Compensation of damages in Germany

1. Compensation of damages in Germany Thomas H. Schaefer Moscow, September-12-2006

2. Agenda • Legal scope of MTPL in Germany • Handling of traffic accidents • Liability law and claims settlement • Claims management • Claims net

3. 1. Legal Basis • In Germany every registered user of a motor vehicle or a trailer (= keeper of the vehicle) is obliged to take out and maintain TPL insurance. • MTLP insurance must cover any bodily injury, material damage and economic loss caused by the use of the vehicle or trailer. • MTPL must not only provide insurance cover to the owner, but to other persons as well, such as the keeper of the vehicle and every entitled driver. (Sect. 1 of the Law on Compulsory Insurance):

4. 1.2 Direct claim for the road traffic victim • Protection of the road traffic victim is given highest priority. • Therefore, apart from the claim on the person being liable of the accident, the victim is granted a direct claim on the motor TPL insurer. • Direct claim of the victim is maintained even if the insurance contractual relationship with the perpetrator of the accident is disturbed due to breach of the contract, but in that case • Insurance company has the right of recourse against the policyholder.

5. 1.3 Scale of coverage of MTPL • Refusal of unfounded claims (= legal protection) and • Satisfaction of justified claims if • damage occurred during the use of the vehicle • damage has to be compensated under the regulation on liability stipulated in private law • What kind of damages are covered? • personal injury • Material damage and • some kinds of economic loss

6. 1.4 Exclusions in coverage are only allowed if exclusion meets the following reasons: • Material damage and economic losses of the MTPL-policyholder himself and additional insured persons • Damage of cargo transported by the insured vehicle • Economic losses caused by failure of delivery date • Intentionally caused accidents • Damage caused by motor-vehicle-races (regardless if authorized or not authorized by the authorities) • Damage caused by nuclear energy

7. 1.5 Minimum amounts of Cover The following are the minimum amounts of cover currently applying in Germany: • for bodily injury per person € 2.500 000 • in the case of three or more victims a total of € 7.500.000 • for material damage € 500.000 • for mere economic loss € 50.000 However more the 96 percent of the customers chose a higher amount of cover ( = 50 Mio. € per claim).

8. 2. Handling of accidents in Germany2.1 Role of Police in case of an accident • Police must be called if the accident caused bodily injury • Otherwise it´s up to the persons involved in the accident to call police is or not • After German law Police must come to the place of accident if called, but • will ask for the type of accident before and • in case of minor accidents maybe not show up before 1 or two hours • Whether and to what extent Police take accident particulars depends on the circumstances of the accident • complete documentation of accident if persons are killed, severely injured • If only material loss occurred police regularly Police only checks and records vehicle date and personal detail of the drivers involved

9. 2. Handling of accidents in Germany2.2 Obligations of the policyholder / driver • Policyholder is obliged to inform his MTPL Insurer about the accident without delay at least within a week after the accident • After that insurance companies requests the policyholder to deliver a complete report of the accident using a form sent to him with the request • Policyholder is obliged to support his insurer in any effort to clarify claim and to minimize the loss • Policyholder/driver are not allowed to give any acknowledgment of fault to the other party of the accident without permission of the insurer

10. 2. Handling of accidents in Germany2.3 Obligations of the claimant • Claim should be notified immediately (by phone or in writing) to the local office of the third party insurance company of the author of damage • As claiming compensation is a matter of civil law, the claimant in principle has to prove every particulars of his claim, therefore • Claimant should take an accident report at the scene of accident, such as • Sketch or photograph of the scene, • all damages occurred • Braking and skidding marks … • Insurance company will request the claimant details to deliver a complete report of the accident using a form sent to him with the request

11. 3. Liability law and claims settlement 3.1 Scope of Liability law 3.2 Crucial provision of liability 3.3 Compensation for vehicle damages 3.4 Compensation for bodily injury 3.5 Compensation for legal advice 3.6 German figures

12. 3.1 Legal basis of claims liability based on fault strict liability Sect. 823 of the Civil Code Sect. 7 of the Road Traffic Act material damage 300 000 € bodily injury 600 000 € bodily injury 3.000.000 € unlimited compensation for pain and suffering compensation for pain andsuffering

13. 3.2 Crucial provision of liability = Art. 249 BGB Sentence 1: “Anyone liable in damages must restore the condition that would exist, if the circumstance obliging him to pay damages had not occurred…” Sentence 2 “Where there is liability …..for damage to a thing the obligee may demand the required monetary amount in lieu of restoration...“

14. 3.3 Compensation for vehicle damages3.3.1 Types of claims to be compensated • Total loss = if no repair is possible replacement value is compensated • Repair costs = amount necessary to restore the damaged vehicle to its former condition • Towing charge • Costs of experts report • Hire car costs or • Compensation for loss of use • Reduction in value • Finance costs • Costs of overnight accommodation and meals During the period of repair

15. 3.3 Compensation for vehicle damages3.3.2 Cash in lieu settlement • Decision of injured party • not to repair the damage but • to settle the claim on basis of expert´s report • Maximum amount = difference between replacement value and the value of the remain (salvage) • Compensation is reduced by the turnover tax not payable by the injured party

16. 3.4 Compensation for bodily injury • Costs of medical treatment • Costs of care and increased needs • Loss of earnings • employed person = income during period of absence • unemployed persons = if running a household costs for engaging a substitute • Damage for pain and suffering • Funeral expenses • Loss of maintenance owed to a surviving dependant

17. 3.5 Compensation for legal advice and general expenses As “add on” to claims for vehicle damages and bodily injuries as well, compensation can be claimed for • Solicitors´ fees • Court fees and • General expenses

18. 6 German Claims figures (MTPL 2004) • Total number of MTPL-Claims 3.5 Mio • Claims expenditure 12.6 bn € • Number of bodily injury claims 362.667 • Amount of payments 5.1 bn € • Number of material damage claims 3.2 Mio. • Amount of payments for material damage claims 7.2 bn € • More than 95 percent of claims for vehicle damage are settled out of court

19. 3.7 Figures of the German motor insurance market

20. 4. Claims management • Strategies to minimize claims payment and operating costs of MTPL claims are difficult to put into practice • In Germany Settlement of MTPL Claims takes places in a market where market forces do not work properly , because • the claimant is shopping with the insurer´s wallet • therefore he does not care about the costs • Service provider in the area of MTPL claims do not have to compete providing best and inexpensive service • He who will be the first in contacting the claimant will make the running.

21. Insurance Company Service Provider Claimant 4.1 Market forces do not work properly has to pay the invoice Engages service provider Simply passes on the invoice to the insurance company Charges towing costsrepair costs etc.

22. 4.2 Instruments used by Insurance Companies • Company-own Call centres / service card • Additional coverage of assistance service tied to the MTPL insurance policy ( contracts with assistance companies) • Comprehensive service • Picking-up the damaged car • Providing the customer with a rental car • Repairing the car • Bringing the car back to the customer repaired and freshly cleaned • Network of repair shops and car rental firms

23. 4.3 Claims sharing agreements Agreements between (a) MTPL insurer and MTPL insurer (b) Motor comprehensive insurer and MTPL insurer to settle controversial cases (where it is not quite clear which insurer is liable to which degree) in a standardized way.

24. 4.3 Claims sharing agreements4.3.1 Advantages of claim sharing agreements • Policyholder • Allows speedy settlement of claim. Claim can be settled even if it is not quite clear to which degree the other participant in the accident (the victim) is responsible to the event. If the claims settling insurer realizes that the other participant is partly or completely to blame for the event, the insurance company can recourse the liable insurer of the other afterwards. • Insurance Company • Controversial cases are in general time consumingand expensive. In so far agreements on simplestandardcan spare a lot of money

25. 4. Claims sharing agreements 4.3.2 Essentials of claim sharing agreements (1) Standards on recourse • not applied for minor losses (a) or for major claims (b) • Recourse according to • circumstances and legal position or • by means of a tableau showing typical events and stipulating which proportion of liability is applicable to the participants (but not applicable major losses)

26. 4.3 Claims sharing agreements 4.3.2 Essentials of claim sharing agreements (2) • Company‘s own costs for claims settlement (e. g. costs for claims experts and loss assessors) cannot be recovered • The claimant is not to refer to another (involved) insurance company but the company beingclaimed the frist has to settle the claim and if necessary recourse the other involved company • If both the involved insurance companies disagree on the question whichparticipant is liable to which degree, so called arbitration board has to decide and clear the situation.

29. 4.3 Claims sharing agreements 4.3.3 Experiences with claim sharing agreements • Enjoy a long tradition in Germany, but • have been vividly debated in the last decade • some major insurance companies think they would systematically lose money by such agreements, if recourse is done in the form of a lump-sum. • Today: Different (bilateral and multilateral) agreements common in the German motor insurance market • Differing in particular in the way the recourse is done • Either in the form of a lump-sum or according to accident facts and legal position.

30. 5. Network of repair shops,experts and rental car firms • Company instrument to assert itself within the motor insurance market. • The idea is to reduce repair costs, costs of expert‘s report and the costs of rental cars by using an all-over-the-country network. But that only works if the repair shops etc. are working to full capacity. • 2 approaches of „repair shop management“: • Company own network of repair shops • Buying the services from a provider of such a network

31. SP IC A ... A ... Ad ... Ad IC ... SP IC IC IC IC Agent Insurance company Service provider, e. g. repair shops etc. Administration Other 5.1 Purpose of Claimsnet

32. 5.2 Importance of claims net • Improving claims management by means of gaining quick information on the claims event for the purpose of minimizing the amount of claims and the costs of claims settlement. • Claims net is a system available for all companies and institutions (service provider) playing a role in the process of claims settlement. • 95 % (referring to the premium income) of all motor insurance companies in Germany participate in the GDV claims net.

33. 5.3 Supported business processes are • Report of the claim • Acceptance of repairing the vehicle • Acceptance of carrying the costs • Calculation of costs for repairing the vehicle • Expert‘s report • Rental car • Authorising the claims expert • ...

34. 5.4 Uniform data format

35. Policyholders Other administrations Repair shops and other service providers Admission office Agents GDV ICHEIC Exchange of information Claims settlement Car registration Information and services Exchange of data Inquiry of compensations GDVService Net Exchange of data between insurance companies and GDV Statistical data to GDV Insurance company Insurance company 5.5 Claims net is part of the GDV service net