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TRENDS IN INTERNATIONAL MOTOR INSURANCE SOAT Non Life Insurance Forum 2012 Bangkok, 16 November 2012 Joachim Michaely

Agenda

1. Motor Insurance for Electro-Vehicles 2. Rising Influence of Aggregators 3. Telematics in the Motor Insurance Industry

Government Initiatives

China invested US$ 32 bn. on the promotion and development of “Green Cars” in 2012 US will spend US$ 30 bn. during the next 5 years to develop E-Cars EU “Green Cars Initiative” steers US$ 6.5 bn. towards cleaner forms of road transport Tax reductions or bonus payments for buyers of “Green Cars” Road tax based on CO2 emission

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Motor Insurers Initiatives (examples)

Premium discounts based on CO2-emission (normally < 140 g / 100 km) vehicles’ engine emission standard petrol consumption (e.g. less 3 ltr. / 100 km) 100% offset of insured cars’ CO2-emission (e.g. forestry projects) Discounts for members of environmental organisations Sponsoring “Eco-Driving-Training” courses for policyholders Insurers changing to e.g. Hybrid company cars Donations to environmental charity organisations One company planned to implement a private emission trading market Trends in International Motor Insurance

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Are “Green Car” discounts justified?

No reliable data as there are still only a small number of “Green Cars” in the portfolios. Some assumptions:

More solvent policyholders More careful drivers Limited cruising range Lower top-speed

Rating by make and model Annual mileage Social status of policyholder Use of vehicle

Higher spare part prices

Fast acceleration

Safety of batteries after crash unknown

Silent

Mainly used in urban / rush hour traffic

Positive impact on claims experience

Already included in other rating criteria

From today's perspective Green Car discounts seem to be marketing driven!

Negative impact on claims experience

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Agenda

1. Motor Insurance for Electro-Vehicles 2. Rising Influence of Aggregators 3. Telematics in the Motor Insurance Industry

Market Share of Direct Distribution and Aggregators in European Motor Insurance

M/S Direct Distribution:

n/a

>50%

Aggregator Non Aggregator

Sources: Oliver Wyman, Datamonitor, FPK, Merril Lynch, McKinsey, Accenture, Nielsen, internal research

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Distribution via Aggregators Benefits and Challenges Benefits

Challenges

Access to huge customer base

Price sensitive customers

Focus on target groups

High dependency on aggregator

Reduced marketing costs

Fragile customer relationship

Reduced fixed costs compared to agency business

Hard to differentiate from competitors

Easy market entry for new players

Commodity product Hard to achieve higher renewal premium Self cannibalisation Conflict with traditional sales channels

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Distribution via Aggregators Consequences Fierce price competition High transparency Different reaction of insurers Ignoring aggregators Second brand / multi channel strategy Multiple product strategy Operating their own aggregators Implementing customer loyalty programs

Attractive to a mighty new player Google took over UK aggregator Considers to enter German aggregator market Trends in International Motor Insurance

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Agenda

1. Motor Insurance for Electro-Vehicles 2. Rising Influence of Aggregators 3. Telematics in the Motor Insurance Industry

Predicted Number of Telematics Devices in 2016

Canada

Western Europe Eastern Europe USA

Asia / Australia

Middle East / Africa Latin America

Source: ABI Research, BCC Research, iSupply, Oliver Wyman Analysis

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Telematics in the Motor Insurance Industry (1/2)

Risk premium highly correlates with annual mileage Conclusion: Usage Based Insurance Pay As You Drive (PAYD): rate based on distance, time, location

100 90 80 70 60 50 40 30 20 10 0

Loss Frequency

3500

Severity

3000 2500 2000 1500 1000

Pay How You Drive (PHYD): PAYD plus driving behaviour

500 0

350 300

Niche product still; only attractive for target groups with high rates

Risk Premium

250 200 150 100 50 0

Source: GDV German Insurance Association: motor insurance market statistics 2010 â&#x20AC;&#x201C; private passenger cars

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Telematics in the Motor Insurance Industry (2/2)

• After theft tracking and vehicle recovery • Black box provides accident data (“crash recorder”) for more accurate claims settlement and fraud detection • More efficient road assistance as car informs about reason for break-down • Remote vehicle check (e.g. doors locked, lights turned off, …)

• Driver logbook • Feedback about driving behaviour and recommendations for improvement

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Business Models (1/2)

Focus on safety

Stolen car tracking and vehicle recovery

Distress button activates road assistance call

Automatic emergency call in case of more serious accident

Simple PAYD products

Only mileage is recorded and considered in the pricing

Different ways to check the mileage driven:

odometer will be read during annual inspection

digital photograph of the odometer taken by the customer

mileage recording by on-board GSM device

mileage recording by on-board telematics device

Price is quoted per km Trends in International Motor Insurance

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Business Models (2/2)

Complex PAYD or PHYD products

Different ways to collect data

Device w/o GPS recording mileage, time, acceleration, hard breaking, turning, cornering but no location and traffic offences

Telematics device with GPS function recording mileage, position, time, speed, G-force, location, route info, etc

Pricing based on mileage, time driven, driving behaviour, route and time driven, parking overnight, etc.

Additional services can be provided, including accident alert and stolen car tracking

Insure the Box customers can earn additional miles by purchasing from online partners

Aviva just started a pilot project using smart phones

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Telematics in the Motor Insurance Industry Benefits and Challenges Benefits • Positive risk selection • More accurate pricing • Risk management for vehicle fleets • Less road deaths and reduced severity of BI claims • Reduced claims costs due to better claims management (e.g. immediate reaction, fraud detection, crash analysis, stolen vehicle recovery) • Improved claims and assistance services • Positive impact on customer’s driving behaviour • “Green” product encouraging customers to drive less thus reducing petrol consumption and pollution emissions

Challenges • Decreasing loss frequency leads to less demand for motor insurance • Car manufacturers threatening traditional business models of insurers • Little acceptance due to customer’s privacy concerns • Customers may prefer fixed over variable premium • In many markets there is little savings potential for customers; therefore niche product only • Costs of technology (e.g. telematics device, backend system) • Initial pricing model due to lack of statistical data

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Car Manufacturers threatening the Business Model of Motor Insurers Today car manufacturers sell integrated insurance packages and finance products through car dealers Increasing number of OEM telematics devices; supported by legislation (e.g. eCall) Tomorrow car manufacturers will be able to steer automated breakdown or emergency calls to their own hotlines and get full control of assistance and claims process Remote vehicle diagnostics and driver feedback allow continuous contact to customers Insurance companies reduced to “component suppliers” Car manufacturers could use customer data to offer new mobility concepts (e.g.. Daimler’s Car2Go, BMW’s DriveNow)

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Thank you very much for your interest.

This presentation has been provided by Munich RE Motor Consulting Unit.

All content provided herein has been compiled carefully and may not be revealed to third parties without prior written consent of Motor Consulting Unit. Contact us or your Munich RE Client Manager or Underwriter for help with your motor insurance operations for improved profitability, expansion in new motor areas and growth in new regional and international markets.

Joachim Michaely jmichaely@munichre.com +65 6318 0780