According to the statistical data compiled by BTA Baltic Insurance Company (hereinafter – BTA), last year, when reporting a MTPL insured event, 41 % customers – of all cases, when they had a chance to choose between getting the insurance indemnity in the form of repair works or cash – have preferred to receive insurance indemnity in cash. Taking into account the amendments to the Compulsory Civil Liability Insurance of Owners of Motor Vehicles Law (hereinafter – the MTPL Law) that have taken effect on 1 January of this year, and the considerable differences in the average insurance indemnity amounts paid, depending on whether insurance indemnity is paid in the form of repair works or in cash, BTA expects that the total volume of insurance indemnities paid in the MTPL insurance type might considerably increase this year – by 13 %.
BTA sorted data regarding customer habits with respect to the form of receipt of insurance indemnity, and has come to a conclusion that the habits of MTPL and CASCO customers considerably differ. Where last year, when customers had a chance to select the form of receipt of insurance indemnity, 41 % customers in MTPL insured events preferred to receive insurance indemnity in cash, while only 12 % of customers involved in CASCO insured events had selected this form of receipt of insurance indemnity. The current experience of BTA tells that in MTPL cases customers not unfrequently prefer to receive insurance indemnity in cash, because repair works are done by involving acquaintances and friends or the customer has found options for repair at prices that are considerably lower than the market average, or repair works are omitted at all, assuming that damages are minor and do not affect the operation of the vehicle. Whereas the primary interest of customers obtaining CASCO insurance is to get their vehicle repaired after an insured event, instead of receiving insurance indemnity in cash, and themselves looking for a place to get their vehicle repaired.
Considering the fact that 1 January of this year is the effective date of amendments to the MTPL Law, stipulating that in cases, when a customer chooses to receive insurance indemnity for vehicle damages in cash, initially insurance indemnity of only 70 % (instead of 100 % up to now) of the amount required for repairs, as calculated by the insurer, will be paid to the customer, BTA expects that customer habits with respect to the form of receipt of insurance indemnity in MTPL cases are going to change considerably, and namely, the number of customers willing to get insurance indemnity in cash is going to drop.
Iveta Rijniece, Director of BTA Baltic Insurance Company Insurance Claims Handling Department: “The new changes are going to put yet more pressure on the MTPL industry, which already has been operating at huge losses for many years. The total losses of the MTPL industry in Latvia in nine months of 2016 were nine million euros. At the moment, BTA statistics shows that growth of the volume of paid insurance indemnities in vehicle insurance segment increases is much more rapid than the number of insurance claims made, namely, last year BTA paid by 16 % more than in 2015 in insurance indemnitees in MTPL and CASCO insurance types taken together, while the number of insurance claims made last year was just 4 % higher than in 2015. The increase in insurance indemnity amount is driven by the growing prices of spare parts and car repair shop service costs. We expect that the number of customers opting for MTPL insurance indemnity in cash, when there is such an option, is going to shrink by 50 per cent this year, thus the total volume of MTPL insurance indemnities paid by BTA might increase by 13 %. This circumstance inevitably will make insurers yet more thoroughly look at their MTPL pricing policies in order to avoid the currently present losses from this insurance type getting yet bigger.”
The forecast of BTA experts regarding the MTPL insurance indemnity increase is based on the material differences in the average amount of paid insurance indemnities in cases, when the customer has opted for receipt of insurance indemnity in cash, and cases, when the customer has had its car repaired at a car repair shop. In 2016, the average insurance indemnity paid by BTA for an MTPL case, when the customer has opted for receipt of insurance indemnity in cash, was 480 euros, while the average insurance indemnity paid by BTA for an MTPL case, when repair works were carried out at a car repair shop, were 856 euros. Also, the differences in the average insurance indemnities paid have an objective reason – when receiving insurance indemnity in cash, the amount of VAT on repair works is not initially paid (it is compensated only upon receipt of documents supporting the fact of payments made for repair works) and the amount of insurance indemnity is established according to the average market prices. Also worth noting that insurance indemnity in cash was an option more favoured by drivers in cases, when vehicle damages have been relatively small and minor.
BTA reminds that, upon the initiative of the Ministry of Finance aimed at improving the payment of taxes for vehicle repair, amendments to the MTPL Law came to effect on 1 January of this year, according to these amendments, in vehicle damage cases the amount of insurance indemnity payable prior to carrying out the repair works is reduced by 30 %, when the customer has opted for receipt of insurance indemnity in cash instead of opting for repairing, which means that the insurer will disburse 70 % of the amount of the cost estimate for repair works to the vehicle owner before any repair works, less the VAT amount, and the remaining 30 % of the amount of the cost estimate for repair works and the VAT amount will be available to the vehicle owner after presenting documents confirming the accomplished repair works. The MTPL Law amendments also entail an increase in the period, when vehicle owner is entitled to submit documents confirming the accomplished repair works – instead of the recent requirement of this to be done within two months, as of the 1 January of this year, customers may submit payment documentation for the accomplished repair works within four months since the disbursement of insurance indemnity. MTPL Law also specifies the time for the insurer to make decision of disbursing additional insurance indemnity after having received the payment documentation – until now, this decision had to be made within 30 days, while since the 1 January of this year the insurer has to make this decision within 15 days.
The infographic attached here reflects the tendencies of insurance indemnities paid by BTA in the vehicle insurance segment, as well as changes in MTPL insurance indemnity receipt procedure, when the customer will opt for receipt of insurance indemnity in cash in case of vehicle damage.
Public Relations Manager
BTA Baltic Insurance Company AAS
Phone: +371 67025661, mobile: +371 27828796