In the past few years, as my country’s economic development has entered a new normal, the number of motor vehicles and the insurance concept of consumers have undergone great changes. Market-oriented reform is imperative. However, a series of new problems are bound to arise in any reform, and our insurance companies can learn from the experience of mature foreign markets to solve these problems. Some developed countries have completed the reform of auto insurance rates decades ahead of my country, and have accumulated a lot of advanced experience. Learning from their journeys can help us avoid detours.
The Characteristics of Auto Insurance Rate Reform in Developed Countries
Germany
Germany is a veritable “car kingdom”. The world’s most famous BMW, Mercedes-Benz, Audi, and other brands are all from Germany. Its auto insurance scale accounts for about a quarter of the world’s total, and the per capita car ownership, insurance depth, and insurance density are ranked in the world. For the top three, competition in the auto insurance industry is fierce. Germany officially launched the market-oriented reform of auto insurance rates in the mid-1990s. At the beginning of the reform, when the market was not fully prepared, the German government fully liberalized the independent pricing of products, which led to the price war among insurance companies falling into a vicious circle. But it grew rapidly. Five years after the implementation of the reform, the loss ratio of several major insurance types has risen by 20 percentage points, and the profit margin of the German auto insurance industry has been greatly squeezed.
Faced with such an embarrassing dilemma, local property and casualty insurance companies in Germany chose to raise the underwriting threshold and strengthen cost management to improve their operating levels. After 20 years of digestion, the auto insurance industry has gradually recovered and stabilized, and both policyholders and insurance companies have finally benefited from this reform. In my country’s fragile market competition environment, this inevitable shock period is a severe test for insurance companies, which requires the CIRC and insurance companies to make risk estimates as soon as possible. Let’s take a look at the characteristics of the German auto insurance reform in detail:
1. The products of German auto insurance are very diverse and cover a wide range
In addition to the basic third-party liability insurance and motor vehicle loss insurance, German auto insurance also includes car rental accident additional insurance, comprehensive motor vehicle insurance, litigation expense insurance, and motor vehicle travel insurance.
The third-party liability insurance in Germany is similar to my country’s compulsory motor vehicle traffic accident liability insurance. The comprehensive coverage of motor vehicle insurance covers a wider range of traffic accidents. Compared with partial insurance, it increases the vehicle loss and funeral expenses of the responsible party. Litigation expense insurance covers the attorney’s fees incurred by the insured in the event of an accident and the need to litigate.
Motor vehicle travel insurance is relatively new. It insures that in the event of a traffic accident, the insurance company will pay for the rental car costs, trailer costs, temporary accommodation costs, and other transportation costs. This additional insurance is welcomed by frequent long-distance travel policyholders. Finally, there is the car rental accident additional insurance. Since the German car rental industry is relatively developed, insurance companies have specially developed this product for the risks arising from accidents during the car rental process. It mainly compensates the insured for the part beyond the compensation limit of the third-party liability insurance of the vehicle when a traffic accident occurs in the process of renting a car. In addition to third-party liability insurance, the remaining auto insurance products are free to choose from, the insured can apply for insurance on demand, and the property insurance company can determine the rate through risk assessment.
2. Determination of car insurance rates is fine
After more than 100 years of development, Germany’s auto insurance rate system has become very mature, mainly covering basic rate factors and additional rate factors. Among them, the basic rate factor refers to the occupation of the driver and the situation of the insured vehicle, such as the model of the vehicle, the record of accident and compensation since registration, the number of miles traveled, and the parking situation. The additional rate factor is mainly the risk situation of the insured, including the driver’s driving license, bank credit history, real estate, and marital status.
In terms of basic rate factors, the model and brand of the underwritten car are listed as the biggest consideration factors. Germany divides each brand and model into dozens of levels according to the situation of spare parts and the accident rate. Low-level cars have low risks and high rates are also low. For the Volkswagen POLO car, according to the existing rating standard, its level is ten, which is three or four levels lower than most vehicles, and the premium calculated according to this level differs by nearly half. This grading system is now also a key indicator for consumers to consider car safety factors and cost performance when buying a car and has gradually become a driving force for German automakers to focus on product quality.
In Germany, the car insurance rate must be determined according to the actual situation of the driver. For example, for a novice who has just obtained a driver’s license, it is necessary to pay twice the price of a standard policy for insurance. At the same time, the marital status and age of the insured should also be considered. For example, unmarried youths aged 18 to 25 have the highest rates. The driver’s historical traffic accident record will also affect the insurance premium for the second year. This regulation improves the safety awareness of the insured and is also conducive to the risk management of the insurance company.
Once again, it is the geographical factor. When determining the premium, German insurance companies will also refer to the traffic conditions, public security conditions, repair costs, and other factors in the main driving area of the insured vehicle. Except for the registration place, two vehicles with similar conditions are registered in the capital Berlin. If you register, you need to pay nearly 30% of the premiums higher than in the northern German city of Bonn.
US
The United States is without a doubt the world’s largest auto insurance market. Since the United States is a federal system country, its regulatory regulations are formulated by each state according to its situation, and the content is similar but somewhat different. The US auto insurance reform has the following characteristics:
1. Generous and strict supervision
The data shows that there are roughly five levels of regulation in place across the 50 states in the United States. In the past 30 years, the regions with stronger supervision have had the most stable price fluctuations, and the market order has been more standardized. At the same time, the market performance in regions with less stringent supervision or completely free development is not satisfactory, and the price war is becoming more and more serious, making it difficult for enterprises to survive. For example, South Carolina’s auto insurance law has been revised several times, and important provisions have been added: First, property insurance companies no longer need to obtain approval from insurance regulators when the rate is determined within 7%. The second is to fully hand over the pricing power to insurance companies. After the promulgation of the bill, the auto insurance market in South Carolina has become significantly more dynamic, and the profitability of property and casualty insurance companies has improved a lot.
While the United States has gradually liberalized the regulation of product and rate determination, it has strengthened the monitoring of insurance companies’ financial risks, solvency, and capital circulation.
2. Features of auto insurance rates
In most states in the United States, the driver’s age, driving area, and credit status are the main factors that affect auto insurance rates. Among them, males aged 25 to 30 have the highest rates, because of their higher accident rate and poor safety awareness; drivers registered in rural areas of the United States have much lower rates than urban areas; for drivers with more historical accident records, in It is stipulated in the policy that in the event of an accident, compensation will only be made when the vehicle driven by the assured is the agreed vehicle.
3. The Internet of Vehicles is developing rapidly
Progressive Insurance in the United States is the first organization in the world to carry out the Internet of Vehicles application business. After 15 years of development, it has now reached an annual business scale of 2.5 billion US dollars. The company’s connected car app prices policies are based on recorded data (such as driving areas, and driving habits), offering valuable customers additional price discounts. Progressive’s Internet of Vehicles business started early and has now become a leader in this field. At the same time, major insurance companies in the United States have accelerated the development of Internet of Vehicles projects, and the premiums of this project have begun to take shape.
Japan
Under extremely strict government supervision, Japan has gradually formed a set of tariff terms and pricing systems with its characteristics. Japan’s commercial vehicle insurance started it’s business 30 years earlier than my country. Under the impact of the financial crisis in 1998 and the coercion of the United States, Japan canceled the original unified standards and promulgated a new “Insurance Law” to release the terms and conditions of auto insurance. The development and pricing power of the rate is given to the insurance company, and the promotion of the marketization of the auto insurance rate has been started. The characteristics of Japan’s auto insurance reform are as follows:
1. The market concentration has increased sharply after the reform
At a time when Japan is in a period of great financial transformation, the promulgation of this new law has led to the closure and merger of a large number of property insurance companies due to poor management within a few years. The scale of insurance premiums of institutions has maintained rapid growth and has reached four-fifths of the entire industry. This is mainly because small and medium-sized enterprises that do not have advantages in terms of maintained actual level and platform construction ability are gradually eliminated under the circumstance that the scope of insurance coverage continues to expand.
Under the situation that the stability of the entire auto insurance industry has been impacted, Japan’s insurance regulatory authorities have also taken the initiative to assist bankrupt companies, strengthened the management and control of financial risks, and raised the minimum standard of capital for setting up property insurance companies.
2. Continuous innovation of auto insurance products
After the release of product pricing power, Japanese property and casualty insurance companies have continued to launch products with distinctive features. Take Yasuda Insurance Company as an example, raising the underwriting threshold for home-use vehicles, increasing risk factors, and correspondingly reducing corporate vehicle rates. At the same time, Yasuda provided customers with road support services and added nursing care for the injured, which received a good market response.
3. The Internet of Vehicles is getting started
With the European and American insurance industries taking advantage of the general trend of Internet technology, the Internet of Vehicles information system established by Japanese automakers, Internet companies, insurance companies, and other institutions has brought Japanese motor vehicle insurance into a new era. For example, Japan’s road traffic information communication system (VICS) is currently a product with a relatively high penetration rate, with an installation rate of 50% nationwide as of June 2019. The earliest application of car networking products was Honda. As early as 1981, Honda and Alpine jointly developed the world’s first gyroscope car navigation, which was loaded into Honda’s ACCORD series. Other manufacturers have also joined the ranks of research and development. At present, the application of the Internet of Vehicles in the Japanese market is very rich, the data analysis has reached a high level, and the application has formed a certain scale of the competition.
Implement premium pricing differentiation
Insurance companies can learn from the auto insurance actuarial framework of developed countries to build a data system suitable for my country’s actual situation.
First, insurance companies can add model coefficients to the original pricing model. When the model coefficient is added, the biggest change in auto insurance premiums is the “three high” models with a high zero-to-integration ratio, accident rate, and loss rate. With the marketization of auto insurance rates, the zero-to-integral ratio of different models will affect the pricing of auto damage insurance. The underwriting risks of the models are differentiated in terms of premiums. My country Automobile Industry Association also announced that it will regularly announce the zero-to-integration ratio of major vehicle brands in the Chinese market to facilitate the determination and adjustment of the model pricing model rates. At the same time, the accident rate and loss rate of various car series under the model pricing model will also affect the premium. In the existing market, the loss rate of Changan Benben is less than half of that of imported Mercedes-Benz, and the accident rate of Lexus is more than twice that of Great Wall Genie. Under normal circumstances, “three high” models are expensive imported brands. In the existing rate system, only the purchase price of new cars is different from ordinary models. The introduction of the model pricing model can effectively improve this situation.
Secondly, considering the human factor, the driver’s risk factor is introduced. In the existing underwriting system, the conditions for the driver’s condition to affect the rate mainly include gender and driving years. On this basis, the driver’s region, driving habits, driver occupation, and marital status can be added. For example, car insurance in the United States stipulates that drivers whose driver’s licenses are registered in cities have higher rates than those in rural areas, and the rates in large central cities are higher than those in small cities.
Thirdly, insurance companies are required to establish a more complete database of auto insurance data. A complete rate determination system requires, on the one hand, a certain amount of historical data for analysis; on the other hand, requires that the analysis results be effectively applied to underwriting practice. Insurers can proactively collect social data while leveraging existing underwriting claims data. For example, the auto repair association collects the status of spare parts and vehicle maintenance cost dynamics of various brands, obtains the driver’s accident situation and driving data through the vehicle management office, the traffic safety department, and the public security system, and records the driver’s driving habits through the Internet of Vehicles. coefficients, etc.
Flexible launch of differentiated products
Insurance companies should attach importance to product innovation and take the initiative to develop products based on consumer needs. After segmenting the market, focus on part of the product development. Product innovation should also be combined with the company’s overall strategic goals and corporate brand characteristics, and some additional terms should be adjusted to merge to gain a firm foothold in the fierce market competition. For example, the United States and Japan have developed a package of insurance policies for vehicles with different usage characteristics, that is, a policy that combines all the insurance types required for a certain type of used vehicle to facilitate customers to insure.
In terms of form, there are currently two paths that can be combined: one is to refer to some products of developed countries and make localized modifications; the other is to integrate and reorganize current products, modify unreasonable places, and continue with better development. reserve. For example, it is possible to develop motor vehicle travel insurance with a relatively high insurance rate in Germany. In the event of a traffic accident, the insurance company will pay for the rental car costs, trailer costs, temporary accommodation costs, and other transportation costs. With the growing trend of self-driving travel in my country, the prospect of motor vehicle travel insurance is also very impressive.
In addition, insurance companies should not be limited to single product innovation but can be linked with other products. We can refer to the universal insurance products in life insurance to combine the protection function and investment function of auto insurance. For example, in South Korea, many insurance companies have launched products that combine auto insurance business and personal fund management to develop small-amount financial management products. In the event of an accident, the insurance company pays according to the contract. At the same time, the funds in the customer’s account are centrally managed and invested by the insurance company, and the income generated will also be reflected in the account regularly.
Straighten out the existing channel cooperation system
One is to share customer information with car dealers. After the implementation of the model pricing model, the “three highs” vehicle insurance premiums will rise significantly, and the consideration of safety will also affect consumers’ desire to buy. At the same time, the pricing of spare parts will gradually be reasonable, and the control mode of car dealers over auto insurance will soon be broken. Insurance companies should prepare for the response as soon as possible, strengthen the sharing of information platforms, change the previous cooperation model, strengthen the management and control of the quality of the car dealership channel business, and achieve a win-win situation with 4S stores.
The second is to change the direction of channel construction. First, control the agency business. Insurance companies should form industry self-discipline and actively adjust the fees paid to agencies. Only by changing the current status quo of passively participating in the fee war can they achieve profitability. Under the circumstance that the market fee cannot be controlled, the proportion of the agency business will be reduced as much as possible, and the product and service features will be used to attract family car customers to the company’s direct sales channel. This not only saves the cost of sales but also allows consumers to obtain additional price concessions.
The third is to develop direct sales channels. The development of network technology makes it possible for insurance companies to obtain and analyze a large amount of customer data. Insurance companies can use this data to segment their customer base and use WeChat and online stores to serve customers. The WeChat platform of many insurance companies has few functions, mainly including trial calculation and order issuance. On this basis, it can also increase the tracking of insurance policy claims information, the promotion of preferential activities, and the popularization of safety knowledge. At the same time, personalized insurance can be formulated according to customer preferences. plan.
Promoting connected car applications
According to the experience of developed countries, the Internet of Vehicles can improve the safety awareness of drivers, significantly relieve traffic congestion, and reduce the incidence of accidents. At the same time, the use of the Internet of Vehicles can also provide a data foundation for the reform of the auto insurance industry, effectively providing insurance companies with more accurate driving habits and driving records. Therefore, the Internet of Vehicles can provide data collection for insurance companies “from people” and “from vehicles”. Through the analysis of customers, vehicles, and driving areas, a more reasonable and scientific rate determination system is obtained.
How to popularize the use of the Internet of Vehicles is a topic that the industry is constantly exploring. my country’s auto insurance industry can also refer to the experience of the United States. When purchasing auto insurance, a vehicle diagnostic recorder will be presented. According to the tracking records of driving habits and accidents over some time, according to different customer levels For rewards, high-quality customers can be rewarded with a part of the premium, up to 30% of the total premium.
In general, most developed countries have completed the reform of auto insurance rates 20-30 years ahead of my country. Chinese insurance companies should actively learn from the experience accumulated by these developed countries and try to avoid detours as much as possible.
