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OSAGO: heading for judgement rating

The Bank of Russia has developed a package of measures to stabilise the OSAGO market. The regulator’s proposals, to be rolled out on a phased basis, will ultimately result in the OSAGO rate determined by the car owner’s driving experience and performance.

‘When we launch the reform, our primary focus will be on the protection of responsible car owners. While the current rate leaves a driver profile out, the new approach will make sure each driver is evaluated on an individual basis, enjoying bonuses or having to pay additional premiums. This will make the price of an OSAGO policy fair to all drivers,’ stressed BoR Deputy Governor Vladimir Chistyukhin.

Stage one of this transition, scheduled for this summer, will see current rates updated as the rate corridor will be extended, and the fixing of several ratios will be approached differently.

At the present time, a large proportion of OSAGO-related complaints is about an incorrectly assigned bonus-malus or its doubling. The new system will set a simple and transparent bonus-malus setting algorithm. Each driver will be assigned a bonus-malus valid for one year; drivers with several values of this ratio in 2018 will be assigned the least one.

Additionally, ratios will be recalibrated subject to the driver’s age and driving experience and depending on the number of individuals authorised to drive the car.

For the base rate, the bounds of the rate corridor will be extended by no more than 20% either way. In this manner, while the most popular car category – a light vehicle owned by an individual – comes with the base rate corridor of 3,432–4,118 rubles, the new corridor will be 2,746–4,942 rubles.

These efforts, intended to create a competitive market, will help improve OSAGO’s affordability and availability.

At the second stage, insurance companies will be able to fine-tune potential OSAGO customer segmentation, to a point when an individual rate may be offered to a customer.

This approach will entail regulatory innovations to introduce the new rate-setting scheme and define grounds for, a timeframe and the bounds of subsequent corridor extensions. The Bank of Russia reserves the right to set minimum and maximum values of base insurance rates, as part of its remit.

On a legislative level, the Bank of Russia’s remit is proposed to be extended to include supervision over OSAGO insurers’ rate policies to close the door on unreasonable profits they might make from excessively high rates.

‘Each subsequent stage of the reform will only be rolled out if the preceding one is successful, and if there is evidence that the new rate-setting approach enables insurance companies to differentiate drivers, not to gain extra profits’, noted Vladimir Chistyukhin.

15 May 2018

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