A European comparison of motor insurance products, premiums and sales channels
Ulf D. Lemor

I. Introduction

The discussion on the establishment of the Single Market has extended over a period of three decades.

It was only with the 3rd Coordination Directive on claims dated 18 June 1992 that the Single Market was – at least de jure – also introduced for the area of motor vehicle third-party liability insurance on 1 July 1994.

But can we really speak of a single market? The answer is:
• Yes – de jure with regard to common supervisory and compulsory insurance law.
• No – with regard to establishing uniform European liability and compensation law.

./.

What does the establishment of the single market mean for the insurance sector in specific terms?

The consequence of the Single Market is: each insurer in the EEA has the right to operate transnationally after being licensed in its country of origin.

The introduction of the country of origin principle gives the insurer a so-called “European Pass”. The insurer is then entitled to operate in the EEA by way of the principle of freedom of establishment as well as the freedom to provide services.

At the same time, liberalisation/deregulation has taken place following the Anglo-Saxon model, especially with regard to supervisory regulations. This is intended to promote transnational competition – also with corresponding consequences at national level, of course.

So although a unified economic area has emerged with the completion of the Single Market, this can in no way be equated with a unified insurance market.

I.1. Is the EU Single Market a success?

A distinction has to be drawn here between the expectations of insurers and consumers. For this reason, the answer to the question necessarily differs. One of these expectations is that increased transnational competition and sales will lead to there being a greater variety of products and prices available to consumers.

Insurers expect to be able to offer and sell uniform products throughout the EU with as little hindrance as possible.

The reply to the question of whether these effects have come about differs. Superficially, the question has to be answered in the negative since, in private business, there is no real need for transnational transactions either on the part of the provider or the consumer.

The reasons for this are generally well-known. Insurance is a marketing-intensive product which is difficult to sell transnationally without the presence of the provider. Consumers usually want to be close to their insurance and prefer “their local agent”.

However, insurers are also very cautious about their transnational marketing activities. The time, workload and costs associated with transnational operations are usually not in proportion to the profits that can be generated.

When an insurer decides to become active in another country, it will certainly not do so in the form of a transnational operation – it will buy up a company, acquire a shareholding or establish a subsidiary.

This situation could change with the increasing use of new sales possibilities, especially via the Internet. For this to really become relevant, though, a “new generation” will first have to develop which is prepared to use this medium for such transactions.

The picture in the industrial sector is different. Here, there are definitely insurers who are actively involved in the provision of services – particularly via the form of coinsurance – and who participate in industrial policies. The insured party in industry is also open to this form and looks for the most favourable terms in this way.

I.2. Changes through the Single Market

The biggest changes have come about in those countries where the insurance business was previously state-regulated to a very great extent, e.g. France and Germany.

Dramatic changes have taken place in Germany as a result of market-wide deregulation.

Intense competition broke out among the national market players in 1994 and has continued since because the legal stipulations – approval of conditions and charges – had been removed.

This is most clearly evident in the area of motor insurance.

There has been merciless price competition in Germany in this segment since 1996, with a large number of discounts in the third party and comprehensive insurance categories leading to a lowering of premium levels, which is in no way justified to that extent through any improvement in the claims situation. The technical losses in the motor insurance segment between 1996 and 2002 amounted to €4.2 billion.

The volume of premiums for motor insurance policies during the period 1995 – 1999 fell from €22 billion to €19.5 billion as a result of deregulation – despite a simultaneous rise in the number of vehicles of approx. 5 – 6%.

I.3. Summary
The success of the Single Market does not, therefore, lie in transnational sales. It lies, above all, in the consequences of deregulation. This is at least an advantage from the consumer viewpoint.

The consumer does, however, have a price to pay for this – namely a far greater lack of transparency in terms of products and prices than was previously the case.

The Single Market therefore does not function, in one respect at least, as previously - and still - envisaged by the theorists in Brussels. It does not have any serious impact on transnational sales or marketing – though the effect of deregulation has made itself fully felt in a number of Member States.

There are possibly three essential requirements in relation to transnational business:

• Harmonisation of fiscal law
• Promotion of portability (e.g. taking the insurance contract elsewhere, SFR)
• Harmonisation of insurance contract law

However, harmonisation is still a long way away in the areas of tax and contract law, in particular.

Summary: deregulation can initially give rise to major problems for those countries which previously had an intensive level of regulation in the insurance sector, e.g. a large number of companies, and this is also quite natural, will first seek their fortune in the area of competition, hoping that they will be able to drive competitors out of the market.

Experience shows that it is only after major loss phases that markets then tend to maintain a certain market discipline again.

However, deregulation does not only represent a danger – it also offers a special opportunity to those that can handle this instrument in the right way.

I.4. And in the motor vehicle third-party liability insurance segment ?

Here, a distinction has to be made – in simplified terms – between benefit and price.

The benefit side has been standardised at a relatively high level across Europe through harmonisation of the law on compulsory insurance under the first three insurance directives. Under the heading of “products” we will see what special features exist in this respect and there are not all that many. The basic benefit structure is there and we can say that it has been regulated satisfactorily in the interests of consumers.

The picture is different with regard to premiums, where a very extensive competitive situation prevails, which – as I have already referred to – has initially had very negative effects on the German market, in particular.

 

 

II. Main section – national comparison

In the following, I would like to outline the practices in a number of European countries in relation to the different areas of products, premiums and sales channels.

In order to achieve as broad a cross-section as possible, we have concentrated on 6 important markets taken from all the regions of Europe:

• Belgium
• France
• Great Britain
• Poland
• Sweden
• Spain

Before taking a closer look at products, premiums and sales channels, I would first like to deal with two other points – “compulsory acceptance” and “uninsured vehicles”.