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BONN, Germany-A lack of information about property insurance rate setting is making it difficult to know whether insurers are fairly pricing their products, contends an association of German insurance buyers.
More obscure rating adds to a long list of complaints with German property/casualty insurance by Deutscher Versicherungs-Schutzverband e.V., or DVS, an association of German insurance buyers.
Other concerns, which were set forth in a DVS issue paper, include a perceived lack of innovation in dealing with new risks, limited but expensive casualty coverages and new premium tax burdens from the German government.
Guenter Schlicht, managing director of the Bonn-based DVS, noted that several insurers last year suspended the practice of adhering to advisory property rates. Without those rates and the rate-setting information that accompanies them, many buyers find that they have no basis on which to compare insurers. Therefore, buyers will begin to abandon long-term relationships and focus instead on shopping for the lowest price, he warned.
"It's forcing companies away from their traditional insurers to the open market," he said. "You can't judge what you are getting if all the facts aren't known."
Those "facts" include details of rating factors used to set the cost of commercial property insurance for individual risks in Germany.
Ironically, the issue arose as a result of changes in the market last year designed to give German companies their lowest property rates in almost a decade. The move to depart from advisory rates published by the Assn. of German Property & Casualty Insurers, or VdS, was led by Allianz Holding A.G., Gerling A.G. and Colonia A.G. (BI, Sept. 23, 1996). The insurers introduced new, proprietary rating mechanisms and an increased emphasis on loss prevention that enabled them to dramatically cut rates for their better property risks and be more competitive with foreign insurers entering the market.
"While nothing compels insurers to publish statistics, it's still in the best interest of business. After all, it's the companies' own risks we're talking about," contends Mr. Schlicht.
Insurers insist the general rating mechanisms are not secret-only details of individual accounts and other information, such as expense data, that comes into play.
"VW doesn't tell me how they come up with their prices either," said Manfred Illner, a member of the executive board of Allianz A.G. Holding in Munich. "Every price is the result of several factors, including claims history, costs and other factors," he said.
"Why should we divulge every aspect of the business? It would only profit the competition. But we do publish general statistics, and our rate mechanism is not a secret," he said.
Nebulous rating is not the only problem confronting German buyers.
"Liability insurance has become buyers' biggest expense, but it is also an area where coverage is limited and innovation slow," DVS' Mr. Schlicht said.
The situation has worsened for companies seeking coverage for environment impairment liability.
"We're confronting more risk and finding less insurance available," Mr. Schlicht said. "Not only that, but many feel their premiums are too high for what they are getting."
Insurers counter it's impossible to say whether rates are appropriate for long-tail risks.
"Our current loss ratio is 78%" for casualty lines, said Alexander Mack, director of liability claims settlement for Gerling A.G. in Cologne. "We're not earning premium for some undetermined future claim. The premium we earn is going for claims. The reserves we are building cover claims we already have."
Mr. Illner said there have been no "exorbitant" EIL claims to date, but noted the coverage has only been offered in Germany since 1994.
Buyers insist that is not the case.
"We have the impression insurers don't have the kind of claims that would warrant the kind of premiums we're paying," said Mr. Schlicht. "Especially considering insurers' limited coverage and minimum potential for loss," he said referring to restrictions and exclusions in German EIL coverage (BI, May 27, 1996).
While criticizing high rates, the DVS says the market has made improvements. Last year, for example, American International Group Europe A.G. introduced coverage for cleanup of pollution damage to a policyholder's own facility (BI, March 11, 1996). Such coverage had been excluded since Germany introduced mandatory EIL insurance in 1993. Most major German insurers are following AIG's lead and offering similar coverage.
Despite that improvement, German buyers worry about stricter environmental liability laws that could emerge as a result of proposals to introduce strict liability throughout the European Union (BI, Feb. 24).
"Legislators have to look at the insurability of what they propose," urged Mr. Schlicht.
The DVS also has identified other liability concerns, including government proposals to reform the German court system to broaden the types of cases in which damages for pain and suffering can be claimed. Currently, German courts can only grant pain and suffering in criminal cases.
One recurring problem for German buyers is a perceived lack of innovation in insurance products.
"We're finding insurers are not moving fast enough to meet our needs as they arise," Mr. Schlict said. One need the group has identified is for multiline, multirisk coverages. "We need new solutions that include deductibles that work for several lines of insurance at once," he said.
Insurers, though, contend that few large companies are interested in multirisk coverages that combine limits for property and liability risks.
"We do offer all-risk solutions that incorporate casualty and property insurance needs of our clients, but our larger clients don't really want them," said Mr. Illner of Allianz.
The DVS also blasted the government for raising to 15% the premium tax on individual life insurance.
Both corporate buyers and insurers worry that existing group life insurance policies-which often form the basis of company retirement plans-could be subject to new taxes.