Mandatory liability insurance: short-term losses for insurance industry, but long-term gains
re to swamp Ukraine’s struggling insurance industry with a wave of new clients, analysts say.
However, the rush of new clients is not expected to immediately bring huge profits to the nation’s underdeveloped insurance industry.
On the contrary.
“We expect big losses in the first year or so,” says Mykola Pashnev, director of the department for liability car insurance at the Kyiv-based UTICO insurance company.
The reason, insurance industry officials say, is because the Cabinet set the rates for annual premiums for liability auto insurance too low – between Hr 37 and Hr 146, depending on the car model.
According to insurance analysts, rates should be two to three times higher than that in order for insurance companies to cover claims and show a profit.
According to international insurance statistics and circumstances in other Eastern European countries, such as Latvia, insurance representatives calculate the first year’s losses between Hr 800 million to Hr 1.5 billion.
The Sept. 18 Cabinet order stated that all drivers must be ready to present their insurance policies along with their driver’s licenses to police when stopped as of Oct. 1.
Ukrainian drivers are compelled to buy liability insurance, which covers injury, death and vehicular damage of people and vehicles besides themselves and their vehicles.
While exact figures are hard to come by, insurance personnel say that currently less than 1 million of the country’s 10 million driver’s are insured. If all uninsured drivers go out and buy insurance, it will mean long-term profit for the industry.
“Of course, in the long run, this will help to widen our client base and bring in profits,” UTICO’s Pashnev said. “It will help to popularize insurance in Ukraine.”
Serhy Brovkin, Ukrhasprompolis’s director of business development, says that once the government realizes that the current rates are too low, the premiums will be raised.
Only then, with higher rates and a large client base, will the industry start making profits, he said.
“We will have to wait and see,” Ukrhasprompolis’s Brovkin said. “If the year shows companies are losing money, then the rates set in the law will have to be changed.”
But will Ukraine’s driver’s actually run out to purchase car insurance?
“I’m not rushing to buy car insurance just because of some new law,” said one driver who wished to remain anonymous.
It’s a sentiment that the government has been facing since it first tried to get drivers to purchase insurance on May 27 declaring that “all drivers should purchase liability insurance by July 10.”
Few drivers took it seriously.
Some analysts argue that there is still a loophole.
Nowhere in the two orders are the fines for failure to obtain car insurance set, they say.
And with less than a week before the new order goes into effect, Kyiv’s traffic police don’t know too much about the new order or whether or not they can issue fines to drivers who can’t present proof of liability insurance.
“I don’t know anything about it,” a Kyiv traffic officer told the Post. “I’ve heard about it in the press, but we haven’t been given any orders or instruction on it yet.”
While a new Cabinet order may be needed to settle this issue, insurance company representatives say that the country’s drivers are finally catching on.
None of the insurance representatives the Post spoke to could provide specific figures as to how many new policies they have sold as a result of the new laws, but all said that they are selling more policies.
On the Web:
UTICO insurance company (www.insurance.kiev.ua/utico/index.html)
Ukrhasprompolis
