Obligatory third party liability auto insurance will become more expensive for city residents.
Russian Prime Minister Vladimir Putin has signed a resolution that changes the methodology for calculating insurance policy rates. Now that some insurance rate coefficients have gone up, obligatory third party liability auto insurance rates will become more expensive, almost doubling in some cases. The price increase will mostly affect city residents, as well as drivers who are 22 years old or younger. The price increase will also affect the owners of cars with engine power between 70 and 100 horsepower, which are most ubiquitous in Russia. The Ministry of Finance has promised to increase the maximum insurance premium, but this bill is currently under interdepartmental discussion.
Yesterday the website of the Russian government posted a resolution that changed the method of calculating the price of third party liability auto insurance policies. Generally, the price of an insurance policy is based on a basic rate multiplied by a number of coefficients that depend on the owner's place of residence, engine power, the period of insurance, the number of drivers and their ages and driving records. The policy price is subject to change depending on the frequency of accidents, but since there is no common insurance database yet, this coefficient is rarely used (for instance, if a car owner is insured with one company every year). This posted document changes various coefficients by an insignificant margin (see Table), but together they constitute a considerable price increase.
Most affected would be a young resident of a city who drives a car with an engine that is not very powerful for only a few months out of the year. So a 22 year-old owner of a 75 horsepower Renault Logan with a driving record of more than three years, who uses his car all year round in Moscow, would have purchased his insurance policy for 5,148 roubles, and now he will pay 6,969 roubles. And a driver in Novosibirsk who is 22 or younger, with a driving record of more than three years, who uses his 84 horsepower Chevrolet Aveo for four months a year, will purchase his policy for 3,554 roubles, where before it would have cost 1,631 roubles.
"The increase of some insurance rate coefficients in obligatory third party liability auto insurance is an important and indispensable measure that seeks to reduce losses and create an efficient insurance market in Russia," the president of the Russian union of car insurers, Pavel Bunin, told Kommersant. Since the law on obligatory third party liability auto insurance came into effect in 2003, the coefficients were adjusted only in March 2009, and the basic rate has never changed (1,980 roubles for passenger cars), he said. "Inflation reached 200% during this period. Because of this, some regional insurance companies suffered enormous losses when they paid premiums." Deputy head of the insurance regulation department in the Ministry of Finance, Alexander Itselev, told Kommersant that the decision to adjust the coefficients took into account "the statistics and the level of premiums." "It is not directly linked to inflation, but the cost of premiums has been growing due to price increases, and some adjustment is therefore needed," he said. "The coefficients are changing more in some towns than in others, which is partly due to the high frequency of car accidents."
An increase in the price of insurance policies must be accompanied by an increase in premiums. Reimbursement is currently 160,000 roubles for damages to life and health. In early June 2011, the Ministry of Finance submitted to the Russian government amendments to the law on obligatory third party liability auto insurance that would increase the maximum level of these premiums to half a million roubles. Earlier, the ministry had proposed increasing premiums for car damage from 120,000 to 400,000 roubles. Further development of these proposals is unknown. "It's possible that the increase of the maximum premium levels will be followed by an increase of the basic rate for the calculation of insurance policies, but this will require specific analysis," Itselev said.
The new method of calculating obligatory third party liability auto insurance will be put into effect one week after the official publication of the decree, which is due out next week.
Ivan Buranov