3.25 m 735 x passenger cars only 1.76 m 398 541 road accidents 8 765 1.98 2.70 no. of casualties 303 0.069 0.093 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 1 68 52. third party motor insurance GPR 6.53 bn 3.26 bn 1.01 bn 0.469 bn 1 Norwegian insurers, discounting only locally active underwriters and pension funds - per inhabitant 1 477 738 229 106 - per vehicle x x 576 267 Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry.: In 1998 Norway had 68 insurance companies, 16 of them life and 52 non-life insurers. Alongside of these, there are insurance institutions within the naval and fire insurance sector with local operations only (1998: 53 altogether), whose number is currently greatly decreasing, as well as numerous pension funds (1998: 268). Life and non-life business are more or less equally significant. The Norwegian market is characterised by a high degree of concentration. A few major groups make up the majority of GPR. In addition, there are numerous small underwriters. In 1999 the 5 greatest insurance groups made up 90.4% of the life insurance and even 95.7% of the non-life insurance business. The Norwegian non-life insurance sector is dominated by very stiff competition, which has led to a deterioration of the average loss ratio during the last few years. Cross-border insurance business: Some Norwegian underwriters are engaged in other countries via settlements. The premium revenues generated abroad made up almost 7% of overall

Chapter 4.N Report on Norway 106 GPR in the non-life insurance sector in 1997, which must be attributed, among other things, to the great importance of Norwegian naval insurance. The significance of foreign insurance companies in the Norwegian market is negligible. Situation of the motor insurance market: Norwegian motor insurance makes up about 15% of overall and about 30% of the non-life insurance business. Of the motor insurance premiums a little less than half falls to third party motor insurance. The motor insurance market in Norway is highly concentrated. The market leader (Storebrand) shared in about 39% of the market in 1998, with the 3 greatest underwriters holding a market share of 86.4% and the 4 greatest sharing in 94 % of GPR in the motor insurance market. In 1998 the number of claims increased somewhat. This increase was based on a rise in comprehensive insurance claims, with the third party claims remaining practically consistent during the same period. As the number of insured motor vehicles increased at the same time, the frequency of claims even declined. Claims expenses in the motor insurance sector, however, increased by 7.3% in 1998. Due to the stiff competition in the Norwegian motor insurance market, motor insurers have been unable to raise their premium revenues during the last few years, which resulted in a deterioration of the profit situation in motor insurance. Sale: In Norway the sale of insurance is traditionally dominated by insurance agents. However, during the last few years the market share of brokers has increased to about 20% of the entire non-life insurance business. Many car dealers (dealer networks) serve as motor insurance brokers. Direct sale is currently also on the rise. Due to the great number of internet users, internet sale is also gaining in importance. motor insurance third party motor insurance insured risks 1 4 461 293 y9 2 653 064 1 number of insurance contracts y9 1999 data y7 1997 data GPR 1.01 bn 0.469 bn loss ratio 72.6% 64.3 y7 cost ratio 26.2% y7 26.1 y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Insurance cover for bad risks: Third party motor insurance in Norway underlies a contractual obligation. Role of associations: Cooperation between underwriters in Norway is restricted by a competition policy. A planned recommendation for a common Bonus-Malus-System was rejected as being inadmissible by the competition department, although underwriters argue that it would offer the insured greater premium transparency. Primary rating factors: Table 4 lists frequently applied primary rating factors. An unusual feature is the great spread for the annual mileage factor (spread factor 2.6).

Chapter 4.N Report on Norway 107 Premium differentiation Classes Spread Driver/owner classification age group surcharge 1, 2 4 S: 1.35 credibility. Use classification place of registration/residence (region) 2 S: 1.5 low-mileage discount 7-10 S: 2.6 user group (no. of drivers) 1. garaging 4 S: 1.08 Vehicle classification model, type of class S: 1.6 age of car. purchase price 3 2 S: 1.5 type of car financing. engine capacity/power 4. safety equipment 4 1.35 construction modifications. Table 4: Primary rating factors applied 1 The age group surcharge is often considered together with the user group factor, e.g. in the following classification: (a) 2 named drivers aged more than 29, (b) 2 named drivers over the age of 23, (c) only drivers over the age of 23 number unlimited, (d) any driver. 2 Age is indirectly applied also in the sense that some insurers refuse to insure young drivers at least on the customary terms. Internet offers often call for a minimum age of 24 or 25. 3 There is one insurance company basing its rates only on the purchase price, cf. the text. 4 Unless considered under the factor type of car/model Spread (primary rating factors) 1 : 10 The spread with regard to the primary rating factors is about 1 to 10. There is one underwriter offering two alternatives for third party motor insurance, i.e. third party motor insurance + fully comprehensive insurance and third party motor insurance + comprehensive insurance (third party motor insurance alone is not available), and either alternative considers only the price of the new car as a rating factor. The first alternative distinguishes between 6 classes, whereas the second alternative, which is closest to the specialised third party motor insurance, only has the two classes new price under 30 088 and new price above 30 088. This underwriter does not apply a BMS either. (A third party motor insurance contract by this underwriter, which is a mutual-insurance society, puts the minimum age at 25 years and requires previous membership in the society for at least 12 months.) Bonus-Malus System: Norway applies very different BMS s. Table 5 lists a BMS without fixed classes. The amount of the premium and thus implicitly the premium rate is established individually for each policyholder, based on the following regulations: (1) Upgrading: After each claims-free year the premium is lowered by 13%. (2) Downgrading: After each non-claims-free year the premium is raised by an absolute fixed amount, e.g. 350. (3) Limits: The minimum premium is 25% and the maximum premium is 150% of the tabular premium. (4) Protected discount scheme: After at least 5 consecutive claims-free years, the premium is raised by just 50% of the fixed amount ( 175) when the first claim occurs. After at least 10 consecutive claims-free years at a 25% premium rate, the premium is not raised when the first claim occurs. (5) Franchise: In case of a premium rate of more than 80% (prior to a claim), a franchise becomes due when a claim is made. A reduction of the premium by 13% under regulation (1) is always based on the respective amount of the premium. (13% does not mean 13 percentage points ).

Chapter 4.N Report on Norway 108 In table 5 this BMS is based on a situation where the tabular premium which the BMS refers to, is 1 000 and the fixed amount under regulation (2) is 350. Downgrading after 1 after 2 after 3 after 4 no. class premium claims to the amount 1-1500 1500 1500 1500 1500 2-1350 1500 1500 1500 1500 3 - A 1000 1350 1500 1500 1500 4-870 1220 1500 1500 1500 5-757 1107 1457 1500 1500 6-659 1009 1359 1500 1500 7-573 923 1273 1500 1500 8-499 848 1198 1500 1500 9-434 784 1134 1484 1500 10-378 727 1077 1427 1500 11-329 678 1028 1378 1500 12-286 636 986 1336 1500 13-250 600 950 1300 1500 Table 5: Bonus-Malus System without fixed classes Explanation of table: Although this BMS has no classes, the table on the left chooses a presentation which is largely in line with the presentation based on fixed classes (fixed premiums or fixed premium rates) The column premium shows the change in the contract classification from year to year in the case of a noclaims experience, based on a tabular premium of 1 000 (line no. 3 to 13). On the other hand, it shows how, starting from the initial premium of 1 000, the classification of the contract changes in case of one claim per year (line No. 3 to No. 1) Depending on the individual loss experience, the amounts may differ from those in the table. A: Initial classification Normal initial classification is based on the general business rate (premium rate 100%); for drivers having insured a private car for as many as 25 years, the premium rateat entry is 80%. Spread (Bonus-Malus System) 1 : 7 The spread with regard to the BMS illustrated is 1 to 6. Norway also uses BMS s with fixed classes. In the malus sector they usually range to a premium of about 150%, in the bonus sector they usually range to a 20% premium, which results in a spread of 1 to 7.5. The mean value of the spread is 1 to 7. Spread (total) 1 : 70 The spread with regard to the entire rating is 1 to 70. 4 Final Remarks Norway is the most thinly populated of all European countries studied, at 14 inhabitants per sq. km (just before Finland). There are relatively few road accidents and casualties per motor vehicle as well as relatively few road accidents and casualties per inhabitant. Very few insurers (about 10) are active in the motor insurance sector. With some underwriters the premium differentiation is extremely low. Insurers employ the rating factor credibility for the differentiation of their premiums. There are BMS s which, instead of being based on premiums (the amount to be paid is indicated in the individual BM classes in terms of a contribution percentage), apply a fixed absolute amount when upgrading an insured following a claim.

Chapter 4.NL Report on the Netherlands 109 4.NL Report on the Netherlands 1 General Statistical Data absolute per 1 000 inhabitant per 1 000 motor vehicles Gross Domestic Product 352.13 bn 22 494 thou 50 637 thou population 15.65 m x 2.25 thou area (sq. km) 41 526 1 2.65 5.97 1 The mere land surface (without lakes, rivers etc.) is no more than 33,883 sq. km, i.e. just 81.6% of the country s overall surface. y6 1996 data y7 1997 data railway network (km) 2 795 y6 0.18 0.40 road network (km) 124 530 y6 7.96 17.91 motorways only 2 207 y6 0.14 0.32 persons-km railway 19.10 bn 1 220 thou 2 747 thou persons-km road 142.10 bn 9 077 thou 20 435 thou total no. of motor vehicles 6.95 m y7 444 x passenger cars only 5.87m y7 375 844 road accidents 41 036 2.62 5.90 no. of casualties 1 163 0.074 0.17 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance number 393 y7 294 151 1 110 1 GPR 2 30.99 bn y7 13.66 bn y7 3.28 bn 1.86 bn - per inhabitant 1 980 873 210 119 - per motor vehicle x x 472 267 1 Motor insurance companies under Dutch control and settlements of non- Dutch insurance companies from the EEA y7 1997 data Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: In 1997 393 insurance companies were under Dutch control, 372 of them having their seats in the Netherlands. This figure as well as the GPR shown leave the numerous pension funds (more than 1,000 in 1997) existing in the framework of the self-administrated pension scheme out of consideration. The significance of life insurance in relation to non-life insurance business is currently greatly increasing also in the Netherlands, as life insurance growth (1998: 10% growth of premium revenues) is much bigger than non-life insurance growth (1998: 4%). Moreover, the non-life insurance growth is greatly influenced by the health insurance business (premium growth 6%), whereas growth in the non-life insurance sector outside of health insurance was no more than 2%, which roughly corresponds to the rate of inflation. Cross-border insurance business: The foreign business of Dutch insurers via settlements in the context of the free movement of services is as yet of little importance. By contrast, the Dutch business of foreign insurers from the EEA is of greater significance. In 1998 the Dutch

Chapter 4.NL Report on the Netherlands 110 market counted 17 settlements of non-dutch insurance companies from outside the EEA in the non-life insurance sector (in particular from Belgium), as well as 113 EEA settlements from the EEA and 339 underwriters active in the scope of the free movement of services. Situation of the motor insurance market: In 1998 a total of about 150 domestic and foreign insurers were active in the Dutch motor insurance market. In terms of GPR motor insurance shared in about 10% of overall and in a little more than 20% of non-life insurance business in 1998. Third party motor insurance made up about 57% of motor insurance GPR in 1998. The market leader is a direct insurer (Centraal Beheer). The Dutch motor insurance has been dominated by a keen competition for the last few years which has led to an intensification of premium differentiation as well as to deficits on the part of motor insurers most of the time. The loss ratio for the overall motor insurance sector in 1997 was about 72% and the cost ratio about 28%. Between the years 1994 and 1998 average expenses for insured motor vehicles per claim with regard to third party insurance increased each year, in 1998 it amounted to 2 260. The Dutch motor insurance market displays a low degree of concentration, with the 5 leading insurance groups holding a market share of no more than a little over 30% in 1997. Motor insurance sale: The sales structure of the Netherlands differs greatly from that of the most other EU countries. One-company agents are insignificant. Insurance brokers holding more than 50% of the market share play the greatest role. This means that, as a rule, it is the broker rather than the insured who decides on the choice of the underwriter. Direct sale, too, is of relatively great importance in the Netherlands, holding about 20% of the overall market share and a considerably higher share in the motor insurance sector. Insurance cover for bad risks: There is no contracting obligation for third party motor insurance in the Netherlands. As a rule, a number of risks are not insured by normal underwriters because of the degree of seriousness or because of their special nature (cf. table 4.a). For these risks it is possible, however, to obtain coverage with a special insurance company (joint stock company Rialto) whose stocks are held by other underwriters and where special risks (in momotor insurance third party motor insurance insured risks. 6 954 000 1 1 Number of motor vehicles, only roughly identical with the number of insured risks y7 1997 data GPR 3.28 bn 1.86 bn loss ratio 71.9% y7 73.8% y7 cost ratio 27.8% y7 27.4% y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development: There has never been an obligation in the Netherlands to have the rates calculated by the insurance companies approved, nor have there been other types of major intervention in the rating system. The creation of the Single European Market for the insurance sector, therefore, did not necessitate any changes in rating regulations. Present regulating situation: The Dutch regulating authority intervenes only to a limited extent in the establishment of rates by third party motor insurers. There are no prohibited rating factors. However, the prohibition of discrimination laid down by the Dutch basic law calls for equal treatment of everybody seeking insurance coverage. Underwriters are free to use the instrument of general franchise at their discretion.

Chapter 4.NL Report on the Netherlands 111 tor and other insurance sectors) can be insured. Premiums are always based on the individual case. This insurance company does indeed make profits. Role of associations: The association of insurers ( Verbond van Verzekeraars ) works out statistics for the individual insurance companies in terms of annual risk statistics which are kept by the Centre for Insurance Statistics (CVS), an independent subdivision of the association of insurers, and also makes rating recommendations. Primary rating factors: The main rating factors are empty weight of car and region. The number of classes and the spread vary considerably between the various underwriters. Sometimes rates are based on the value of the new car rather than on the empty weight. Premium differentiation Classes Spread Driver/owner classification women s bonus. age group bonus 1 2-3 10% occupational group bonus 3. further insurance contract with same company 2 7.5% entries in the motoring fine register 2. Use classification place of registration/residence (region) 2-4 S: 1.25 1.54 commercial use surcharge. low mileage bonus 3 2-3 7.5% - 20% safety training bonus. Vehicle classification type of car/model 4. age of car. purchase price. weight of car 3 / 24 5 S: 1.97-3.265 Additional differentiation comprehensive insurance discount (for third 2 15% party motor insurance) 6 refusal of coverage, thus individual classification, cf. table 4.a Table 4: Primary rating factors applied 1 E. g. a 10% discount for people aged more than 50 or a 10% surcharge for people under the age of 24. Some insurers refuse to insure any young drivers (e. g. younger than 23 years). 2 Some insurance companies refuse to insure drivers having been convicted of specific traffic offences (e. g. drunken driving). 3 Mostly only for drivers from ages 24 or 28 onwards 4 Some insurers do not insure any sports cars (or at least not those owned by young drivers). 5 E. g. 50-kg classes for empty weights from 600 to 1 750 kg 6 Customers taking out a comprehensive insurance policy for the car to be insured under the third party contract are, for example, granted a discount of about 15% on the third party motor insurance premium. Of course, that can also be understood in terms of a comprehensive insurance discount. However, if the discount is proportional to the third party motor insurance premium and the comprehensive premium is based on other rating factors, (essentially the value of the car), the view held here that this is a third party motor insurance discount is plausible. Spread (primary rating factors) 1 : 7 The spread resulting from these primary rating factors is in the order of 1 to 7. A special type of premium differentiation results from the fact that there are a number of reasons where insurance by an ordinary underwriter is out of the question. Table 4.a illustrates such reasons. If such facts prevail, an insurance contract can only be obtained at much higher premiums than the normal ones (with the underwriter Rialto, see above).

Chapter 4.NL Report on the Netherlands 112 Many claims in the past Termination of insurance contract by insurer in the past Previous withdrawal of driving license Car used as taxi or for courier services Previous conviction of policyholder Young driver of a sports car. Consumer is older than 65. Car is a carnival or rally car. Car is to be insured for a short period of time only. Table 4.a: Usual reasons for the rejection of an insurance application Bonus-Malus System: Table 5 shows the customary BMS of the Netherlands. Downgrading after 1 after 2 after 3 after 4 no. class premium-% 1 claims to class 1 1 120% 1 1 1 1 2 2 A 100% 1 1 1 1 3 3 90% 1 1 1 1 4 4 80% 1 1 1 1 5 5 70% 1 1 1 1 6 6 60% 2 1 1 1 7 7 55% 50% 3 1 1 1 8 8 50% 45% 4 1 1 1 9 9 45% 40% 5 1 1 1 10 10 40% 37.5% 6 2 1 1 11 11 37.5% 35% 6 2 1 1 12 12 35% 32.5% 7 3 1 1 13 13 32.5% 27.5% 7 3 1 1 14 14 30% 25% 8 4 1 1 Table 5: Bonus-Malus System 1 Between the stages 6 and 14 differences among the insurance companies are wide-spread (the table shows two common alternatives). A: Initial classification. Confer also tables 5.a and 5.b. Many individual insurance companies deviate slightly from the BMS variants presented. Most of them display a common phenomenon, i.e. that in stage 14 (after 13 years of accident-free driving) the lowest premium is reached. The premium in the least favourable class, i.e. class 1, often even reaches 125%. Spread (Bonus-Malus System) 1 : 4.8 The spread with regard to the BMS is 1 to 4.8 (based on a 25% premium in the best class). Spread (total) 1 : 33 The spread with regard to all rating factors is thus approximately 1 to 33. The BMS frequently contains the additional classes 15 20 at the same premiums as class 14; in the case of a downgrading by 6 classes (in the event of one claim) class 20 then constitutes a protected discount scheme.

Chapter 4.NL Report on the Netherlands 113 Consumers registering a second car mostly obtain the same discount as for the first car. Initial classification is always in class 2 (100% premium). However, the first classification often also takes factors such as age of policyholder/driver, annual mileage and/or region into consideration. Tables 5.a and 5.b contain (alternative) examples. residence classification 1 based on annual mileage < 15 000 15 000 > 20 000 20 000 in class: region 2 4 4 3 2 region 1-3 5 4 2 Table 5.a: Initial classification according to region and mileage 1 This classification applies only to policyholders/drivers aged over 23. Policyholders/drivers up to the age of 23 are always put in class 2 (regardless of mileage and residence) 2 Region 4 comprises the cities of Amsterdam, The Hague, Rotterdam and Utrecht. extra bonus 1 for annual mileage age in years < 1 000 12 000 > 20 000 20 000 23 0 0 0 24-25 1 0 0 26 27 2 1 0 28 3 2 0 1 A policyholder/driver is classified so many classes better in the BMS. Table 5.b: Factors annual mileage and age for the BM classification 4 Final Remarks In contrast to the other countries, the motor insurance sale is mainly effected through brokers and to a major extent also via direct sale. The Netherlands are one of the few countries within the EU where the weight (empty weight of the car) is employed as a decisive rating factor (other than in the Netherlands the weight plays a role only in Denmark, Switzerland and Portugal). A remarkable criterion in connection with the age factor is the fact that discounts are sometimes granted from age 50 onwards. On the other hand, policyholders wanting to insure a car for the first time at the age of over 65 are considered to be special risks (especially serious risks) and are not insured by ordinary insurance companies mostly. The BMS with respect to the initial classification of consumers is refined to such an extent as to employ the factors region, annual mileage and age. For the risks difficult to insure (there is no contracting obligation) a special underwriter exists who insures them at a profit.

Chapter 4.P Report on Portugal 114 4.P Report on Portugal 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles Gross Domestic Product 96.00 bn 9 620 thou 20 887 thou y5 1995 data y6 1996 data y7 1997 data population 9.98 m x 2.17 thou area (sq. km) 91 906 9.21 20.00 railway network (km) 2 850 y6 0.29 0.62 road network total (km) 68 687 y5 6.88 14.94 motorways only 797 y5 0.0799 0.17 persons-km railway 4.60 bn 461 thou 1 001 thou persons-km road... total no. of motor vehicles 4.6 m y7 461 x passenger cars only 2.86 m y7 287 623 road accidents 49 417 y7 4.95 10.75 casualties 1 939 y6 0.19 0.42 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 53 1,y7 34 1,y7 54 2,y7 third party motor insurance GPR 5.63 bn 3 2.70 bn 1.242 bn y7 707 m y7 - per inhabitant 564 270 124 71 - per motor vehicle x x 270 154 Table 2: Third party motor insurance within the insurance industry 1 Insurance companies under Portuguese control 2 Total number of companies active in the motor insurance market (including settlements of non- Portuguese insurance companies from the EEA), written information from the authority 3 direct business y7 1997 data Structure of the insurance industry: In 1997 there were 53 insurance companies under Portuguese control, 3 of them non-portuguese insurance companies from outside the EEA. The insurance companies are divided into 18 life insurers, 26 non-life insurers, 8 composite insurers and one reinsurer. Life insurance in Portugal is somewhat more significant than non-life insurance business, which is also expressed in terms of higher growth rates. Compared to most of the other EU countries, the insurance sector in Portugal is not yet very developed; however, GPR growth during the last few years has been much higher than the EU average. Cross-border insurance business: In 1997 there were 46 settlements of non-portuguese insurance companies from the EEA in the Portuguese market, mainly from Great Britain and Spain, with 86 insurance companies registered in the scope of the free movement of services. So far, however, the business of these insurers as well as the foreign business of Portuguese insurers is insignificant.

Chapter 4.P Report on Portugal 115 Situation of the motor insurance market: The relative importance of motor insurance, making up almost 50% of non-life insurance and more than 20% of overall business, is comparatively great. More than 50% of the GPR in motor insurance are generated by the third party sector. The motor insurance market is currently experiencing stiff competition. Nevertheless, the GPR have increased considerably during the last few years, because the number of car registrations is on the rise and the statutory liability amounts have increased. In 1997 the 5 greatest insurance groups in the motor insurance sector held a market share of 55.4%. motor insurance third party motor insurance insured risks. 4 596 000 1 1 Number of cars in 1997, only roughly identical with the number of insured risks y7 1997 data GPR 1 242 m y7 707 m y7 loss ratio 65.4% y7 61.4% y7 cost ratio 27.4% y7 27.0% y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development: The Portuguese market was formerly subject to strict regulation. In 1975 Portuguese insurance companies were nationalised. From 1977 to 1984 private underwriters were denied market entry. Upon Portugal s EU entry in 1986, the Portuguese insurance industry was deregulated. In 1989 rates were totally deregulated. Present regulating situation: There is currently almost no government intervention in third party motor rating. There are no binding or prohibited rating factors, nor does Portugal have a non-discrimination principle. However, the government does call for risk-covering rates. Insurance companies are free to use the instrument of general franchise at their discretion. Insurance cover for bad risks: There is no obligation to contract in Portugal. However, if an insurance company refuses to enter into a contract, they will have to fill in a form justifying their refusal. After having been rejected at least three times, a consumer seeking coverage may turn to the supervisory body ( Instituto de Seguros de Portugal ), which will then refer him to a group of companies which has to underwrite this risk collectively. This group consists of the first 3 companies having rejected the contract plus another 3 underwriters on a rotation basis. Role of associations: The association supports its members by making rating recommendations. Primary rating factors: The rating structure is based on the vehicle-related factors employed as well as on the use-related factor region. While the latter is applied by almost all underwriters even though with greatly varying spreads the various vehicle factors, such as cubic capacity, horse power, power-weight ratio (empty weight divided by horse power), weight and type of car are combined in different ways by the underwriters. On the basis of the premiums determined for the individual consumer from these factors, the other driver- and use-related factors listed in table 4 are then applied in terms of surcharges and discounts. Here, too, the individual insurers employ a variety of individual rating factors (see, for example, annotation 2 in table 4).

Chapter 4.P Report on Portugal 116 Premium differentiation Classes Spread Driver/owner classification women s bonus 1 2 (3) ca. 10% age group surcharge 2 2 20% - 25% occupation. marital status bonus 3 ( ). additional contract with same insurer ( ). surcharge for new license holders 4 2 20% - 40% Use classification place of registration/residence (region) 3-5 S: 1.15 1.35 surcharge for commercial use 3 (2) 7.5% low-mileage bonus ( ). garaging ( ). use as second car 5.. Vehicle classification type of car/model 6. age of car 7. engine capacity/power 8 2-3 S:1,25 Diesel surcharge 2 9% - 15% power-weight ratio 9 5 S: 1.33 weight of car 3. Table 4: Primary rating factors applied 1 Occasionally, this bonus is broken down into the 3 classes women, pensioners and other, with the bonus for the pensioners being about half of that for the women. 2 Common for consumers up to 24 or 25 years (party in combination with the surcharge for new license holders.) Some insurers demand the highest surcharge only for (young) male consumers. There are underwriters where the age group 56 to 70 pays the lowest premium (older consumers have to pay a little more). 3 rare; planned by some underwriters 4 New license holder refers to drivers who have not had their licenses for more than 2 years. Some underwriters make an even finer differentiation, cf. table 4.b. 5 planned by some insurers 6 often grossly classified only (the greatest class is private car ) 7 rare in third party motor insurance; sometimes demanded as a surcharge from young drivers and new license holders for cars older than 8 years. 8 Mostly based on engine capacity (cubic capacity in terms of cm 3 ), less often cubic capacity plus engine power (horse power), cf. table 4.a. 9 Empty weight of the car divided by the engine power expressed in horsepower. The smaller the power-weight ratio (i.e. the greater the engine power based on a given weight), the higher the premium. This factor is (rarely) employed in lieu of the criterion cubic capacity/engine power. Spread (primary rating factors) 1 : 3.5 The spread with regard to the primary rating factors illustrated is about 1 to 3.5. A further premium differentiation is based on the franchise which is admissible in Portugal also for third party insurance. For example: 5% discount based on a 249 franchise, 10% discount based on a 499 franchise, 20% discount based on a 998 franchise. An example of the unusual method of employing cubic capacity as well as engine power as a common rating factor for a classification into 3 criteria is shown in table 4.a. cubic capacity (in cm 3 ) 1 500 1 501-2 500 > 2 500 engine- 85 80% 88% 100% power (in horsepower) 86-150 88% 88% 100% > 150 100% 100% 100% Table 4.a: Premium as a function of cubic capacity and engine power age of driving license 1 2-5 > 5 age 25 130% of 154% driver > 25 114% 100% Table 4.b: Premium as a function of age of driver and age of driving license Table 4.b shows an example for the joint application of the age of the driver and the age of the driving license.

Chapter 4.P Report on Portugal 117 Bonus-Malus System: The BMS s applied in Portugal vary greatly. Next to systems with fixed classes (fixed premiums) there are BMS s where the premiums are laid down individually by calculating surcharges and discounts. Table 5.a shows an example of a BMS with fixed classes, which used to be the rule in Portugal in the past. A special feature of this system is the fact that drivers are upgraded to a better class only after 2 years of accident-free driving. Downgrading after 1 after 2 after 3 after 4 no. class premium-% claims to class 1 1 200% 1 1 1 1 2 2 200% 1 1 1 1 3 3 145% 1 1 1 1 4 4 145% 1 1 1 1 5 5 130% 3 1 1 1 6 6 130% 3 1 1 1 7 7 115% 5 3 1 1 8 8 115% 5 3 1 1 9 9 A 100% 7 5 3 1 10 10 100% 7 5 3 1 11 11 70% 9 7 5 3 Table 5.a: Bonus-Malus System with fixed classes A: Initial classification Spread (Bonus-Malus-System) 1 : 2.9 insurance contract which has been classified in class 9 (100%). The spread of this BMS is 200 to 70, i.e. roughly 2.9. The lowest premium can already be reached after a period of 2 years of claims-free driving based on a new third party motor Table 5.b illustrates a Bonus-Malus System without fixed classes which is now applied by various insurers in Portugal in the form presented or in a similar form. The premium is laid down individually for each consumer based on the following regulations: (1) Upgrading: After each claims-free year, the premium is lowered by 5%. (2) Downgrading: After each non-claims-free year, the premium is raised by 20% per claim. (3) Special rule in bonus area: After 2 consecutive claims-free years, each contract in the bonus area (premium 100%) is fixed at no more than 75% of the premium. (4) Special rule in malus area: After 2 consecutive claims-free years, each contract in the malus area (premium > 100%) is fixed at no more than 100% of the premium. (5) Limits: The premium is at least 50% and at the most 250% of the contribution (normal rate). The 5% and 20% rates under regulations (1) and (2) are not based on the normal rate (100%), i. e. the tabular premium, but on the premium resulting from the past contract history. (So the 5% and 20% rates do not mean percentage points.)

Chapter 4.P Report on Portugal 118 Downgrading after 1 after 2 after 3 after 4 no.. class premium-% claims to the premium-% 1-250% 250% 250% 250% 250% 2-248% 250% 250% 250% 250% 3-207% 248% 250% 250% 250% 4-172.5% 207% 241.5% 250% 250% 5-144% 172.5% 201.5% 230% 250% 6-120% 144% 168% 192% 216% 7 - A 100% 120% 140% 160% 180% 8-95% 114% 133% 152% 171% 9-75% 90% 105% 120% 135% 10-71% 85% 99% 113.5% 127.5% 11-67% 80% 96% 112% 128% 12-63.5% 76% 88.5% 101.5% 114% 13-60% 72% 84% 96% 108% 14-57% 68% 79.5% 91.2% 102.5% 15-54% 64.5% 75.5% 86% 97% 16-51% 61% 71% 81.5% 91.8% 17-50% 60% 70% 80% 90% Table 5.b: Bonus-Malus System without fixed classes Explanation of the table: Although this BMS has no classes, the table on the left depicts a situation comparable to a BMS with fixed classes (fixed premium rates). On the one hand, the column premium-% shows the change in the classification of the contract in the case of a claims-free history, based on a 100% premium rate (lines 7 to 17). On the other hand, it shows the change in the classification of the contract in the case of exactly one claim each year based on a 100% premium rate at the beginning(lines 7 to 1). (All resulting percentage rates have been rounded off to half percentages, e.g. 172.8% to 172.5%.) Depending on the individual loss experience, other premium rates than those indicated may result. A: Initial classification Initial classification of a consumer signing a third party motor insurance contract for the first time, is on a 100% premium basis. The new classification of a consumer already having been insured by another underwriter in the past, is based on special regulations (however, because of the difference in the various BMS s, the new insurer does not simply resort to the premium of the previous insurer). Spread (Bonus-Malus-System) 1 : 5 The spread with regard to this BMS is 1 to 5; the lowest premium can already be reached after 10 claims-free years based on a new third party motor insurance contract which has been put into class 7 (100%). Spread (total) 1 : 17.5 Based on the BMS shown in table 5.b, the spread with regard to the total of rating factors is about 1 to 17.5. 4 Final Remarks The Gross Domestic Product per capita in Portugal is 9 619, the lowest within the EU (before Greece at 10 392). The premium level of third party motor insurance is also very low. The motor insurance market is still undergoing a major development. There are BMS s with fixed classes and others where the individual contracts are either up- or downgraded by specific amounts in the case of no claims or claims. Portugal employs the rare rating factor power-weight ratio (weight per kw) (otherwise only in Switzerland). The government demands that the rates be in line with the related risks.

Chapter 4.S Report on Sweden 119 4.S Report on Sweden 1 General Statistical Data absolute per 1.000 inhabitants per 1.000 motor vehicles y7 1997 data Gross Domestic Product 212.64 bn 24 016 thou 49 660 thou population 8.85 m x 2.07 Thou area (sq. km) 449 964 50.82 105.08 railway network (km) 10 998 1.24 2.57 road network (km) 211 000 y7 23.83 49.28 motorways only 1 000 y7 0.11 0.23 persons-km railway 7.14 bn 807 thou 1 668 thou persons-km road... no. of motor vehicles 4.28 m 484 x passenger cars only 3.79 m 428. road accidents 21 887 2.47 5.11 no. of casualties 531 0.060 0.12 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance number 1 126 89 16 third party motor insurance GPR 2 12.41 bn 4.09 bn 1.27 bn 547 m - per inhabitant 1 402 462 143 62 - per motor vehicle x x 297 128 Table 2: Third party motor insurance within the insurance industry 1 Swedish insurance companies active nationwide at the end of 1998, including in-companyinsurance institutions 2 direct business, which includes the GPR of the in-company insurance institutions Structure of the insurance industry: At the end of 1998, 126 Swedish insurance companies were active in the insurance market nation-wide, 6 of them being in-company insurance institutions which are paid into by both employers and employee organisations and whose GPR amounted to almost 14% of overall GPR in 1998. In addition, the non-life insurance sector in 1998 comprised 340 only locally active underwriters most of which do only a limited amount of business, as well as a good hundred friendly societies. Life insurance business is twice as significant in Sweden as non-life insurance business. Besides, growth rates in the non-life insurance sector have been much lower lately than those in the life-insurance field. In 1998 premium revenues for life insurers increased by more than 21%, whereas the increase in the non-life sector was no more than 4%. The Swedish insurance market is highly concentrated. The 5 greatest groups had a 85% share of non-life insurance and 72% of life insurance business in the year 1999. Currently, stiff competition is developing in the non-life insurance sector which suggests a further consolidating process.

Chapter 4.S Report on Sweden 120 Cross-border insurance business: Alongside the Swedish underwriters, 26 settlements of foreign insurers were active in the Swedish insurance market in 1998, with about 300 non- Swedish insurance companies from the EEA registered in the scope of the free movement of services. Within the non-life insurance business, foreign insurers shared in about 4% of the market. The foreign business of Swedish underwriters within the EEA has so far been of minor importance. Situation of the motor insurance market: The motor insurance business in 1998 made up a good 10% of overall business and close to one third of non-life insurance business, with 43% share of the 3 greatest motor insurers 66.2% share of the 5 greatest motor insurers 94.6% share of the 10 greatest motor insurers 99.9% Concentration of the motor insurance market in terms of GPR of motor insurance GPR being generated by the third party sector. The Swedish motor insurance is highly concentrated. Next to the market leader Länsförsäkringsgruppen, which held a market share of 25.2% in 1998, there were 3 further underwriters holding a market share of roughly 20%, so that the 4 greatest motor insurers divided a total of 86% of the market share between them. Among the smaller companies, there is some cooperation in the sense that some of them insure only specific car makes, referring consumers driving other makes to their cooperation partner. The motor insurance market is dominated by stiff competition. The profit situation of motor insurers is poor: in 1997 the loss ratio for motor insurers amounted to a total of 109%, for the third party sector it was even 126%. Although premium revenues have increased considerably during the last few years (about 9% in 1999), this is contrasted with a great rise in loss payments in connection with a growth in contracts. The keen competition leads to a finer differentiation of the rating system and to a further decline in the number of underwriters. Sale: Direct sale of motor insurance plays a central role in Sweden. In addition, contracts are sold by insurance brokers, with car dealers also offering contracts. motor insurance third party motor insurance insured risks. 4.7 m 1 1 number of cars to be insured, written information from the supervisory body y7 1997 data GPR 1.27 bn 547 m loss ratio 108.6 y7 126.3 y7 cost ratio 21.1 y7 23.6 y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development: Prior to the creation of the Single European Insurance Market, Sweden had experienced comparatively little regulating influence. There was no obligation to have rates approved, but insurer were obliged to furnish the supervisory body with detailed information on their rating systems as well as to adhere to some standards of the authority with regard to their rates, which was required above all to prevent excessive premiums. Present regulating situation: Underwriters in Sweden are obliged to calculate premiums in line with the respective risks for third party motor insurance contracts. This also implies a principle of non-discrimination of the insured. Besides, the rating factors race and colour of the skin are inadmissible. There is no government intervention beyond that. A general franchise is both admissible and customary in Sweden.

Chapter 4.S Report on Sweden 121 Insurance cover for bad risks: Third party motor underwriters in Sweden are obliged to contract, rejecting contracts is not possible in principle. However, underwriters are entitled to a general restriction of their scope of business by offering insurance only in certain regions or only to certain occupational or special interest groups. Role of associations: The Swedish association plays no role in third party motor insurance rating. Primary rating factors: The major rating factors in Sweden are those relating to the motor vehicle. In most cases the vehicle-related criteria are summarised under the rating factor type of car, which includes about 10 criteria. Premium differentiation Classes Spread Driver/owner classification women s bonus 1 2 20% age group surcharge 2 S: 1.9 marital status bonus ( ). living in own house 2-5 9% additional contract with same insurer 20% recent license holder 2. entries in the motoring fine register. bonus for teetotallers 3 (2) 5% member of an automobile club ( ). Use classification place of registration/residence (region) 7 S: 1.6 commercial use surcharge ( ). low mileage bonus 4 5 S: 1.5 user group 5 2 15% garaging ( ). Vehicle classification type of car/model 7-16 S: 3 age of car ( ). accelerating speed ( ). Table 4: Primary rating factors applied 1 A women s bonus sometimes depends on the age factor, see also table 1. 2 The surcharge for young (especially male) drivers is very big; a (small) surcharge also exists for older drivers; see also table 1. In addition to paying a higher premium, young drivers often have a franchise per claim, amounting to 114 (in some cases 227). 3 The discount is granted to members of anti-alcoholic clubs. 4 Classification is usually: 10 000 km, 15 000 km, 20 000 km, 25 000 km, >25 000 km. Drivers covering less mileage than indicated in the initial classification are given a refund. 5 A discount is granted, for example, if the car is used only by people aged at least 24. Spread (primary rating factors) 1 : 15 The spread resulting from these primary rating factors is in the order of 1 to 15. 200 180 men 160 140 120 women 100 80 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 Table 1: Example of premium index: amount of premium as a function of age

Chapter 4.S Report on Sweden 122 Bonus-Malus System: There are various BMS s in Sweden, all of them involving only few classes and no malus area. Table 5 shows a common BMS which has been in place for some time. Downgrading after 1 after 2 after 3 no. class premium-% 1 claims to class 1 1 A 100% 1 1 1 2 2 A 80% 1 1 1 3 3 70% 1 1 1 4 4 60% 2 1 1 5 5 50% 3 1 1 6 6 40% 4 2 1 7 7 2 25% 5 3 1 Tabelle 5: Bonus-Malus System 1 In the Swedish third party motor insurance sector a certain amount (approx. 10%) of the gross premium is not subject to a reduction in the BMS so that the gross premiums in classes 2 to 7 are somewhat higher than shown in table 5. (Nevertheless, class 3, for example, is usually considered as a 30% discount class.) 2 Additional rule for class 7: Class 7 is reached (only) after 6 consecutive claims-free years. Example: If a consumer in class 6 reports a claim, he will be downgraded to class 4. After 2 claims-free years, he will again go up to class 6. If he continues to be claims-free, he is put in class 7 (only) after 4 years. A: Initial classification: In principle, classification is in class 1; However, even recent license holders are sometimes put in class 2 or 3 ( depending on their age) Beyond the low premium linked to class 7, some underwriters offer additional advantages to drivers with many claims-free years; for example, a rule exists whereby a franchise laid down in the contract is dropped after 20 years of accident-free driving. Spread (Bonus-Malus System) 1 : 4 The spread with regard to the various BMS s is mostly 1 to 4. Newer BMS s have 9 or 12 classes, also involving a 25% premium in the most favourable class. Downgrading is usually 3 classes per claim. Some time ago, Swedish motor insurers ceased to exchange information on no-claims of policyholders changing companies. This means that the BMS classification cannot easily be transferred in case of a change of underwriters, which may greatly restrict competition in the motor insurance market. Spread (total) 1 : 60 The spread with regard to all rating factors is thus roughly 1 to 60. 4 Final Remarks Concentration in the Swedish motor insurance market is very high, given the number of 13 underwriters. The number of independent insurers is even lower. Thus two companies insure only certain car makes, dividing the overall market up between them (Volvia insures Volvo and Renault cars and Dial the rest). Sweden is the only country in Europe where accelerating speed is employed as a rating factor. Insurers are obliged to adapt their rates to the related risks, the factors race and colour of the skin are not allowed.

Chapter 4.SF Report on Finland 123 4.SF Report on Finland 1 General Statistical Data absolute per 1 000 inhabitants per 1 000 motor vehicles y7 1997 data Gross Domestic Product 115.50 bn 22 386 thou 48 092 thou population 5.16 m x 2.15 thou area (sq. km) 338 145 65.54 140.79 railway network (km) 5 867 1.14 2.44 road network total (km) 77 796 15.08 32.39 motorways only 0 y7 0 0 persons-km railway 3.40 bn 659 thou 1 416 thou persons-km road 62.00 bn 12 016 thou 25 815 thou total no. of motor vehicles 2.40 m 465.48 x passenger cars only 2.02 m 392 842 road accidents 6 902 1.34 2.87 no. of casualties 400 0.078 0.17 Table 1: Country and transport 2 General Information on the Motor Insurance Market total non-life insurance motor insurance third party motor insurance 1 GPR of Finnish insurance companies number 1 51 29 13 GPR 2 9.50 bn 2.28 bn 665 m 381 m - per inhabitant 1 842 410 129 74 - per motor vehicle x x 277 159 Table 2: Third party motor insurance within the insurance industry Structure of the insurance industry: An important particularity of the Finnish private insurance industry is its strong ties to the social security system. Half of the premiums earned by Finnish insurance companies in 1998 are apportioned to compulsory personal insurances. The other half of the GPR are evenly divided between the life insurance and the non-life insurance business, the premiums for reinsurers being insignificant. In the last few years, the GPR have clearly increased which can be explained, among other things, by a big increase in the GDP; in 1998, the GPR-growth in the life insurance business amounted to 21.1%, in the non-life insurance business to 12.3%. The profit situation of Finnish insurance companies is a good one because of the rapidly increasing premiums and the high investment income. The Finnish insurance market is highly concentrated. In 1999, the 5 biggest groups held a share of 89% in non-life insurance business and 88% in life insurance business. Cross-border insurance business: At the end of 1997, there were 14 settlements of foreign insurance companies, 11 of which were from within the EEA, and 194 foreign insurance 123

Chapter 4.SF Report on Finland 124 companies were active within the framework of free movement of services, nearly three quarter of the insurance companies in the movements of services in the non-life insurance sector. Quantitatively however these companies are still of lesser importance for the Finnish market. This also applies to the business of Finnish insurance companies abroad. Situation of the motor insurance market: Motor insurance accounts for about a third of the non-life insurance business. 60% of motor insurance premiums are allotted to third party motor insurance. In the last few years, the premiums in motor insurance have grown rapidly. Thus, in 1998, the premium income in third party motor insurance rose by 13.7%, in the remaining motor insurance by 6.8%. The loss ratio in motor insurance is quite high. In 1998, it amounted to 112.4% in third party motor insurance and 75.5% in the remaining motor insurance. motor insurance third party motor insurance 1 written information from the supervisory body y7 1997 data insured risks. 2 312 758 1 GPR 665 m 381 m loss ratio 96.7% 112.4% cost ratio 20.0% y7 17.7% y7 Table 3: Motor insurance statistics 3 Third Party Motor Insurance Rating Regulating development: Before the creation of the EU home market, the rates in third party motor insurance were subject to approval, consequently the rating underwent deregulation in third party motor insurance in 1994. Present regulating situation: The insurance companies are obliged to use a Bonus-Malussystem. There are no further prescribed rating factors and there are no prohibited rating factors for insurance companies. The insurance companies have to follow a principle of equality, which derives from the constitution and the regulations of the Finnish Motor Insurers Centre. A general franchise is not permitted. Insurance cover for bad risks: Insurance companies in Finland are obliged to contract. Role of associations: The Association of Insurers makes a recommendation for rating. Primary rating factors: Since 1997, new rating factors have been introduced into Finnish third party motor insurance. The development in the direction of more primary premium differentiation is still in process. Table 4 contains some of the rating factors already established. 124

Chapter 4.SF Report on Finland 125 Premium differentiation Classes Spread Driver/owner classification age group bonus. recent license holder. Use classification place of registration/residence (region). commercial use surcharge. Vehicle classification type of car/model. age of car. engine size/power. Table 4: Primary rating factors applied Bonus-Malus System: A widely used BMS in Finland is shown in table 5. Downgrading after 1 after 2 after 3 after 4 No. class premium claims into the class 1 1 100 % 1 1 1 1 2 2 100 % 1 1 1 1 3 3 A 100 % 1 1 1 1 4 4 95 % 1 1 1 1 5 5 90 % 2 1 1 1 6 6 85 % 3 1 1 1 7 7 80 % 4 1 1 1 8 8 75 % 5 2 1 1 9 9 70 % 6 3 1 1 10 10 65 % 7 4 1 1 11 11 60 % 8 5 2 1 12 12 55 % 9 6 3 1 13 13 50 % 10 7 4 1 14 14 45 % 11 8 5 2 15 15 40 % 12 9 6 3 16 16 35 % 13 10 7 4 17 17 30 % 14 11 8 5 Table 5: Bonus-Malus System A: Initial classification Spread (Bonus-Malus System) 1 : 3,3 The spread relating to this BMS is 1 to 3.3. 4 Final Remarks With 15 inhabitants per square kilometre, Finland is the country with the lowest population density in the EU after Norway. Related to its size (sq. km), it also has the least developed network of roads (road km per sq. km area). Third party motor insurance has the lowest premium level of all EU-countries. There is a compulsory BMS in Finland. 125

Chapter 4.USA Report on the United States of America 126 4.USA Report on the United States of America Preliminary remark: Motor insurance and rating systems in the US differ fundamentally from those in the EEA. They will therefore be presented here for reasons of comparison. Due to the considerable degree of differences, an application of the structure of the EEA country reports to the US is not sensible. Third party motor insurance in the US comes under the jurisdiction of the federal states (like all insurance and liability questions). Because of the great differences prevailing in the liability and regulatory systems of the individual states, there is no uniform nation-wide motor insurance market. The report starts with a description of the particularities of US motor insurance. That will be followed by an overview of the rating regulation systems as well as of the procedures with regard to the insurance of bad risks. The final chapter is on the rating system developed by the Insurance Services Office (ISO), which underlies many systems applied in practice. Particularities of motor insurance in the USA: Motor insurance in the US differs greatly from that offered within the EEA, and there are great differences even between the individual states. The products available in a US state are dependent on the prevailing liability law: tort system or different types of the no-fault system, where no assignment of blame takes place and no liability for damages in case of minor accidents (the definition of which varies) prevails. The more no-fault elements a system has, the more motor insurance assumes the nature of a comprehensive insurance and special accident insurance for car accidents. In accidents under the no-fault system, a consumer is indemnified for the damage sustained by his underwriter in the scope of the agreed-upon coverage regardless of who is to blame. In the year 1999 13 US states as well as Puerto Rico displayed no-fault systems (of varying scope). The motor insurance policy commonly taken out by private persons is named Personal Auto Policy (PAP). It may involve different types of coverage, such as: third party motor insurance, coverage of illness costs incurred by the occupants in an accident, coverage of accidents caused by drivers without or with insufficient insurance, comprehensive insurance. Third party motor insurance constitutes the basic coverage within PAP. It can be outfitted with different amounts; its scope of indemnification also depends on the degree of no-fault elements contained in the indemnification system of a federal state. Third party coverage applies to the insured car and all entitled drivers; it also applies, as a supplementary element, to third party losses caused by the insured when driving someone else s car if that car has a lower third party coverage. An insurance policy indemnifying the illness costs of the occupants in toto or in part in the event of an accident is sensible for policyholders and/or their passengers having no or insufficient health insurance coverage, which is often the case in the US. Many consumers agree on a PAP element which provides for indemnification in the event of an accident caused by a driver who has no or insufficient insurance coverage. This type of coverage exists because not all states have compulsory insurance (in 1998 only 43 states as well as the District of Columbia had compulsory insurance). Besides, compulsory insurance in many states provides for minor limits of indemnity only, and many drivers fail to meet it. Also, the US do not have the institution of the fund system which exists in all EEA countries and which indemnifies casualties if, for example, the driver having caused the accident is not insured or absconds after the accident. 126

Chapter 4.USA Report on the United States of America 127 Another coverage element is comprehensive insurance with varying types of arrangement. Regulation of rates: Intervention by the regulating authorities of the various federal states in third party motor insurance rating varies greatly and is mostly very strict. In principle, the authorities call for adequate and sufficient calculation of premiums as well as for adherence to the principle of non-discrimination. Beyond that, most states also lay down the premium level and the rating structure. In motor insurance rate regulations, differences range from independent rating by underwriters without a rate approval obligation (e.g. in Michigan) via major restrictions regarding the application of rating factors and rate approval, all the way to the statutory standard rate (in Massachusetts). The rates are mostly subject to approval, and the rating factors are in part preset. Thus insurance companies in California, for example, are obliged to apply the criteria driving safety record, annual mileage and years of driving experience as basic factors for rating. Another common feature is the final determination of admissible factors (e.g. in California) or at least a prohibition of certain rating factors. This refers, for example, to the factors sex and race; but individual states also prohibit a number of other factors such as family status, age, annual mileage, credit rating, sexual leanings, religion, party affiliation and claims experience. Again and again, the law also provides for major price-regulating measures in the motor insurance sector, e.g. a binding reduction of premiums by a certain percentage (for example, the state of New Jersey has recently set a flat 15% cut of all motor insurance premiums) or maximum premiums for the basic coverage of certain groups of persons (e.g. low-income people with a favourable damage experience). Admissibility of a general franchise in the individual states varies from one state to another. Insurance cover for bad risks: Motor insurance companies in the US as a rule are not subject to a contractual obligation. In combination with the strict premium regulations and the prohibition of the use of certain rating factors, this implies that underwriters reject many consumers seeking coverage i.e. those from whom they cannot expect adequatly premiums. Therefore, the US motor insurance market is broken down into a voluntary market where the supply and demand side interact freely, and a residual market which offers coverage to most of those people unable to find insurance in the voluntary market in terms of specific statutory institutions. The market having the by far greatest share in the voluntary market is the standard risk sector. In addition, there are special underwriters in those states permitting highly differentiated rates who offer insurance coverage for bad risks (sub-standard risks) in the non-standard market. These special insurers, however, ask for high premiums which certain groups of persons cannot finance at all or only with great difficulty. Recently, there has been an increase in the offer of coverage for sub-standard risks also by normal underwriters and in the offer of insurance against standard risks also by underwriters specialising in bad risks. All in all, the voluntary market holds a share of about 95%. However, there are states where this share is much lower. Many persons are unable to finance the high premiums for the sub-standard risks in the voluntary market or can finance them only with great difficulty, and frequently there is no supply of adequate coverage at all. In order to prevent these persons from remaining uninsured or accepting social hardship, the residual market exists. Insurance coverage at a subsidised premium rate for a majority of those consumers seeking insurance and having no access to the voluntary market (e.g. because of their young age) is available in the shape of different pools which are available in the individual federal states. Most states (e.g. New York and California) have automobile insurance plans (formerly: assigned risk plans ). Under these plans a person seeking coverage is assigned to an insurance company which is obliged to take him on, providing that he complies with certain conditions (proof of repeated rejection by an underwriter, or additional conditions such as not too many motoring fines). Assignment to that in- 127

Chapter 4.USA Report on the United States of America 128 surer is based on the latter s motor insurance market share. Alternatively, the residual market can be handled via industry-wide pools, for example, in the shape of joint underwriting associations (e.g. in Florida), where the losses regarding the bad risks are distributed evenly among all companies, while handling is taken over by a few specific underwriters, or via reinsurance pools (e.g. North Carolina), to which insurers can cede bad risks at a subsidised premium rate. In one state (Maryland) a government fund acts as a pool for bad risks. Those consumers who do not meet the conditions for access to the pools (for example, because they have been handed down several serious motoring fines) can only resort to so-called distress risk companies within the sub-standard market, which offer very limited insurance coverage (prescribed minimum coverage, short duration) at very high premiums. In spite of the measures securing insurance coverage also for bad risks, many US states (even those with an insurance obligation) have a big problem with people having no insurance at all. The number of drivers without liability coverage in California, for example, is put at 20-25%, in some regions of Los Angeles it is estimated to be as high as 60%. Rating foundations in the USA: Tariff systems in most US states are based on a system which was developed by the Insurance Services Office (ISO) in 1965. The statistics are worked out by various rating bureaus which are furnished with data by the underwriters. Rating in the individual US states underlies the respective rating regulations and liability laws of the individual states (tort system or various forms of the no-fault system). The result are greatly varying rating systems which cannot be presented here in detail. Primary rating factors: The primary rating factors applied vary greatly between the individual federal states. Therefore, only the rating structure recommendation of the ISO, which underlies most rates, will be presented here. It refers in particular to a differentiation of premiums based on driver/owner and use classification. In determining their premiums, underwriters apply basic motor vehicle characteristics, which lead to a basic premium for each type of car; the driver/owner- and use-related criteria are then applied in terms of rating factors resting on the ISO recommendation. The most important factors are illustrated in table 4; the individual federal states mostly add further factors. Premium differentiation Classes Spread Driver/owner classification women s bonus 1 2 8% - 30% age group bonus 2 7 S: 4 marital status bonus 3 2 S: 1.4 3.3 entries in the motoring fine register 4. safety training 5 2 6% - 10% educational bonus 6 2 7.5% - 20% Use classification place of registration/residence (region) 7 e.g. S: 2.2 type of use 8 5 S: 1.3 user group. discount for several cars 2 20% Vehicle classification type of car/model 9. age of car. safety equipment. Table 4: Primary rating factors applied 1 The women s bonus is greater than 10% for young drivers only. Women aged 50 and older do not receive a women s bonus. 2 The bonus of drivers aged at least 75 as compared to the 25-30 age group is 20%. The surcharge for those under the age of 21 vis-à-vis the same reference group is 230%. 3 The marital status bonus ( married ) is relevant only for young drivers (under the age of 25), and especially for men under the age of 21. 4 are also considered in the BMS 5 driver training benefit, relevant only for young drivers (under 21) 6 Good students discount, relevant only for young drivers (younger than 25). It is based on the study results achieved in the semester prior to the contract/extension of the insurance policy. 7 The number of regions and the premium differentiation among the various regions depend to a large extent on the individual federal state. 8 The 5 classes are: spare time use, drive to work (<15 miles); drive to work (>15 miles), commercial use, agricultural use. (For young drivers there are only 2 classes.) 128

Chapter 4.USA Report on the United States of America 129 9 The individual models are summarised under model classes. Moreover, they are differentiated in terms of performance (standard to sports car). The rating factor age of driver is very significant (spread factor 4), and within the group of the young drivers (under age 25) another very fine distinction is made: age (younger than 21 years, ages 21 to 24), sex, marital status and student achievements; within the group of the very young drivers (under 21) another differentiation is made by granting a bonus to graduates of a recognised driver training course. Bonus-Malus System: Within the US there is a wide-spread BMS, which contains only malus classes (safe-driver rating plan). Under this system a certain percentage of the basic premium is added to the amount resulting from the primary factors in accordance with the traffic behaviour of the individual policyholder. The percentage is illustrated in table 5, based on specific malus points scored by the consumer for traffic offences or accidents during the last 3 years. no. class premium surcharge 1 4 + 220% 2 3 + 150% 3 2 + 90% 4 1 + 40% 5 0 A + 0% Classification with 0 with 1 with 2 with 3 with 4 malus points to class 0 1 2 3 4 0 1 2 3 4 0 1 2 3 4 0 1 2 3 4 0 1 2 3 4 Classification is based on malus points resulting from the driving behaviour during the last 3 years. A Initial classification Table 5: Bonus-Malus System According to a highly specified scale, 0 to 3 malus points are assigned per traffic offence and accident: for example, 3 malus points for a drunken driving conviction and 1 malus point for an accident involving a loss exceeding a certain limit (1995: 469) or an injured or dead person (regardless of who is to blame). These malus points are determined and added up for the 3 years immediately preceding the contract or extension of the insurance policy. Some federal states have (different, varying) point schemes for the assessment of traffic offences. These are applied in order to determine the malus points of the safe-driver rating plan referred to above. 129

Chapter 5 Comparative charts 130 Chapter 5 Comparative charts This chapter contains illustrations and tables comparing some of the data given in the national reports in chapter 4. The values described as EU average in their respective contexts have been determined from all the data available for the individual countries. Where applicable, they also include the non- EU countries Switzerland and Norway. The illustrations and tables abbreviate the names of the various countries using the related nationality plates (cf. table 1 in chapter 3). 1 Country and traffic 40000 30000 20000 EU average 10000 0 L CH N DK S D A NL SF F B GB IRL I E GR P Illustration 1: GDP ( ) per inhabitant Luxembourg and Switzerland evidence the greatest per capita GDP. Outside of these two countries, the illustrations show a clear North-South divide for the GDP per inhabitant. 0.80 0.70 0.60 EU average 0.50 0.40 0.30 0.20 N L A I CH D DK E F B S SF GB P NL GR IRL Illustration 2: Motor vehicles (number) per inhabitant 130

Chapter 5 Comparative charts 131 The motor vehicle density in relation to the number of inhabitants is clearly correlated with the GDP per inhabitant shown in illustration 1. Thus all countries displaying a motor-vehicleinhabitant ratio which is above the EU average (Norway, Luxembourg, Austria, Italy, Switzerland, Germany, Denmark) have, with the exception of Italy, an above average GDP per inhabitant. 60000 55000 50000 45000 40000 35000 30000 25000 20000 15000 10000 EU average CH DK NL IRL S L SF GB B F N D A I GR E P Illustration 3: GDP ( ) per motor vehicle Illustration 3 shows the ratio between the GDP and the number of motor vehicles. The GDP per motor vehicle in Switzerland, which is 55 000, is about twice that of Italy ( 27 800) and a good two and a half times that of Portugal, which is 20 900. Conversely, this means that 2½ times as many motor vehicles are registered in the southern countries of Italy, Greece, Spain and Portugal in relation to the GDP (number of motor vehicles divided by the GDP) than in Switzerland. 140 120 100 80 60 EU average 40 20 0 I L D GB P CH E NL A DK GR B N F SF S IRL Illustration 4: Number of motor vehicles per road-km The motor vehicle density in relation to the length of the road network (road-km) varies greatly from nation to nation. It is about 8 times as high in Italy, at 122 motor vehicles per road-km, as it is Ireland. However, it is not possible to make a reliable comparison of the road 131

Chapter 5 Comparative charts 132 network statistics between the individual countries, one reason being the prevailing differences in definition (road, paved lane etc.). 60 50 40 30 20 road casualties per 100 000 motor vehicles road casualties per 100 000 inhabitants EU average (per motor vehicle) EU average (per inhabitant) 10 0 GR P E IRL F B L A NL SF I DK D CH GB S N Illustration 5: Road casualties in relation to the population and the number of motor vehicles In terms of road casualties (in proportion to the number of motor vehicles as well as to the population) Greece and Portugal clearly show the highest figures. With respect to the number of road casualties per motor vehicle, this group is followed by Spain, Ireland, France and Belgium. Luxembourg also evidences an above-average number of road casualties per motor vehicle. It is essentially the same group of countries that also present above-average figures in terms of casualties per inhabitant. The casualty figures are not correlated with the quantity motor vehicle density (motor vehicle per inhabitant or motor vehicle per road-km). Norway, for example, displays the highest motor vehicle density (in relation to the population) and the lowest number of casualties per inhabitant. On the other hand, the motor vehicle density (motor vehicle per inhabitant) in Greece and Portugal is relatively low (cf. illustration 2), whereas the number of casualties per inhabitant in this group is greatest. 2 Gross premium revenues in the insurance industry 35 30 25 20 15 10 EU average 5 0 L CH IRL GB NL F SF DK B D P S A E N I GR Illustration 6: GPR (total) as a percentage of the GDP 132

Chapter 5 Comparative charts 133 The entirety of the gross premium revenues generated by the insurance industry in relation to the gross domestic product is also referred to as insurance penetration. This quantity is by far the greatest in Luxembourg. The reason lies in the foreign business of insurers based in Luxembourg; the GPR mostly consist of premium revenues from consumers outside Luxembourg. The GPR in relation to the GDP are especially high also in Switzerland and Ireland because of the foreign business effected in these countries (motor insurance makes up a very small proportion of the foreign business.) The insurance penetration in Greece is by far the lowest. 1.6 1.4 1.2 1.0 0.8 EU average (for motor insurance) GPR (motor insurance) *100/GDP GPR (third party motor insurance)*100/gdp EU average (for third party motor insurance) 0.6 0.4 0.2 0.0 IRL I L P A F B CH D E GB NL N DK S SF GR Note: No GPR figures are available for GB and IRL. Illustration 7: GPR (motor insurance) and GPR (third party motor insurance) as a percentage of the GDP With regard to the gross premium revenues in motor insurance as a proportion of GDP, the differences prevailing between the individual countries are much lower than they are in relation to the entirety of the GPR. Ireland s value at 1.40% is just about 3 times that of Greece (0.56%). However, the spread regarding third party motor insurance is greater, with Italy displaying a percentage of 1.13%, i.e. its GPR in relation to the GDP is almost 5 times that of Denmark (0.24%). The relatively small extent of differences in the motor insurance sector as such, despite great divergences in the third party sector, has to do with the fact that those countries with low third party GPR (e.g. Denmark) tend to display higher GPR in the other motor insurance sectors. 133

Chapter 5 Comparative charts 134 400 350 300 250 200 150 GPR (motor insurance) per motor vehicle GPR (motor insurance) per inhabitant EU average (per motor vehicle) EU average (per inhabitant) 100 50 0 L B I CH NL A D F SF E P N S DK GR GB IRL Note: No GPR figures are available for GB and IRL. Illustration 8: GPR (third party motor insurance) in per motor vehicle and inhabitant Illustration 8 sets out the third party motor insurance GPR only, relating them to the number of motor vehicles and to the population. 3 Third party motor insurance regulations in the various countries Table 1 contains summarised data on third party motor regulations in the individual countries. For the sake of clarity, the data are presented in the form of a chart. The symbols used are briefly explained in the annotations; for additional details see chapter 4, National Reports. 134

Chapter 5 Comparative charts 135 A B CH D DK E F GB GR I IRL L N NL P S SF J USA* 1 Strict regulation before 1994 1??? 2 Prohibited primary tariff criterion F F,G F 1 2 3 Binding primary tariff criterion 4 Binding BMS 5 Non-discrimination principle?? 6 Risk-appropriate tariffs??????? 7 General franchise admissible?? 1 2 8 Special regulations 1 2 3 4 5 6 7? 8 9 9 Obligation to contract? 1 10 Fall-back mechanism?? *??? 11 Participation in association 1? 2 Tale 1: Rating regulation General significance of symbols: yes in part no? not known Special significance of symbols in the individual rows Row 1 Strict regulations before 1994: 1 Modified regulations, introduced in many EEA member states as a consequence of the Single European Market, do not apply to Japan and the USA in 1994 statutory tariff tariff approval or other strict regulation no / minor tariff regulation Row 2 Prohibited primary tariffs: Yes, F means foreigner G means gender indirect prohibition of tariff criteria (e. g. by the constitution) 1 Japan prohibits all tariff criteria not expressly permitted. 2 The individual US states prohibit different tariff criteria. Row 4 Binding Bonus-Malus System: Loss experience must be taken into consideration Row 7 General franchise admissible: restricted amounts admissible 1 not admissible for CALI, admissible in voluntary third party motor insurance 2 differs from state to state Row 8 Special regulations: 1 split tariff 2 statutory tariff 3 sufficient premium calculation 4 company-related reference tariff prescribed, limitations regarding surcharges 5 gentlemen s agreement: anti-inflationary measure 6 prohibition to raise tariffs in the year 2000 7 self-regulation for disability criterion 8 standardised tariff for CALI, subject to approval in third party motor insurance sector 9 tariffs mostly subject to approval, additional regulations Row 9 Obligation to insure: restricted obligation to insure 1 applies to CALI, but not to voluntary third party motor insurance Row 10 Fall-back mechanism: third party motor insurance at regulated rate third party motor insurance at market prices Row 11 Participation in association: tariff recommendation maintenance of statistics 1 exception: car group rating system 2 rating bureaux support insurers and supervisory authorities * In part great differences between individual US states. This table reflects the situation in most of the states. 135

Chapter 5 Comparative charts 136 4 Bonus-malus systems of the various countries Table 2 sets out some statistics for the BMS s of the individual countries. country number of classes premium range in % spread initial classification in % lowest amount after... years A 18 200-50 4.0 100 8 B 23 200-54 3.7 85 12 CH 21 240-35 7.5 100 13 D 29 245-30 8.2 140 21 DK 10 150-30 4.5 100 7 E 1 5 100-70 1.4 100 4 F * 350-50 7.0 100 13 GB 2 7 100-33 3.0 100 5 GR 3 17 180-52 3.5 100 6 I 18 200-50 4.0 115 13 IRL 6 100-50 2.0 100 5 L 26 250-45 5.6 100 12 N * 150-25 6.0 100 10 NL 14 120-30 4.0 100 12 P1 6 4 200-70 2.9 100 2 P2 * 250-50 5.0 100 10 S 7 100-25 4.0 100 6 SF 17 100-30 3.3 100 14 Note: * in the column number of classes means that the BMS has no fixed classification. The rows P1 and P2 indicate two different customary BMS s. 1 Spain also has BMS s with an extended bonus area (up to premiums of 45% or 40%). In addition, sometimes there are malus classes with premiums of 140%, 200%, 300% or 400%. 2 Great Britain also has BMS s with fewer classes (only 6 or 5) and a smaller premium range (100 50). 3 Greece has recently introduced systems without fixed classes, which (theoretically) range to premiums of more than 600% in the malus area. 4 A promotion by one class occurs only after 2 years of claims-free driving so that the 6 different classes actually correspond to 11 classes when compared to the other countries (cf. table 5.a in chapter 4.P). Table 2: Statistics of the Bonus-Malus Systems The data contained in table 2 refer to a common type of BMS within a particular country. Most countries also have other BMS s which deviate more or less from those presented here. (Belgium, France and Luxembourg have only one statutory BMS.) 136

Chapter 5 Comparative charts 137 35 30 25 spread primary tarrifs spread Bonus-Malus 20 15 10 5 0 D F CH GB A N IRL S E NL I DK B P GR L SF Note: The countries are arranged according to the overall spread (cf. illustration 10). The primary rating spread is explained in the individual national reports. No data on the spread and/or on the primary tariffs are available for the countries Luxembourg and Finland. Some of the BMS spreads constitute mean values from the various BMS s of the respective country. Illustration 9: Spread with regard to primary tariffs and Bonus-Malus System Illustration 9 underlines the great differences in spread. The spread factor with regard to the BMS is at greatest for Germany (8.2); it is more than 4 times that of Ireland (2.0). For most countries the spread for the primary tariff criteria is much greater than for the BMS (exceptions: Portugal and Greece). The spread with regard to the primary tariff criteria is by far the greatest in Great Britain, Germany, France and Ireland (approx. 30). Greece and Portugal display the lowest spread with regard to primary rating, i.e. 2.2 and 3.5, respectively. 300 250 200 150 100 50 0 EU average D F CH GB A N IRL S E NL I DK B P GR L SF Note: EU average unweighted Illustration 10: Overall rating spread (primary tariffs and BMS) Germany and France evidence the greatest overall spread. Great Britain and Ireland display only medium overall spreads, in spite of very great spreads for the primary tariffs, as the spread for the BMS is very small in these countries. 137

Chapter 5 Comparative charts 138 400 350 300 250 200 150 100 50 0 F D CH L P2 A I B P1 GR N DK J NL S SF GB IRL E Note: The chart sets out two different common BMS s for P (P1, P2), cf. chapter 4.P, section 3. GR has recently introduced a BMS which (theoretically) ranges to over 600%, cf. chapter 4.GR, section 3. Illustration 11: Spread (premium in per cent) with respect to BMS, with initial classification indication mark The diagram in illustration 11 indicates the spread with regard to BMS for each of the countries listed, the horizontal mark indicating the initial classification (premium required for first motor insurance contract). The initial classification is 100% for almost all countries (exceptions: Germany 140%, Italy 115%, Belgium 85%). When interpreting the comparative data set out in illustration 11, it is important to understand the meaning of the differences in range in connection (a) with the initial classification and (b) with the rules of reclassification. Let us explain this by looking at Italy and Sweden: In both countries the highest premium is 4 times that of the lowest premium (Italy: 200:50, Sweden: 100:25). (a) Policyholders in Italy are initially classified at a mean premium rate of 115%; in Sweden they are first classified at the highest premium rate (100%) so that initial classification in Italy is much less expensive. (b) In the shorter Swedish BMS the lowest premium can be reached after only 7 claims-free years. In the longer Italian BMS this is possible only after 13 years, proceeding from the initial classification (starting from the highest premium it would take even longer). 138

Chapter 5 Comparative charts 139 5 Primary tariff criteria Table 3 contains a list of the tariff criteria used in the individual countries. Tariff criterion A B CH D DK E F GB GR I IRL L N NL P S SF Driver/owner classification gender age occupation nationality marital status owner-occupied home additional contract with insurer compr. insurance discount age of driving license motoring fines safety training public transport user (railcard, etc) membership in automobile club state of health sign of zodiac loyalty bonus creditworthiness Use classification place of registration/residence (region) commercial use low-mileage discount user group (no. of drivers) garaging second car use region of use Motor vehicle classification type of car/model age of car second hand or new car purchase purchase price type of car financing engine power/cubic capacity 1 maximum speed accelerating speed type of fuel fuel consumption per 100 km power-weight ratio weight of car colour of car?? safety equipment catalytic converter structural modifications left-hand steering Additional classifications no rental car sales channel 1 There are no additional data available on the primary tariff criteria used in Luxembourg. Explication of symbols: central tariff criterion major tariff criterion less important tariff criterion? unverified Table 3: Primary tariff criteria used 139

Chapter 5 Comparative charts 140 6 Premium level in the individual countries The questionnaire addressed to the insurers asked for data on the premium level in third party motor insurance, exemplified by 5 cases (cf. appendix 1: Questionnaire on the Rating System, Question B.3.2). The 5 cases are described in table 4. Case 1: 18-year-old student (male) (car registration for his person), single, Fiat 176 Punto 55, 54 hp, 1108 ccm, petrol engine, year of manufacture 1994, second hand, annual mileage 13 000 km Case 2: 31-year-old clerk (male) married, 2-year-old child, insured for 8 years, no claims since then, Ford GBP Mondeo, 116 hp, 1796 ccm, petrol engine, year of manufacture 1999, first hand, annual mileage 25 000 km Case 3: 42-year-old woman, not employed, married, 2 children (7 and 10 years old), highest rate of discount in bonus-malus-system, Renault Matra JE Espace 2.0, 114 hp, 1998 ccm, petrol engine, year of manufacture 1997, second hand, annual mileage 11 000 km Case 4: 52-year old teacher (female), divorced, no children, insured for 4 years, no claims since then, BMW 5/H 520I, 150 hp, 1991 ccm, petrol engine, year of manufacture 1998, first hand, annual mileage 15 000 km Case 5: 67-year-old pensioner (male), married, highest rate of discount in bonus-malus-system, Opel Vectra A 1,81, 90 hp, 1796 ccm, year of manufacture 1990, first hand, annual mileage 8 500 km Table 4: Examples of data determining premium level The data supplied by the companies are set out in table 5. The figures given in the table (except the last row and the last column) are the unweighted mean values for all companies from the respective country which supplied data on the individual cases. country case 1 case 2 case 3 Case 4 case 5 average A 543 388 310 584 275 420 B 722 656 661 716 609 673 CH 565 377 234 252 262 338 D 1 252 300 163 349 167 446 DK 872 400 453 680 400 561 GB 1 757 619 590 876 339 836 GR 445 239 239 350 239 303 I 749 538 432 734 338 558 IRL. 819 424 763 334 585 NL 1 240 831 599 1 154 377 840 P 439 179 169 200 151 227 SF 193 223 135 234 156 188 EU 1101 463 364 604 280 562 Note: The premium in the last column average is calculated as an unweighted mean value of the premiums of the individual cases. The EU data in the bottom row constitute the average values weighted with the GPR (motor insurance) of the individual countries. The values cannot be regarded as representative, in view of the small sample size. They are no more than a rough estimate of the premium levels and structures of the individual countries Table 5: Motor insurance premiums (in ) in the individual countries (without E, F, L, N, S) Illustration 12 sets out the mean premium levels of the individual countries from table 5 (last column). The differences between the individual countries are obvious; thus the premium for the Netherlands, which is 840, is about 4½ times that of Finland ( 188). 140

Chapter 5 Comparative charts 141 900 800 700 600 EU average 500 400 300 200 100 0 NL GB B IRL DK I D A CH GR P SF Illustration 12: Premium level ( ) in third party motor insurance (without E, F, L, N S) Illustration 13 sets out the premiums for the individual cases 1 to 5 (cf. table 4) in 4 selected countries (premiums in from the rows in table 5). In addition to the difference in premium levels, the chart also underlines the differences in the premium structures of the various countries. Thus the premiums for Belgium barely differ among the 5 cases, whereas they vary greatly in the other countries presented. Case 1 calls for the highest premium in all countries. (That also applies to the other countries presented in table 5 with the exception of Austria and Finland.) However, the proportion of the increase in premium between case 1 and the other cases varies greatly, yielding the ratios case 1 premium to case 4 premium as follows: - Belgium: 722 : 716 = 1.0 - Netherlands: 1240 : 1154 = 1.1 - Great Britain: 1757 : 876 = 2.0 - Germany: 1252 : 349 = 3.6 1800 1600 1400 1200 1000 800 600 400 200 0 GB NL D NL B B GB D case 1 case 2 case 3 case 4 case 5 Illustration 13: Premium structures in third party motor insurance in selected countries (B, D, GB, NL) 141

Chapter 6 Final Considerations 142 Chapter 6 Final Considerations This final chapter will address some points which might be a subject of consideration within the EU with regard to a guideline for third party motor insurance. 1 Calculation principles The legal provisions regarding calculation vary greatly between the individual countries (cf. table 1 in chapter 5, section 2). As far as the question of rating fairness is concerned, the risk relation of the calculation is essential. With regard to the risk relation, the extent of the requirements for the calculation and for the rating factors to be applied may vary: (1) Risk-adequate calculation. Risk-adequate (or fair) calculation implies that, in principle, the net premium must correspond to the value of the loss to be expected. (this presupposes, of course, that the consumers pay exactly that premium which corresponds to the calculation and that no deviations are made from the risk-adequate rate calculation, for example, by means of arbitrary discounts, cf. (3)) (2) Risk-related calculation. The demand here is not to equate net premium with expected loss, but each factor employed for the rating must bear a relation to the risk 43. (3) Non-discrimination principle. The principle of non-discrimination also allows for discounts which have no relation to the risk (e.g. loyalty bonus, discount for another contract with the company); however, these discounts must be applied equally to all policyholders. Under the principle of non-discrimination, only arbitrary discounts (i.e. discounts which are negotiated for individual cases) are ruled out. These three aspects point up a declining regulating intensity. A kind of regulation which, while not calling for a risk relation in terms of (2), restricts the degree of non-risk-relatedness, is: (4) Quantitative restriction of non-risk-related discounts. A possible regulation would be for discounts having no relation to the risk not to exceed x% (e. g. x=10) or not to exceed that amount which corresponds to the cost element (including profit) of the respective rate. This restriction could be justified as follows: If a non-risk-related discount exceeded the amount of the cost element, the gross premium paid would be smaller than the expected loss. In a way that would constitute a sale below cost price, which, in insurance terms, implies that the community of consumers subsidises individual consumers. A uniform EU regulation on the calculation principle could assimilate the chances of the competing insurance companies in the various countries. 2 Binding rating factors Ideally, a rating factor should be a risk cause rather than just a risk indicator. Such factors whose characteristics must lend themselves to sufficiently simple and precise means of determination and which must be impossible to be manipulated (cf. chapter 2, section 5) are hard to be found. The few existing criteria which roughly point up the desired characteristics, could be made binding on the insurance companies. Suitable criteria might include: 43 Risk relation in this context means risk factor, not risk cause (cf. chapter 2, section 9). Factors such as garaging, women s bonus and similar criteria would thus be risk-related rating factors, whereas colour of hair, sign of zodiac, and similar criteria would not. 142

Chapter 6 Final Considerations 143 (1) Motoring fines. Motoring fines are closely related to the driving behaviour (= risk cause) of the car user/users. Their application as a rating factor could be made practicable. In some countries motoring fines are already now being used for rating purposes (cf. chapter 5, section 5, table 3). (2) Roadworthiness of the car. The roadworthiness of the car is undoubtedly a risk cause. If we succeed in determining the characteristic of the factor roadworthiness of the car in a suitable manner (simple, reliable, impossible to be manipulated), it would certainly constitute a valid rating factor. The inspection of the car under the aspect of roadworthiness at certain intervals, which is required by law, might serve as an identification aid (for example: 10% surcharge on the third party motor insurance premium for the next 2 years, if the inspection points up major safety defects). 3 Franchise Insurance companies in most countries demand (in part very) high third party motor insurance premiums, in particular from recent holders of driving licenses or from young drivers. There cannot be any reducing effect of the BMS for these policyholders for lack of driving practice. However, even this consumer group contains good risks, who, in the absence of an a priori identifiability of their good risk characteristic, do not benefit from a premium which for them would basically be an appropriate one. This situation can be mitigated to a certain degree if the insurance companies make greater use of the franchise scheme. For example, the contract terms could, after one claim within a year, stipulate a franchise of, say, 500 - for each additional claim in the same year or, additionally, - for each claim in the following year, too, or - for each claim in the next three years. This provision may be restricted to individual consumer groups (e.g. to consumers insuring a car for the first time) or it may be combined with the BMS (provision applies only to consumers in malus classes, and the like). In addition, general franchises 44, the amount of which can be selected by the consumer, may constitute a reasonable additional rating element. By choosing a franchise, the consumers might then take a certain influence on the amount of the premium they have to pay according to their subjective risk (cf. e.g. chapter 4.CH, section 3, table 4.a). Of course, franchises must be designed in such a way as not to impair the protection of damaged third parties in the third party motor sector. This means that the insurance company always pays the full amount of the indemnification to the third party involved, while, at the same time, collecting the franchise from the insured. 4 Transparency of the rating factors Since the deregulation, the number of the rating factors employed as well as that of the various characteristics of the factors has greatly increased in most countries. In particular the rating factors applied and especially the manner in which they are employed by the various insurance companies vary greatly. That has decreased the degree of transparency, which makes it especially difficult to compare the premiums of the various companies. As a consequence, competition in the third party motor insurance sector is greatly disturbed. 44 General franchise means that the franchise is due upon each claim and not just in specific cases. 143

Chapter 6 Final Considerations 144 The transparency could be enhanced by obliging the companies to indicate to each policyholder (interested consumer) all factors (actually) employed in the tariff rating and to supply them with quantitative data on additional or reduced amounts with respect to their premium for all rating factors if their characteristics deviate. Such an obligation is also borne out by the following arguments: (1) The consumer has a right to obtain information on the product he has bought, which also includes the rating factors applied; this information may determine his buying decision. The following situation may serve as an example: The company uses the sign of the zodiac as a rating factor; the consumer may consider that as being unjustified and thus fail to have the necessary confidence in the rate/company. Another example: The rates of the insurance company discriminate against foreigners, disabled or other groups of persons, and the consumer may consider that morally questionable. He may wish not to belong to such a community of consumers. (2) Additional or reduced amounts with regard to individual rating factors may determine the decision of the consumer taking out a policy. Example: Annual mileage as a rating factor: Before the interested consumer agrees to be put into the class 15,000 to 20,000 km per year, he has to know by how much the premium will be reduced if his annual mileage is lower or how much more he will have to pay if his annual mileage is higher, as these premium differences may be incentives for him to change his driving behaviour. The situation is similar with regard to the data on the user group of the insured car: To the interested consumer the information is relevant by how much the premium is increased if he includes his, say, 18 to 24 year-old children in the insurance contract as possible drivers. (3) Prevention of data abuse. If the company demands information on any factors from the (potential) policyholder, the latter has to be informed whether these data are actually employed for rating purposes. Otherwise, under the cover of a highly differentiated rate, arbitrary factors (level of income, number of children, hobbies, profession etc.) could be collected (by the insurance agent or via the Internet in the case of premium inquiries), which may be used also for other (not insurance-related) purposes. 5 Special competition barriers Some countries point up special competition barriers in the third party motor insurance market which could be eliminated by simple means: (1) Non-transfer of information regarding the BMS. The insurance companies should be obliged to supply subsequent insurers with all the information relevant for an experiencebased rating (BMS) within each country as well as within other countries of the EU (cf. also section 7 information pool ). The reason for this recommendation is the fact that, for some time, underwriters in Switzerland and Sweden have ceased to inform each other on the past loss experience when a consumer changes companies. (2) Bonus-malus classes only within one insurance company. There are companies whose BMS provide for special classes which can be acquired only within the company, and which can thus not be transferred if the policyholder changes underwriters. An example from Austria: The most favourable no-claims discount in that country is normally 50%. Yet there are companies who grant a super-bonus of 55%, which can, however, only be acquired by consumers through no-claims experience within that company. 144

Chapter 6 Final Considerations 145 (3) Exaggerated loyalty bonuses. Loyalty or similar bonuses should not be allowed to exceed certain limits (cf. also section 1 calculation principles, item (4)). This recommendation is based on the fact that there are insurance companies (e.g. in Spain) who grant a 20% loyalty bonus after one year of membership and a 30% loyalty bonus after the second year in the third party motor insurance sector. 6 National Statistics Not in all countries, sufficient statistical data is available for rating purposes in third party motor insurance. In particular because of the variety of the employed rating factors, comprehensive records are needed for a reliable calculation. Some of the small insurance companies do not have insurance statistics (insured) in the required order of magnitude. Some countries (e.g. Germany) have, therefore, introduced a legal obligation to maintain statistics which are based on the data of all the companies active in that country. The maintenance of such statistics could be made obligatory in all countries. That would result in an improved calculation basis for all insurance companies of the country. Moreover, these statistics should also be made accessible to all foreign suppliers wanting to offer third party motor insurance in the respective country, which would increase cross-border competition. 7 Information Pool With regard to some factors (no claims in the BMS, existence of a (pre-) insurance contract, motoring fines,...), an information pool involving all third party motor insurance companies should be set up for each individual country. Reason (exemplified by the BMS): With regard to measures in a rating system, which lead to a premium increase for a policyholder within the company, the policyholder may, under certain conditions, elude this effect by changing underwriters. Thus, if an BMS provides for malus classes (= classes where policyholders have to pay more than when they insure a car for the first time), the policyholder can avoid classification in this category by changing companies and telling the new underwriter (with fraudulent intent) that he is insuring a car for the first time. In that case the controlling notices of the insurer on the BMS classification referred to under section 5 item (1) would not suffice, because, in principle, the (new) insurer would have to ask all (domestic and in an extreme case also all foreign) insurers whether this information is correct. In order to permit cross-border use of the information (for domestic and foreign insurers), the pool in each country must be organised in such as way as to register the citizens of a country in the pool of their respective country. Data collection and information transfer of such an information pool can be organised so as to take account of the required data protection provisions. 8 Access to Third Party Motor Insurance The countries should be obliged to ensure access to third party motor insurance by each interested insurance consumer (even for those risks for which it is difficult to find coverage) Although there is currently no evidence of an acute problem of uninsurability as is the case in the USA, for example such a problem could easily arise also in the EU, if the premium differentiation continues to increase (i.e. if premium spreading increases). 145

Appendix 1 Questionnaire Rating System 146 Appendix 1: Questionnaire Rating System UNIVERSITY OF BAMBERG D-96045 Bamberg, date Chair of Economics Feldkirchenstraße 21 Prof. Dr. Ulrich Meyer Telephone: +49 (0)951/863-2557, -2558 Telefax: +49 (0)951/863-2559 E-mail: ulrich.meyer@sowi.uni-bamberg.de Prof. Dr. Ulrich Meyer, Feldkirchenstraße 21, D-96045 Bamberg Adress European Project Abl.98/C 289/08 concerning automobile liability insurance in Europe Dear Sir / Madame, we would like to ask you for your assistance in an international research project. Our research group (chaired by Prof. Dr. Ulrich Meyer, University of Bamberg, and Prof. Dr. Hans-Peter Schwintowski, Humboldt-University, Berlin) is elaborating the statistical-economic and the legal-normative basis for an international comparison of automobile liability insurance in all Western European countries. The research project is supported by the European Union (support number Abl.98/C 289/08) and the German Association of Insureds ( Bund der Versicherten e.v. ). The enclosed questionnaire, which we sent to all automobile liability insurance companies in Western Europe, covers questions concerning the rating system of your company. From Prof. Schwintowski (Berlin) you already received a questionnaire concerning legal aspects of automobile liability insurance. The information gathered will be aggregated by countries and will subsequently be used to generate comparative country reports. In doing so we guarantee to treat all your data strictly confidentially and evaluate it anonymously only. In addition, we would like to ask you to send us the following materials: your general terms and conditions for automobile liability insurance including the guidelines of your rating system and further consumer information for the automobile liability insurance, if available. Your assistance is of fundamental importance to the success of the research project. We would be grateful if you could fill in the questionnaire and return it to the given address by 15 th January 2000. We would like to thank you very much for your assistance. Should you have any further questions concerning our project, do not hesitate to contact us. In case you do not see any possibility to assist us, we would appreciate being briefly notified of that circumstance. Sincerely yours Prof. Dr. Ulrich Meyer 146

Appendix 1 Questionnaire Rating System 147 Questionnaire about the Rating System About the Questionnaire: The following questions concern your rating system in automobile liability insurance. The information gathered will be aggregated by countries and will subsequently be used to generate comparative country reports. In doing so we guarantee to treat all your data strictly confidentially and evaluate it anonymously only. Please feel free to elaborate upon your answers. If you require additional space, please attach pages as necessary, always noting the number of the question to which you are referring. Please quote amounts of money in Euro or your national currency. Questions or comments may be directed to: Prof. Dr. Ulrich Meyer Feldkirchenstraße 21 University of Bamberg D-96045 Bamberg Chair of Economics Telephone: +49-951 - 863-2557 Telefax: +49-951 - 863-2559 E-mail: ulrich.meyer@sowi.uni-bamberg.de Please return the completed questionnaire to the given address. Thank you very much for your assistance! A. General Information about your Company A. 0 Person to whom we can address further inquiries about the general part Telephone: E-mail: A. 1 What is the legal form of your company? A. 2 What trade federation does your company belong to? A. 3 What distribution channels do you use? Direct marketing Mail Internet Telephone Insurance agents, representing your company exclusively Insurance agents, representing several companies (independent) insurance brokers Other: A. 4 How many employees does your company employ in automobile liability insurance? A. 5 What is the market share of your company in automobile liability insurance in your country? Share of automobiles: per cent Share of gross premium payments: per cent B. Rating System B. 0 Person to whom we can address further inquiries about the actuarial part Telephone: E-mail: 147

Appendix 1 Questionnaire Rating System 148 B.1 A priory Classification B.1.1 Please check the box yes for those rating factors which you apply in automobile liability insurance. In case of yes : give the approximate share of insurance contracts (share in per cent) to which this rating factor is applied. No. Rating factor: yes share Driver/Owner Classification: 1 sex 2 age 3 occupation 4 nationality 5 marital status 6 number and age of children 7 living in the own house 8 further insurance contract with same company 9 age of driving licence 10 traffic conviction record 11 special driving education/safety training 12 public transport commuter 13 member of an automobile club 14 education (e.g. school performance, highest degree) 15 state of health (e.g. disabilities) 16 lifestyle (e.g. smoker/non-smoker, total abstainer) 17 sign of zodiac Use Classification: 18 region (place of residence/place of registration) 19 private/commercial use 20 annual mileage 21 number of drivers 22 garaging 23 second car with same insured/driver 24 region of use (domestic, abroad, specific countries) Vehicle Classification: 25 type of car/car model 26 age of car 27 new car/used car (at the date of purchase) 28 price of car 29 method of financing purchase 30 current value of car 31 engine capacity/power 32 maximum speed 33 acceleration speed 34 fuel type 35 fuel consumption per 100 km or miles 36 weight to power ratio 37 weight of car 38 colour of car 39 safety equipment (e.g. seat belts, airbag, anti blocking system) 40 construction modifications with respect to the car Additional Classification: 41 42 43 44 45 148

Appendix 1 Questionnaire Rating System 149 B.1. 2 Please give the following information about all rating factors applied by your company (see the example below): Number of categories, definition of categories, and surcharges/discounts associated with the different categories. If necessary, suppose an average category of the other rating factors. Prepared forms are available at the end of this questionnaire. Example: Statements to rating factor no. 20 Number of categories/classes: 3 Class 1: up to 9000 km per year 95 per cent Class 2: 9000-20000 km per year 102 per cent Class 3: more than 20000 km per year 107 per cent Class 4: Class 5: Remark: Prerequisite for a discount is that there was no claim in the last 3 years In case that a rating factor has more than 5 categories please give additional statements on an extra sheet or enclose informative material! B.1. 3 What penalty do you apply if an insured fails to act according to his/her classification (e.g. agreement about garaging, but parking outside; exceeding the agreed annual mileage)? B.1.4 Do you intend to introduce further rating factors? Yes No If yes, which ones? B.2 Bonus-Malus-System Please enclose informative material about the features of your bonus-malus-system (number of bonus classes and malus classes, premium rates, starting level, transition rules and special features, e.g. protected discount schemes) as far as it is not included in your general terms and conditions for automobile liability insurance. B.3 Premiums B. 3.1 Please give the annual automobile liability insurance premium paid by an insured for whom all primary rating factors applied by your company show the most favourable/least favourable category, respectively. (Surcharges or discounts according to your bonus-malus-system should not be considered here.) Lowest premium (most favourable case): Highest premium (least favourable case): 149

Appendix 1 Questionnaire Rating System 150 B. 3. 2 Examples of premiums: Please give your annual automobile liability insurance premium for the following cases. For the rating factor region please suppose the average category. In case you apply further rating factors, which are not specified in the examples, please suppose an average category in each case. B.3.2.1 18-year-old student (male) (car registration for his person), single, Fiat 176 Punto 55, 54 hp, 1108 ccm, petrol engine, year of manufacture 1994, second hand, annual mileage 13000 km B.3.2.2 31-year-old clerk (male) married, 2-year-old child, insured for 8 years, no claims since then, Ford GBP Mondeo, 116 hp, 1796 ccm, petrol engine, year of manufacture 1999, first hand, annual mileage 25000 km B.3.2.3 42-year-old not employed woman, married, 2 children (7 and 10 years old), highest rate of discount in bonus-malus-system, Renault Matra JE Espace 2.0, 114 hp, 1998 ccm, petrol engine, year of manufacture 1997, second hand, annual mileage 11000 km B.3.2.4 52-year old teacher (female), divorced, no children, insured for 4 years, no claims since then, BMW 5/H 520I, 150 hp, 1991 ccm, petrol engine, year of manufacture 1998, first hand, annual mileage 15000 km B.3.2.5 67-year-old pensioner (male), married, highest rate of discount in bonus-malussystem, Opel Vectra A 1,81, 90 hp, 1796 ccm, year of manufacture 1990, first hand, annual mileage 8500 km B.4 Miscellaneous B.4.1 Do you give a premium refund? Yes No If yes, what are the features? B.4. 2 Do you offer deductibles in automobile liability insurance? Yes No If yes, what are the features? B.4. 3 Do you insure cars which are registered abroad? Yes No If yes : Share of these contracts: per cent Do you apply special tariffs to these cars? Yes No 150

Appendix 1 Questionnaire Rating System 151 Statements to rating factor no. Number of categories/classes: Class 1: Class 2: Class 3: Class 4: Class 5: Remark: Statements to rating factor no. Class 1: Class 2: Class 3: Class 4: Class 5: Remark: Statements to rating factor no. Class 1: Class 2: Class 3: Class 4: Class 5: Remark: Statements to rating factor no. Class 1: Class 2: Class 3: Class 4: Class 5: Remark: Statements to rating factor no. Class 1: Class 2: Class 3: Class 4: Class 5: Remark: Number of categories/classes: Number of categories/classes: Number of categories/classes: Number of categories/classes: 151

Appendix 2 Used Abbreviations 152 Appendix 2: Used Abbreviations A Austria approx. approximate(ly) B Belgium BM bonus-malus BMS bonus-malus system bn billion CALI Compulsory Automobile Liability Insurance (in Japan) ccm cubic centimetre CEA Comité Européen des Assurances cf. confer CH Switzerland chap. chapter D Germany DK Denmark E Spain e.g. for instance EEA European Economic Area (= EU + N + Iceland + Liechtenstein) etc. and so on EU European Union F France GB Great Britain GDP gross domestic product GPR gross gremium gevenue GR Greece hp horse power I Italy i.e. that is IRL Ireland J Japan kg kilogramme km kilometre kw kilowatt (1 kw = 1.3596 hp) L Luxembourg m million N Norway P Portugal S Sweden S: Spread (only in chapter 4, table 4) SF Finland sq.km square kilometre thou Thousand USA United States of America www world wide web Euro 152

Appendix 3 Explanation of terms 153 Appendix 3: Explanation of terms Cost ratio: The cost ratio denotes the ratio between the operating costs (administrative and underwriting expenses) and the gross premium revenues (GPR). Experience rating: Experience rating (also referred to as secondary premium differentiation or credibility rating) is a premium differentiation taking account of the claims experience of the consumer to be rated (claims during the past insurance periods) for the determination of the premiums (as opposed to the primary premium differentiation). In the third party motor insurance sector experience rating takes place almost exclusively in terms of a bonus-malus system. Franchise: Franchise (or self-retention or deductible) denotes a certain part of an insured loss (laid down in terms of a fixed sum or percentage rate) which the insured has to pay himself. If a general franchise is part of an insurance contract, the franchise is independent of the specific loss situation; special franchises are agreed only for special cases, for example, for damage caused under the influence of alcohol or damage caused by a policyholder situated in the highest malus class. Initial classification: A special problem in experience rating is the classification of those contracts (car owner, driver) taken out for the first time (initial classification). Loss ratio: The loss ratio denotes the ratio between claim expenses and GPR for anyone year. The claim expenses for a year are mostly expressed in terms of the amount spent by the underwriter for any loss sustained during this year (irrespective of the year the claim is settled, i.e. actual payment is made). Alternatively, underwriters occasionally also use those payments for the purpose of settling claims which are made during the same year (for damage sustained in the same or in previous years). Protected discount scheme: A protected discount scheme denotes a bonus class in the BMS where a downgrading following a liability claim does not lead to a higher premium. Rate calculator: Some underwriters offer consumers interested in insurance coverage the possibility to feed the internet with the relevant data for a third party motor insurance contract (i.e. the specific criteria of the rating factors applied). Based on the data submitted, the consumers are then in- 153

Appendix 3 Explanation of terms 154 formed of the premium they will have to pay either directly (online rate calculator) or a few days later by post or by e-mail (mail rate calculator). Separation of business lines: In many countries underwriters may offer only life insurance or non-life insurance, but not both business lines together. In Germany also private health insurance must not be operated together with other business lines. Tabular premium: The tabular premium is the premium laid down by the underwriter in the calculation of rates for different risks. It forms the basis for the consideration of additional rating factors (by means of surcharges or discount), e.g. in the Bonus-Malus System. 154

Sources of Information 155 Sources of Information As far as available, the official publications of (motor) insurance associations and the controlling authorities as well as Internet addresses are listed for each country. A Austria Bundesministerium für Finanzen (1999): Versicherungsaufsicht Jahresbericht 1998, Vienna Bundesministerium für Finanzen (2000): Österreichische Versicherungsstatistik Controlling authority: Bundesministerium für Finanzen: www.bmf.gv.at Association: Verband der Versicherungsunternehmen Österreichs (VVO): www.vvo.at B Belgium Office de Contrôle des Assurances (1999): Rapport Annuel, Brussels Union Professionnelle des Entreprises d Assurances (1992): La Nouvelle Tarification en Assurance R.C.Automobile. Une mise à l Heure Européenne, Brussels Union Professionnelle des Entreprises d Assurances (1999): Rapport Annuel, Brussels Controlling authority: Office de Contrôle des Assurances: www.cdv-oca.be Association: Union Professionnelle des Entreprises d Assurances (UPEA): www.upea.be CH Switzerland Bundesamt für Privatversicherungswesen (1999): Die privaten Versicherungseinrichtungen in der Schweiz, Bern Schweizerischer Versicherungsverband (1999): Jahresbericht 1998, Zurich Schweizerischer Versicherungsverband (2000): Zahlen und Fakten 2000, Zurich Controlling authority: Bundesamt für Privatversicherungen: www.bpv.admin.ch Association: Schweizerischer Versicherungsverband (SVV): www.svv.ch D Germany Bundesaufsichtsamt für das Versicherungswesen (1998): Jahresgemeinschaftsstatistik über den Schadenverlauf in der Kraftfahrzeug-Haftpflichtversicherung 1998, Berlin Bundesaufsichtsamt für das Versicherungswesen (1998): Geschäftsbericht 1998, Part A and B, Berlin Gesamtverband der Deutschen Versicherungswirtschaft (1999): Jahrbuch 1999. Die deutsche Versicherungswirtschaft, Berlin Controlling authority: Bundesaufsichtsamt für das Versicherungswesen: www.bav.bund.de Association: Gesamtverband der Deutschen Versicherungswirtschaft: www.gdv.de 155

Sources of Information 156 DK Denmark Danish Insurance Information Service (1999): Insurance and Pensions in Denmark 1999, Kopenhague Danish Insurance Information Service (1999): Insurance and Pensions in Denmark 1999. Figures and Graphs, Kopenhague Controlling authority: Finanstilsynet: www.ftnet.dk Association: Forsikring & Pension: www.forsikringenshus.dk E Spain Consoricio de Compensación de Seguros (1999): El Consorcio de Compensación de Seguros en el Seguro de Responsabilidad Civil de Suscriptión Obligatoria en la Circulación de Vehiculos a Motor. Fondo de Garantia, Seguro directo y Fiva, Madrid Consorcio de Compensación de Seguros (1999): Informe Anual 1998, Madrid Controlling authority: Ministry of Economics: www.meh.es Association: Union Española de Entidades Aseguradoras y Reaseguradoras (UNESPA): www.unespa.es F France Conseil National des Assurances (1999): Rapport au Président de la République et au Parlement, Paris Fédération francaise des Societés d Assurances (1999): French Insurance in 1998, Paris Landel/Péchinot(1996): Les Assurances Automobiles, second edition, Paris Controlling authority: Ministère de l'economie des Finances et de l'industrie: www.finances.gouv.fr/pole_ecofin/assurances Association: Fédération francaise des sociétés d assurances (FFSA): www.ffsa.fr GB Great Britain Association of British Insurers (2000): The UK Motor Insurance Market. Market Fact sheet, London Association of British Insurers (1999): Yearbook 1988-1998, London Controlling authority: Financial Services Authority: www.fsa.gov.uk Association: Association of British Insurers: www.abi.org.uk GR Greece Association of Insurance Companies Greece (1999): Statistical Yearbook 1998. Athens Association: Association of Insurance Companies Greece: www.add.gr I Italy Associazione Nazionale fra le Imprese Assicuratrici (ANIA) (1999): Annual Report Controlling authority: Instituto paer la Vigilanza sulle Assicurazioni private e di Interesse colletivo (ISVAP): www.isvap.it Association: Associazione Nazionale fra le Emprese Assicuatrici (ANIA): www.ania.it 156

Sources of Information 157 IRL Ireland Department of Enterprise, Trade and Employment (1999): Insurance Annual Report 1998, Dublin Controlling authority: Department of Enterprise, Trade and Employment: www.entemp.ie/cr/insurance.htm Association: The Irish Insurance Federation (IIF): www.iif.ie J Japan Automobile Insurance Rating Organization of Japan (AIRO) (1999): Automobile Insurance in Japan, Tokyo The Marine and Fire Insurance Association of Japan (1999): Fact Book Non-Life Insurance in Japan 1998-1999, Tokyo AIRO-WWW-page: www.airo.or.jp (in Japanese) Association: The Marine and Fire Insurance Association of Japan: www.sonpo.or.jp L Luxemburg Commissariat aux Assurances (1999): Rapport annuel pour l année 1998, Luxemburg N Norway Kredittilsynet (2000): Annual Report 1999, Oslo Norwegian Financial Services Association (1999): Norsk Forsikring 1999, Oslo Controlling authority: KrediTilsynet: www.kredittilsynet.no Association: Norwegian Financial Services Association: www.fnh.no NL The Netherlands Dutch Association of Insurers: Dutch Insurance in Figures, WWW Verzekeringsleer 2 1997, Utrecht Controlling authority: Verzekeringskamer: www.verzekeringskamer.nl Association: Verbond van Verzekeraars in Nederland (VVN): www.verzekeraars.org.nl P Portugal Associacao Portuguesa de Seguradores (2000): General Overview of the Portuguese Insurance Sector, WWW Controlling authority: Instituto de Seguros de Portugal: www.isp.pt Association: Associacao Portuguesa de Seguradores: www.apseguradores.pt S Sweden Finansinspektionen (1999): Annual Report 1998, Stockholm Sveriges Försäkringsförbund (1999): Annual Report 1998, Stockholm Sveriges Försäkringsförbund (2000): Swedish Private Insurance in Figures. Financial Year 1999 Preliminary Statistics, Stockholm Controlling authority: Finansinspektionen: www.fi.se Association: Sveriges Försäkringsförbund: www.forsakringsforbundet.com 157

Sources of Information 158 SF Finland Olli-Pekka Ruuskanen/Kimmo Koivist: Finnish Insurance Economy 1998 Performance, 1999, WWW Ministry of Social Affairs and Health: Insurance Supervision in Finland, 1997 Helsinki Controlling authority: Valtioneuvosto: www.vn.fi Association: Suomen Vakuutusyhtiöden Keskusliitto: www.vakes.fi/svk USA United States of America AIPSO (1999): Facts 1999. A Handbook for the Automobile Insurance Residual Market, www.aipso.com National Association of Insurance Commissioners (1999): No-Fault Auto Insurance, www.naic.org Controlling authority: National Association of Insurance Commissioners (NAIC): www.naic.org Association: American Insurance Association (AIA): www.aiadc.org Vaughan, E./Vaughan, T. (1995): Essentials of Insurance. A risk Management Perspectice, New York a.o. 158