1. Daniela GHETU, Editorial Director, XPRIMM Publications Motor insurance in CEE and CIS: trends and challenges

2. Context Despite diversity most motor insurance markets are facing the same trends and challenges CEE and CIS markets are very inhomogeneous … but motor insurance plays a dominant role almost everywhere Where implemented, MTPL insurance is one of the market’s drivers

3. CEE motor insurance Total motor GWP evolution 2009 - 2014CEE non-life GWP portfolio, 2014 CEE non-life CLAIMS portfolio, 2014

4. CEE & SEE motor insurance CEE/SEE’ 14/13 change in motor GWP MTPL Positive evolution: – Tariffs corrections – Slightly increasing cars sales Negative evolution: – Highly competitive market MOD Positive evolution: – Tariffs corrections – Slightly increasing cars sales Negative evolution: – Highly competitive market – ageing of the national fleets

5. CIS motor insurance CIS non-life GWP portfolio, 201414/13 change in GWP - DMTPL 14/13 change in GWP - MOD 14/13 change in GWP – Green Card

6. CIS motor insurance CIS non-life GWP portfolio, 2014 the political instability born by the Crimean conflict had a dramatic impact on the Ukrainian and Russian markets despite its dramatic downsize (~30%), Russia still accounts for 80% of the CIS market results denominated in EUR show a worse situation as compared with the local currency (devaluation of the local currencies against EUR, USD)

7. CIS motor insurance CIS non-life GWP portfolio, 2014 Russia – the MTPL crisis: Inadequate tariffs (11 years old); currency devaluation; cumulative significant inflation -> high loss ratio, worsening combined ratio -> insurers gave their retail business in regions with poor results -> unavailable insurance Ukraine: falling business because of political turbulence; bank failures led to a significant abatement of the bank lending activity and decreasing MOD business

8. Common trends: low profitability Tariffs – Highly competitive markets – tariffs going down to an unsustainable level (RU, PL, HR etc.) – Correction measures in some countries (RO, BG, AL, SB, CZ) – Tariffs’ liberalization the Croatian “case”: GWP down by 18% after liberalization; market stability threatened On going liberalization process in the Adriatic area

9. Common trends: low profitability Claims – the currency challenge – Currency devaluation puts pressure on the claims expenditure -> worsening technical results – With very few exceptions, the entire CIS area affected, Turkey and some of the ex-Yug countries – Less influence on the MOD results – in many countries tariffs are settled in euro, according to the cars’ prices

10. Common trends: low profitability Claims – the bodily insuries’ challenge – Bodily injuries’ claims rose dramatically (ex. Turkey x6 in 5 years) Lack of an unitary procedure for the indemnity calculation -> business unpredictability Late notification of BI claims; – Hard to estimate Ultimate Loss – Problem for accurate pricing Reopened cases after settlement of direct claims Harmful retroactive court decisions or regulations etc. – Cost reduction correction measures Agreement via disclaimer from courts for direct claims (in order to avoid reopening cases and extra costs) Settling indemnity payment by reaching claimants before intermediary firms and lawyers. Decreasing costs by implementing more proactive methods to shorten the court case process Elaborating Permanent Injury Ratio guides etc.

11. Common trends: low profitability Fraud – Some countries reported increasing fraud attempts – Wiplash claims vs. fraud – Temptation to exagerate losses

12. Common trends: distribution Distribution fees – Distribution fees are subject of debate in different countries: free market vs. cap on fees perceived for the mandatory lines distribution Online distribution – Need of a better control of the online distribution practice – Under the scope of the future IDD – Consumer protection issues

13. Common trends: MOD market shrinking National fleets are ageing – low sales of new cars + increasing commerce with second hand cars – CEE – slight recovery in car sales +113.000 units in 2014 vs. 2013 – Turkey – decrease of sales due to bank lending regulation changed (-73.000 units in 2014 vs. 2013) – CIS – decreasing sales of new cars (huge fall in Russia and Ukraine) – 400.000 units in 2014 vs. 2013 Number of MOD insurable cars is decreasing – Ex. Hungary: average age of cars grew from 10.35 years in 2006 to 13.4 years in 2014 – Poland: over 50% of the national passenger cars stock consist in vehicles older than 15 years; only 21% of the national car fleet consist in vehicles “younger” than 10 years Softening market – in part under the influence of the MTPL market

14. Common trends: the technology assault Online marketing and distribution The “big data” technologies – the future of the motor insurance – Sales improvement by better knowing the client’s needs and preferences (social media as an information source) – Better knowledge of the consumer’s behaviour in traffic – increased opportunities for a fair pricing and better bonus-malus policy – Safer cars by improved cruise control – Still unaffordable for the emerging markets

15. Conclusions Motor insurance will continue to play an important role Main cash flow source vs. main challenging line Very important to create a sound business environment Ever changing business – needs accuracy, flexibility and timely adjustment to the new realities

16. A pleasant and useful reading! Daniela GHETU Editorial Director, XPRIMM Publications daniela.ghetu@mxp.ro