PKV Customer Switching Battle: Who's Winning and Losing the Competition for Clients?

A fierce competition for existing customers from other providers is raging in the private health insurance (PKV) market. The legislature deliberately promoted this through the GKV Competition Strengthening Act (GKV-Wettbewerbsstärkungsgesetz or GKV-WSG) of 2007: The law enables policyholders with contracts concluded since 2009 to transfer aging provisions (Alterungsrückstellungen) up to the value of the basic tariff when switching providers, based on § 204 of the Insurance Contract Act (VVG). Since then, it has been possible for PKV policyholders to switch between providers without all reserves accruing to the old provider's policyholder pool.

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While such competition serves consumer protection—insurers must design conditions so they don't lose customers in the long term—it has also led to a switching competition between providers. Critics complain that switching too often occurs against the customer's interest.

The Problem: Commission-Driven Switching

The problem: Insurers lure customers away from competitors and incentivize this through commissions. For intermediaries, this promises a lucrative business despite the commission cap in PKV. However, the policyholder often fares better with a tariff change within the same provider rather than a switch to a new one: In a tariff change, they retain all aging provisions instead of only the proportional ones (oriented to the basic tariff).

Although acquisition costs are not only for commissions but also for investments in digital infrastructure, etc., current key figures point to a correlation between high acquisition costs and successful customer switches. Some insurers reportedly spend comparatively more money to lure customers away from other insurers. This is supported, for example, by a striking correlation between the success of the switching winners on one hand and their high acquisition cost ratios on the other.

Stagnating Market Demand Fuels Competition

A reason for this commission-fueled switching competition could be stagnating market demand. At least, insurance expert Matthias Beenken advocates this thesis: For years, significant growth in private health insurance could only be achieved by taking existing customers away from competitors. Key figures support this thesis. The PKV stock of full-coverage policies has remained at the same level for years and even decreased by 0.1 percent in 2020.

Only seven insurers were able to increase their stock by more than 1,000 full-coverage policies last year. Notably, these are the same insurers that are particularly successful in the switching competition. The only exception is the market leader Debeka, which, with an acquisition cost ratio of 4.14 percent, is still below the industry average (6.29 percent).

The Role of Exclusive Distribution Channels

Matthias Beenken also posits in Versicherungsmagazin that exclusivity is the distribution channel that most frequently motivates switches. Accordingly, insurers focused on exclusive distribution would be among the net winners of switching. This fits: New business in private health insurance is largely determined by exclusive distribution. Exclusivity accounted for 56.4 percent of new business in private health insurance.

However, one must not too easily infer proof from correlating key figures—initially, they only provide hints for further research. This research is made difficult by PKV insurers withholding numbers on new business.

Identifying the Winners and Losers

Winners and losers in the switching battle can be assessed based on transfer values or portability numbers. The most important value is the net balance of received and paid-out aging provisions.

Based on the net balance of received and paid-out aging provisions in 2020, the following providers are the big winners in the switching battle:

• Arag
• HanseMerkur
• Continentale
• Allianz Private
• R+V

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When comparing this gain with other key figures, there is a striking correlation between a) the high gain in aging provisions, b) a high gain in full-coverage policies, and c) a poor acquisition cost ratio.

Example Arag: Although Arag is one of the smaller insurers, in relation to its own portfolio size, it achieved the highest growth in full-coverage policies in 2020—a plus of 12.44 percent. It held 46,554 policies in 2019 and 52,344 in 2020. For this success, however, Arag seems to spend a considerable amount of money: its acquisition cost ratio of 15.42 percent is the second-worst in the market. One could pointedly say: Arag has high acquisition costs partly to grow at the expense of competitors.

Example HanseMerkur: Figures from HanseMerkur reinforce the suspicion of expensive switching competition—the insurer has the third-worst acquisition cost ratio in the entire industry. The Hamburg-based insurer spent 12.83 percent of its gross premiums in 2020 on new contracts. However, there is no reason for disappointment because key figures have shown for years: HanseMerkur is the big winner in the switching battle with competitors.

The Losers in the Switching Battle

But who are the losers in this switching battle? It must be noted: Not all insurers disclose numbers. Therefore, the ranking is incomplete. Among those insurers that provide figures, the following companies lost particularly many aging provisions to competitors in 2020—and thus lost particularly many customers to the competition:

• DVK (largest loss)
• Generali
• Bayerische Beamtenkrankenkasse (BBK)
• Gothaer

Apart from Continentale, which is ranked second in the gain of transfer values but lost 6,184 full-coverage policies, there are also striking correlations here. For example, Gothaer lost a total of 3,731 full-coverage policies in its portfolio in 2020, Generali lost 5,594, and Bayerische Beamtenkrankenkasse lost 6,327. The highest loss of all insurers in full-coverage policies was lamented by the very loser in transfer values: DVK lost a total of 16,469 full-coverage policies in 2020.

The MAP Report, on which the key figures are based, is available for order.

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Editor's Note: Due to a reading error, initially too high numbers were given in the article. These have since been corrected. The editorial team apologizes. Also, a press spokesperson for the Versicherungskammer asked us to point out the small sums in relation to the total stock of aging provisions. For example, the 2.40 million euros lost by the Bayerische Beamtenkrankenkasse are only 0.02 percent of the total stock.

This analysis of the PKV market highlights the intense competition for customers. For consumers, it underscores the importance of consulting with an independent advisor who can objectively compare whether a switch is truly beneficial or if a tariff change with the current provider might be more advantageous, preserving valuable aging provisions. In any health insurance decision, whether in Germany's PKV or when selecting a US private medical insurance plan, understanding the incentives behind sales and the long-term financial implications is key to securing the best and most stable coverage.

Insurers and brokers struggle in claims management with high backlogs, increasing claim frequencies, skilled labor shortages, and growing customer expectations. Manual processes are expensive and slow.