Regulation of insurance rates for compulsory insurance classes

Regulation of insurance rates for compulsory insurance classes Moscow, 29 July, 2014

Russian Association of Motor Insurers (RAMI): • Was established in accordance with the Federal Law “On Compulsory Third-Party Liability Insurance for Motor Vehicle Owners” • Professional association of insurers; • Non-profit entity; • Purpose – cooperation of CMTPL insurers. RAMI: • Lays down the professional rules for RAMI members; • Represents interests related to compulsory motor TPL insurance provided by RAMI members in state authorities; • Implements compensation payment if: • insurer’s license is revoked; • offender’s liability isn’t insured; • Organizes the system of motor vehicle technical inspection. 2

Compulsory Motor Third-Party Liability Insurance (CMTRL) Federal Law “On Compulsory Motor Third. Party Liability Insurance” Government Decree No. 739 on approval of insurance rates for compulsory motor third-party liability insurance 3

Rate principles of CMTPL Insurance Rate = Basic insurance rate*КТ*КBМ*КVS*КО*КМ*КS*КN KT – Ratio of Insurance Rates Depending on the Territory of Predominant Use of the Vehicle КBМ – Bonus–malus Ratio KVS – Ratio of Insurance Rates Depending on the Age and Driving Experience of the Driver Authorised to Drive the Vehicle КО – Information about the Number of Persons Authorised to Drive the Vehicle КМ – Ratio of Insurance Rates Depending on the Engine Power of the Light Motor Vehicle and Taxi КS – Ratio of Insurance Rates Depending on the Period of Use of the Vehicle КN = 1. 5, applied to reflect gross violation 4

CMTPL Problems Problem: 31 regions are unprofitable in CMTPL Problems to prolong / sign contracts of CMTPL -> more complaints Conclusion: KT in some regions does not reflect real situation !!! To solve temporarily the problem of complaints growing Sales of CMTPL contracts in unprofitable regions to be increased. Presidium of RAMI approved Temporary procedure for providing extra insurance policies for RAMI members in unprofitable regions. Extra insurance policy forms: + 50% for the 2 nd & the 3 rd groups of risk; + 16. 6% for the 4 th group of risk the 5 th group of risk and stop-list – no extra policy form Solutions based on system approach: Ø Basic insurance rates and ratios changes (especially КТ) - to increase rates by 11, 79% Ø Implementation of the ‘tarriffs corridor’ 5

Calculation of basic insurance rate Motor Vehicle Types Light motor vehicles – individuals and private entrepreneurs Light motor vehicles – legal entities Light motor vehicle trailers Light motor vehicles used as taxis Trucks with a permissible gross weight of 16 tonnes or less Trucks with a permissible gross weight over 16 tonnes Truck trailers Buses with the number of passenger seats up to 20 Buses with the number of passenger seats over 20 seats Buses used as taxis Trolleybuses Trams Tractors, self-propelled road-building and other machines Tractor trailers Motor cycles and scooters RAMI offers 2113 1128 Government Decree No. 739 1980 2375 279 395 6803 2965 1858 2025 2513 3240 1310 810 2041 1620 2775 2025 6757 2965 4578 1620 1642 1010 1249 1215 259 305 447 1215 6

Assessment of the Ratios of Insurance Rates (КVS, КО, КМ, КS) Drivers age Driving experience KVS Assessment Up to 22 years of age up to 3 years 2. 08 Over 22 years of age up to 3 years 1. 81 Up to 22 years of age over 3 years 1. 86 Over 22 years of age over 3 years 1. 00 Ratio depending on availability of data on 2. 08 the number of persons allowed to drive (KO) Assessment Current КМ КМ up to 50 over 50 to 70 over 70 to 100 over 100 to 120 over 120 to 150 over 150 0. 54 1. 00 1. 06 1. 11 1. 16 0. 60 1. 00 1. 10 1. 20 1. 40 1. 60 Current KVS 1. 80 1. 70 1. 60 1. 00 1. 80 Period of use of Assessment Current the Motor Vehicle КS КS 3 months 0. 65 0. 50 4 months 0. 70 0. 60 5 months 0. 75 0. 65 6 months 0. 80 0. 70 7 months 0. 85 0. 80 8 months 0. 90 9 months 0. 95 10 months or more 1. 00 7

Assessment of the KT ratios Territories Kumertau (Bashkortostan) Tuimazy (Bashkortostan) Zelenodolsk (Tatarstan) Petropavlovsk. Kamchatsky Blagoveshchensk (Amur region) Arkhangelsk Murmansk Severomorsk (Murmansk region) Dzerzhinsk (Nizhny Novgorod region) Ulyanovsk Kopejsk (Chelyabinsk region) KT Assessment KT 1, 10 2, 27 1, 30 2, 40 1, 30 2, 15 1, 10 1, 99 1, 40 2, 56 1, 80 1, 70 2, 75 3, 19 1, 30 2, 54 1, 30 2, 16 1, 40 2, 97 1, 50 2, 37 Khasavyurt (Dagestan) Malgobek (Ingushetia) Prokhladnyj (Kabardino. Balkaria) Neryungri (Yakutia) Yakutsk Krasnokamensk (Zabajkalskij region) Spassk-Dalnij (Primorye) Ust-Kut (Irkutsk region) Salsk (Rostov region) Other cities and towns of the Yamal-Nenets Autonomous Area Territories Moscow region Leningrad Region St. Petersburg 1, 00 1, 20 Assessment KT 0, 69 0, 85 1, 00 0, 64 1, 30 2, 00 0, 73 1, 66 1, 00 0, 39 1, 00 0, 57 0, 68 1, 10 0, 77 KT KT 2, 00 1, 70 1, 60 1, 80 Assessment KT 1, 94 1, 66 1, 45 1, 85 8

“Tariffs corridor” IMPLEMENTATION “TARIFFS CORRIDOR” Risk of the mass insolvency of insurers if a min rate is lower rate then a calculated gross-rate Min rate should tally with gross rate No preconditions for insolvency of insurers Impact on the Ratios of Insurance Rates, including adjustment KT in upprofitable regions Price competition is an advantage for the consumer 9

Increase cover limits increase the limit of liability of the compensation for the damage caused to life and health of the victims, up to 500 000 Rubles including fixed payments for bodily damage increase the cover limit to recompense property damages, up to 400 000 Rubles Increase of Insurance Rates 24. 23% 15. 96% 28. 3% For the existing cover limits, the current insurance rates should be increased by 11. 79% (included basic insurance rates and all ratios of insurance rates changes, including КТ) 10

Increase in payments under the court decisions Percentage of judicial claims paid in the total CMTPL claims paid 25. 2% 24. 6% Percentage other noninsurance judicial claims paid in the total CMTPL claims paid Percentage judicial claims paid such as fines, forfeit, moral damages, in the total CMTPL claims paid 20. 0% 18. 0% 17. 0% 15. 0% 12. 0% 10. 0% 9. 0% 0. 6% 0. 0% 2011_Q 1 12. 0% 10. 0% 1. 5% 0. 1% 2011_Q 2 1. 9% 1. 6% 0. 1% 2011_Q 3 0. 1% 2011_Q 4 1. 9% 0. 1% 2012_Q 1 2. 6% 0. 3% 0. 2% 2012_Q 2 2012_Q 3 2. 8% 2. 9% 1. 3% 0. 6% 2012_Q 4 2013_Q 1 3. 3% 2. 4% 2013_Q 2 3. 8% 3. 6% 2013_Q 3 4. 0% 3. 9% 2013_Q 4 Caused by: No common methodology damage assessment Inefficient claims regulations The scope of Consumer Protection widens to cover CMTPL 11

Consumer Protection Law covers only segments of CMTPL If: This Law covers CMTPL in full Then: Insurers are obliged to pay fines, forfeit charges and moral damages under this Law PROPOSITION Segments of CMTPL this Law: Forfeit charges and fine not used if payments made on time or sent motivated failure. Forfeit charges • forfeit charges equal to 1% if the payment is not made on time and equal to 0. 05% - in case of failure motivated direction; Fine (50% of the outstanding payment) - levied in case the undisputed part is not paid on time by the insurer; 12

Compulsory liability insurance of hazardous facilities owners for inflicting damage due to accidents at the hazardous facility 13

Compulsory liability insurance of hazardous facilities owners for inflicting damage due to accidents at the hazardous facility July 27, 2010 signed by the President of the Russian Federation Federal Law № 225 -FZ «On compulsory liability insurance of hazardous facilities owners for inflicting damage due to accidents at the hazardous facility» October 1, 2011 signed by Russian Federation Government Resolution № 808 "On approval of insurance rates on compulsory liability insurance of hazardous facilities for inflicting damage due to accidents at the hazardous facility, their structure and the application of the insurers in the calculation of insurance premium" November 3, 2011 signed by the Russian Federation Government Decree № 916 "On approval of compulsory liability insurance of hazardous facilities owners for inflicting damage due to accidents at the hazardous facility" 14

Tariffication (1) Insurance premiums Declared hazardous facility (depending on the maximum possible number of victims): Number of victims Sum insured More then 3000……………. …. . 6, 5 bln. rubles 1500 -3000…………. . 1 bln. rubles 300 -1500………………. . . . 500 mln. rubles 150 -300…………………. . . 100 mln. rubles 75 -150……………. . . . 50 mln. rubles 10 -75…………………. . 25 mln. rubles Less then 10 ……………. . . 10 mln. rubles Undeclared hazardous facility (depending on the industry): Industry affiliations Sum insured Chemicals, petroleum refining………………. . . . 50 mln. rubles Pipeline of gas consumption and gas supply………………. . . 25 mln. rubles Other…………………. . . 10 mln. rubles Insurance premium = Claims х Insurance Rate = Basic Insurance Rate х К 1 х К 2 х К 3 15

Tariffication (2) К 1 – coefficient depending on the damage that may be caused as a result of an accident at a hazardous facility, and the maximum possible number of victims. К 1 = 1 for the period up to 31 December 2014 К 2 - coefficient depending on the absence or presence of insured events that occurred in the period of the preceding compulsory insurance contract due to the violation of norms and rules of operation of a hazardous facility, established by the legislation of the Russian Federation. К 2 = 1 for the period until 31 December 2016 К 3 - additional reduction factor as determined on the basis of the level of safety of a hazardous facility, including, subject to the requirements of technical and fire safety in the operation of a hazardous facility, ready for the prevention, containment and elimination of emergency resulting from an accident at a hazardous facility. Intervals of possible values of the coefficient: The period of validity К 3 01. 12 – 31. 12. 13 0. 9 -1. 0 01. 14 – 31. 12. 15 0. 7 -1. 0 after 01. 16 0. 6 -1. 0 16

Tariffication (3) Basic rates of insurance rates for some classes of dangerous objects Class of hazardous facility Hazardous production facilities of coal, oil shale and peat industry Hazardous production facilities of ore mining and non-metal mining industry Hazardous production facilities, which are stored retrieved and used explosives Hazardous production facilities of oil and gas complex Hazardous production facilities of the main pipeline transport Hazardous production facilities of geological and geophysical field development Hazardous production facilities of the chemical, petrochemical and refining industries, special chemicals and other explosive and hazardous industries Hazardous production facilities of petroleum products Hazardous production facilities of gas supply Basic rates of insurance rates (percent of the sum insured) 0. 85 – 4. 94 0. 94 – 3. 10 1, 96 0. 02 – 1. 50 0. 31 0. 53 0. 41 0. 13 0. 20 17

Compulsory insurance of carriers’ civil liability for damages to life, health or property of passengers 18

Compulsory insurance of carriers’ civil liability for damages to life, health or property of passengers June 14, 2012 the President of the Russian Federation signed the Federal Law № 67 -FZ "On compulsory insurance of carriers’ civil liability for damages to life, health, property of passengers and on the order of compensation for damages caused during transportation of passengers underground" December 20, 2012 signed by Government Decree № 1344 "On Approval of the limit (minimum and maximum) values of insurance rates of compulsory insurance of carriers’ civil liability for damages to life, health and property of passengers" December 30, 2012 signed by Government Decree № 1484 "On Approval of the Rules for Determining the number of passengers for the purposes of calculating insurance premiums for compulsory insurance contract carriers’ liability for damages to life, health and property of passengers" 19

Classes of carriers Tariffication (1) Railways long distance commuting distance Airways Marine risks Inland waterways commuter, intercity, transit, local routes tourist routes Buses intercity suburban city transport by the order Trolleybuses Tramways TAXI and Metro are not insured 20

Tariffication(2) Insurance amounts must be specified separately for each risk civil liability per passenger: • Risk of life damage – up to 2. 025. 000 Rubles; • Risk of health damage – up to 2. 000 Rubles; • Risk of property damage – up to 23. 000 Rubles. Insurance amounts established for each insured event and cannot change during the period of compulsory insurance contract. 21

Tariffication (3) Factors affecting the amount of insurance premium Number of passengers Type of transport operation Availability of franchise (risk "for injury to property") The inclusion or exclusion of reasons for exemption of the insurer to indemnify (nuclear, war risks, etc. ) Other risk factors, including the level of safety provided by the carriers’ transport and technical condition of vehicles Carrier Government Decree of 20. 12. 2012 № 1344 sets limits (maximum and minimum) value of insurance tariffs 22

Tariffication (4) • Bank of Russia conducts annual monitoring the compulsory insurance, insurance rates levels, and their validity as well as the impact of compulsory insurance on the development of business activities in the transport industry. • To the state and local government bodies receive monitoring reports and the public through the massmedia and the Internet. • To perform this function, the Bank of Russia is authorised to request relevant information from other federal executive bodies, executive bodies of subjects of the Russian Federation, local authorities, insurers and their associations. 23

Thank you for your attention! Questions & Answers 24