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65.12 Non-Life Insurance Developing a new industry index

65.12 Non-Life Insurance Developing a new industry index. Susanna Tåg 15.5.2014. Agenda. Background Classification Definition About the industry Different approaches Methods Situation in some other countries Data collection and weights Challenges. Background.

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65.12 Non-Life Insurance Developing a new industry index

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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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