Competition tips German auto insurance into loss

Beyond repair. Source: Reuters

Auto insurance, the second-biggest business for insurers after life, risks becoming a loss-maker as rivals battle fiercely for a bigger share in a saturated sector. Nowhere is that truer than in Germany, Europe’s largest market.

“I think we have to get used to the fact that this is a market that will grow less and less,” Stefan Heitmann, head of market leader HUK-Coburg, said at a recent event.

For the first time in years, premiums on auto insurance will remain steady next year, or decline slightly, even as costs for repairs skyrocket. This is great for customers, but as automakers pack more and more expensive technology into cars, it will be hard for insurers to remain profitable.

Allianz, in particular, is making a bid to catch up with HUK-Coburg. The country’s largest insurer is pulling out all the stops to increase market share. In the absence of growth in the sector, that means taking business away from competitors.

The Munich giant went on the offensive with a streamlined rate scale last year. This year, it plans to introduce a special plan for small firm fleets.

R+V, Axa and Generali are also seeking growth in auto insurance. The competition means that for the first time since 2013, insurers won’t be able to cover claims with premiums next year, according to Andreas Kelb, a senior manager at E+S Rück, Germany’s biggest auto policy reinsurer. He estimates the national underwriting loss at €200 million ($228 million).

November 30 is traditionally the deadline for insurance customers to give their 30-day notice and switch to a different insurer in the new year. This year won’t be any exception, said Dennis Wittkamp, an analyst at the Assekurata rating agency.

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No matter what customers say, the price is usually what motivates a decision, Wittkamp added. And that’s what may keep HUK-Coburg in the lead, because it has developed a reputation for being inexpensive. It will be difficult for Allianz to draw level in the next year or two.

Sheer size matters more and more, however, as profits decline. Accidents are not increasing, but the higher proportion of technology is driving repair bills higher. On top of that, car parts themselves are becoming more expensive. Mercedes-Benz E-Class cars now have a special windshield that is costly to replace.

“The insurance business hasn’t found the way to counter that yet,” E+S’s Kelb said. Big insurers can swallow the loss but smaller firms are under pressure. The larger firms, too, have more leverage with repair shops and carmakers to keep these costs down.

Bigger changes lie down the road as autonomous cars trickle into the market. This will bring the number of accidents down further and create pressure to lower premiums. Plus, often enough, it will be the carmakers negotiating the insurance instead of individual owners, and they will have greater leverage in a competitive market.

Carsten Herz covers insurance and asset management for Handelsblatt of Frankfurt. Darrell Delamaide adapted this story into English for Handelsblatt Global. To contact the author:

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