Alexey Karpitsky Head of Insurance Methodology Department by Russian Association of Motor Insurers
– In 2008 36.7 mln. MTPL agreements were concluded. Volume of premiums raised amounted to 80.4 bln. roubles. During the period under consideration, 1.88 bln. Insured events were settled, an amount of money paid under the said events was 45.9 bln. roubles.
In 2009 a lot of significant events in the sector of motor insurance took place. The system of direct loss settlement and simplified road accident formalization, ‘European protocol’, were established on March 1, 2009. On January 1, 2009 Russia joined the international system of compulsory insurance ‘Green Card’.
On March 25, 2009 MTPL tariffs concerning territorial coefficients, coefficients for new and inexperienced drivers, and also coefficients depending on car engine capacity were changed.
Need for MTPL tariffs change was caused by several factors. Since the applicable law was effected on July 1, 2003, MTPL tariffs did not changed till March, 2009. During the said period consumer price index (inflation) in Russia increased by more than 70%, according to the data by Federal State Statistics Service.
Each year a number of complainants getting MTPL insurance indemnity payments grows. If in 2007 the value of insurance indemnity amounted to 1,685 thous., that in 2008 it was already 1,884 thous., growth in a number of insured events reached 12 %. In 2008, as compared with 2007, the total volume of insurance indemnity grew by 17 %, to 45.9 bln. roubles. At the same time, the volume of MTPL premiums increased at much less rate, by 17 %.
In many regions of Russia, such as Murmansk, Arkhangelsk, Kostroma, Vologda, Kemerovo, Tyumen, Chelyabinsk, Perm regions, the Republic of Komi, Karachaevo-Cherkessya, Adygea, Tatarstan and Yakutia the payment level index (indemnity against premium ratio) exceeds the critical 77 % level permitted by the law.
It is necessary to take into consideration that MTPL is a social kind of insurance. MTPL insurance tariffs should be sufficient to provide financial stability of the total MTPL system and that of each insurer. During the period MTPL has been established, 26 insurance companies were deprived business licenses. 1.4 bln. roubles were paid out of the assets of Russian Association of Motor Insurers under the liabilities of the said companies..
The system of direct loss settlement and the simplified procedure of road accident formalization without STSI employment established in Russia on March 1, 2009, will also contribute to MTPL loss rate.
The above-mentioned factors speak for need for changes in the MTPL tariffs concerning both the base rates and insurance tariff coefficients. Insurers’ possibility to liberalize prices for MTPL polices is at issue now.
Today, pursuant to the Federal law No.40-FZ dated April 25, 2002, tariffs approved by the Russian Federation Government are effective. All insurance companies in Russia are to prove their financial stability and capacity to charge their liabilities under any condition prior to tariffs liberalization, both partial, concerning reduce in tariffs, and total, providing decrease and increase in tariffs.
Today, according to foresaid, even under the condition of regulated tariffs, not all insurance companies are able to retain its position in the MTPL market. And if the world experience is concerned, particularly countries with developed system of MTPL (such as Germany, Spain, Italy, Portugal, Czechia, France and Greece), only 7 insurers left the market in 2003-2005. The world experience proves that for tariff liberalization significantly longer than a 5-6-year period is needed.
Tariff liberalization, especially under the crisis condition, can lead to the situation, that many insurers will undercut prices in order to attract clients. A number of bankruptcy among insurance companies will grow, which, in its turn, will result in increase in social dissatisfaction and destabilization of the MTPL system upon the whole. Therefore it is necessary, prior to MTPL tariffs liberalization, to adopt a principle of total liability, such as financial, administrative and penal liability, for directors of insurance companies, whose actions led to bankruptcy of the company and non-fulfillment of liabilities by the insurer.
Insurance development strategy in the Russian Federation in the midterm, approved by the Russian Federation Government on November 18, 2008, provides integrated principles of indemnity limits evaluation for causing a harm to life and health of a person (for instance, 2 mln. roubles). It means, that in the nearest future MTPL indemnity limits are likely to increase, which is a significant improvement of rights of complainants. At the same time, the said measure should be established together with proper growth in base rates of insurance tariffs.
Now a study on influence of increase in indemnity limits on MTPL insurance tariffs is carried out, which will show to what degree it is necessary to change insurance tariffs.
