The cost of "motor third party liability insurance" may increase significantly from the new year
How will the terms of compulsory car insurance in Ukraine change and how much will the price of "motor insurance" rise from the new year, Ekonomichna Pravda wonders?
From January 1, 2025, the rules of compulsory motor insurance will change in Ukraine. The amount of insurance payments will gradually increase to the European level, direct settlement with an "additional service" will become a basic option, and insurance companies will be able to set their own tariffs.
At the same time, the cost of CTP may increase. The market predicts a 2-2.5-fold rise in policy prices.
What changes will car owners face starting in 2025 and will they justify the rise in the price of CTP?
Changes in CTPCI are long overdue
The liability of every owner of a land vehicle in Ukraine must be insured in the event of an accident. Officially, this is called "compulsory motor third party liability insurance" (CMTPL), which in human language sounds better - "motor third party liability insurance".
The current law on OSAGO was adopted back in 2005. For almost two decades, most of its provisions have become obsolete and do not meet the modern needs of either insurance companies or their clients.
Therefore, in early 2024, the Verkhovna Rada adopted a new law that complies with Directive 2009/103/EC of the European Parliament and of the Council. This document will come into force on January 1, 2025.
The new law provides for a gradual increase in insurance amounts to the amounts established in EU countries, the abolition of the deductible (the amount that the culprit will have to compensate on his/her own in the event of an accident), and the availability of direct settlement.
In other words, starting in the new year, if the driver of the insured car is not the culprit of the accident, his insurance company will reimburse him for the damages caused, and the insurer of the culprit will collect these funds from the insurer of the accident. Currently, this option is considered an additional option and is valid only if the insurance companies of both parties to the accident are parties to a direct settlement agreement (currently, there are 11 insurers).
In addition, the new law provides for free pricing. That is, insurance companies will be able to determine what the cost of the policy for each driver will depend on.
The Motor Transport Insurance Bureau (MTIBU) has not been forgotten about innovations. Thus, in case of revocation of an insurer's license, the bureau will pay out insurance claims under previously executed contracts without waiting for a court decision on the insurer's bankruptcy.
How will the amount of insurance payments change?
Insurance companies have certain limits on compensation to the injured party in the event of an accident. By the end of 2024, they will amount to UAH 320 thousand per victim and UAH 160 thousand per car (UAH 800 thousand per event).
If there is no CTPCI, the culprit will have to compensate all of these costs out of his own pocket, either voluntarily or compulsorily, i.e. through the courts.
However, starting in 2025, these limits will increase to UAH 250 thousand for property damage (UAH 1.25 million per event) and UAH 500 thousand for personal injury (UAH 5 million per event). These changes will apply only to policies concluded from January 1, 2025.
That is, if a driver has a valid policy dated December 2024, in the event of an accident next year, the insurance company will be able to reimburse him only UAH 160 thousand for the restoration of the car.
The next stage of increasing the amount of insurance payments is scheduled for January 1, 2026, but not before the termination or lifting of martial law. The amounts will increase for life and health to UAH 1 million per victim and UAH 20 million per insured event. There will be no restrictions on property per victim, but the amount will be limited to UAH 2 million for the entire insured event.
What are the reasons for the increase in insurance payments? "First of all, the rise in prices for vehicle repairs caused by inflation and currency fluctuations has also significantly affected the cost of material compensation. The cost of spare parts, materials and service station services is constantly increasing, which requires a corresponding increase in insurance payments to cover losses," explained Oleksandr Bernazyuk, MTIBU Director General.
The second factor that influenced the increase in insurance amounts is the increase in the frequency of insured events. "Statistics show a 20% increase in the number of insured events. This may be due to more intensive use of vehicles, increased road traffic and other factors that affect the risks of road accidents," says Bernaziuk.
In addition, according to the statistics on the existing contracts of "motor citizen", in more than 40% of road accidents, the losses significantly exceed the limit of UAH 160 thousand, added the insurance company ARX.
In view of this, the MTIBU believes that an increase in the maximum amount of compensation under the MTPL policy may encourage Ukrainians to take out this type of insurance.
The third stage of the limit increase will come after Ukraine joins the European Union.
How will the prices for "motor third party liability" be formed?
Previously, the calculation of the cost of CTPCI was regulated by the state using certain coefficients, such as the place of registration of the car and engine size. The National Bank, as the regulator , determinedtheir sizes.
Starting in 2025, the coefficients set by the NBU will cease to apply, and each insurance company will be able to set its own methodology for calculating the insurance rate. Insurers will post it on their own websites.
"It is predicted that insurers will use coefficients similar to the bonus-malus system that already operates in Europe (bonus - discounts for accident-free driving, malus - an increase for each recorded accident)," the MTIBU said.
The ARX company says that the cost of their policy will depend on: the type and year of manufacture of the car, according to the place of registration according to the technical passport, the year of birth of the owner, the scope of use of the vehicle and the availability of benefits. Currently, such a factor as the history of losses (the presence of accidents) does not affect the cost of a policy with this insurer, but in the future they plan to take it into account.
Insurance companies will be able to take into account even the driving style, assessing it with the help of telematics systems.
Viktor Shevchenko, a member of the board of INGO Insurance Company, noted that the cost of a policy can be formed depending on the real risks associated with a particular driver. "Those who have an accident-free history will receive significant discounts, which encourages safe driving. At the same time, for drivers with a large number of insured events, the cost of the policy may be higher," he added.
According to Oleksandr Zavada, Executive Director of Oranta, the transition to free prices in the MTPL market increases the risk of bankruptcy of some MTIBU members and, consequently, the risk of joint and several liability of others. Therefore, payments from the MTIBU funds for bankrupts will also increase.
How much will the prices for "motor third party liability insurance" increase?
One of the questions that car owners are most concerned about is how the cost of a CTP policy will change.
The MTIBU explains that the final cost will depend on a number of other factors, including competition, underwriting policy of insurers (risk assessment), development strategy, loss analysis, customer segmentation by risk characteristics, and the overall market situation in the country.
Bernazyuk suggests that, taking into account all the factors, the cost of CTPCI may increase by 50-70%. In general, the market is expected to grow by 2-2.5 times the average cost.
If for a car with a small engine size and registered in Kyiv, you can currently buy CTP for about UAH 2.2 thousand, then with the projected increase, its cost will be UAH 4.4 thousand to 5.5 thousand.
It is currently possible to buy CTPCI at lower prices, but as mentioned above, payments under it in the event of an accident will be lower. Therefore, ARX recommends taking care of an additional extension of liability for the amount of coverage from UAH 500 thousand to UAH 4 million to compensate the injured party for wear and tear and losses.
Nevertheless, the new law will retain the benefits for certain categories of citizens: combatants, participants in the Revolution of Dignity, and persons with disabilities of groups 1-2. They will receive a 50% discount on the cost of the insurance policy.
A driver can get a discount for only one car that he or she owns (i.e., it will not be possible to ask a friend of the UBD to buy a policy for a "non-privileged person") and is not used for commercial purposes, for example, as a taxi.
How the direct settlement procedure works
Under the new law, direct settlement becomes mandatory for all insurance companies. If an accident involving two vehicles occurs and only the victim's car is damaged, he or she can use direct settlement.
To do this, the driver needs to apply for payment to his or her insurance company with which he or she has a contract, and not to the insurer of the culprit, as it was before. However, if the damage is caused to health, the victim will still have to apply to the culprit's insurance company.
"This mechanism will greatly simplify and speed up the process of receiving insurance payments. Previously, victims often faced problems in dealing with the insurance companies of the parties responsible for the accident, which could delay the payment process for months. Now, by contacting their insurer, victims will receive the payment much faster and without unnecessary hassle," Shevchenko says.
Features of the European protocol
It is not always necessary to call the police to the scene of an accident. For example, if there was an accident involving only two vehicles, only one car was damaged, no one was physically injured, and the drivers were not under the influence of alcohol or drugs, a "Euro protocol" can be drawn up.
If both drivers agree on the culprit and the circumstances of the accident, they send the signed protocol to the insurance company. After that, they can leave the scene of the accident and are not required to notify the police.
Currently, the "Europrotocol" can be used if the accident did not cause damage to life or health, and property damage does not exceed UAH 80 thousand (half of the sum insured).
At the same time, the new law does not set limits on the amount of compensation under the Europrotocol, but they may be determined by the National Bank. Starting in the new year, the maximum amount of compensation for damage to property will increase to UAH 250 thousand, unless the NBU sets a different amount, so the maximum limit will apply.
What about hull insurance?
In addition to compulsory motor third-party liability insurance, Ukraine also has CASCO policies, which are voluntary car insurance. If, after the new law comes into force, the "motor citizen" will be able to cover the actual cost of car repairs in more cases, won't Ukrainians take out less CASCO?
Market participants agree that there will be no significant changes, as this voluntary insurance covers not only the cost of repairs after an accident, but also after various accidents such as fire, fallen tree, theft, and also compensates for the consequences of military operations.
"CASCO provides enhanced risk settlement options, such as no-fault compensation or assistance services. That is why it will remain necessary for those car owners who take care of their own cars first and foremost," Shevchenko says.
At the same time, ARX suggests that the purchase of hull insurance covering accidents with a second party (Minicasco, Direct Protection) may decrease, which will require updating the terms of such products.
Anastasia Dyachkina