MTPL as a challenge to actuaries

The Czech and the Austrian motor insurance market

different countries but similar problems

Development of motor insurance market

Austria 1.8.1977

introduction of the bonus-/malus system (private cars, taxi and hired cars)

1.9.1994MTPL-insurance law 1994 (deregulation)

1.7.1997minimum sum insured 1.09 million EUR (15million ATS)

1.1.2002EURO

2004 (?)minimum sum insured 3million EUR

CZECH Rep. 1.1.2000

demonopolizationminimum sums insured PD 150 000 EUR BI 550 000 EUR

1.1.2000-31.12.2002 partial regulation of premium

1.1.2003 full deregulationbonus-malus system

1.5.2004EU&adoption 4th directive PD 550 000 EUR BI 1 060 000 EUR

Rating factors used in MTPL

Austria Power of engine (kW) Bonus-/malus-class Sum insured (1.09 mio EUR

to 10 (15) mio EUR) Additional rating factors

Age of policy holder User of the car Additional bonus classes

or discounts Sex (?) (Region) (Type of car) (Age of car) (Firms) ...

CZECH Rep.OLD (bound solely to vehicle):

Vehicle type Engine cubage or vehicle

weightNEW: bound to policy holder:

Bonus/malus class Age Region Person/company

bound to vehicle: Age of car

others: Sum insured

Bonus/malus-systemAustria

18 classes Starting class 09 Claim-free year

1 step towards bonus Claim

3 steps toward malus

00 50% 10 120%01 50% 11 120%02 60% 12 140%03 60% 13 140%04 70% 14 170%05 70% 15 170%06 80% 16 200%07 80% 17 200%08 100%09 100%

Czech Rep. (prevalent BM) 16 classes (starting = 10) function f „claims-free duration“

= time spent in the system if claim f=f-36months

00 120M 50%01 <108,118>M 55%02 <96,107>M 60%...09 <12,23>M 95%10 <0,11>M 100%11 <-12,-1>M 125%12 <-24,-13>M 150%

...

14 <-48,-37>M 200%

15 <-60,-49>M 250%

The Austrian bonus/malus-systembonus-malus- % 31.12.class premium 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

00 50 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 28,501 50 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 31,4 6,802 60 0,0 0,0 0,0 0,0 0,0 0,0 0,0 34,4 7,4 3,403 60 0,0 0,0 0,0 0,0 0,0 0,0 37,8 8,2 3,8 3,404 70 0,0 0,0 0,0 0,0 0,0 41,9 9,1 4,2 3,8 12,005 70 0,0 0,0 0,0 0,0 46,2 10,1 4,7 4,4 12,2 5,806 80 0,0 0,0 0,0 51,2 11,5 5,5 5,0 12,4 6,2 5,007 80 0,0 0,0 58,0 13,3 6,4 6,0 12,6 6,9 5,7 6,008 100 0,0 68,6 16,1 7,9 7,5 13,3 8,0 6,9 7,2 8,109 100 100,0 30,1 19,9 18,3 21,7 16,9 16,1 15,9 16,6 15,710 120 0,0 0,0 0,0 5,0 2,3 1,3 1,6 2,5 1,6 1,311 120 0,0 0,0 3,7 2,1 1,3 1,6 2,2 1,5 1,3 1,412 140 0,0 1,3 1,7 1,0 1,4 1,9 1,3 1,1 1,2 1,313 140 0,0 0,0 0,0 0,2 0,7 0,5 0,3 0,4 0,5 0,414 170 0,0 0,0 0,2 0,4 0,4 0,3 0,4 0,4 0,3 0,315 170 0,0 0,0 0,3 0,3 0,2 0,3 0,4 0,3 0,3 0,316 200 0,0 0,0 0,0 0,0 0,1 0,2 0,2 0,1 0,2 0,217 200 0,0 0,0 0,1 0,2 0,2 0,2 0,3 0,3 0,2 0,2

100,0 100,5 90,2 89,7 84,8 84,4 79,6 78,9 74,7 74,127,1% 18,2% 17,1% 17,0% 16,4% 15,2% 15,2% 14,9% 15,3% 15,3%

premium-factor claims frequency

The Czech bonus/malus-system

not unified heterogenity in:

range of scale

maximum bonus = 50% (unified) maximum malus in range <0;150%>

number of B/M states <11;17>

size of one step

bonus steps 5% or 10% malus steps are generally increasing and differ from

company to company (below are examples of malus scales): 25%, 50%, 75%, 100%, 150% 5%, 10%, 15%, 20%, 25%, 30%, 50%, 100% 10%, 20%, 30%, 60%, 120% malus NA

The implications of the deregulation in Austria

average premium in EUR

0

100

200

300

400

500

600

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

MTPL

comprehensive

Source: VVB – Versicherungsverband (Association of Austrian Insurance Companies)

Development of average MTPL premium in Czech Republic

Source: Czech Insurers Bureau

0

20

40

60

80

100

120

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

EU

R Ex lege/minimumpremium

Real averagepremium

Demonopolization

Full deregulation Estimate

The implications of the deregulation in Austria

Source: VVB – Versicherungsverband (Association of Austrian Insurance Companies)

claims ratio

0%

20%

40%

60%

80%

100%

120%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

MTPL

comprehensive

hail event

Expectations for the Czech market

Higher competition Trend towards bonus Lower average premiums Decrease in claims frequency Higher sums insured Higher average claims Increase in claims ratio