This article provides a critical analysis of the consistency of the standard approaches for market and credit risks under Solvency II and the current and forthcoming Basel III standards. The comparability is assessed both theoretically via a detailed comparison of the capital standards and in a numerical analysis that contrasts the capital charges for a stylized portfolio. Our examination reveals substantial discrepancies in the design of the frameworks. These lead to vastly differing capital requirements for the same risks. Moreover, the analysis indicates higher charges for banks than insurers, especially under the proposed new Basel III standard approaches.

This paper focuses on recent developments in motor insurance pricing in Germany, Austria, and Switzerland. Through the analysis of responses to a recent comprehensive survey of industry representatives, we examine the various premium components and the processes involved in premium adaptation. New findings on the use of different tariff criteria, on the tools used for market-based and customer-specific pricing, and on the information considered for customer valuation are reported. We also address the integration of the insurance sales staff in the pricing process. With regard to premium adjustments and the introduction of new tariffs, we examine the frequency, time required, and costs incurred. With this paper, we contribute to a strand of literature where little academic research has been done so far. In addition, our results entail managerial implications for improving industry practices in insurance pricing. Keywords insurance pricing • motor insurance • tariff criteria • customer valuation •pricing process 1 Introduction One consequence of the deregulation of European insurance markets is an increase in competition among market players (see, e.g., Eling and Luhnen, 2008). In Germany in particular, motor insurance premiums have been under pressure in recent years, leading to combined ratios of around 100% (see, e.g., Gesamtverband der Deutschen Versicherungswirtschaft, 2012). As competition between insurance companies intensifies, higher efficiency and greater focus on profitability are required. While the potential for cost reductions is limited, improvements in profitability and growth can be achieved through sophisticated pricing management mechanisms (see, e.g., Schmidt-Gallas and Lauszus, 2005, and Pratt, 2010). In a recent survey by Hartmann et al. (2014), insurance industry practitioners in Germany, Austria, and Switzerland are asked about the current shape of the market and trends anticipated for coming years (see Hartmann et al., 2014, Figs. 47 and 48). With regard to the determination of the premium, experts make mention of increasing price differentiation according to individual risk profiles (T1) and based on alternative customer characteristics (T2). Furthermore, the average duration of customer relationships is expected to decrease (T3) and customers will be increasingly sensitive to price levels (T4). In the future, the market will also see heightened price competition (T5) and more rapid tariff adjustments (T6). The above trends signal challenges to the calculation of the various premium components and the processes for premium adjustments and the introduction of new tariffs. For premium components, we distinguish between the traditional actuarial premium, cost loadings, adjustments for market conditions and the customer's profitability as well as any surcharges and discounts applied during the