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Empirical Findings on Motor Insurance Pricing in Germany, Austria and Switzerland

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Abstract

This paper focuses on recent developments in motor insurance pricing in Germany, Austria and Switzerland. Through the analysis of responses to a recent comprehensive survey of industry representatives, we examine the various premium components and the processes involved in premium adaptation. New findings on the use of different tariff criteria, on the tools used for market-based and customer-specific pricing, and on the information considered for customer valuation are reported. We also address the integration of the insurance sales staff in the pricing process. With regard to premium adjustments and the introduction of new tariffs, we examine the frequency, time required and costs incurred. With this paper, we contribute to a strand of literature where little academic research has been done so far. In addition, our results entail managerial implications for improving industry practices in insurance pricing.

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Notes

  1. See, for example, Eling and Luhnen (2008).

  2. See, for example, Gesamtverband der Deutschen Versicherungswirtschaft (2012).

  3. See, for example, Schmidt-Gallas and Lauszus (2005) and Pratt (2010).

  4. Hartmann et al. (2014).

  5. See Hartmann et al. (2014, Figs. 47 and 48).

  6. See, for example, Erdönmez et al. (2007, Fig. 4).

  7. Erdönmez et al. (2007).

  8. As done in Hartmann et al. (2014).

  9. As there is an abundance of related academic papers, we focus on the main topics and some examples.

  10. See, for example, Doherty (1981); Hoy (1982); Abraham (1985); Crocker and Snow (1986).

  11. See, for example, Harrington and Doerpinghaus (1993); Hoy (2006); Thomas (2007); Thomas (2008).

  12. See, for example, Finger (2001).

  13. Bailey and Simon (1960).

  14. Bailey (1963).

  15. Jung (1968).

  16. Ajne (1975).

  17. See, for example, Ismail and Jemain (2006).

  18. Bühlmann (1967).

  19. Bühlmann and Straub (1970).

  20. Bichsel and Straub (1970).

  21. Sundt (1988).

  22. De Vylder and Goovaerts (1992).

  23. Dannenburg (1994).

  24. Young and De Vylder (2000).

  25. See, for example, Baxter et al. (1980) and Stroinski and Currie (1989).

  26. Nelder and Verrall (1997).

  27. Mildenhall (1999).

  28. Ohlsson (2008).

  29. See, for example, Kelly and Nielson (2006); Brown et al. (2007); Oxera (2012).

  30. See, for example, Oxera (2010) and Schmeiser et al. (2014).

  31. See, for example, Wenzel and Ross (2005) and Kim et al. (2006).

  32. See, for example, Janke (1991); Litman (2011); Boucher et al. (2013).

  33. Klauer et al. (2009).

  34. Paefgen et al. (2013b).

  35. Ayuso et al. (2014).

  36. See, for example, Bolderdijk et al. (2011) and Greaves et al. (2013).

  37. We focus on papers on pricing in insurance companies. In the general marketing literature, more research has been done. For a comprehensive article on the different components, see, for example, Hinterhuber (2004).

  38. Guelman et al. (2014).

  39. Thuring et al. (2012).

  40. Kaishev et al. (2013).

  41. See, for example, Schlesinger and von der Schulenberg (1993) and Brockett et al. (2008).

  42. See, for example, Smith et al. (2000); Yeo et al. (2001); Guelman and Guillén (2014).

  43. Ryals and Knox (2005).

  44. Donkers et al. (2007).

  45. Verhoef and Donkers (2001).

  46. Earnix (2011a).

  47. Schmidt-Gallas and Lauszus (2005).

  48. Schmidt-Gallas and Beeck (2009).

  49. Schmidt-Gallas et al. (2010).

  50. Schmidt-Gallas and Lauszus (2009b).

  51. Niessen (2013).

  52. Bruneteau et al. (2013).

  53. Reddy (2012).

  54. Brat et al. (2013).

  55. Jubraj et al. (2014).

  56. Meyer (2005).

  57. For an overview of the German, Austrian and Swiss motor insurance markets, see, for example, Hartmann et al. (2014).

  58. It should be noted that companies acting as independent single players with independent pricing are included (e.g. the Swiss company smile.direct). We also take into consideration one respondent who completed the survey only partially.

  59. For currency conversions, we apply the EUR/CHF exchange rate of 1.20773 as of 31 December 2012.

  60. Sison and Glaz (1995).

  61. Kendall (1938) and Kendall (1948).

  62. Agresti (2013).

  63. As the number of tariff criteria must be an integer, the empirical quantiles are calculated in the case of Question Set A. In contrast, a continuous quantile function is assumed for Question Set F (the quantile function of type 7 according to Hyndman and Fan, 1996).

  64. See, for example, Pearson (1896).

  65. See, for example, Miller (1986).

  66. See, for example, Glass et al. (1972) and Miller (1986).

  67. Glass et al. (1972).

  68. The McFadden R-squared and residual deviance in Table A1 show that the country and size factor can only explain a low part of the variation in the response variables. As the ordered logit regressions are only complementary in order to disentangle the country and size effects, we do not deal with this issue.

  69. For example, gender by engine power, annual mileage and some other criteria, see Aseervatham et al. (2013).

  70. See, for example, Meyer (2005) and Störmer and Wagner (2013).

  71. See, for example, Meyer (2005) and Kelly and Nielson (2006).

  72. See, for example, Statistisches Bundesamt (2014).

  73. Kelly and Nielson (2006).

  74. Oxera (2012).

  75. See, for example, McKnight and McKnight (1999); McKnight and McKnight (2003); Kelly and Nielson (2006).

  76. See, for example, Köhne (2011).

  77. Higher frequency in urban areas, worse consequences in rural regions; see, for example, Etgar (1975) and Sipulskyte (2012).

  78. See Sipulskyte (2012).

  79. See Oxera (2010).

  80. See, for example, Litman (2011) and Boucher et al. (2013).

  81. See Abraham (1985).

  82. See White (1976) and Abraham (1985).

  83. See, for example, Laurie (2011).

  84. See, for example, Laurie (2011) and Reddy (2012).

  85. See Bruneteau et al. (2013) and Paefgen et al. (2013a).

  86. See, for example, Progressive (2012) and Ayuso et al. (2014).

  87. See Kim et al. (2006).

  88. See Erdönmez et al. (2007) and Hartmann et al. (2014).

  89. The result of the need for further development in the three areas of pricing is confirmed by the essay of Gard and Eyal (2012), who state that 75 per cent of companies are still focused on cost-based pricing. (As indicated to us by one of this study’s authors, this percentage is an estimate based on their experience in the P&C markets of Germany, France, Italy, Spain and the United Kingdom).

  90. See, for example, Kumar (2007).

  91. The finding of large differences is in line with the results of the survey by Earnix (2011a). In this survey, European insurance carriers were asked for the time needed to implement a new pricing strategy and the answers ranged from “less than two days” to “over three months”.

  92. See Earnix (2011b) and Niessen (2013).

  93. See, for example, Abraham (1985) and Vaughan and Michael (2012).

  94. See, for example, Oxera (2013) and Schmeiser et al. (2014).

  95. See, for example, Vaughan and Michael (2012) and Schmeiser et al. (2014).

  96. See Störmer (2013).

  97. Khanna and Ward (2014, p. 2); see also Vaughan and Michael (2012).

  98. See, for example, Surminski (2014).

  99. See also Jahn et al. (2014).

  100. See, for example, Allianz (2013).

  101. This report by Allianz (2013) shows an increase in the number of new vehicle registrations for Switzerland in 2012. One major reason for this increase is the strength of the Swiss franc compared with the euro (see, e.g. Simer, 2014). In 2013, the number of new vehicle registrations also declined in Switzerland (see Statista, 2014).

  102. See Schmidt-Gallas and Lauszus (2005, p. 13).

  103. See Schmidt-Gallas and Beeck (2009) and Khanna and Ward (2014).

  104. See Ernst & Young (2012) and Naujoks et al. (2012).

  105. See, for example, PWC Consumer Finance Group (2009) and Ernst & Young (2013).

  106. See Bättig et al. (2010) and Naujoks et al. (2012).

  107. Naujoks et al. (2012).

  108. See Khanna and Ward (2014).

  109. See, for example, Gupta et al. (2006).

  110. See, for example, Gupta et al. (2006) and Kumar (2007).

  111. Jackson (1989a, 1989b, 1989c).

  112. Kim and Kim (1999).

  113. Guillén et al. (2008).

  114. See Schmidt-Gallas and Lauszus (2009a) and Schmidt-Gallas et al. (2010).

  115. Wedekind (2012).

  116. See Dolan and Simon (1996) and Schmidt-Gallas and Lauszus (2009a).

  117. See Schmidt-Gallas and Lauszus (2009a) and Schmidt-Gallas et al. (2010).

  118. See Schmidt-Gallas and Lauszus (2009a).

  119. See, for example, Venkatesan and Kumar (2004).

  120. See Earnix (2011b).

  121. See, for example, Sheaf (2008) and Niessen (2013).

  122. Sheaf (2008).

  123. See, for example, Schmidt-Gallas and Lauszus (2005); Schmidt-Gallas and Lauszus (2009a); Earnix (2011b).

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Authors and Affiliations

  1. Institute of Insurance Economics, University of St. Gallen, Tannenstrasse 19, St. Gallen, Switzerland, 9000

    Daniela Laas & Hato Schmeiser

  2. Department of Actuarial Science, University of Lausanne, Quartier UNIL-Dorigny Bâtiment Extranef, Lausanne, Switzerland, 1015

    Joël Wagner

Authors
  1. Daniela Laas
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  2. Hato Schmeiser
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  3. Joël Wagner
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Appendices

Appendix A

see Table A1.

Table A1 Detailed ordered logit results
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Appendix B

See Tables B1, B2 and B3.

Table B1 Correlations between tariff criteria
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Table B2 Correlations between pricing tools
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Table B3 Correlations between characteristics for customer valuation
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Laas, D., Schmeiser, H. & Wagner, J. Empirical Findings on Motor Insurance Pricing in Germany, Austria and Switzerland. Geneva Pap Risk Insur Issues Pract 41, 398–431 (2016). https://doi.org/10.1057/gpp.2015.30

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