Europe: Motor is a disparate market, with a future

"In Latvia, this is an important reason to have the cover," says Torbjörn Magnusson, vice-president of Insurance Europe, the Brussels-based insurance and reinsurance federation. "If you were to propose to Latvians that they buy a policy covering loss of income for the rest of their life, few people could afford to buy it." Magnusson puts that down to Latvia's economy: "They don't have the money for it."

In contrast, the British are wealthy enough to buy both third-party and damage insurance without a pause, he adds, to illustrate the wide differences in Europe's motor insurance markets. Insurers respond to local factors such as regulations, road conditions, congestion levels, repair costs, their expenses and claims costs, and the levels of vehicle theft, fraud and uninsured driving.

According to Insurance Europe's motor insurance report published yesterday (4 November), there were 503 passenger cars per 1000 inhabitants across Europe in 2013, a 15% increase from 2007. The ratio was much higher in Cyprus (826/1000), while Croatia, Latvia, Hungary and Turkey each had fewer than 350 cars per 1000 inhabitants.

A fall in the number of road accidents helped cut the claims expenditure from a 2009 high of €98.8bn across the continent to €94.8bn in 2012 and to €93.9bn in 2013. Yet, over the same period, claims expenditure rose by 70% in Turkey, 45% in Luxembourg, 41% in Denmark and 33% in Poland. And between 2008 and 2013, expenditure fell by 52% in Sweden, 46% in Croatia, 44% in Greece, 35% in Ireland and 20% in Italy.

Last year, about 0.6% of vehicles in Spain were stolen. The proportion was 0.1% in the UK and less than 0.05% in Croatia. Between 2010 and 2014, vehicle thefts fell by 32% in Denmark and 61% in the UK.

Overall, says Insurance Europe's head of personal and general insurance and macroeconomics Nicolas Jeanmart, "there are differences which reflect real differences in the market. Those are not differences that you can remove by more [European] harmonisation".

Steady progress

Insurance Europe puts total direct motor premium income in 2013 in Europe at €123.5bn, or 27.4% of non-life business, with about 1000 companies covering 334 million vehicles.

Motor insurance underwriting results 2004-2013 (€bn)

The level of compulsory motor third-party liability cover has been stable since 2004, accounting for 58% of motor premiums in 2013, but optional damage cover increased by almost 20% over that period to €48bn and, as a result, total premium income grew by 6%.

The fall in claims expenditure from 2009 onwards, to €93.9 billion in 2013, was in part because of a 6.5% fall in the number of road accidents and an 8.6% fall in the number of claims, says Insurance Europe. Magnusson sees evidence of the falling death toll: "Now we actually see that as a long-term trend, more than a decade in some countries but, in this report, very clearly for a decade. That's a fantastic thing for the citizens of Europe."

Also, total motor underwriting was profitable in 2012 and 2013, and probably in 2014 and 2015. The average MTPL combined ratio fell from 112.3% in 2009 to 102.6% in 2013. Similarly, the average motor damage combined ratio fell to 87.6% in 2013 from a recent 94.9% high in 2009, as premiums increased, claims expenditure fell and operating expenses remained stable.

Safety success

Magnusson credits the increasing use of automated safety systems like side airbags and driving technologies such as anti-lock, lane-change assistance, front-collision warning and adaptive cruise control systems.

While he does not expect fully automated cars to become standard for at least 30 years, he notes that insurers are already keen on using telematics data to improve underwriting and to give motorists feedback on their driving. "The typical car now has 15-20 small computers and the information that you get from that will change the way that we drive cars," he predicts.

In his view, the expensive electronics will mean increased severity of losses when things go wrong: "We have to focus more on the losses to the car than we have in the past." In the UK specifically, the third-party proportion of motor cover has fallen strongly compared with the hull part.

Data concerns

The share of motor premiums in Europe's non-life sector fell from 33.7% in 2003 to 27.4% in 2013. Magnusson believes the trend will continue but he rejects a suggestion that motor insurers will disappear when cars are fully automated. "We can make money if we contribute something to society. The way that we can do that is by using the technology more, contributing to driving behaviour and so forth."

The Insurance Europe VP argues drivers should own their data with the right to decide whether to pass it to insurers, carmakers and software providers, preferably through an open platform. "The important point is to make it available to everybody that can help to ensure fewer accidents," says Magnusson.

Who benefits from the data? asks Colette Maloney, head of the smart cities and sustainability unit in the European Commission's directorate general for Communications Networks, Content and Technology.

Future data ownership in the European Union could become clearer when the European Commission publishes a green paper, probably this year, on the retail insurance market. But Maloney says that the Digital Economy Commissioner Günther Oettinger expects EU-wide agreements by next July on technical, legal and ethical standards for automated vehicles and connectivity.

Marc Greven, legal affairs director at the European Automobile Manufacturers' Association, says that legal liability is "for the vehicle manufacturer probably the number one issue".

Insurers will have to grapple with questions about driver behaviour. Dr Natasha Merat, associate professor at the Institute for Transport Studies at the University of Leeds, cites many human-machine interface factors, such as the ability of drivers to take sudden control after doing nothing for long periods and the loss of driving skills over time.

"There's still a lot about the driver that we don't know," she notes. "Do drivers want these systems?"

And Hans-Jürgen Mäurer, head of development at vehicle inspection company Dekra, says that although lorry operators expect increased efficiency from automation and connectivity, "in trucks, safety doesn't sell".