BAKU, Azerbaijan, June 8
By Yusif Aghayev – Trend:
The compulsory civil liability insurance of motor vehicle owners has been used in Azerbaijan for more than 20 years and is currently regulated upon the Law on Compulsory Insurance, Azerbaijan Insurers Association told Trend.
“Currently, 11 domestic insurance companies that are members of the Compulsory Insurance Bureau are involved in this type of insurance,” the association added. “However, the loss ratio on this type has greatly increased and insurance companies practically do not make a profit from this product. The reason is that the total expenses of insurance companies on this type exceed the amount of the collected premiums.”
Fifty-three million manat ($31.2 million) or 56 percent out of insurance premiums on compulsory liability insurance of motor vehicle owners worth 95 million manat ($55.9 million) collected in 2018 accounted for insurance payments. This indicator amounted to 67 million manat ($39.4 million) or 66 percent of fees from the amount of about 100 million manat ($58.9 million) in 2019, thereby demonstrating a high increase in loss ratio.
Thus, the collection of fees increased by 5 percent, and payments - by 25 percent in 2019 compared to 2018.
After analyzing the general indicators on fees and payments in the non-life insurance segment, the experts of the Azerbaijan Insurers Association came to the conclusion that the total share of the fees on compulsory liability insurance of motor vehicle owners in this segment reached 24 percent in 2018, 25 percent in 2019, while payments during the mentioned years accounted for 38 percent.
Ex[erience has shown that there are several different factors that contribute to an increase in the loss ratio within this type.
First of all, the number of insured events is relatively high in the segment of compulsory types of insurance (excluding life insurance), especially within compulsory liability insurance of motor vehicle owners. This is related to the violation of the traffic rules, careless driving, speeding, stress on the roads and many other factors. Thousands of insured events occur for such reasons.
Although in most cases, the material damage caused as a result of these insured events is relatively small, in iother cases, besides the property damage, damage to the life and health of third parties may be caused, which is also covered by this type of insurance. As a result, insurance companies make insurance payments in the amount of tens of millions of manat annually.
Currently, in accordance with the legislation, discounts and bonuses for insurance premiums within compulsory liability insurance of motor vehicle owners are governed upon the special rules. In accordance with the rules, a discount (bonus) of up to 40 percent is valid for some owners of vehicles demonstrating break-even driving.
This means that the insurance premium worth 50 manat ($29.4) is reduced up to 30 manat ($17.6). However, in case of a big insured event, the company pays an insurance claim to third parties which exceeds the insurance premium by tens and hundreds times. This leads to an imbalance between the collected insurance premiums and the paid insurance claims.
To date, the maximum amount of payment on property damage within the compulsory liability insurance of motor vehicle owners is 5,000 manat ($2,941). However, an increase in the number of expensive cars and an increase in price of spare parts due to the economic factors lead to an increase in damage as a result of the accident.
As a result, sometimes even the maximum payment worth 5,000 manat ($2,941) is not enough to compensate for the caused damage, which is one of the factors leading to the disputes between the insured and the insurer.
Having analyzed the indicators on compulsory liability insurance of motor vehicle owners for the first three months of the last three years, it is possible to follow the dynamics of the growth of the loss ratio within compulsory liability insurance of motor vehicle owners, which grew from 63 percent in the first quarter of 2018 up to 68 percent in the same period of 2019 and finally up to 84 percent in the first three months of 2020.
The number of insurance payments increased by 20 percent from January through March 2020 compared to the same period of 2019. At the same time, as for the insurance premiums, on the contrary, there was a decrease by four percent in 2020 compared to the same indicators of the previous year.
The most important factor influencing a decrease in fees is the use of annual discounts for drivers in accordance with the bonus malus system.
An increase in payments of insurance claims within compulsory liability insurance of motor vehicle owners every year leads to a loss ratio of 115-125 percent for the companies at the end of the year within this type.
The insurance companies are business entities and the main goal of each of them is to end the year without loss by maintaining customer satisfaction and financial stability.
Besides millions of manat for infrastructure costs, each year insurance companies pay taxes, salaries to employees, pay utilities, rental fee, advertising fee, etc. To end the fiscal year with profit, the companies are forced to focus on the sale of voluntary insurance products.
“All sales procedures within the compulsory liability insurance of motor vehicle owners, as well as insurance payments, are carried out in accordance with the requirements of the current legislation,” the association said. “However, the requirements of the current economic situation must be taken into account when determining the insurance payments and the rules of calculating the insurance rates.”
“Big changes have occurred in the market situation over the past years,” the association said. “There has been an increase in prices under the influence of devaluation and other economic factors, demographic changes, an increase in the number of cars and, at the same time, an increase in traffic accidents.”
“All these factors make it necessary to make the appropriate changes related to the calculation of insurance premiums and insurance amounts within this type of insurance, in particular, the need to adapt them to the requirements of the current situation,” the experts of the Azerbaijan Insurers Association said.
Today, 21 insurance companies and one reinsurance company operate in Azerbaijan.
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