Dmitry Markarov First deputy director general of OAO Rosgosstrah

– There have been serious changes in the MTPL market for the several last months. They are mainly concern the system of direct loss settlement and the simplified procedure of a road accident formalization, the so-called, ‘Europrotocol’. These innovations have been effective for only one month and a half and are applicable for those who received insurance policies after March 1, 2009. That is why it is too early to make any conclusions, but even now it is clear that the innovations will lead both insurers and insurants to a number of problems.

First of all, many policy owners will not be able just to find the office of their insurance company. Particularly those car owners, who purchased MTPL policy from the first company they came across, in order just to pass vehicle inspection or to register the vehicle. As is known, many insurance organization just have no wide network of loss settlement. So forth, insurers will face the situation, that not only their but some else’s customers, who are not able to find their loss settlement centers, will claim for compensation to them. The working load of large insurance companies will certainly grow.

Then, the system of direct loss settlement will significantly increase the process of unstable organizations burst-up. Unfortunately, their liabilities will be charged upon Russian Association of Motor Insurers and on honest insurers in the end.

For the moment a number of issues, concerning effective work of the system of direct loss settlement have not been solved. particularly, an integrated method of loss evaluation has not been developed, a list of independent experts is absent, necessary amendments to the regulations concerning bankruptcy of insurance companies have not been created.

As for ‘Europrotocol’, necessity for individual loss evaluation will evidently be the major difficulty for insurers. Besides, as it is known from the world experience, establishment of the direct loss settlement and the simplified road accident formalization increases the level of cheating. Insurers forecast growth in the rate of insurance cheating by, at least, 10 % of the annual volume of insurance indemnity.

Irrespective of whether the market was ready or not for the direct loss settlement and ‘Europrotocol’ establishment, the said innovations have already been effective and insurers work under the new conditions. Objectively speaking, the market was not ready for these changes. Under the current condition of economic instability, affecting the insurance market as well, significant changes in business processes of insurers will complicate the situation in the MTPL market, which is already rather difficult, as direct loss settlement leads to significant increase in implicit costs of a company. As of the date of March 1, 2009, 25 companies have already left the market. In our opinion, In half a year a number of companies, having serious problems concerning solvency, will amount to dozens.

The experience of the West shows, that direct loss settlement and ‘Europrotocol’ should be adopted after the market has cleared of dishonest insurers operating for quick money only, and those who intend to seriously work with MTPL have remained. These are the only conditions providing effectiveness of direct loss settlement.

Another significant change in the market concerns increase in some base tariffs coefficients intended to help insurers to balance MTPL losses to a certain extent.

It should be noted that increase is observed in coefficients, and not in base tariffs, so forth, policy cost grows on a selective basis, and not for all car owners.

Territorial coefficients in a number of regions were calculated incorrectly, which brought about critical rise in loss rate of insurance companies, operating in such regions.

For instance, loss rate in Murmansk and Arkhangelsk regions amounted to 104-106 %. More than 13 regions were at the level of loss rate below 77 %. This resulted in mass ‘outgoing’ of insurers, and many of the rest just refused to sell MTPL policies under various reasons.

Another important innovation is rise in coefficients for new and inexperienced drivers with experience less than 3 years. This group of car owners is the most lossmaking. Before the change in coefficients was adopted, they pay a respectively low premium. At the same time, the largest percentage of indemnity payments fell upon this group. Now inexperienced drivers will pay more for MTPL policy which intends to make them be more careful on the road.

The established changes in coefficients are a positive factor for the entire MTPL market, as it provides some stability of losses. Correction in tariff coefficients is to be the first step in this direction. Increase in base tariff and development of mechanism for its automatic correction dependently on inflation rate is to be the further step. Without these factors it is impossible for the MTPL market to effectively develop.

Issues concerning a possibility for insurers to reduce prices for MTPL policies have been recently discussed. But this initiative evokes, at least, bewilderment. Measures typical for highly developed markets are being applied to the unstable market with a number of problems, caused, primarily, by contradictory actions by state authorities and lawmakers.

A possibility for a wide range of companies without any restrictions brought about the situation that insurance companies undercut tariffs under state agreements and offer discounts in order to somehow attract customers. This situation has significantly complicated now under the crisis condition.

It is no coincidence that the head of Federal Insurance Supervision Service qualified damping as one of the most serious problems in the insurance market.

I think, the said initiative is unlikely to be approved by the government. Taking this measure will lead to the situation that companies, using dumping for customer attraction will for some time be able to operate on insurants’ premiums. Alongside, loss rate of companies undertaking decrease in tariff will grow, which in the end lead them to bankruptcy. As a result, such companies will have to leave the market, and their liabilities will be charged upon Russian Association of Motor Insurers. This issue can be discussed only after the market has cleared and the consequences of the financial crisis has been eliminated. Otherwise the market can collapsed.

Under the current condition it is necessary to vice verse increase MTPL price, growing the base insurance tariff. Necessity for the base MTPL tariff appeared long ago, as there has been a serious disbalance between insurance premiums raised and the volume of liabilities charged on the companies.

Amendments to the law on MTPL, developed during the last four years, increased the volume of insurers’ liabilities but did not change the base tariff rate. Direct loss settlement and ‘Europrotocol’ established on March 1, 2009 will complicate the situation of high loss rate.

During six years that the law on MTPL has been effective, the market has objectively changed. First of all, the car fleet has expanded with the road infrastructure being the same, which has resulted in growth in insured event occurrence. Besides, the fleet has renewed and includes a larger number of expensive vehicles, which has led to an increased average rate of MTPL indemnity payment.

At the same time inflation resulted in significant growth in spares cost and standard hour cost in the service stations. Due to the development of consumer crediting a number of drivers with minimal experience raised. Because of inflation implicit costs of companies, such as sales and rate expenses etc, also increased. But the said changes are not incorporated in the base tariff.

Speaking about our company it should be noted that in 2008 Rosgosstrah insignificantly decreased its share remaining approximately at the level of 2007. In particular, a number of agreements concluded in 2008 amounted to 33.2 % against 34,3 % of the previous year. The volume of premium raised in 2008 amounted to 26 %, compared to 26.9 % in 2007. In 2009 we expect the growth at the level of 5-7 %.