MTPL insurers in Russia are likely to compete more strongly on price if further liberalization of the market takes effect next year, FITCH Ratings says in a new report, published on November 5, 2018.
Based on the planned liberalization insurers would be allowed to set prices in a significantly wider range, with a higher ceiling and lower base tariff floor. The Central Bank of Russia is negotiating with the legislative authorities and the proposals are expected to come into force next year. A wider pricing corridor gives insurers more flexibility to reflect risk factors such as regional variations and drivers’ claims history in their prices.
FITCH believes that a higher ceiling on prices would lead insurers to compete for high-risk business. The current ceiling forces them to write this business at a loss. They are required to accept it, but some have sought to limit their exposure. A higher ceiling would create scope to write some of this business at a profit. Insurers with the most sophisticated customer data and underwriting capabilities should benefit, as they are best placed to determine the level at which premiums will be profitable, while others may lose out.
The agency expects price competition would become a theme for low-risk business, as well. This business is currently priced at, or close to, the base tariff, and generates large profits (offsetting the losses on high-risk business). The proposed lower base tariff would lead insurers to cut prices with a view to gaining market share while still writing business at a profit. Again, insurers with the strongest underwriting capabilities would have a competitive advantage.