RUSSIA: annual growth of Motor Hull premiums reached 3.1% in the first half year

For the first half year 2018, Motor Hull GWP amounted to RUB 80.1 billion (+3.1% y-o-y). According to the Central Bank, Motor Hull premiums saw growth for the first time in the last 3 years (in 2016, for example, premiums decreased by 9%, in 2017 - 4.8%).

The director of ratings for the Analytical Credit Rating Agency (ACRA) Alexey BREDIKHIN believes that premium growth in the segment was supported by growth in the motor transport market. According to the Association of European Businesses, the total number of vehicles sold in the first half of 2018 went up by 18% y-o-y, which led to the increase in Motor Hull contracts (+24%). The average premium in the first half year dropped by 17% to RUB 36,842 (vs RUB 44,396 a year ago). More than half of all policies, according to RAEX, include franchises; introducing franchises significantly broke the fall of Motor Hull last year. Also, among positive factors experts point out the decrease of bank credit rates.

The expansion of franchise contributed to the decrease in paid claims, since clients bear the expenses within franchise by themselves. Besides that, strong competition also affected the decrease of average premiums, and commission fees for the biggest sales channel (agents) went up (+14.3%).

As Pavel BORODIN, deputy director of the department on motor insurance of ROSGOSSTRAKH, explained, Motor Hull growth can be also explained by insurers trying to sell more profitable voluntary products, because MTPL has kept its declining trend and insurers need to increase their market shares in voluntary classes.

Motor Hull paid claims dropped by 5.2% to RUB 40.4 billion, the level of paid claims decreased from 54.9% to 50.4%. The average indemnity payment went up by 8.1%, the total number of settled events went down by 12.3%. According to BORODIN, the decrease in paid claims was affected by a range of factors, such as compensation for parts of losses collected under MTPL and growth of franchise, as well as the decrease in insurance coverage amounts.

BREDIKHIN is sure that Motor Hull will keep an uptrend until the end of the year. "We think that depreciation of the ruble may give extra momentum to the motor market, since customers will try to buy vehicles before the price increase. As a result we expect Motor Hull growth until the end of this year. Our forecast for insurance premiums this year is RUB 178 billion." However, RAEX experts assume that Motor Hull may feel some negative influence from the decrease in real incomes of the population, and the currency exchange rate increase will contribute to price growth of spare parts and the cost of policies, thus decreasing demand. As Olga SKURATOVA, director of insurance ratings for Expert RA, pointed out, the recovery of total sales of vehicles and growth of the credit market may contribute to the development of the segment.

As for MTPL, based on 1H 2018 data, premiums dropped by 1.7% to RUB 107.3 billion and paid claims went down by 35.8% to RUB 66.5 billion. However, the Central Bank is keeping plans to expand the MTPL tariff corridor by 20% up and down, even taking the paid claims' declining trend into consideration, as the director of the insurance market department of the Central Bank, Philipp GABUNIA, said. According to him, the purpose of the Central Bank is not to increase tariffs, but to provide insurers with the possibility of making them fair, since insurers will have more freedom and can take a more individual approach, due to the introduction of a more detailed driver division by age and driving experience, which will directly affect policy cost. The modification was proposed following a continuous MTPL loss ratio, in 2017 MTPL losses amounted to RUB 14.8 billion.

*EUR 1 = RUB 72.9921 (30.06.2018)

**EUR 1 = RUB 68.8668 (30.12.2017)

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