Study on the Future of the German motor insurance industry

The Future of the German motor insurance industry

According to the latest study by KPMG entitled “Does motor insurance have a future?”, today’s motor insurance premium volume in Germany could shrink by 45 percent over the next 15 years, making insurance policies correspondingly cheaper for drivers.

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With annual premium of €24.3 billion, motor insurance is today by far the largest sector in the non-life and accident insurance segment, and goes a long way to covering the running costs of insurance companies. According to KPMG experts however, market prospects are set to change profoundly. This is largely due to changes in mobility behavior (carsharing) together with technological innovations such as driver assistance systems, autonomous vehicles and 3D printers. Depending on the dynamics of technological development, model-based calculations predict a decline in motor insurance premium volume of up to 45 percent, thus making motor insurance cheaper for drivers.

Markus Heyen, partner and insurance expert at KPMG: “Even if technological progress in the car industry were to slow down, motor insurance premium volume is currently expected to decline by around 15 percent by 2030 and barely exceed the €20.6 billion threshold. In the event of rapid technological development however, the industry could even lose up to half of its premium volume. The good news for drivers is that a decline in the number of accidents and premium volume should lead to a decrease in the cost of motor insurance policies.”

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KPMG believes that insurance companies will at least partly be able ton compensate for the reduction in premium with new offers such as cyber policies, product liability and recall coverage. A new field for services is also emerging in which insurers can apply their core competencies.

Jörg Wälder, senior executive at KPMG: “Aside from rapid progress in vehicle technology and modern mobility services, other factors such as new market competitors and the digitization of insurance-related processes play a key role. All of this is happening simultaneously and highly dynamically. The radical change in the motor insurance industry will thus not only fundamentally change motor vehicle insurance, but also – almost inevitably – lead to such a major decline in premiums that a significant reduction in costs will be unavoidable.”

Key trends changing the market

KPMG experts predict that the rapid progress being made in driver assistance systems – from motor vehicles to autonomous driving – will reduce the number and volume of motor collision claims by up to 50 percent by 2030. Furthermore, more and more private customers will relinquish their own vehicles in favor of those being offered by mobility service providers. In the case of goods transport, modern production processes (3D printing) will lead to a noticeable decline in the demand for long-haul transport capacities. In future, many goods will be printed within close proximity to customers and delivered using smaller goods vehicles. The number of heavy-duty trucks previously used for this purpose will thus fall accordingly by up to 30 percent.

The challenge facing insurance companies will be two-dimensional: while the losses sustained per vehicle will be significantly reduced, the number of vehicles per household and company will stagnate, or potentially even decline. Up to 45 percent of today’s motor insurance could be dispensed with by 2030. The big losers in motor insurance policy sales will be tied agents and brokers. Carmakers and direct sales channels, such as online comparison platforms, will represent the dominant distribution channels.

About the study

The study is based on over 100 market discussions conducted with managers and experts from the industries involved, i.e. insurers, carmakers and their suppliers as well as other service providers in the automobile industry, during research.

KPMG has developed a prediction model for the study based on three scenarios, to simulate and quantify identifiable trends in motor insurance in the period from 2015 to 2030. The model is structured in such a way that each market player can ultimately change their own parameters and depict specific aspects of their own automotive portfolios.

Three potential development scenarios

In the first scenario, “Technological progress is losing momentum,” the four trends continue to develop, albeit at a reduced pace, without a new structure evolving for the market – in terms of premium volume, the market will shrink.

The second scenario, “General conditions are changing in step with today’s momentum,” works on the assumption that as the strongest of the four change drivers, technological progress will be even faster and more tangible. This scenario will result in a distinct decline in motor insurance premium. The third scenario, “The digital age as a game changer for insurers,” will see extremely rapid developments in technology coupled with a shrinking of the motor premium volume as we know it today by around 45 percent.

Hendrik C. Jahn, partner in the Financial Services Division at KPMG, specializing in strategic consultancy for motor insurance providers: “Our study clearly shows the changes that will take place on the market and offers an insight into the extent of the changes to be expected. No matter which scenario is to be believed, these changes will most definitely be radical. Rather than wondering about how the market will change, market players should be asking themselves how they will adapt to such change. Competitors who actively approach and shape the change process are sure to gain the upper hand here. Following the market will become less of a winning strategy.” 

© 2016 KPMG AG Wirtschaftsprüfungsgesellschaft, ein Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative (“KPMG International”), einer juristischen Person schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten.

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