No return to soft market for German motor insurers: S&P

Although the German motor insurance market has seen a hard cycle of rising prices since 2011, it does not expect to see a rapid return to a soft cycle, S&P Global Ratings has said in a report.

In the report, entitled ‘German Motor Insurers Will Be Forced To Sustain Underwriting Profitability In 2017’, the rating agency said that insurers will need to continue to generate underwriting profits given the ongoing decline in investment income and the need to generate profits to strengthen group capital positions. This will mitigate any return to a soft market.

Faced with ongoing low interest rates, German motor insurers have gradually increased the average premium per policy by about 17 percent from 2010-2015. As a result, the overall market combined ratio has improved. The market gross combined ratio fell below 100 percent in 2015 and 2014, aided by those years having a below-average level of natural catastrophe claims.

The rating agency also noted that distribution patterns are shifting in German. More car owners are buying their insurance through car manufacturers and then making greater use of price comparison portals and direct distribution, which could gradually erode the influence of tied agents and brokers, which are still the predominant distribution channels.

It noted that most policies still run from Jan. 1 to Dec. 31 and can be cancelled annually until Nov. 30, which increases the price awareness of consumers. Meanwhile, average claims are rising as cars increasingly come with expensive-to-repair high-tech features, such as cameras and sensors.