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. Last Updated: 07/27/2016

Bracing for Impact of Mandatory Insurance

With the introduction of compulsory third-party liability insurance for car owners just around the corner, analysts say the industry is now experiencing the lull before the storm.

The price war that hit the automobile insurance market a couple of years ago has eased and premium prices have begun to steadily rise -- but the market's reaction to the introduction of the compulsory insurance remains to be seen.

Since the beginning of the year, insurers have raised their tariffs by about 20 percent to 30 percent. In 2001, they went up by an average of 15 percent to 20 percent. For the moment, it looks as if the trend is set to continue.

The Expert RA research agency analyzed insurance rates for a specific car -- a Volga 3110, with a price tag of around $5,400. The agency set insurance firms certain specific conditions: the driver of the car to be insured had received his license two years previously, there should be no restrictions as to where the car had to be stored at night and the car was fitted with an alarm system. At the beginning of 2002, a full insurance package for the car, including third-party, fire and theft, cost about $600 to $650.

With the same scenario being given to insurers in late September 2000, a number of companies, such as Ingosstrakh and AlfaStrakhovanie, had not altered their prices. Several companies, however, had raised their prices significantly during the same period. The Military-Insurance Company, for example, quoted a price of $850, giving an increase of $200.

The same policy offered by Rosno had also increased over the nine-month period, rising from $698 to $729. "I see this as being a case of the major players bringing their tariff policies into line with the real levels," said Dmitry Popov, a spokesman for Rosno.

Svetlana Adamovich, an analyst at the Insurance Information Center, said prices in the insurance market are rising in response to the increasing demand for automobile insurance. This was confirmed by Popov from Rosno, who said: "Automobile insurance is finally forming in the consciousness of the population as a first-choice product."

The price war may have abated, but insurers continue to compete on service.

"The rates offered by the insurers that are forming the market are pretty much on the same level," said Andrei Ivanov, head of the car-insurance department at Renaissance Insurance. "In the fight to gain clients, other factors are being given more significance, such as getting the injured away from the scene of the accident in good time, getting experts to the crash and round-the-clock dispatch centers."

Despite the massive market that will be created by compulsory third-party car insurance, some companies express caution in their predictions for the development of the sector.

Andrei Znamensky, head of Rosno's St. Petersburg subsidiary, said local insurers are worried that the rates for policies will be set by the government and that those rates will be too low, making it an unprofitable business. The appearance of compulsory third-party insurance is also expected to reduce demand for voluntary insurance, leading to market stagnation. Much will depend on whether insurance companies will be able to convince Russian customers that compulsory third-party insurance is not enough and should be topped up with additional policies, Znamensky said.

(Vedomosti, MT)