How will the cost of the third party liability insurance policy change in 2022?

What will happen to the price of the third party liability insurance policy against the background of rising prices and restrictions?

Against the background of the latest geopolitical events, the countries of Europe and the United States imposed a number of sanctions that somehow limit the activities of Russian companies (primarily financially). All spheres of the economy are under pressure. The insurance market also did not stand aside. Companies will have to adapt to new market conditions – in connection with this, large changes are expected, including in pricing.

The growth of the dollar (more than 100 rubles for 1 USD), the restriction of the supply of new vehicles and spare parts by automakers will inevitably lead to an increase in the cost of car repair and significantly increase the repair time of the vehicle.

The influence of the current situation on voluntary car insurance we dismantled with experts in the author’s column. In part, the fully comprehensive insurance market correlates with mandatory car insurance.

What will happen to the third party liability insurance market in 2022 and the average price of the incurable certificate

third party liability insurance insurance policy is regulated by the Federal Law of 04.25.2002 N 40-ФЗ (as amended on December 6, 2021) “On compulsory insurance of civil liability of vehicle owners”, by-laws of the Central Bank of Russia and regulatory documents of the RSA – by the Russian Auto Insure Union.

Third party liability insurance market growth forecasts 2022 before…

Initial market forecasts for the current year were quite positive (an increase of about 5%), according to our estimation, and the NRA, due to a moderate increase in the average contribution, an increase in the number of new contracts due to the sale of new cars.

At the same time, a scenario was considered according to which the rapid growth of the compulsory motor liability insurance market could be realized by 50% due to an increase in the payment limits of up to 2 million rubles for harm to life and health and payments for damage to property “excluding depreciation”.

Obviously, forecasts should be reviewed, but now it is possible to outline the main trends and formulate preliminary expectations of the third party liability insurance market in the Russian Federation in 2022 in new realities.

How will the cost of the third party liability insurance policy change in 2022?

Forecasts of the growth of the third party liability insurance market 2022 now…

There are several important points that are worth considering to understand the changes in forecasts for the mandatory car insurance market in 2022:

  • the growth of the average payment;
  • the expansion of the tariff corridor;
  • the increase in the average contribution under compulsory motor liability insurance;
  • the increase in the limit of payments under the policy;
  • the change in the approach to resolving losses;
  • the problems with taxis;
  • the creation of a reinsurance pool.

We will analyze each item separately.

The increase in the average payment

For compulsory motor third-party liability insurance for the cost of work for official dealers and other vehicle service station will increase the cost of standard hours for work performed. The increase in the cost of spare parts is primarily associated with an increase in USD, violation of the supply of spare parts and an increase in the cost of loans for business.

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According to our estimates, the growth of the average payment can be at least 30% relative to last year’s results.

The growth of the average compulsory motor liability insurance policy and the expansion of the tariff corridor

in 2021 the price of the average compulsory car insurance policy practically did not change and the growth during each quarter was about 2%. Against the background of expectations of a significant increase in the average payment, obviously, there will be an insufficiency of the insurance tariff in the case of last year’s approach to underwriting. Since January 9, 2022, the next expansion of the third party liability insurance tariff corridor took place, but insurers practically did not change the average tariff (according to our estimation, in January – the first half of February).

Most likely, insurers will apply mirror measures and try to increase tariffs for groups of customers with increased risk.

For more interesting segments of neat and experienced drivers, a softer approach is likely to be applied, since this is the least unprofitable group of clients for insurers.

Most likely, an additional increase in the tariff corridor for compulsory motor third-party liability insurance will be required, which is already being actively discussed, and in the current conditions this will enable insurance companies to set the price for compulsory motor third-party liability insurance closer to the upper border of the tariff corridor. This measure will already significantly affect the average cost of a compulsory car insurance policy.

According to our estimates, the increase in the average price of the third party liability insurance policy may be at least 20% in 2022, with current limits on insurance amounts.

An increase in the limit of payments under compulsory motor liability insurance

Is likely that the expansion of the limits of payments for compulsory motor liability insurance and payments for damage to property “excluding depreciation” for the damaged parts of the vehicle will be postponed so as not to create additional tension, as this can lead to almost 1.5 – 2 times in the current situation.

Changing the approach to third party liability insurance payments

Is likely to switch to compensation in the form of cash payments, which will be more profitable for insurers against the background of high inflation, as well as possible problems with the organization of vehicle repair due to an increase in the cost and problems with the supply of spare parts. Russian Association of Motor Insurers and the Bank of Russia can come to the aid of insurers, which can introduce more stringent single payout tables for a certain period in order to reduce pressure on both insurers and customers in a period of uncertainty. In this case, the development of a certain compensation mechanism for the Central Bank of the Central Bank is possible. The difference between the reference books and the actual repair price.

What will happen to the taxi after the next expansion of the tariff corridor

From January 9, 2022 significantly increased the cost of the third party liability insurance policy for a taxi (about 30%). Already, the cost of a mandatory third party liability insurance by taxi can reach 50-70 thousand rubles a year.

Until recently, many taxi drivers and taxi company, in principle, could not purchase insurance for their cars for any money (due to the high loss-making of this segment) and were forced to insure the car “for show” as a personal car. An increase in the tariff was designed to increase the availability of policies for taxi (paradoxical as it sounds), but the problems remained: not all insurers are ready to insure taxis even at such high rates, and not all taxi drivers are willing to pay such a significant amount per year for the insurance policy.

Currently, the inevitable increase in the cost of repairs and spare parts and the total increase in the cost of compulsory motor third-party liability insurance will not be able to lead to a further increase in the cost of compulsory taxi insurance. To resolve this important problem, it will be necessary to develop some special mechanisms by the regulator, allowing to find a certain balance of the price of the policy and the size of payments with a high loss-making of a taxi.

The availability of third party liability insurance and reinsurance

the E-Garant is replaced by the third party liability reinsurance pool in the Russian National Reinsurance Company. According to market participants and All-Russian Insurance Association, this will allow us to include more insurers in the system, evenly distribute losses in the market (including the most unprofitable groups depending on the total share of compulsory motor third-party liability insurance in the market).

This will significantly increase the availability of insurance for car owners. First of all, for young drivers with a little experience and with losses in the previous year, as well as for customers living in high-yield regions (for example, in southern Russia). At the same time, insurers will no longer have the opportunity to carry out certain manipulations with the E-Garant system so as not to take unprofitable segments of third party liability insurance clients.

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What to expect after the imposition of sanctions in 2022

We discussed the opinions of experts with experts the latest trends in the third party liability insurance market. According to Yuri Strekalov, Director for the Management of the third party liability insurance portfolio of PJSC SK Rosgosstrakh, “reducing sales of new cars will slow down the growth of the country’s automobile fleet, but will not lead to its reduction. However since compulsory motor third-party liability insurance is a mandatory type of insurance, a similar picture will be observed in the sales volumes of third party liability insurance policies. As for the further liberalization of tariffs, “it is unlikely that in the face of uncertainty in the economy this issue will be attributed by the government and legislators to the number of priority”, which partly coincides with our opinion.

The same conclusion was reached by the head of the project for the development and development of auto-insurance products of Absolut Insurance company Alexey Turnikov, who also noted that “acceleration of inflation should also affect the growth of average payments under compulsory motor liability insurance. Since the compulsory motor liability insurance contract is concluded now, and payments are made within a year, the insurer in this situation should already assess the sufficiency of existing tariff rates in the current period and make changes in the direction of increasing within the existing boundaries established by the Central Bank of the Russian Federation in case of insufficiency. ”

The expert is sure that “there is a certain reserve in the existing tariff corridor for individual regions”. As for further changes in compulsory car insurance, “within the framework of further liberalization of third party liability insurance tariffs, it is possible: an increase in the insurance amount for life and health, the abolition of depreciation in calculating the“ hardware ”, but probably this year the CBR will not carry out these changes.”

Denis Makarov, Director of the Alfa Insurance Department of Mandatory Types of Insurance, said that an increase in the cost of car repair leads to an increase in the average payment for compulsory motor liability insurance, which means that it will require a revision of tariffs. He also noted that amid a rise in price of spare parts, the company is expected to revise the tariff corridor by the regulator.

The press service of Zetta Insurance company gave the following comment to our question: the current volatility of exchange rates and the transformation of logistics chains for the supply of spare parts will obviously affect the price of the policy. However, it is currently impossible to predict the size of the change in the average loss and tariffs, as well as the duration of such changes.

Brief comments and results

Recently, car owners are increasingly asking us a question: will they cancel compulsory motor third-party liability insurance against the background of the current situation and the uncertainty of the cost of repairs? In our opinion, the abolition of third party liability insurance is unlikely. Too much has been done to normalize the situation on the roads and avoid the practice of showdown of the 90s, it is illogical and unreasonable to zero out everything that has been achieved. However, it is obvious that the cost of rehabilitation will increase significantly, and changes in compulsory motor liability insurance cannot be avoided.

Against the background of a decrease in real incomes of the population and high inflation in the current year, there is a possibility of refusal of insurance under the insurance policy of a certain part of motorists. This may be due to a decrease in its costs and insufficient income, especially in the case of a significant increase in the cost of the policy. There is a possibility that demand for “left” policies may grow, which, according to some estimates, make up about 10% of all, or car owners will simply cease to be insured with a significant increase in the average contribution.

According to our estimates, the final growth of the third party liability insurance market this year will be at least 10% -15% by the end of the year due to the inevitable increase in the average price of the policy.

It is most likely that the Central Bank will continue to regulate the cost of compulsory motor liability insurance and will try to maintain an affordable price for citizens without sharp, spasmodic growth. It is also possible that the Bank of Russia, for its part, will offer a certain mechanism for compensating the difference between reference books and the actual repair price. Against the background of recent events, we expect as a change in the approach to tariff setting, to assessing risk and assessing damage, as well as in the approach to organizing payments.

We will keep your finger on the pulse and keep you posted in the author’s column!

The article was approved by the expert of the insurance market Lebedev Denis

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