Baden Baden: German motor insurers face 2022 underwriting loss

The major reinsurers delved into some of the challenges facing the underyling market in Germany during their Baden Baden press briefings, looking in particular at the impact of inflation on the motor market.

Here, a return to near-normal loss frequencies and the ongoing impact of supply chain disruption is being felt keenly. Despite high levels of competition, there is a sense that rates must rise on primary business and terms and conditions tighten.

According to Hannover Re’s E+S Rückversicherung, the frequency of motor claims has begun to normalise and revert back towards the multi-year trend, albeit on a lower level than before the pandemic.

Inflation hits repair costs and medical bills 

Meanwhile, inflation and supply chain disruptions are exacerbating the trend towards ever-higher costs for spare parts and repairs. 

Results in the motor line are likely to take “another appreciable turn for the worse if primary insurers fail to respond with correspondingly sizeable price increases”, it warned.

The motor segment’s poor results are attributable to increased traffic volume following two pandemic years, according to Munich Re.

It has observed a hike in prices for replacement parts, repairs and new and used cars, as well as bottlenecks at workshops and car rental companies as a result of the inflationary environment.

“Higher claims expenditure is expected to cause primary insurers to make an underwriting loss in 2022,” said Claudia Hasse, chief executive at Munich Re for Germany, Cyber Europe & Latin America.

Impact at all levels

Speaking at the reinsurer’s pre-Baden Baden press briefing, incoming Munich Re chairman Thomas Blunck said it was important to understand how inflation would impact each client’s book of business by line of business, region and composition of original policies as part of the renewal negotiations. 

“We work in partnership with clients to try to find inflation indicators specific to that particular portfolio,” he said.

Within non-proportional motor reinsurance treaties, inflation needs to be priced in at all levels. On the lower layers - close to the risk - Munich Re is seeing stronger indicators for the increase in repair costs, whereas medical inflation is impacting higher layers when it comes to bodily injury claims.

“There is a big effort from our side, which already began in the summer, in depth discussions and collaboration to understand the impact of inflation and to ensure terms and conditions reflect these underying trends,” added Blunck.

“We have to be conservative as the downside risk seem to have a higher probability.”