Study Large Motor Third Party Claims the Netherlands. NRV, 3th October 2013 Christof Van Der Aa

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1 Study Large Motor Third Party Claims the Netherlands NRV, 3th October 2013 Christof Van Der Aa

2 Technical QBE Re Our technical expertise is a key factor to provide excellent service to our clients Technical studies, analysis reinsurance structure and tailor-made covers for our clients. Motor large claims studies are made on a regular basis in order to have a clear insight in the Motor claims. Since 1992 we have been making large claims studies for the Dutch market. Our large MTPL claims Study 2012 is based on a 14-year observation period and represents a 88% market share. Individual benchmarks 2

3 Overview presentation Recent topics BI claims Changes in Social Security legislation : AWBZ Change in claims capitalisation rate («Rekenrente») Study Large Motor Third Party Liability Claims Data sample large claims study Indexation method Largest claims in last known situation Extrapolation method Conclusions IBN(E)R analysis Largest claims in ultimate situation Number of claims Burning Cost Payment pattern Road Safety and BI claims frequency International perspective Summary and conclusions 3

4 Recent topics BI claims (Re)insurers need to have a clear insight in the components of large MTPL claims, the majority of these claims being Bodily Injury claims. Loss of income Third Party Aid Long term care Medical Expenses Changes in the Social Security legislation l : AWBZ Change in law as from Higher personal AWBZ contribution («Vermogenstoets») Up to 2200/month personal AWBZ contribution! No retroactive impact on claims Capitalisation rate (= «Rekenrente») changes Article recently published in «Verkeersrecht»:from 3% to 2% Implementation depends on decision Supreme Court ( Hoge Raad ) Retroactive impact on claims 4

5 Capitalisation rate comparison 4.50% Capitalisation rate comparison 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% NL B FR D CH UK P Ireland 5

6 Capitalisation rate : impact on MTPL XL claims (ex 1) 8% 1% 10% 2% 3% 13% 6% 28% 27% 2% for 20 years, after 3% Accident Victim: male, born , married Employee, net income of EUR per year Tetraplegic Settlement % disabled for work Retirement at age of 67 Placement institution (AWBZ) 1% 0% 3% 1% 7% 0% 10% 2% 12% 6% Medical costs Past loss of income 2% 7% 0% 9% 2% 11% 6% 29% 29% Future loss of income Past domestic help Future domestic help Past loss of self-activation 30% 30% 1% 0% 3% 1% Future loss of self-activation Personal contribution AWBZ Moral damage 1% 0% 3% 1% Material damage Costs Legal interest 6

7 Capitalisation rate : impact on MTPL XL claims (ex 1) Loss amount 3% 2% FGU Priority 1 Priority % + 16% + 24% Accident Victim: male, born , married Employee, net income of EUR per year Tetraplegic Settlement % disabled for work Retirement at age of 67 Placement institution (AWBZ) Priority New IBNR s Priority

8 Capitalisation rate : impact on MTPL XL claims (ex 2) 2% 0% 1% 0% 8% 1% 8% 3% 3% 8% 13% Accident Victim: male, born , married Employee, net income of EUR per year Several fractures, severely handicapped Settlement % disabled for work without domestic help Retirement at age of 67 3% 0% 1% 0% 7% 1% 7% 3% 2% for 20 years, after 3% 56% 7% 3% 1% 7% 3% 7% 1% 1% 2% 7% 60% 11% 0% 58% 12% Medical costs Past loss of income Future loss of income Past domestic help Future domestic help Past loss of self-activation Future loss of self-activation Moral damage Material damage Costs Legal interest 8

9 Capitalisation rate : impact on MTPL XL claims (ex 2) Loss amount 3% 2% FGU Priority 1 Priority % + 15% + 21% Accident Victim: male, born , married Employee, net income of EUR per year Several fractures, severely handicapped Settlement % disabled for work without domestic help Retirement at age of 67 Priority New IBNR s Priority

10 Data sample Our study is based on the large MTPL claims from accident years (AY) up to and including development year (DY) Threshold depends on information provided by the participating companies MTPL premium market share max original thresholdh max indexed thresholdh group ,8% group ,3% market ,0% Analysis from ground-up and without index clause 10

11 Premium indexation Why Correct premiums for inflation and tariff adjustments How? Evolution of average MTPL premium (stable portfolio composition) Ideally specific company indexes are set up Market index used in our study Premium Index MTPL

12 Claims indexation Claims indexation : two components Evolution wages index Super imposed inflation while the average MTPL claims cost increases faster than the wages index, this is due to: Changing claims culture Evolutions in medical technology Higher expenses for pain and suffering Better protection of weak road users Increasing life expectancy Evolution in «jurisprudence» 12

13 Claims indexation super imposed inflation 200 Average claim amount vs wages index Index index avg claim wages index Linear (index avg claim) 13

14 Index comparison Index Comparison premium index claims index frequency index Premium index Claims index Frequency index 14

15 Largest claims in last known situation (LKS) Original Indexed Year Claim amount Year Claim amount Up to 2007 (before the 5th MTPL Directive) the old policy limits were still in force, which means that some claims were probably capped and hence we underestimate the claims burden. 15

16 Extrapolation : Chain Ladder methodology Loss amount IBNER 1,4 M 1M IBNR 1,2 M Threshold 09M 0,9 0,8 M 0,5 M Development year We make a separate Chain Ladder calculation l for the triangles with claims amounts (IBNER) and number of claims (IBNR). 16

17 Conclusions IBN(E)R analysis IBNER analysis The (from a reinsurers point of view) known claims are slightly underreserved. Bigger claims are better reserved IBNR analysis Up to 1.5M : larger claims are subject to a bigger IBNR effect, as from 1.5M the IBNR effect stabilizes. Volatility for higher thresholds The IBNR has been analysed from a reinsurers point of view : possibly the IBNR effect originates from a reserve adjustment (IBNER) made by the insurer. 17

18 Largest claims in ultimate situation Indexed LKS Indexed ultimate situation Year Claim amount Year Claim amount

19 Largest claims in ultimate situation Largest claims before and after extrapolation (IBNER) M-3M 3M-4M 4M-5M 5M-6M 6M-7M nb of original claims in LKS nb of indexed claims in LKS nb of indexed claims in ultimate situation 19

20 Largest claims in ultimate situation 5,000,000 Avg 5 largest indexed claims in ultimate situation 4,000,000 3,000,000 2,000,000 1,000, Average 5 largest claims 20

21 Number of claims in ultimate situation per AY 50 Number of indexed claims per AY Threshold 1 M Threshold 1.2 M Threshold 1.5 M 15 Number of indexed claims per AY Threshold 1.8 M Threshold 2 M Threshold 2.5 M 21

22 Number of claims in ultimate situation per AY Contrary to what has been observed during our previous studies the number of large MTPL claims is no longer decreasing. This corresponds with the data published by SWOV (Stichting Wetenschappelijk Onderzoek Verkeersveiligheid). Road casualties 1,600 Number of road victims per year Severely injured 14,000 1,400 1,200 1, ,000 10,000 8,000 6,000 4,000 2, Road casualties Severely Injured 22

23 Number of claims in ultimate situation Number of MTPL claims in ultimate situation in excess of a number of thresholds is shown. Weighted average for the period for a premium volume of 1000M. 40 Average number of claims (ultimate) M 11M M M M M M M M M 1.9 2M 25M 2.5 3M Number of claims Poly. (Number of claims) 23

24 Evolution number of claims in ultimate situation 40 Evolution number of claims Development year 10 Evolution number of claims Threshold h 1 M Threshold h ld12m 1.2 Threshold h ld15m Development year Threshold 1.8M Threshold 2 M Threshold 2.5 M 24

25 Number of claims in ultimate situation per AY It takes a considerable number of years before the reinsurer has a good view on the expected number of claims. Development pattern number of claims 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Threshold 1 M Threshold 1.2 M Threshold 1.5 M Development year Threshold 1.8M Threshold 2 M Threshold 2.5 M 25

26 Burning Cost and number of claims The number of claims in ultimate situation (lambda) and the Burning Cost for a number of layers have been analysed. Premium volume = 1000M ; Index clause date of payment margin 10%. 1.6% Burning cost XOL layers with limit 5M 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 00% 0.0% 1.0 M 1.2 M 1.4 M 1.6 M 1.8 M 2.0 M 2.2 M 2.4 M 2.6 M BC Expon. (BC) 26

27 Comparison Burning Costs We compared the Burning Cost (BC) with the BC of previous studies for a number of layers with limit 2.5M Upward trend confirmed by our latest t study Priority Limit BC 2004 BC 2006 BC 2008 BC 2010 BC ,530% 0,836% 1,197% 1,192% 1,320% ,437% 0,698% 0,967% 0,944% 1,138% ,365% 0,588% 0,798% 0,755% 0,938% ,307% 0,498% 0,667% 0,608% 0,778% ,257% 0,422% 0,558% 0,492% 0,590% ,212% 0,353% 0,465% 0,398% 0,472% ,176% 0,300% 0,385% 0,322% 0,476% ,145% 0,252% 0,317% 0,259% 0,400% ,118% 0,209% 0,257% 0,207% 0,287% ,092% 092% 0,169% 0,207% 0,163% 0,252% ,070% 0,133% 0,162% 0,125% 0,174% 27

28 Payment pattern from ground up Payments related to the ultimate claims amount (from ground up) per DY. Average payment pattern: After 5 years 25% is paid After 10 years 55-60% is paid After 14 years 75-80% is paid Final claims settlement after years Claims size has no material impact on settlement pace Payment pattern 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Threshold 1 M Threshold 1,2 M Development year Threshold 1,5 M Threshold 1,8 M Threshold 2 M Threshold 2.5 M 28

29 Payment pattern for the reinsurer The reinsurers payments start later but increase gradually while the payment pattern FGU is linear. The claims size has a material impact on the settlement pace of the reinsurer : while for a 1M claim the reinsurer paid 15% after ten years, he only paid 4,1% after 10 years in case of 2M claim Payment pattern (reinsurer) 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Threshold 1 M Threshold 1,2 M Threshold 1,5 M Threshold 1,8 M Threshold 2 M Threshold 2.5 M 29

30 Road Safety figures and MTPL quotations Claims frequency index MTPL XL = number of BI claims / number of Motor vehicles Based on official i statistics ti ti we calculate l the BI claims evolution : as we don t dispose for the Netherlands of the total number of BI claims, we made an approximation by using the evolution of the road casualties. In most of our markets we observe a decreasing BI claims frequency. index Comparison frequency indexes Duitsland België Nederland VK Ierland Spanje 30

31 BC Comparison priority limit NL B FR D SP UK P I ,19% 6,78% 0,51% 4,75% 0,54% ,57% 3,61% 3,83% 1,92% 0,06% 2,70% 0,13% 0,46% 4.50% BC Comparison 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 00% NL B FR D SP UK P I Layer 3M xs 2M 31

32 Summary and conclusions Recent topics BI claims : material impact on XL claims! AWBZ : changes in law as from , no retroactive impact on claims Decrease capitalisation rate : decision Supreme Court, retroactive impact Largest MTPL claims : 3.5M - 7.0M, development > 15 years Claims reservation (from a reinsurers point of view): IBNER effect is moderate Bigger claims are better reserved IBNR (number of claims) remains key factor Largest claims tend to increase as from 2007? Impact 5th Directive MTPL Before 2007 : breach of policy limits? Increased burning cost Premium index Frequency index Claims index Payment pattern FGU almost independent of claims size 32

33 Any questions? I will be happy to answer them! 33