SERBIA: Contentious MTPL premium allocation for the Republic Fund for Health Insurance

20 November 2012 —
serbia3Insurers in Serbia announce to request a review of constitutionality of the decision according to which they are obliged to allocate 5 percent of the gross premium of automobile liability insurance for the Republic Fund for Health Insurance. This obligation was introduced early this year when the new Article of the Law on Compulsory Traffic Insurance came into force. The Croatian insurers have recently won the case against such a decision, after the Constitutional Court ruled it was unconstitutional. This prompted the Serbian insurers to take a similar step as well: Association of Serbian Insurers announced it would submit a request to the Constitutional Court for review of that decision.

The amount of five percent of the automobile liability insurance gross premium is envisaged to be paid in advance - for damages that have not yet occurred; this amount is fixed irrespective of the amount of the damage caused, even though the occurrence of the damage and the extent thereof can not be predicted. This is exactly the prime argument of the Serbian insurers for raising the issue of constitutionality of the contentious Article of the Law: they believe that the envisaged amount is too high and they agree with the Croatian insurers who argue that, due to these payments, the Republic Health Insurance Fund is brought in a privileged position compared to other injured parties.

Secretary General of the Association of Serbian Insurers, Vladan MANIC, considers that the amount, the insurers have to allocate, is determined arbitrarily and is not based on practice. The practice, according to him, shows it is quite enough to allocate two percent of total damages paid rather than five percent of the gross premium. Five percent of the gross premium amounted to approx. RSD 925 million last year, i.e. slightly over EUR 9 million and, if taking into account the damages paid, the required amount should not be higher than approx. RSD 175 million or approx. EUR 1.7 million, said MANIC.

He asked whether the aim of this legal provision was to fill in the budget of the Republic Fund for Health Insurance, adding that "the insurance companies are not required to cover a shortfall in national funds."

Prior to introducing this requirement, the Serbian insurers allocated an average of about 1 percent of the gross premium for the national health fund, so it is quite understandable why they believe that the new defined amount will have negative impact on their business. Some argue that the increase in premiums of compulsory automobile liability insurance, which have not changed since 2008, should be requested as soon as possible. Others, on the other hand, remind that claims constitute only 50 percent of the automobile liability insurance value and that the Serbian insurers' profit from automobile liability insurance amounted to approx. EUR 25 million in 2011, so the contentious allocation could not threaten the solvency of insurance companies but could only partially reduce their profits.

Representatives of the Republic Health Insurance Fund say that the main advantage of such a system of payment is increased efficiency. Formerly, it was necessary to assess the damage first and then to resolve the collection through court: given that court procedures are slow, damage calculation and collection took long time and the insurers had considerable expenditures for court fees. According to the representatives of the Republic Health Insurance Fund, when it came to court proceedings, the collection was delayed for several years which additionally devaluated the collected amount.

As for the insurers' objection that contentious amount is paid in advance without previously knowing the possible damages, the representatives of the Fund remind that they receive 1 percent of excise tax from the tobacco companies, while the Croatian alcoholic beverage producers pay as much as 37 percent to the Health Fund even though the extent to which alcohol and cigarettes will damage one's health remain unknown. The recent amendment to the Slovenian legislation, according to which the allocations of the automobile liability insurance premium to the national health insurance fund increased from 6.5 to 8 percent, speak in favor of allocating such a percentage.

Lela SAKOVIC

XPRIMM correspondent for Serbia, Montenegro, Bosnia & Herzegovina, Macedonia

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