In Europe, more countries are now offering telematics services such as Pay As You Drive (PAYD), where drivers can benefit from lower premiums if they drive less, and Pay How You Drive (PHYD), which rewards “good” drivers. As new products and services emerge, it’s important for motor insurance companies to know how to extract information to deduce driving habits from telematics data. This article by Milliman’s Rémi Bellina, Antoine Ly and Fabrice Taillieu explores the technological choices and opportunities telematics provide insurers. It also explains how insurers can process data to detect driving behaviour based on projects led by Milliman’s analytics team.
A key focus of the insurance regulatory authorities around the world has been the protection of policyholder interest. This has resulted in more emphasis on product governance and product life-cycle management. The insurance directive launched under the European Union insurance law has issued guidelines for insurers to embed product oversight and governance into their risk management frameworks.
A robust product governance process can help reduce mis-selling and complaints, and increase policyholder confidence in the market. It can also ensure internal and regulatory compliance for the products offered by the insurer.
The core components of a robust product governance process are:
• Product governance policy
• Product development
• Pricing and value
• Distribution and sales
• Legal, compliance and risk management
• Ongoing assessment of the product
To read more about building a strong product governance policy, read Neha Taneja’s article here.
Solvency II went live on 1 January 2016 and introduced a number of new disclosure requirements for European insurers. Each insurer is now required to publish annually a Solvency and Financial Condition Report, including some Quantitative Reporting Templates. This European analysis of the non-life market by Milliman’s Marcin Krzykowski and Jarosław Lech covers 140 companies from 11 countries, which together comprise more than €141 billion of gross written premium (GWP) and nearly €224 billion of gross technical provisions, and our Polish analysis is based on 14 solo companies pursuing non-life business in Poland, representing circa 89% of the GWP of the Polish non-life market in 2016.
Solvency II came into effect on 1 January 2016 and introduced a number of disclosure requirements for European insurers. Under the new requirements, the majority of European insurers were required to publish detailed Solvency and Financial Condition Reports for the first time in May 2017. This analysis of the European life insurance market by Milliman’s Marcin Krzykowski and Jarosław Lech covers 200 companies from 13 countries, representing approximately €475 billion in gross written premium and approximately €4,700 billion of gross technical provisions.
Under a bonus malus system, motor liability insurers can adjust policyholders’ premiums based on individuals’ claims histories. For instance, a customer may receive a reduction, or “bonus,” on a premium if no claim is made during the previous year. Conversely, the customer may receive a premium increase, or “malus,” if a claim is made during the previous year.
In this article, Milliman actuary Diana Dodu provides an analysis of bonus malus systems in several European countries. She highlights the similarities and differences between the system designs in each country.
Here is an excerpt:
• Countries that do not have a specific system defined by law, such as Poland, where the system is fully liberalised and insurers have the liberty to provide own risk coefficients and load back the premium to obtain balance; Estonia, where insurers can design their own rules and where it may seem that the maximum bonus can be achieved within several years of claims free driving; and Lithuania, where according to the Law on Compulsory Motor Third Party Liability Insurance effective from 17 May 2007, premiums are fixed by the insurer and companies can take into account risk factors.
• Countries where the bonus malus system is defined in the legislature, requiring insurers to take into consideration loss history, but which grant freedom to insurance companies to design their own rules, which is present in countries such as the Czech Republic and Slovakia.
• Countries that are regulated by law, such as Italy and Romania… and Hungary, where according to law NGM 21/2011, the number of classes are predefined as well as movement between classes depending on the number of accidents, and insurers are obligated to issue accident and claim certificates, but are also allowed to use historical data for the purposes of classification to calculate additional correction factors, and Serbia, where the bonus malus system is defined in the law on compulsory traffic insurance but insurers can use correction coefficients if they do not contradict the ones mandated by law.
• Countries such as Croatia, where there seems to be a defined system, but companies offer extra benefits such as additional bonuses above the maximum and protection of the bonus (after several years of no claims, insureds can pay an additional premium to protect the bonus in case they have an accident in the subsequent year), and Slovenia, where you can also protect your bonus, while the future premium in cases of protection of the bonus would depend on the number of accidents in past periods.
• Latvia, where companies can set premiums based on prior histories with a conversion system in which it seems that it is more difficult to move towards bonus classes and where the system is evaluated annually (on September 15).
Milliman has announced the availability of a new report detailing embedded value (EV) results for 19 major insurance companies in Europe. The report examines trends among the companies reporting EVs as of year-end 2016, comparing practices adopted and discussing reporting issues following the implementation of Solvency II in Europe and the move toward the global adoption of International Financial Reporting Standards (IFRS).
“The future of embedded value reporting in Europe remains uncertain—although there has been increased alignment between EV and Solvency II reporting, we have continued to witness a gradual reduction in the number of firms reporting on an EV basis,” said Philip Simpson, a principal and consulting actuary in Milliman’s London office. “And with Solvency II disclosures via the SFCR lacking information around new business or analysis of change, for example, there is potentially a void appearing in the level of granularity of financial information reported.”
The release of the final IFRS 17 standard in May 2017 could signal an alternative reference point for Market Consistent Embedded Value (MCEV). And with substantial disclosure requirements involved, this may allow a sufficient amount of information to be obtained about the profitability of the business. However, the preparation of accounts under IFRS 17 gives rise to a different interpretation and timing of profit and loss compared with an EV basis, which will need to be considered. Ultimately time will tell whether companies use Solvency II or IFRS 17 as the reference point for MCEV.
Key insights from the European report include:
• There has been an ongoing, though moderate, reduction in firms reporting on an embedded value basis in 2016 compared with 2015.
• An amendment to the European Insurance CFO Forum Market Consistent Embedded Value Principles© (the MCEV Principles) was issued in May 2016, which permits the use of the projection methods and assumptions for market-consistent solvency regimes (e.g., Solvency II) in EV reporting. In light of this, during 2016 companies continued to change their approaches, with a continued trend to align EV and Solvency II reporting.
• The CFO Forum members (that disclosed their embedded values at the end of 2016) reported a combined embedded value of GBP 263 billion (EUR 308 billion) at the end of 2016 compared with GBP 246 billion (EUR 288 billion) at the end of 2015. Experience amongst the companies studied was mixed, with around half of companies experiencing an increase in embedded value compared with 2015.
• Overall, results for new business were fairly positive for the majority of companies in the report. The total value of new business (VNB) written by the current CFO Forum members (that disclosed their values of new business at the end of 2016) was GBP 11.3 billion (EUR 13.3 billion) in 2016, compared like-for-like with GBP 10.1 billion (EUR 11.9 billion) in 2015.
To download the report, click here.