Profitability and Growth in Motor Insurance Business – Empirical Evidence from Germany

Over recent years, the German motor insurance business has faced significant changes, including
a growing importance of direct insurance offerings. Motor insurance products are offered by a
wide range of insurers, with companies differing in terms of legal status, size, product portfolio,
distribution strategy and operational efficiency. Furthermore, one distinguishes between two
main products, namely motor third-party liability (MTPL) and motor own damage (OD). In our
research, we analyse to what extent the characteristics of the companies can explain the
premiums, the total claims costs and the operating expenses per contract in MTPL and OD. For
our analysis, we use panel data of insurance companies, offering motor insurance products in
Germany, for the years 2002–2014. The panel data provide almost full market coverage. In our
study, we apply different statistical tests and multilinear regression models. We show that
mutuals relate to lower premiums, lower total claims costs and lower operating expenses per
contract when compared to listed companies. In addition, direct insurance companies get along
with lower premiums and lower operating expenses per contract compared to traditional com-
panies selling via agents or brokers. Furthermore, we find major differences related to the range
of the product portfolio, the size of the motor business, the dominance of the motor business
within the non-life business, and the calendar year. Our results are relevant to academics and
practitioners alike and help to better understand the German motor insurance business.