Buyers market in Germany but some concern over property risks

“I have been working in the industrial insurance market for the last fifteen years and apart from a small dent in 2001 I have not seen the market hardening at all, although insurers promised the hard market would come at least every six months over the last ten years,” said Alexander Mahnke, Siemens Chief Insurance Risk Manager and new chairman of German insurance risk managers’ association Deutscher Versicherungs-Schutzverband (DVS). There is no doubt the past couple of years have been painful for insurers covering German risks as a result of natural catastrophes in the country. Last year, according to the German insurance association Gesamtverband der Deutschen Versicherungswirtschaft (GDV), German insurers had to pay €7bn for natural catastrophe losses caused by hailstorms, floods and storms.hideIn particular hailstorms have hit industrial insurers hard. They caused severe damage to motor vehicles and also damaged production and warehousing facilities, resulting in complex property and business interruption claims. In June of this year yet another severe storm, Ela, hit Germany resulting in insured losses of €650m. It was the second most expensive German summer storm of the past 15 years. According to the GDV, commercial German property insurers paid a total of €7.5bn to clients in 2013 following €6bn in 2012. At the same time, total premiums increased only to €7.8bn from €7.5bn. The industry’s combined ratio rose to 116.8% from 100.5%. “However, overall the loss ratios are still manageable, and insurers and also reinsurers were not able to increase prices due to keen competition,” Mr Mahnke explained. Additional capacity provided by pension funds and other institutional investors is pouring into the insurance market helping to avoid price hikes, he added. “We see alternative capital structures that have chosen the industrial insurance market for their investments,” pointed out Mr Mahnke. “There are of course certain industries where changes in risk landscape and claims scenarios may make price adjustments necessary,” said Mr Mahnke. “But this is not real market hardening as such, but merely something that happens from time to time. Risks change and premiums change too.” However, Thomas Abel, Managing Partner of broker Funk, reports big rate increases for property risks. “The property insurance market has hardened considerably,“ he said. It follows a hardening of the motor market that began in 2011. “Now it is property insurance, mainly fire and natural catastrophe risks,” said Mr Abel. “Insurers’ attempts to lift prices were so significant that some industries have experienced problems to get coverage,” he added. Mr Abel expects the hardening of the property insurance market to continue this year. But he noted that in other areas, such as liability and D&O insurance, there are no premium increases in sight. In contrast to property insurance, industrial insurers seem very keen to underwrite liability business, he said. “I have the impression that liability risks become more important to insurers while property cover is losing some of its relevance,” agreed Frederik Wulff, General Representative of the German subsidiary of US insurer Markel. “Many insurers try to generate more liability business, some of them quite aggressively,” he said. This is because insurers with big liability books have been more profitable in terms of underwriting results over the past years than those focused on property, he said. There are of course exceptions to the rule. Liability cover for the health sector is very unpopular among German insurers. Midwives, emergency hospitals and doctors who specialise in gynaecology, anaesthetics, orthopaedics and surgery face high premiums or are not able to get liability insurance at all. “The potential amount of loss due to faulty operation is today considerably higher than it was 20 to 30 years ago,” explained Funk’s Mr Abel. The higher claims and relatively low premiums meant that this line of business slipped into heavy underwriting losses and some insurers, such as Zurich und Nürnberger, left the market. There are only about five German insurers now willing to write health sector liability insurance. Mr Abel hopes that they remain but is convinced that things will get worse if price dumping starts again. “Out of these five German insurers that are still in the market, two or three will immediately exit the moment prices start falling again,” he explained. Should this occur there would not be enough capacity in the German market to meet health providers’ demands, he warned. Apart from the difficulties hospitals and doctors are experiencing, SMEs in Germany have no problems obtaining cover. Intense competition among industrial insurers for large risks means that more and more are trying their luck with smaller firms. “Everybody wants to enter the middle market at the moment in every line of business,” said Florian Karle, Managing Director of broker Südvers. “Insurers that have only been present in the market via excess cover or specialised insurance products, also offer policies in other lines of business to SMEs."

Buyers market in Germany but some concern over property risks

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