The recovery in motor vehicle insurance is not set to last – digitalization and technological automotive trends threaten the business model.

Many German insurers are currently breathing a sigh of relief: After six years in the red, motor vehicle insurance is set to move back into positive territory in 2014. Premiums have already been on the rise since 2011 – and for the coming year premium increases of a further five percent are on the cards. However, to talk of a recovery would be inappropriate: Structural factors will exert persistent long-term pressure on motor insurance margins.

The overall market volume will shrink – on the one hand due to the waning attraction of owning a car in urban regions, on the other thanks to damage-limitation technologies in the vehicles themselves. Price competition among insurers will remain high in a market in which the online and offline worlds are coming together, customers are extremely price-sensitive and comparison sites provide a high degree of transparency. New risk selection options will also squeeze margins further.

For most insurers, pulling out of motor insurance is not an option. They are dependent on existing sales structures and have to systematically refine them further. Successfully tackling the transition will require major efforts – and, in part, completely new approaches.