What will happen to fully comprehensive insurance tariffs in 2022 amid rising prices for cars and spare parts?

New cars are not available, for balances in warehouses – a significant increase in prices, supply of spare parts to Russia for many brands of cars are suspended. According to preliminary data, already in the first two months, the number of new cars sold shows negative dynamics for last year. According to the Association of European Business (AEB), in January 2022, almost 4% less cars were sold on the Russian market than in the same period of 2021.

High demand for cars – an increase in the insurance amount for fully comprehensive insurance and insurance premium

Along with this, there are problems with the domestic auto industry. AvtoVAZ reduced sales by 17% in January, and a similar trend will continue due to the lack of electric components for car engine. In January, the sales leader was Kia Rio, shifting Lada Vesta from the pedestal.

What will happen to fully comprehensive insurance tariffs in 2022 amid rising prices for cars and spare parts?

Against the background of excitement for new cars in 2021, demand for used vehicles increased sharply, which logically led to a significant increase in prices for them (especially closer to the end of the year), in 2022 this trend persists (due to the depreciation of the ruble and sanctions).

According to our estimates, all these factors naturally led to an increase in the average insurance premium for classical fully comprehensive insurance (Full-Casco). In conditions of uncertainty, insurers prefer to take car insurance without losses in the past period (some take statistics on the car for the last 2 years to assess the risk). When prolonging our own break-even fully comprehensive insurance by car (car, non-commercial use), we were faced with the fact that the “own” insurance company increased not only the insurance amount (which is justified by the growth of the market price of cars), but also the tariff by about 30%. When quoted by other insurance companies, it turned out that the tariffs for voluntary car insurance also increased. This was before the start of the special operation in Ukraine on February 24.

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We interviewed several insurers this week and received information from them that, amid the imposition of sanctions, the volatility of the ruble exchange rate and a sharp increase in the key rate of the Central Bank to 20%, another review of insurance amounts and tariffs occurred.

Yevgeny Popkov, head of the product management and marketing department of IC Max, said that “under the influence of changes in the exchange rate and a growing deficit of spare parts, it can be predicted that damages in the form of repair at the service station will rise in price by 10-50%. Consequently, it is logical to expect a symmetrical increase in fully comprehensive insurance tariffs. ” He also added that “a number of leading car insurers over the past week adjusted tariffs by 5-10%. Moreover, there is every reason to believe that the rest of the companies in whose portfolio fully comprehensive insurance constitutes a significant share, and the total increase in the cost of auto hull policy on the horizon of 6-9 months will be significantly higher than the current “plus 5-10 percent”.

Yugoria IC said that in connection with the current situation, the company plans to focus on the work of insurance of used segment vehicles, as well as develop cooperation with Chinese automobile brands. They noted that they already see a partial refusal of customers from classic fully comprehensive insurance and the choice in favor of Mini-Casco products. Reducing demand will lead to a decrease in the profits of insurance companies. According to approximate estimates, fully comprehensive insurance tariffs can increase in the future by 2/3 of the growth of the dollar.

Olga Astashkina, director of portfolio management at fully comprehensive insurance PJSC SK Rosgosstrakh, said that customers should prepare for a further increase in the cost of fully comprehensive insurance policies. Also, according to her, the unstable economic situation and problems with the supply of cars and spare parts to Russia will negatively affect the statistics of thefts. However this also affects the pricing of car insurance.

Andrei Burlak, Deputy General Director for Retail Sales of Absolute Insurance company, noted that the company expects to continue falling sales of new cars, increasing the cost of spare parts and repair periods. At the same time, car prices will also rise, and the average cost of the Auto fully comprehensive insurance policy will increase accordingly.

Violation of the supply of spare parts and the problem of assessing the cost of restoration

Repairs amid EU and US pressure from a number of car concerns announced that the obligations will be fully fulfilled under the concluded contracts for the supply of cars and spare parts, but new contracts will not be concluded. Many logistics companies begin to refuse to cooperate with Russia, which also exacerbates the situation. It is unclear how much it will be possible to compensate for the lack of supplies of spare parts for cars by deliveries of analogues from China. This is due even there the business has taken a wait and see attitude towards Russia, and there is no information yet whether they are ready to confirm their intentions of cooperation in the new conditions.

Pressure on market participants is also exerted by ruble volatility and a sharp jump in the dollar, which at the time on Monday, February 28, 2022 reached 150 rubles for 1 USD in some banks (conversion proposal). In the first week of March, the situation stabilized somewhat and the dollar fell below 100 rubles for 1 USD. Raising oil can influence the general stabilization of the exchange rate, which in the coming months could approach historical maxims.

Most foreign currency payments with China are made in US dollars, and many banks (primarily those who have fallen under sanctions) have practically no opportunity to make payments in foreign currency.

Even in the case of a positive solution to the issue of supplying spare parts to Russia and stabilizing the USD exchange rate to clear values, the question remains at what price the auto components will come and what will be their cost for the final consumer. In addition, we must not forget that in cases with warranty vehicles, the installation of non-original spare parts will lead to the deprivation of the manufacturer’s warranty on the vehicle.

So far, South Korean companies are trying to maintain trade relations with Russia under the conditions of EU and US sanctions, which can reorient Russia to the Asian market, however, at new prices…

Brief results and the opinion of the editorial staff

All interviewed experts agree that the fully comprehensive insurance tariffs will increase, and quite significantly. Moreover, they have already begun to grow.

Most likely, according to fully comprehensive insurance, dynamic “non-insurance” will be observed, that is, insurance for the sum insured less than the current market value of cars. We expect insurance companies to take insurance customers more selectively, preferring break-even drivers in order to predict, as far as possible, uncertainty, unprofitable on the insurance portfolio.

Anti-crisis measures can be introduced to manage unprofitableness: for example, certain restrictions on the replacement of new spare parts. Modifications of fully comprehensive insurance products may again become relevant, taking into account the wear of parts, which are currently not common. In this case, it will be possible for insurance companies to “download” for repair not car dealers with high rates for standard hours, but simple service stations. An unconditional franchise in the fully comprehensive insurance agreement will be more actively used to reduce the frequency of declared losses.

You need to understand that the delivery time of spare parts will increase significantly, and they will be mainly from Asia and China (if any), which will lead to a long repair of damaged vehicles. We give an example of a dealer service. Only this week, some services (we contacted Audi) raised prices for regular car maintenance, and from March 2 to 3, the price of a specific car increased from 42 thousand rubles to 54 thousand rubles – about 30%. Employees justified this by the fact that the cost of spare parts (EUR and USD growth) and uncertainty with the supply of new ones increased, while there are practically no free places for recording for the coming weekend.

Stopping the supply of automotive components can lead (as a possible negative scenario) to increase the number of automobile theft “for analysis” for spare parts, especially car sharing cars and private vehicles that stand in unguarded areas and along the streets. Obviously, this can also serve as a factor in a significant increase in the fully comprehensive insurance tariff. At the moment, a network of car services working with passenger cars say that spare parts are still available, but they are unlikely to be enough for a long time in the current scenario

There is a possibility of the distribution of boxed products with payments for “calculating the repair of the vehicle” and paying the cost of spare parts for unified tables. This situation may lead to dissatisfaction with car owners and litigation if, at the time of conclusion of the insurance contract, the client is not announced all the basic conditions for it. To resolve this tension, there is a possible decision – the introduction of approved tables from the regulator-CBR of the Russian Federation and / or the Russian Union of Auto Insurers, which will reduce the number of court cases, however, it will not completely exclude them.

With a negative forecast, fully comprehensive insurance can become a premium, boutique type of insurance, inaccessible to a wide range of car owners. But we are sure that this situation will not come to such a situation, and car owners will not lose the opportunity to receive insurance protection for their car for reasonable money with good service.

We will keep you posted – stay with us and share with your friends!

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

Insurance today and tomorrow, the latest news on the auto insurance market, expert opinion in the author’s column on Calmins.com!

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