Motor insurance: prospects for the development of market technologies

In Almaty, as part of the 5th International Conference "Insurance in Central Asia", a round table was held on the topic "Motor Insurance: Prospects for the Development of Market Technologies". Today, compulsory motor third-party liability insurance (MTPL) is the most widespread type of insurance and, moreover, a compulsory one, which is why it sparks heated debate among market participants — this is how the organisers of the round table defined the reasons for the discussion. The experts gathered discussed two major topics from the world of motor insurance: the activities of insurance agents and issues of loss assessment.

The agent is the face of the company

The discussion was opened by Sofia Moskalenko, Managing Director and Acting Chair of the Council of the Association of Insurers of Kazakhstan. In her speech, she noted that motor third-party liability insurance is in fact an indicator of the problems that arise in the work of insurance agents. These issues were most clearly evident in the activities of the liquidated insurance company Altyn Polis: its agents issued counterfeit policies and duplicate and triplicate policies with the same number, and the company kept no record of policies. All this prompted tighter regulation of insurance agents' activities and the introduction of certain requirements, which happened last year.

For example, one of the changes concerned insurance premiums. From 2012, restrictions on accepting cash payments from clients come into force; currently, the situation is regulated as follows: organisations must either deposit the money at the cash desk or transfer it to a bank account within one day, or within a week from remote locations. This has created a serious problem for companies: if service takes place on weekends or public holidays, these conditions cannot be met. This raises the question of introducing additional requirements, such as the insurer having a cash desk open on non-working days, or the possibility of some bank serving all insurance companies.

Another problematic issue arising from the changes is the training and certification of insurance agents. At present, this is done by the companies themselves. However, ideally, in Ms Moskalenko's opinion, the agent should be an independent market entity and bear responsibility for its own unlawful actions, whereas now the insurance company is fully and entirely responsible for the agent.

According to Ergali Begimbetov, Chairman of the Management Board of London-Almaty Insurance Company, there is no problem with the insurer being responsible for the activities of its agents: if it recruits them haphazardly and cannot administer policies, then let it bear full responsibility for that. If an agent has issued a policy and has not brought the money to the company, the company is still obliged to pay under that policy, because this issue should not concern the client. In such a case, the company is entitled to demand that criminal proceedings be initiated against the fraudster. Although, of course, some part of the responsibility should also lie with the agents, so measures regulating their activities should become stricter in the future, the expert believes.

Murat Kylyshbay, Deputy Chairman of the Management Board of NSK JSC, said that the certification process not only allowed the company to test agents' knowledge and weed out those who did not meet the requirements, but also revealed some problems. It turned out that not all agents have a higher education, so certain difficulties arose with such an item as having documents confirming higher education.

In the expert's opinion, the decision to hand certification over to the insurance companies themselves was the right one. The other question is how thoroughly each organisation approaches the matter, because today not everyone is able to set up professional training centres in all regions and remote areas of the country.

As for the situation with insurance premiums, according to Mr Kylyshbay, the changes made in this area did not cause difficulties for the company, because its agents already deposit money directly into a bank account — this scheme has long been established there.

Dilyara Karakulova, Director of the Department for Supervision of Insurance Market Entities and Other Financial Organisations of the FSA, said that stricter measures — licensing of agents — had initially been proposed, but they did not receive the support of market participants. The reason is that no one wants to lose their agents.

According to Ms Karakulova, the FSA understands and acknowledges that the legal requirements on certification were in many cases met only formally: some companies did not train their agents and simply handed them certificates. However, every organisation should take this issue seriously, because the agent is the face of the company, and its work affects the company's image.

The FSA proposed creating a single centre where agents of all companies would receive training and undergo certification, and also creating a special website with data on all certified agents, similar to the one that exists for appraisers.

Unfortunately, a paradoxical situation has developed in Kazakhstan today: the cost of damage is determined only by the appraiser, while the contractors — the repair shops that carry out the repairs — are completely excluded from this process. As a result, a client who has taken their car in for repair either does not have enough of the money paid out, or has some left over. In addition, there is the concept of the extent of damage: there are cases when an appraiser takes into account damage unrelated to a particular road accident, and it is also included in the calculations.

The current situation is wrong and needs to change. Mr Verevkin sees the solution as follows. The two parties should be given the right to settle the matter between themselves: the company should be obliged to inspect what it is paying for, and the client should confirm that the damage was actually sustained within a specific insured event. At the same time, the insurer should be given the right to prepare certain cost estimates using specific technical tools, and to have contractual relationships with several repair shops, on the basis of whose invoices it will pay. On the other hand, the consumer cannot be deprived of the right to protect their property interests, since they may disagree with the monetary conclusions of the insurer or the repair shop. That is precisely what the institution of appraisal exists for — an independent party that can help resolve the dispute. In a word, we need to gradually move away from the practice where the appraiser reigns supreme in compulsory insurance, Mr Verevkin believes.

Oleg Kuznetsov, Chairman of the Council of the Chamber of Professional Appraisers of Kazakhstan, proposed distinguishing between the concepts of "loss assessment" and "cost of restoration". What does the concept of "loss" include? Suppose a person buys a car and expects to use it for eight years. As a result of an accident and restoration repairs, its service life is reduced to six years, since, as is well known, a car loses up to 30% of its value and functionality after being dismantled and reassembled. But nobody takes this difference into account. Of course, the insurer should offer the client an amount sufficient to restore the car's functional properties. But another aspect is forgotten — the safety of the driver, other road users and the environment when the car is repaired "in Uncle Vasya's backyard", sometimes for a bottle of vodka and sometimes at rock-bottom prices. Nobody monitors these issues, although they are raised in court practice. Another concept — "loss of marketable value" — is also not taken into account by insurance companies. It turns out that if a person has insured their civil liability, they will receive an amount knowingly smaller than they could expect. These legal aspects need to be worked on, Mr Kuznetsov is convinced.

As for the dominance of appraisers, in the expert's opinion, such specialists are needed precisely in cases where the loss has to be calculated. When it comes to the cost of restoration, the policyholder and the insurer can manage on their own, without involving an appraiser.

This topic is closely linked to another problem — the lack of tools needed to determine the scope and technology of repairs. According to Mr Verevkin, in his practice he very rarely sees appraisal reports (as a rule, they belong to leading companies) in which a proper tool has been used. In 99.9% of cases, VAZ and GAZ standards are applied here to foreign-made cars. The time has come, Mr Verevkin is convinced, to stop using improper tools for one's own purposes — either to profit at the client's expense, or to profit at the expense of the insurer that provides a particular appraiser with certain volumes of work.

As for tools, according to Dilyara Karakulova, the FSA leans towards Audatex. This is not a matter of vested interest, but of the fact that this company has the most complete database of Soviet cars, of which we still have more than foreign cars. In addition, this tool helps solve another important loss-related problem — whether to fit an old or a new part in place of the old one during repairs, especially when it comes to a used car. As Alexei Kruglov, Commercial Director of Audatex LLC, commented on this issue, the software allows different price catalogues to be used in calculations.

As Alexei Kruglov, Commercial Director of Audatex LLC, commented on this issue, the software allows different price catalogues to be used in calculations.

Ergali Begimbetov supported the idea of legalising Audatex. If this is done, repair shops will have no choice but to install it, he believes. The proposal to legalise it is good but radical, Vitaly Verevkin is convinced, and we will not be able to do it tomorrow. Nevertheless, even now, conscientious insurers and repair shops can agree with each other to use this software package; there are no obstacles to doing so.

An expert from Ukraine, Vadim Zagrebnoy, Chairman of the Management Board of BROKBIZNES Insurance Company, took part in the round table. He shared his country's experience in motor insurance with the participants. For example, in Ukraine there are accredited dealers and repair shops that carry out brand-authorised repairs using the appropriate equipment and systems, and garage cooperatives also operate. The payment procedure is as follows: if the client wants the money to be paid to them personally rather than to the repair shop, they receive it net of VAT; if the person provides documents from the repair shop confirming the car's repair, the VAT is paid on top. The country has a system of unique identification codes for all citizens, and when paying compensation, the insurance company reports data on the money paid to the client in a prescribed form. After the end of the financial year, the citizen will definitely receive a request from the tax authority and will have to provide documents confirming that, having received the money, they carried out the repair.

As for the loss of marketable value, as Mr Zagrebnoy noted, in international practice motor third-party liability insurance never takes this into account; for that there is motor CASCO with a "loss of marketable value" option — pay extra and receive compensation. This scheme has been adopted in Ukraine.

The country has also adopted another foreign practice relating to motor third-party liability — the Motor Transport Insurance Bureau. It is a voluntary association of insurance companies that is a self-regulatory organisation; it is responsible for its members and also bears financial responsibility for the fulfilment of obligations in the event of bankruptcy. Fairly large contributions are made to two funds — the victims' protection fund and the guarantee fund. Today, the motor bureau has accumulated considerable sums — about 1 billion hryvnias. At the same time, insurance companies fulfil their obligations themselves, and the motor bureau, having survived the bankruptcy of several insurance companies, was able to ensure the fulfilment of the obligations of the companies that left the market.

In Kazakhstan, certain functions of a motor bureau are performed by the Insurance Payments Guarantee Fund (IPGF), says Dilyara Karakulova. At the time of its creation, this was the optimal option, but perhaps now, when insurance companies are ready, it is time to consider creating an independent motor bureau with functions different from those of the IPGF.