Insurance payments will catch up with drivers

Direct settlement of insurance claims in the event of a road accident may become mandatory. Fifty participants in the MTIBU market may make such a decision in two weeks. Large insurers talk about the advantages of the new system: clients will receive more payments and faster, while smaller companies focus on the shortcomings.

Direct is moving towards universality

The Motor (Transport) Insurance Bureau initiates the transition of all participants in the MTIBU market to direct settlement of losses. This issue will be considered on April 12. «The issue of amending the bureau's charter has been submitted to the general meeting of associated members of the MTIBU so that mutual settlements within the framework of direct settlement become mandatory for all insurance companies. We hope for the support of insurers», – said Volodymyr Shevchenko, General Director of MTIBU.

Direct settlement means that a car owner who was injured in a road accident does not need to apply for payment to the insurance company of the person at fault. The victim can apply to the insurer from whom he bought the MTPL policy. His insurance company will make the payment and then collect compensation from another insurance company. This model is designed to encourage car owners to buy high-quality MTPL insurance, not cheap ones.

The pilot project for direct settlement of insurance cases started voluntarily on December 1, 2016. It was started by 17 insurance companies from 54 members of the MTIBU: “AXA Insurance”, “Arsenal Insurance”, “PZU Ukraine”, “VUSO”, “ASKA”, “Oranta”, “Universalna”, “UNIKA”, “PROSTO-insurance”, “Providna”, “INGO Ukraine”, “International Insurance Company”, “Kraina”, “CREDO”, “ASKO-Donbass Pivnichnyi”, “Colonnade Ukraine”, “Brokebiznes”. «We can confidently state that the direct settlement system is fully operational. We tested all stages of the process, starting from the registration of losses from December 1 to the settlement session in March for losses settled in December-January», – says Maksym Mezhebytsky, Vice President of the Insurance Company «AXA Insurance», Head of the Working Group at MTIBU on the Implementation of Direct Settlement.

Faster, More, Higher

Insurers note a decrease in the average settlement period and an improvement in the quality of customer service. «All project participants are aimed precisely at the result – paying insurance compensation to their injured client», – says the Director of the Loss Settlement Department of the regional network «Arsenal Insurance» Kostyantyn Palazov.

According to MTIBU, from December to March, more than 1,500 applications were received under the direct settlement system, which is more than 10% of all reported insurance claims. Mutual settlements have already been made for 323 cases for UAH 4.5 million. The average amount of payment in direct settlement cases turned out to be 20% higher than the amount of regular payments. «The average settlement period for these losses was 24 calendar days, which is several times less than the average period on the OSCPV market within the framework of the general system», – emphasizes Mr. Mezhebytsky. According to him, in «AXA Insurance» by the third month of the project's operation, the share of payments under direct settlement reached 20% of payments from OSCPV and continues to grow.

In «PZU Ukraine» The share of applications with direct settlement is 13%, and the average payment under this system differs from the usual one by only 4%. “It is too early to talk about trends: 1,382 payments with the OSCPV and 90 with direct settlement are being compared,” says Pavlo Korsun, manager of the motor insurance department of PZU Ukraine. “The results of the first year of the project will be more indicative,” says Volodymyr Shevchenko. In his opinion, communication between insurers has already improved. “All controversial issues are resolved within the framework of the project by correspondence using electronic communication channels. The number of claims has significantly decreased, because mutual settlements between insurers have become automatic. The level of mutual trust is growing,” he notes.

Not everything is so rosy

"The potential of the direct settlement system, if the current number of participants remains, – no higher than 30%&rdash;, – believes "Oranta". Any member of the bureau can join the project. But insurers are in no hurry: only one company has voluntarily joined the project since December – from February 1, 2017, the "European Insurance Alliance" joined the project.

Eight insurance companies out of 18 project participants cover about 90% of the direct settlement market both in terms of the number of claims and the share of payments. At the same time, the average payment within the framework of direct settlement is almost 15 thousand UAH, compared to 9 thousand UAH under the usual model. Small insurers complain that it is unprofitable for them to participate in the new system. Allegedly, the average amount of payments in large insurance companies is less than in small ones. «The current payment system is based on the Belgian model. When we proposed this option, we warned that in small Belgium the age of cars and their price are uniform throughout the country. And here, outside of cities with a population of millions, 90% of cars are over 20 years old. So it turns out that a company operating in a particular region or city carries an increased risk of having to pay more than it will receive. If the company has less than a hundred payments per month, it will receive a constant negative result», – believes the CEO of the Insurance Business Association Vyacheslav Chernyakhovsky.

Under the current netting mechanism, the more payments an insurer has, the less likely it is that there will be strong fluctuations in the amount of payments. «Small companies may receive an additional financial burden due to the fact that larger insurers, which have much more policies, pay out more often on their policies. But the first settlement session showed minor deviations in the compensation paid from the amount that was compensated to the company within the settlement session,” says Konstantin Palazov.

The error in mutual settlements for the first losses incurred may be noticeable. “This is not a problem, since according to the results of subsequent settlement sessions, this error will decrease as a cumulative total. The company has the opportunity to accumulate losses within the framework of direct settlement and present them for participation in the settlement session at a time when their number is large enough for the error to be minimal,” convinces Maksym Mezhebytsky. “The more payments included in the session, the lower the deviation between the amount of actual payments and compensation within the framework of mutual settlements. The smallest deviations will be achieved when all payments from the OSCPV will be made within the framework of direct settlement,” Mr. Shevchenko is sure.

Disagreements also arise in determining material damage for losses within the range of 50-100 thousand UAH. There are only 3-4% of such insurance cases, but they take up 20-25% of payments. Direct settlement gives the injured party's insurer the authority to determine the amount of damage. This insurer will likely put the interests of the client, who needs a larger payment, above the interests of the insurer of the person at fault in the accident. In this case, a conflict is possible if one insurer offers to do with straightening part of the body, and the other - to replace entire parts.

Insurers also complain that many customers of OSCPV services stipulate in their tender conditions the requirement to be a participant in the direct settlement system. "When the AMCU approved the documents for direct settlement, we asked to take this into account, but they did not listen to us, so we were forced to go to court," said Vyacheslav Chernyakhovsky. The project participants do not see this as a big problem. "If potential policyholders include the company's participation in the direct settlement system in the tender conditions, then they need it. An insurer that decided not to participate in the direct settlement system has put itself in such conditions," says Pavlo Korsun.

Slow takeoff

According to Vyacheslav Chernyakhovsky, the direct settlement system should take into account the interests of both large and small companies. At the same time, direct settlement should be prescribed in the laws on insurance and the OSCPV in order to avoid legal conflicts when the client wants to receive payment from two insurance companies at once. "Although the existing direct settlement system stipulates that after a client receives a settlement from his insurance company, he cannot contact the company that caused the accident, at the legislative level he is right and has the full right to appeal this decision," says Mr. Chernyakhovsky.

European experience shows that voluntary initiatives by insurers take root better than those imposed by the state, says Mr. Palazov. But in Ukraine, insurance often develops "under the gun." "The direct settlement system will cover the entire market when it becomes mandatory, or when insolvent companies that are indifferent to the interests of clients leave the market," says the press service of the Oranta Insurance Company.

The MTIBU hopes that insurers will support general direct settlement. «If the general meeting on April 12 supports our idea of amending the charter, then it may take six months to a year to prepare the regulation, approve it and coordinate it with the Antimonopoly Committee. And direct settlement may become mandatory as early as 2018,» predicts Maksym Mezhebytsky.

Source: Financial Club

Author: Slesaruk Svitlana

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