In motor vehicle insurance, consumers must expect further increases in premiums.
(Photo: dpa)
Frankfurt Insurance customers must be prepared for further increases in premiums. The premium adjustments made so far are unlikely to be sufficient to compensate for the higher costs, particularly in motor vehicle and home insurance.
“Inflation will again drive up claims costs significantly this year,” said Dennis Wittkamp from the rating agency Assekurata when presenting the current market outlook for German property-casualty insurers. Insurers’ profit margins and growth dynamics are therefore likely to come under significant pressure in the current year.
According to Assekurata, property-casualty insurers benefited last year from the fact that the burdens from natural disasters were significantly lower than in 2021, the year of the flood in the Ahr Valley. As a result, despite the high inflation, the industry has managed to get back into the black and generated an insurance profit of around four billion euros, explains Wittkamp. From an earnings point of view, he expects 2023 to be a significantly more difficult year.
A key reason for this is that premiums are not increasing at the same rate as claims costs. And that despite the fact that German property-casualty insurers were able to increase premium income by four percent to over 80 billion euros in 2022. Experts also expect further increases in premiums in the future: Allianz expects in its current “Global Insurance Report” an average annual increase in premiums in the German property insurance market of three percent to 113 billion euros by 2033.
Above all in the two branches with the highest premiums, motor vehicle and homeowners insurance, significantly higher premium increases would be necessary for insurers to be able to operate them profitably. Both lines are suffering particularly from the rising claims expenditure. They have combined claims/expense ratios of more than 100 percent – so they are making losses.
Tough competition prevented higher premiums
The financial regulator Bafin is also putting pressure on. Insurance supervisor Frank Grund recently emphasized at his authority’s annual media conference that property-casualty insurers would have to further increase premiums and provisions for insurance claims this year.
The Assekurata expert explains the far too low premium adjustments in car insurance with the tough competition. At the turn of the year, premium increases across the market were only five to seven percent. Above all, the large motor vehicle insurers would not have increased the premiums as much as was actually necessary in order to win over customers willing to switch from competitors. They are economically strong enough to bear deficits for a while.
“In order to get back into the black in the long term, companies would have to adjust the contributions in the double-digit percentage range,” emphasizes Wittkamp. But even in 2024, he only expects adjustments of seven to nine percent on average. Smaller providers are more likely to be forced to increase the premiums or have to consider in the long term whether the business area is still worthwhile for them.
Assekurata expects premiums to rise sharply in residential building insurance. For most policies, the premiums depend on the construction price index and rise automatically with it. This has recently led to premium increases of around 15 percent. According to Wittkamp, some providers would have refrained from even higher adjustments in order not to lose customers. Nevertheless, it is likely to be significantly more expensive for these again in 2023 simply because of the index development.
>> Read here: Building insurance will be up to 30 percent more expensive in 2023
In the currently difficult environment, however, consumers are increasingly forgoing insurance cover that is not absolutely necessary. The insurance association GDV recently complained that high inflation and the uncertain economic outlook were having a dampening effect on demand for insurance.
According to Assekurata, the premium increases in 2022 were primarily due to premium adjustments. The contract portfolio of property-casualty insurers grew by just 0.6 percent. According to Assekurata, residential building insurers could only record larger contract increases if compulsory insurance against natural hazards were introduced – which the rating agency would support.
“It has been shown that adequate insurance density cannot be achieved on a voluntary basis,” says Wittkamp. Although many insurers have been able to increase the proportion of homeowners’ insurance with natural hazard protection, the total number is still too low.
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