KOSOVO: CBK allows insurers to adjust MTPL tariffs to inflation

29 November 2019 — Cosmin CONCEATU
Central Bank of the Republic of Kosovo (CBK), based on the International Monetary Fund review over the stability of financial sector of Kosovo, initiated the evaluation process over risk premiums on MTPL business line.

According to CBK, the current MTPL tariffs remained almost unchanged since 2001. A few macroeconomic and insurance sector related factors might have impacted the overall performance of insurance companies, which frequently registered losses in the past year. Some of these drivers, as mentioned by CBK, were:

  • increasing number of claims and increasing average claim value - especially on "category I" type of vehicles (passenger cars);
  • increase of the minimum insured amount of MTPL contracts - starting 2011, with the introduction of Law 04 / L-018 on compulsory motor insurance;
  • implementation of Bonus-Malus system - CBK estimates that the overall collected MTPL premium volume will be 19% shorter at the end of 2019 than the volumes recorded before the introduction of Bonus-Malus, in 2013; also, 93-94% of MTPL policyholders are falling in bonus classes, thus receiving lower MTPL tariffs and paying less money to insurers;
  • inflation - which pushed the compensations value up, because of higher costs with material damage repairs and higher indemnities for those who lost their revenues as a consequence of an accident, the average national wage increasing as well;

While CBK analyzed a report from local companies which recommended category I tariffs to be increased by 36.6%, CBK considered such a measure would not be possible, because some of the factors included in the report were not of actuarial nature. Instead, CBK decided to allow insurers to adjust their MTPL tariffs of category I based on the inflation rate.

CBK now permits insurance companies to adjust their premiums to inflationary conditions, subtracting the 5% turnover tax, which was eliminated on July 2019. The old MTPL tariffs were in force since July 2001 and considered outdated.

CBK expects that this decision will strengthen the sustainability of the insurance sector, thereby enhancing the ability of insurance companies to fairly and timely compensate for damages to policyholders.

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