Mandatory motor owner’s third part liability (TPL) insurance

Motor insurance: technology of profitable

business

History

Obligatory Motor insurance in RK was started in 1996 as an instrument to protect interests of citizens in case of car accidents.

First document is Rules of obligatory motor insurance in RK (was agreed by President of RK (31.10.1996.).

After that till now, it is Law Repulic of Kazakhstan During several years – Motor insurance brings

main share of premiums on insurance market. It becomes as mass class of insurance. Key factor of TPL motor insurance is that injured

person must report claims to the insurer of responsible (guilty) person.

Insurance coverage and rates

At that time it was easy to make rates depending the size of engine (power);

Such approach didn’t take (not enough taking) into account the level of risk of insured, only severity but not frequency.

Limits were introducing in Мonthly Calculation Parameter (MCP) and it becomes unnecessary to recalculate rates every year in order to include the increase in prices (inflation);

It was like a transport taxation. Limits had differentials by the types of injury

and damage: 1) property damage; 2) life and health injury.

Insurance coverage and rates

Now, we have the same differentials. The limits were set at: - Life and health – from 300 to 600 МCP; - Property – till 400 МCP; Rates: - For cars - from 3 to 7 МCP (for cars with an

engine ` capacity before 1 200 and above 2 500 sm3);

- Buses and trucks – from 6 to 9 МCP. Regional coefficient – from 0,75 to 0,9. People, at first, hadn’t enough understanding of that

insurance. They thought like it was another type of tax.

MCP had positive impact on the economic of this type of insurance.

Premiums and rates

Increase in premiums (period of 13 years) – 29 times. In payments – 20 times.

Premiums and rates

Bonus malus system

MCP and inflation

Accumulative annual inflation, %

Exchange rates USD/KZT

Premiums and rates Average insurance premium per object – below 75

USD (exist contracts with duration less than 12 months);

MCP allows to include inflation partly in rates ; MCP: 2002 y – 5,4 USD; 2015 y – 10,9 USD Aggregate inflation (2002y – 2014y): 103,9% (179,7%); MCP with inflation growth – 12,2 USD (13,7 USD) Exchange rates: 1996 – 64,91 tg/$; 2002 – 151,67 tg/$; 2014 y –

182,66 tg/$ Growth in exchange rate: 1996 – 2002 - 134%; 2002 – 2014y – 21% MCP with growth in exchange rate : МCP - 7,1 USD (in current rates)

Insurance coverage (penetration)

Motor insurance have almost 100% participation of car owners.

Payments

Reasons in growth of average payment :1) inflation and repair cost increase;2) increase in insurance culture of clients;3) improvement in cars quality and cost.

Minimum salary:2015 y - 117 USD; 2002 у – 27,6 USD.

Average payment, thousand USD

Loss ratio

Loss ratio has strength trend to increase, but below 50% yet .

Motor insurance today

Frequency is stable and equal to 1% in the average

Motor insurance today

Since January 2008, significant changes in the legislation governing the mandatory liability insurance of car owners have been madeCreate a Single Insurance Database on mandatory insurance of civil liability of owners of vehicles.Introduced a system of direct settlement of claimsInstitute of Insurance Ombudsman has been introducedBonus-malus system acts: promotion of good drivers and punishment of bad;High administrative fines by police after the accidents serve as a deductible from payments; It is necessary to analyze and to improve such system in order to manage the average payment.

Motor insurance today

Life and health – from 500 to 1 000 МCP (5 425 – 10 850 USD); Property – till 2 000 МCP or 21 700 USD (600 MCP or 6 510 USD per object);

Basic rate – 1,9 МCP or 20,6 USD; Underwriting factors: Age and service; class of

risk (number of claims); Type of transport coefficient – from 1,00 to 3,98; Regional coefficient – from 1,01 to 2,96. 13% share in all market premiums; Guaranteed type of insurance by the JSC

«Insurance payments Guarantee fund»;

Motor insurance activity

• Leader of all lines of insurance business in RK; • All innovations are work out firstly on this type of

insurance.• Leader’s market share – 20,0%;• Average market share – 4,2%;• Minimum market share – 0,2%.• Types of sales:- agents and agent offices (main);- direct sales (in offices), including internet – sales;• It is obligatory to send information in on - line regime

to data base and get the risk class, insurance rate and unique code.

Motor insurance activity

• Restrictions by law on commissions (% of premium):- 10% - for individuals;- 15% - for entities.• Insurance companies:

– shareholders and participants of JSC «Insurance payments Guarantee Fund»;- participants of the common data base;- settlement of claims with participation of ombudsman.

JSC «Insurance payments Guarantee Fund» activity

The volume of the guarantee fund on TPL insurance – 23,2 mlnUSD;

Guarantees: 1) insurance portfolio (reserves); 2) insurance payments. Payments by Guarantee Fund (5 Insurance company

termination) – 6,2 mln. USD; Reimbursements from termination committees – (3

companies) 1,4 mln.USD. Rest reserve – 18,4 mln.USD

Payments (lie in hiding persons) – 0,09 mln.USD; Rest reserve – 9,5 mln. USD.

Perspectives

Decrease in expenses and lost cost and increase effectiveness of insurance activity by:

- decreasing in agents sales share, including the implementation of electronic policy

- improvement of bonus malus system. Improvement of procedures and methods in

adjustment and settlement of losses.

Risks

Mutually recognition of insurance policies by the Common Economic Space countries and garmonization of legislation;

Integration of domestic insurance market into the international systems (for example, Green Card).

www.fgsv.kzMarina Shipovalova, Deputy Chairman of the Board, JSC «Insurance payments Guarantee Fund».