What’s happening in the commercial motor market? That was the question under scrutiny during Munich Re’s recent webinar discussing, ‘The future of commercial motor underwriting and pricing’.
Contextualising the sector, Falk Albers, partner and practice lead of commercial motor & mobility consulting/insurance solutions at Munich Re, noted that its cumulative annual growth rates over the past decade reveal that commercial motor has outpaced the industry overall, with commercial motor premiums making up roughly one-quarter of the sector’s total insurance premium. A huge increase in this figure is projected to occur within this decade, he said – underpinned by four ‘mega-trends’.
The first of these trends is increased commercial activity. The growing world population and increasing urbanisation are creating a bigger need for commercial vehicles to deliver goods and services, he said, which in turn is creating an increased need for commercial motor insurance.
“We also have a significant change in personal mobility preferences,” he said. “The car itself is not necessarily the status symbol it once was. A lot of people see it more as a luxury item. Certainly in urban areas and city centres, there are more flexible opportunities to move around to get from A to B, from micro-mobility, to more flexible leasing and subscription offerings, for example.
“There's also a drive to a more sustainable future… The younger generation doesn't necessarily have such a big motivation to buy their own vehicles, and [they] use more flexible usership. This is then also underpinned by the industry. So, if we look at big fleet companies, the automotive industry and leasing companies, they are jumping on this train and developing new business models that are supporting this trend.”
Albers highlighted that this is resulting in the move towards more flexible leasing, subscription, and micro-mobility models. With that, the need for personal cars and personal insurance is shifting towards commercial motor, he said, because many of these business models are actually underpinned by fleet policies.
Another trend is the increased usage of technology, automation, and driver assistance systems. Examining how this influences premium, Albers noted the counterbalance of the risk prevention measures in the commercial motor and fleet industry weighed against the costs of automation. Cars are equipped with more technology these days, he said, which ultimately drives up the cost of repair.
“So there's a huge impact in how technology is being built and scaled into the vehicles that we drive today,” he said. “This has an impact on the overall growth of the GWP. Last but not least, there’s regulation and public safety as, with a growing market, there’s also a demand for safety. Also in developing countries, we see more compulsory coverages in the commercial motor space.
“And businesses tend to add more coverages also, to increase the safety of their drivers and, and for their business. Of course, there's also a sustainability concern over all the vehicles are being replaced. We have throughout Europe already a lot of diesel bans, for example, within city centres, with old vehicles being replaced with new vehicles, which ultimately increases premiums here as well.”
Between increased numbers of commercial motor vehicles on the road, the shift from retail to commercial motor, increasing claims and repair costs, and increasing compulsory coverage around the world, there’s a lot happening in the sector. The question for many insurers now is how to translate this into profitability, and that’s where Albers – and the wider Munich Re team – see the opportunity to leverage data and technology to build a competitive advantage as an insurance in a fast-growing market.
