Munich The traditional car insurance is facing massive changes. The younger generation in particular is increasingly turning to car sharing, leasing and subscription models. This is leading to a rethinking process among insurers that the industry has not seen in decades, because the focus is now on temporary use – no longer on the family car.
The traditional market is still growing, but that could change in a few years: “It may be that the increasing spread of subscription and sharing models will slow down or end this development in the future,” expects Katharina Amann, CEO of Volkswagen Autoversicherung, the joint venture between Allianz and VWFS, the finance division of VW.
For many years, car insurance has been a reliable source of profits for the numerous providers in the country. Premium income increased continuously, last year it was 70.7 billion euros according to the Hannover Re subsidiary E+S Rück.
But in the meantime, the spare parts and workshop costs are increasing, most recently by 7.6 percent, and the industry is suddenly making losses. According to the GDV insurance association, the result is a damage-cost ratio of 101 percent. The ratio reflects the relationship between the costs that the insurance company has to pay in the event of a claim and the income. A value over one hundred percent means a loss for the industry.
Huk-Coburg, which has been the undisputed market leader in Germany for years with around 13.7 million contracts, recorded a rate of 103.6 percent last year, compared to 93.3 percent a year earlier. The main triggers were the high level of motor vehicle damage, which had risen by around eight percent on average.
“The stability of the pre-Corona period will not come back, and the uncertainty will also characterize the year 2023,” says Klaus-Jürgen Heitmann, spokesman for the board of Huk-Coburg.
“Pay as you drive”: Insurance companies adapt to customer behavior
Due to the loss-making business, many providers are already working on extensive innovations. The driver here is the changed customer behavior: “We have many more types of use and are moving away from owning to using mobility,” says Thorsten Krüger, head of Volkswagen Versicherungsdienst (VVD).
The best example of this is the increasing number of rental and subscription models that almost every manufacturer offers today. Unlike in the past, the total package for the customer no longer just consists of financing or leasing plus the insurance premium, but also includes motor vehicle tax and the costs of maintenance and wear and tear.
Car insurance is now just one part of an overall package. For some time now, the industry has been trying to embed insurance protection in more and more products and services under the keyword “embedded insurance”.
“But that only works if buying insurance is as easy as possible for the customer,” says Amann. In the best case, the process should begin with the purchase of the car. For example, if a customer orders the equipment with brake or emergency assistant, this should already lead to an individual discount on the insurance premium.
In the course of the year, the insurer wants to offer a so-called “pay as you drive” tariff. “For example, we get the mileage directly from the car,” announces Amann. “Pay as you drive” means here: Customers only pay as much for the insurance as they actually use the vehicle.
Changing mobility: E-cars are having an impact on business
However, the changed approach to mobility is not the only challenge for insurers. Due to the increased sales of electric vehicles, a different damage pattern is already emerging than with combustion engines.
If, for example, an engine fire occurs as a result of an accident, the costs of disposal are much higher. Conversely, e-cars are stolen less often than those with conventional drives, which relieves insurers.
The providers are just beginning to get an overall picture of a large number of damages. “We are in the middle of a development when it comes to the development of claims for e-cars, and it would be far too early to have a final opinion on this,” says Amann.
>> Read here: VW and Mercedes let Google and Apple deeper into the car
For a manufacturer like Volkswagen, which will rapidly switch its production towards electric vehicles in the coming years, the business with their insurance will also be much more important in the future. “We want to bind half of all combustion engines built in the group to us and 80 percent of the electric vehicles, including insurance,” says VVD board member Krüger.
He sees great challenges ahead for his house. Because e-cars have so far often been used as a second car in the family and have had a low annual mileage. That should change with increasing reach and higher market penetration, says Krüger.
In ten years, many first cars are likely to be electric cars. This affects the damage statistics. “We will have to price more quickly and with more foresight than in the past,” says Krüger.
Used car trade and vehicle leasing interesting for car brands
Other trends are emerging for motor vehicle insurers. The focus is on increased cooperation between the automotive industry and insurers. For example, market leader Huk-Coburg announced last year that it would take over 25.1 percent of the shares in the workshop chain Pitstop in order to be able to reduce its own damage costs through better price control.
In addition, the insurers have entered the currently lucrative business with their own used car sales in Düsseldorf.
>> Read here: Huk-Coburg joins Pitstop
The more and more frequently agreed workshop binding also contributes to cost savings for customers and the Huk. Around two thirds of the contracts now contain this component, according to which the vehicle is repaired in the event of damage in a partner workshop of the insurer and not in a workshop of the customer’s choice.
On the automaker side, the trend is going in a different direction. “Our goal is not just to lease a car once, but a second and possibly a third time,” says VVD board member Krüger.
Volkswagen’s financial subsidiary then wants to offer specific insurance solutions for each of these cycles.
And we want to be attractive to owners of car brands outside the VW Group in the future. The Heycar used car platform, for example, in which Volkswagen is involved alongside Mercedes, Renault and Allianz, is intended to open the door to this clientele.
More: Allianz boss Oliver Bäte can probably continue