Motor insurance in Kazakhstan: Trends and challenges in 1H2016

22 September 2016 —
The full version of the article, together with the statistical data of the Kazakh insurance market in 2015 and 1H2016 will be available in the forthcoming edition of XPRIMM Insurance Profile - Kazakhstan, to be relased in Baden Baden, on October 23rd, 2016, on the occasion of the XPRIMM Reception.
marina_shipovalovaMotor insurance lines, such as MTPL and Motor Hull, remain the most popular retail insurance products in Kazakhstan. Thus, in the first half of 2016 the market share of motor insurance in the total GWP totaled 17.3% and 19% in 2015.

As of July 1st, 2016, 22 out of 26 non-life insurance companies operating in Kazakhstan were licensed to perform compulsory MTPL insurance. As on most markets, the attractiveness of this segment consists of the large number of customers and of the subsequent cross-selling opportunities enabling insurers to promote the volumtary classes of insurance such as Motor Hull.

Today in a Kazakhstan with a population of 17.7 million, there are over 6 million units of passenger cars. At the end of 2015 insurance companies have concluded 5.6 million MTPL insurance policies, which covered 6.4 million vehicles. At the same time, according to experts, about 700,000 insurance policies have represented transborder policies. Thus, it is only fair to note that the MTPL coverage degree in the country stays close to 100%.

In the first half of 2016, the number of insurance policies issued reached 2.5 million and the insured objects - 2.9 million units. If the second half of the year is to confirm the positive dynamics recorded so far, insurers will achieve results comparable with those of 2015.

In 1H2016, the MTPL saw a positive trend, with GWP increasing by about 35% as compared with the first half of 2015. Still, despite the rapid growth, the MTPL market remained rather high and concentrated, with 10 of the 22 players holding a consolidated share of over 76%, while three years ago the Top 10 companies accounted for about 79% of GWP.

Somewhat worrying is that, among the MTPL market's operators, there are companies that almost exclusively sell MTPL policies, which adversely affects their portfolio risks concentration. NURPOLIS (7% share of the MTPL market's GWP; 90% MTPL insurance in its own portfolio) and ASKO (6.1% market share; 84% MTPL in its own portfolio) are some of the best examples in this regard. The Kazakh Guarantee Fund is closely monitoring these companies, as its tasks is to protect the interests of the insured in case of default of the insurer.

Cross-border MTPL - a changing framework

Unlike the most common expectations, the sharp growth recorded by the MTPL premiums was not fuelled by the "inward" business segment, as neither the number of vehicles nor the tariffs saw significant changes, but by the cross-border insurance policies.

Since January, 2016 the MTPL tariffs for for temporary entry into the country were raised, conferring to the segment of cross-border insurance a higher attractiveness for insurers.

Earlier, the price of insurance for foreign drivers entering Kazakhstan was 9 times lower than the insurance for Kazakh drivers travelling abroad. By buying insurance in Kazakhstan at a low price the residents of the neighboring countries were entitled, in case of road accidents, to receiving quite a high amount of compensation. A serious increase in the base rate from 1 thousand to 6-7 thousand tenge drew the attention of insurers: their agents immediately rushed to the border, the specialty market becoming very competitive in a short while. Although rates are still low, even after this increase, the line became very profitable because of its specific very low claims rate, of no more than 5%. Since the stay of non-residents in the Republic of Kazakhstan is limited due to the circumstances, the foreign culprit drivers often do not file claims with the Kazakh insurance companies and settle the losses on their own. As a result, selling cross-border MTPL insurance seems a very good business.

However, the cross-border MTPL insurance segment is still in a transition phase, witnessing among others, visible changes in the customers' behavior. For example, after amounting to over 1.25 million in 2015, the number of sold policies went down in the first seven months of 2016 to about 380 thousand. On the other hand, the customers' choices migrated from buying a very short-term policy each time they entered the country, to buying long-term policies covering several entries.

The reason lies in the change also adopted with regard to cross-border policies duration. Previously, drivers could buy cross-border insurance policy for any duration, even for one or two days, at a cost per policy lower than 2% of the annual premium's equivalent. Currently, the minimum term of the insurance contract was extended to 15 days, while the cost of insurance reached 20% of the annual cost of the policy. Thus, it has become more convenient for drivers to purchase cross-border policies with a validity of up to one year, hence the change in the number of policies.

Motor Hull - car loans are shaping the market

Motor Hull also showed a positive trend in the first half of 2016, with GWP increasing by 10% compared with1H2015. At the same time, the number of Motor Hull insurance policies concluded by individuals decreased by 2.7 times, while contracts concluded with legal entities went up by 11%.

According to the experts, the main explanation for the retail's segment drop is the decrease in the demand for a certain category of Motor Hull policies, namely the "limited" Motor Hull policies which offer a restricted coverage.

Despite the fact that the Motor Hull is considered to be a retail insurance line par excellence, the main driver for its development remains the bancassurance distribution, in relation with car loans. Not coincidentally, the Motor Hull ranking of insurers is led by companies that are directly or indirectly affiliated with banks. The TOP 10 insurance companies have written about 92% of premiums.

Currency devaluation pushes up claims costs

During the last few years, the main trend recorded on the motor insurance lines was the claims growth at a significantly higher pace than the one seen on the premiums side. Thus, due to the increase in the annual inflation rate to 17.3%, which was caused by last year's devaluation of the national currency, the claims paid in the first half of 2016 increased by 18.3%, to KZT 46 billion. The volume of paid claims on MTPL grew by 37.6%, while for Motor Hull it went up by 28.2%. Therefore, the motor insurance costs are rising even faster than inflation.Nevertheless, the situation in motor insurance types is still comfortable for insurers; claims have not yet "matched" premiums. The share of claims in the total premiums on MTPL has stabilized, and it now represents 43.6%. For example, at the beginning of July, 2015 and 2014 this figure was 42.8%.

A more difficult situation has been witnessed on the Motor Hull line, where the share of claims in GWP grew faster: at the beginning of July, 2014 the share was 27.5%; at the beginning of July, 2015 - already 36% and at the beginning of July, 2016 - 42%.

Talking about the practice of payments, it is worth noting the significant improvements achieved in the road accidents' claims assessment process. Thus, since January, 2016 the right to assess the damage was transferred from the independent evaluators directly to the insurance companies. This step solved the problem of the lack of a unique evaluation methodology, when the cost of damage was assessed differently by various entities. At the same time, there were significant differences in the damage assessment between evaluators and insurers. Thus, often such cases were solved in court. The process of damage assessment was delayed when the difference in the estimates provided by various independent evaluators was more than 10-15%.

With the new changes, the term of damage assessment has decreased. In addition, new norms put the end to a conflict of interests between insurers and independent evaluators.

In addition, the institution of an independent insurance ombudsman has also changed, which represents the additional guarantee mechanism in order to control the settlement damages of insurers and which does not allow them to underestimate the amount of damage.

Previously, ombudsman was only a mediator between insurance companies under the direct settlement, now he became the settler of disputes between the customers of insurance companies and the insurers.

However, the independent evaluators are not completely excluded from the damage assessment procedure. Regulations give the ombudsman the power to appoint an independent expert in order to evaluate the damages and to negotiate the amount of damage with the insurance companies.

The new rule of assessment of damages will have a significant impact on the development of motor insurance, in particular. Insurance companies will have to balance costs reduction and maintenance of the market share. To keep the balance between profitability and customer, the insurance sector will start to fight for the reduction of accidents on the roads.

In this regard, Kazakh insurance companies consider it important to obtain a review of insurance rates for MTPL. It plans to improve the system of "bonus-malus". Insurance companies call on the necessity to change the calculation of insurance rates, depending on the region where vehicle is used.

Now rate tariff calculation in urban areas is higher than in rural regions, while very often the road accidents in metropolitan areas are caused by regional vehicles. The GWP collected from various regions is 1.5 times lower.


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