Denis Makarov Manager of Compulsory Insurance Authority for OAO AlfaStrahovanie Underwriting and Methodology Department
– In 2008 questions concerning the Russian MTPL market were actively discussed. On the one hand, this period can be considered a period of recovery. ‘Pyramid companies’ paying agents unbelievable fees, reaching 40 % of an agreement cost, offering great discounts etc, were leaving the market. Such organizations, offered as a rule, low insurance tariffs, including MTPL. In course of time customers began to doubt whether they should trust companies, offering strange discounts with consistent tariffs being unchangeable. Insurance agents also understood that they were taking risks of losing customers, receiving high fees from an insurer, who was unlikely to stay in the market for long.
Now it can be certainly affirmed that MTPL has become more convenient for customers. It is, to a certain extent, possible due to the established system of direct loss settlement and ‘European protocol’.
Specialists of insurance companies and Russian Association of Motor Insurers paid much attention to preparation of direct loss settlement and ‘European protocol’ introduction. Establishment of the Russian Association of Motor Insurers – Clearing center became an important element in the system of calculation. Another significant event is development of an automated software system (ASS) intended to maintain operative interaction between insurance companies and development of a clearing payments scheme through the banking system.
Today all arrangements necessary for MTPL operating with the activated system of direct loss settlements have been introduced. It is regulated by an agreement between the direct loss settlement system members. The agreement is a compound document, recording all processes of the system. Surely, at the present stage the system is closely controlled. Agreements are corrected, ASS mistakes are analyzed, peculiarities of interaction with banks are considered.
At the moment, the cause of concern is the fact that companies going out the market leave behind large debts which are settled out of the joint assets. Insolvent insurers entered the system of direct loss settlement. These factors surely have a negative effect on the customers of insurance companies, which have no problems with paying capacity.
A client of a reliable company claims for an indemnity on an insured event but receives a refusal for direct loss settlement, as an insurance company of the offender has terminated its activity. To solve this problem the Association suggested that an access to the system of direct loss settlement should be limited through establishment of a high level of financial guarantees for the system members. However this initiative was not approved by the state authorities.
Since the beginning of 2009 there had been many significant changes in the Russian MTPL market. Besides direct loss settlement and ‘European protocol’ introduced in March, 2009 territorial coefficients were corrected. This measure is certainly important and necessary. New territorial coefficients help to provide operating of companies in regions, where it was unprofitable. But it should be mentioned that the said measure was taken a little too late and now it is necessary to review the entire tariff scale.
It is necessary to increase base tariffs. Since the time MTPL was launched in 2003 prices for vehicle repair has dramatically changed. In 2009 loss rate of MTPL in the structure of insurance companies will be rather high even with consideration of new territorial coefficients. The system of direct loss settlement and ‘European protocol’ will have an extra negative influence on loss rate. Besides growth of exchange rates of euro and dollar should be also taken in consideration, as it results in increase in prices for repair of foreign cars, which increases in number year by year.
Strength of the leading world currencies has already led to the necessity of increase in price for an international insurance under the terms of ‘Green Card’. But even this increase was slower than necessitated by the market conditions. Loss settlement under the ‘Green Card’ agreement is provided in euros, and in Russia tariffs for ‘Green Card’ are calculated in roubles. So forth, losses, occurred in the period January-March, 2009 were paid in euros at the rate of 45 roubles. And insurance agreements, concluded on the basis of rouble tariffs, were calculated at the rate of 35 roubles per euro.
Nevertheless, the situation still is not critical as there were no many losses occurred during the period under consideration. Increase in tariffs provide insurance companies operating within the projected profitability.
In 2008 MTPL loss rate in our company significantly grew. A number of our departments found themselves far below the level of profitability. Insured events occurred much more often. An average amount of insurance indemnity raised because of increase in a number of foreign cars in the Russian fleet. But due to efficient portfolio dedicating, the company upon the whole managed to remain within the limits of MTPL profitability and to enter the ten of the largest Russia’s MTPL insurers. Our market shre amounted to 2.5 %. Alfastrahovanie plans to continue work with MTPL, remaining its positions. Under the new condition we’ll be more oriented towards portfolio management and reaching the projected profitability.
Speaking about prognoses we think in 2009 the MTPL market volumes will be at the level of 2008. Profitability is likely to fall. A succession of bankruptcies will continue, a certain recovery of the market will take place; commission fees will decrease. Insurance agents will change partner insurance companies more carefully. Clients will also be more critical towards insurers.
