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Developing a New Industry Index for Non-Life Insurance Sector

This study focuses on developing industry-specific indices for non-life insurances, exploring challenges, methods, and data collection in various countries such as the Czech Republic, Japan, USA, and Canada. It delves into the classification, definition, and different approaches within the insurance sector to enhance understanding and analysis.

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Developing a New Industry Index for Non-Life Insurance Sector

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  1. 65.12 Non-Life Insurance Developing a new industry index Susanna Tåg 15.5.2014

  2. Agenda • Background • Classification • Definition • About the industry • Different approaches • Methods • Situation in some other countries • Data collection and weights • Challenges

  3. Background • Developing industry-specific indices for K Financial and insurance industry • Direct banking: calculating, not yet publishing • FISIM: following, from NA, not yet published • Next starting to develop the index for insurances, firstly for non-life insurances

  4. Classification 65 Insurance, reinsurance and pension funding, except compulsory social security 65.1 Insurance 65.11 Life insurance 6511 65.12 Non-life insurance 6512 65.2 Reinsurance 65.20 Reinsurance 6520 65.3 Pension funding 65.30 Pension funding

  5. Definition … according to ESA2010: ”Insurance is an activity whereby institutional units or groups of units protect themselves against the negative financial consequences of specific uncertain events. Two types of insurance can be distinguished: social insurance and other insurance.”

  6. About the industry (1/4) • The insurance policy defines the roles of the parties involved, which are as follows: (a) the insurer providing cover; (b) the policyholder responsible for paying premiums; (c) the beneficiary who receives compensation; (d) the insured person or object that is subject to the risk • The most common form of insurance is called direct insurance, which can be divided into life insurance and non-life insurance

  7. About the industry (2/4) • The output of 65.1 Insurance in 2010: €1.9bn euro • From which the output of 65.12 non-life insurance €1.0bn  BtoB €584M, BtoC €420M

  8. About the industry (3/4) Non-life insurance: premiums written (BtoAll) - Premiums written include reinsurers’ part, not credit losses - Premiums written (BtoAll) were in 2012 €3.6bn. (The Federation of Finnish Financial Services)

  9. About the industry (4/4) Non-lifeinsurance: premiums written (BtoB) - Premiums written (BtoB) were in 2012 €1.7bn (The Federation of Finnish Financial Services)

  10. Different approaches • Activity-based  premiums + invested income - claims • Assumption of risk  premiums + invested income

  11. Methods • Model pricing • Difficult to maintain? • Unit value • Quality changes? • Premiums • Method in CPI; claims (compensations paid) are deducted from the value weight of insurance premiums • Inconsistencies between nominal value and production volume? (NA)

  12. Situation in some other countries • The Czech Republic • Motor damage insurance, fire insurance, theft or robbery insurance, agriculture insurance • Method: combination of model pricing/direct use of repeated services • Japan • Voluntary motor vehicle insurance, compulsory motor vehicle insurance, fire insurance, marine and other transportation insurance services

  13. Situation in some other countries • USA • Direct Health and medical insurance carriers, direct property and casualty insurance carriers • Methods: model pricing (estimated premiums for “frozen” policies) or actual premium charged • Canada • Direct Life, health and medical insurance carriers, direct insurance (except life, health and medical) carrier, reinsurance carriers • Methods: model pricing or unit value

  14. Data collection and weights • Sample • 4largest companies cover over 90 % of the insurance market • Administrative data • Questionnaire  response burden • Weights • Statistics on Insurance Activities

  15. Challenges (1/2) “It is widely recognised that the insurance industry is one of the most difficult parts of the national accounts to deal with “ (Chessa, 2010)

  16. Challenges (2/2) • Definition of output • premiums + investment income earned - the expected claim = margin (ESA 2010) • Use as a deflator? • “Given that the premiums are set with the future expected claims and investment earning in mind; a deflator constructed from premiums data alone, though not ideal, may be sufficient” (Yocom et al. 2011)

  17. Thank you for your attention!Questions? Anna-Riikka Pitkänen anna-riikka.pitkanen@stat.fi tel. +358 9 1734 3466 Susanna Tåg susanna.tag@stat.fi tel. +358 9 1734 2991

  18. Sources • Chessa, A.G. 2010. A new method for price and volume measurement of non-life insurance services for the Dutch national accounts. Statistics Netherlands. • European System of National Accounts (ESA 2010) • Yocom, J., Opsitnik, L. and Neofotistos, S. 2011. ”Direct Insurance Carriers Services in Canada ”. Statistics Canada.

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