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 ( ).  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 М onthly 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 М CP; - Property – till 400 М CP;  Rates: - For cars - from 3 to 7 М CP (for cars with an engine ` capacity before and above sm3); - Buses and trucks – from 6 to 9 М CP.  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 – 2014y – 21%  MCP with growth in exchange rate :  М CP - 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 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 made  Create a Single Insurance Database on mandatory insurance of civil liability of owners of vehicles.  Introduced a system of direct settlement of claims  Institute of Insurance Ombudsman has been introduced  Bonus-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 М CP (5 425 – USD); Property – till М CP or USD (600 MCP or USD per object);  Basic rate – 1,9 М CP 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).

Marina Shipovalova, Deputy Chairman of the Board, JSC «Insurance payments Guarantee Fund».