After massive summer fires (and fire-related bills that will have to be footed by the state), high-ranking Russian authorities have started paying close attention to insurance business, previously somewhat of an unwanted child of the country’s economy. Unfortunately, to love insurance business doesn’t mean to know it.
At the August 30 meeting with representatives of key Russian insurers, President Medvedev stated happily that at least the country’s motor segment operates in line with international standards. Well, Medvedev’s ideas of international standards in insurance are positively curious...
Crisis has forced Russian motor insurers, who mostly employ a cash-flow operating model, to engage in dumping. Moscow is full of billboards that advertise 20-30-40% discounts on MTPL and hull policies, and the advertisers mostly cannot boast lean operations.
Together with ever increasing claims ratios, the dumping strategy has proved to be a poisonous mixture. Now Russian motor business is quickly losing players: in 2009, 17 companies withdrew from the MTPL segment against 14 in 2006-2008. This year, the figure is expected to reach 22, according to the Russian Association of Motor Insurers (RAMI). The escape is usually so hasty that the companies “forget” about clients and claims, leaving them both to the mercy of RAMI’s guarantee fund.
As a result, the guarantee department is so in need of money that it has digged in the pocket of the Association’s compensation fund. Since RAMI doesn’t have a third fund to back up the previous two, the mood in the Association is rather gloomy. RAMI president Pavel Bunin estimates that the funds will suffice for another year and a half providing the payments remain at the current rate of RUR100 million (EUR2.4 million) per week – which they are unlikely to.
The thing is, Russia’s Ministry of Finance has been planning to raise indemnity limits: to RUR500,00 for L&H claims, and to RUR200,000 thousand for property ones. Bunin estimates that if the caps really get raised, to keep the country’s motor system going, MTPL rates will have to increase 35-45%. But even if the new limits are not adopted, the increase may reach 20-23% - all thanks to another legislative change, already implemented. Starting from September 1, Russia’s government introduces new rules on estimating the costs of car repair, which automatically increase the average claim in the motor insurance segment.
Perhaps, the only aspect of the Russian motor business that is in line with global trends is the level of claims ratio. According to the Russian Association of Motor Insurers (RAMI), the Russian motor claims ratio has been rising for the last three years. In 2008, it reached 62.8%, in 2009 – 63.5%, in the first quarter of 2010 – 65.6%. For a quick comparison, in its February 2010 report, CEA states that the EU-wide indicator rose to 76.8% in 2007 compared to 75.2% in 2006 and 74.6% in 2005. But such an achievement is hardly laudable.
Surely, Medvedev himself may well know very little about such technical details – but why do presidential advisors get their paychecks for making the boss look stupid?
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