Leading risk managers believe German motor fleet prices have bottomed out

The ritual has been adhered to for the last six years. Every year before the renewals for motor fleets, German insurance companies announced price increases and stricter conditions. Allianz, HDI-Gerling, Axa—all were united year after year in believing that things could not go on as they were. But with a few exceptions, all these attempts proved futile. Risk managers and brokers simply had to wait—and shortly before the end of renewal negotiations, there were always a few companies that gave in and wrote the business at even lower premiums. These were not always the big boys traditionally dominating motor fleet. Newcomers discovered that they could easily add 20,000, 30,000 or 50,000 units to their book, and thus overcome losses in the embattled private customer market. The fact that their know-how of fleets was somewhat limited and they often acted as innocent capacity appeared to not really bother them. hideBut according to Hans-Jürgen Allerdissen, chief executive of Deutscher Verkehrs-Vermittlungs-GmbH, the risk managing company of the German railway organisation Deutsche Bahn, this is about to change. “This year I expect the market to go sideways,” he said. “We reached the bottom.” Sooner or later insurers will be forced to reconstruct their portfolio, which would lead to rising prices, he expects. “As soon as inflation comes the companies will have to factor the costs into the regular prices.” For years German motor underwriters have been locked in an intense competitive battle. In a price war started, incidentally, by Allianz in autumn 2004, rates have declined steadily. Since 2008, the industry’s combined ratio has been above 100 percent. For 2010 motor insurers expect a combined ratio of 105 percent. As interest rates are nosediving, there is little hope that investment returns will fully fill the gap. “The market is loss-making,” Allianz spokeswoman Claudia Hermann said. Sectors like courier services, transport fleets or supply companies are known to have a high loss frequency. It is in these segments that insurers are likely to first start the reconstruction of their portfolios. Fleets in industries, which do not have vehicles at the core of their business and cause less claims are harder to tackle. If an engineering firm has only a small number of service vehicles, but many managers with company cars, they clock up far less miles than a courier service. Well-established insurers of motor fleet cover are, in addition to market leader Allianz, HDI-Gerling, R+V, VHV, Axa and Zurich. Gerhard Heidbrink, board member of HDI-Gerling Industrieversicherungs-AG, believes that the market-wide reconstruction has already started. “This year the insurance industry will start to increase prices,” he said. One reason for this is the hard winter period in the first three months of 2010. “This caused many claims in motor fleets.” According to Mr Heidbrink, even more important is the economic situation, which has improved in 2010. “While in the years of the financial crises, large parts of the fleets stood unemployed, we now see an operating level of nearly 100 percent,” he said. In smaller fleets he expects rates to go up by five to ten percent. In larger fleets rates will be discussed individually—in motor fleet, premiums are calculated according to individual claims history. “For commercial transport fleets there will be price increases of between 20 and 40 percent,” Mr Heidbrink predicted. Increasing prices can have serious consequences for the industry. If a company group pays €750,000 for its car pool with a 1,000 car fleet, a 20 percent increase would mean that a company would have to spend another €150,000 on insurance cover, which would not have been included in the budget. But for Deutsche Bahn's Hans-Jürgen Allerdissen, rising rates will not be a reason to change insurance company. “Until now we have had good experience not changing our insurer every year,” he said. “What counts for us is a sensible claims management and a long-term overview over the development of our claims.“ However, Deutsche Bahn is not typical in this respect—its insurer is DEVK, the German railwaymen’s mutual, which has close ties with DB. Other fleet operators are less loyal and more opportunistic. The industry could benefit from fresh attempts by smaller insurers with less experience in industrial insurance, seeking to keep their volumes up. Industrial insurers do not take these attempts of smaller suppliers seriously—but they influence the market in a major way. German giant Allianz is an exception to the rule. It started reconstructing its book two years ago and has a restrictive acceptance policy. “In fleet business you cannot avoid reconstruction,” Ms Hermann said. The insurer has started early to charge much higher rates for loss-making fleets. Because it reacted early (and lost or gave up some of its business), the company has in this year's renewal not felt as much pressure as in recent years, she said. The anti-cyclical behaviour of earlier years finally paid off. Additionally the insurer engages in loss prevention. Risk managers observe the frequency of claims and analyse dates, times and places of accidents. “Only when we know when, where and why cars have accidents can we work against it,” Ms Hermann said. “Risk management in advance can reduce claims to the extent of 50 percent.” In addition, insurers are spending increasing sums on driver training for large corporations and on methods of exerting subtle pressure on drivers to avoid common mistakes. So far, however, all loss prevention methods have failed to bring accident rates down in a serious way.

Leading risk managers believe German motor fleet prices have bottomed out

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