Shifting gears in a changing landscape

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Much like in the UK, the post-pandemic period has proven to be particularly challenging in the German motor insurance market.

While 2020 and 2021 had seen significantly positive results, the increase in traffic density from 2022 onwards led to an increase in claims frequency:

• The number of motor third party liability insurance (MTPL) claims increased 6.9% from 2022 to 2023, and then a further 4.5% in 2024.
• The number of motor own damage (MOD) claims increased 7.4% in 2023 – a significant uptick that dropped by just 0.6% in 2024.

In Germany, there is roughly a 1% increase in the number of cars of the road each year, with traffic density also gradually increasing owing to trends such as urbanisation and reductions in remote working. In addition, housing shortages in major cities demand longer commutes, further driving up traffic density and contributing to an increase in claims frequency.

In tandem, the severity of motor insurance claims has also increased significantly. External influences such as the war in Ukraine have had a major bearing on the German economic situation in recent years, while the motor market has experienced higher than average inflation:

• According to the German Insurance Association (GDV), the price of spare parts increased 6.2% between 2023 and 2024, while the Consumer Price Index (CPI) increased 2.3% by comparison.
• Wage increases for repair shop workers also increased 7.9% between 2023 and 2024, exceeding the average national wage increase of 5.4%. 
• Between 2017 and 2024, repair shop wages had a compound annual growth rate of 6%, and spare parts had a CAGR of 6.2%. The CPI increased 3.1% per year during the same period.

There are several other external factors also driving up the severity of claims, however:

• 2023 saw significant losses in MOD claims stemming from extreme hailstorms just two years after the hailstorms of 2021 that badly affected motor losses (see figure 1):

• In the case of MTPL, health and care costs for injured individuals have continued to rise due to severe skills shortages in the German market. Further, in contrary to other markets, the care of policyholders in Germany is covered until the victims either recover or pass away, which can drive up costs significantly.
• In recent years, German repair shops have also been impacted by supply chain disruptions. With lead times on sourcing spare parts being lengthier, the costs of rental cars required to substitute policyholders with an alternative mode of transport are higher as they’re needed for a longer interim basis. However, while supply chain disruptions are still a challenge, they are not so prevalent today as they have been in previous years.

Owing to this combination of factors, claims severity has increased significantly, contributing to a significant deterioration in overall results in the German motor insurance market in recent years.

In 2023, a nominal result reduction of -11.3% emerged, driven by significantly poor performance in MOD (-25.3%) due to extreme NatCat damages, inflation being high and premiums being too low.

In response to these poor results, there was a major increase in average premiums (up 8.4% in MTPL, and 10.2% in MOD) in 2024, which improved the situation, but still wasn’t enough to achieve a positive nominal result:

• MTPL in 2024: The frequency of claims dropped 1%, while the severity of claims increased by 5.6% due to inflation. However, the loss ratio decreased because average premiums were adequately increased.
• MOD in 2024: While a more typical year was experienced in terms of NatCat, the combined ratio was significantly over 100%.

In total, MTPL achieved a nominal result of +2% for 2024. However, despite dropping from the -25.3% recorded in 2023, MOD still recorded a nominal result of -12.0% in 2024. In total, the nominal result dropped from -11.3% in 2023 to -3.9% in 2024.

In an effort to further correct the imbalance, 2025 has again seen a major increase in premiums (11% for MTPL, 15% for MOD), which are projected to deliver a positive nominal result of 1% for the German motor insurance market this year.

However, there are several long-term trends which could impact the profitability moving forward:

• In Germany, a key focus is improving road safety, while cars are getting safer owing to technical improvements and new technologies such as advanced driver assistance systems (ADAS). This could reduce claims frequency, yet more expensive features like ADAS could drive up claim severity.
• Contrary to these safety improvements, there is an issue of distracted driving, with people using smartphones or on-board entertainment systems while driving.
• The future impacts of NatCat (mainly hailstorms) remains uncertain. Critically, meteorologists still don’t have common opinion on whether impact of global warming will lead to more frequent, more dramatic hailstorms.
• Electric vehicles (EV) may further drive-up claims severity. With designs readily prioritising lightweighting, any damages can result in exchanging large components, which is more expensive. However, EV currently account for less than 5% of the market. Further, the German government recently ended its EV subsidy program, designed to incentivise purchases, that had been in place since 2016 due to budget constraints.
• Geopolitical uncertainty may also result in the implementation of trade wars and tariffs moving forward that could significantly impact market inflation in relation to aspects such as the cost of spare parts.