Head of Rating & Marketing
Information Agency ArmInfo
Karina MELIKYAN: The very small annual increase in premiums seen in 1H2017 in the Armenian insurance market was accompanied by an impressive increase in payments. According to the insurance companies' ranking prepared by ArmInfo for this period insurance premiums increased by 5.3% to AMD 16.98 billion while the paid claims went up by 17.7% to AMD 8.02 billion.
By types of insurance, the largest share in terms of GWP traditionally has been held by MTPL - 56.18% or AMD 9.5 billion (annual growth by 1.4%). The market share of health insurance (including voluntary) reached to 21.48% or AMD 3.6 billion (up by 18.2%).
Property insurance from fire and allied perils with 6.34% market share in terms of GWP decreased by 6.7% to AMD 1.1 billion. On Motor Hull written premiums by insurers went down by 0.01% to AMD 925.6 million. The market share on this type of insurance practically remained unchanged 5.45% compared to the similar period of 2016.
On the other hand, the share of claims paid by insurers on MTPL (in the total claims paid by market) increased to 64.94% compared to 1H2016 when this index amounted 57.98%. Followed by health insurance 21.2% in the total claims compared to 25.22% in 1H2016. Claims paid on Motor Hull totaled AMD 606.3 million or 7.36% in the total claims (1H2016 - 8.17%). The share of claims on financial loss insurance decreased to 2.82% (1H2016 - 6.16%) or AMD 225.7 million.
XPRIMM: How do you evaluate the amicable report's implementation results in Armenia? What about direct claims settlement agreement in motor insurance?
Karina MELIKYAN: The process of insurance events settlement based on the mutual consent of drivers started in March 2016. Initially by amicable report could be settled MTPL insurance events below AMD 50,000; but in October 2016 this limit was increased to AMD 100,000. The Armenian drivers have become more familiar with mechanism of solving accident via an amicable report.
According to the Armenian Motor Insurers' Bureau in the last months under the amicable report there were settled about 45-53% events from the total payments which means approximately 2,200-2,600 insurance cases compared to 30-60% at the beginning of this year or about 1,200-2,500 cases.
Moreover, the Armenian Motor Insurers' Bureau plans to implement starting 2018 a mobile app version of the registration of insurance claims under the amicable report. Currently this application is in a technically advanced stage of preparedness. As a result drivers will have a choice in which version to fill the amicable report, on paper or on a mobile device.
There are works ongoing to transfer MTPL processes to a new level of standards and automation - to the unique system and a platform for the insurance market under the project "Armenian Single Window for Automotive - ASWA". This project was launched within the collaboration protocole concluded in 2014 with the French Bureau Veritas of Inspection, Valuation, Assessment and Control. As from October 2017 MTPL insurance policies are already issued using this system, namely all insurance companies are providing insurance policies only through the unique platform. It is also planned that in November this year will be implemented the possibility of On-Line sales of policies (via Internet), and in December there will be possible to purchase policies at payment terminals with a cash-in function. Thus the process of introducing different opportunities for concluding MTPL insurance agreements by a unique window will be completed by the end of 2017.
XPRIMM: What is the level of loss ratio in the MTPL insurance compared with the previous period?
Karina MELIKYAN: According to the Armenian Motor Insurers' Bureau data, at the end of August 2017 the loss ratio in MTPL was 61.7% compared to 48.8% a year earlier. Following the implementation of direct compensation system, this is only one of the main indicators indicating an increase in the level of compensations paid. This means that insurance companies have become more efficient in servicing their clients, more correct in assessing damages and promptly paying claims.
XPRIMM: How do you evaluate the effectiveness of the direct compensation system after almost half a year from the implementation (April 1, 2017)?
Karina MELIKYAN: The process of transition to the direct compensation system was very smooth, without excesses although this mechanism radically changed the MTPL landscape. According to the Armenian Motor Insurers' Bureau there were small differences related only to the technical part (mutual payments between insurance companies) but these issues were quickly solved together with the insurers. Moreover, from April to this day differences on mutual settlements between insurance companies were recorded in only about 200 cases, which is only 0.5-0.7% of the total number of insurance claims. With the implementation of a direct compensation system in Armenia the gap in the average size of the MTPL insurance payment has been significantly reduced: from the previous AMD 150-210 thousand to the current AMD 178-198 thousand.
The main explanation is that the insurance companies' principles and approaches towards assessing damages have become more similar. In other words there is the fact that the direct compensation system is a typical model of self-regulation.
Positive consequences: the risk of overestimation or underestimation of a particular damage has been decreased as much as possible. Also, discipline throughout the entire compensation process has improved. In fact, payments of the insurance indemnities to claimants are made 2-3 times faster.
Insurance companies have become much more operative to provide service and have become really competitive in the process of organizing insurance payments. As a result the number of complaints decreased significantly and the gap in the average size of the insurance payment for MTPL significantly decreased.
XPRIMM: Is it possible to talk about any visible results on the "bonus-malus" system?
Karina MELIKYAN: The introduction of bonus-malus system determined that public transport and taxi owners of more than one vehicle have been classified in high malus class due to a large number of accidents. As a result the insurance premiums for these categories have increased, which obviously have created some tension on market.
In reality, the bonus-malus system proved to be, in the end, objective, reasonable and fair. It reflects both problems existing in the public transport and taxi as well the real statistics of accidents and inefficiency of management of this process.
There are two aspects in discussion in the Armenian Motor Insurers' Bureau. The first is the proposal of using in calculation of malus in addition to the number of accidents the amount of damage. But this change is unlikely to be introduced in the near future.
The second concerns the limit of high-risk malus, namely we are talking about the established 250% malus, to either remove this restriction or increase it to 300-400%. But taking into account the social aspect of this issue there are no changes on it yet. Both questions are relevant but in fact they are still in the research and discussion stage.
XPRIMM: What are the main benefits that the compulsory health insurance will bring for the Armenian citizens? What are the expectations related to insurance business growth?
Karina MELIKYAN: Starting from 1st October of 2017 a social insurance package for public employees has come into effect. Under this system the policy amount is AMD 33 thousand. The state will pay to clinics via insurance companies. In order to serve state employees based on the medical social package Ministry of Health and insurance companies have already concluded agreements with 150 clinics.
Successful testing of the social package during the year will allow making a decision on the full transition to compulsory health insurance in the future. The preliminary mechanism of compulsory health insurance assumes that the partial coverage of the policy AMD 6,000/per person the employers will take over and the rest will be charged from the employee's salary. In addition it is assumed that the state will cover the policies of 600,000 citizens from the poor level of society including pensioners.
On the other hand the government, insurance companies and the Ministry of Emergency Situations are working on the development of a legislative package for the insurance of civil liability of hazardous production facilities (for example, construction or chemical plants). This bill will include an option for an independent risk assessment of hazardous industries.
XPRIMM: What are the market expectations for the end of 2017?
Karina MELIKYAN: Regarding the planned innovations in addition to the said above one more can be pointed out, namely that Armenia has intention to become a participant in the international insurance system Green Card. According to the Armenian Motor Insurers' Bureau, the process has been started for more than a year and relevant discussions are underway to include Armenia in the Green Card system.
Recently the Armenian Motor Insurers' Bureau and the Council of Bureaux - Green Card System have intensified discussions on this process.
In June of this year representatives of the Central Bank and the Armenian Motor Insurers' Bureau visited Brussels at the headquarters of Council of Bureaux where they studied the mechanisms of this system discussed the issues and main problems of participation.
Then the representatives of the Green Card Bureau visited Armenia in early September. There was organized a seminar-discussion with the participation of representatives of the Central Bank, the Ministry of Finance, the Road Police, insurance companies and the Motor Insurers' Bureau. As a result of all these joint meetings and seminars there was a general preliminary understanding of the necessary further steps and solutions for including Armenia in the Green Card system.
Armenia has already taken concrete steps: it has become part of the international convention of road traffic; the process of membership in the international convention of road signs started several months ago (the Ministry of Foreign Affairs, the Ministry of Justice and the Road Police are already working in this direction). In terms of legal recommendations steps have been taken to introduce a number of legislative and sub-legislative changes.