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OSAGO reform: first stage

The Bank of Russia publishes draft Ordinance on limiting the sizes of basic rates and coefficients of insurance tariffs under OSAGO contracts, and on the procedure for insurers to use them for calculating insurance premium.

This document is the first step towards the implementation of Bank of Russia measures announced earlier. These are designed to stabilise the OSAGO market, change tariff setting for OSAGO with a further view of migrating to individual tariffs, enhance transparency of insurance agents’ operations and elaborate the system of controls over insurers’ compliance with the limits imposed on tariffs.

The Ordinance sets forth measures to reform the bonus-malus coefficient (BMC). It is planned to switch to the annual calculation of the coefficient (currently, the BMC is calculated as of the end-date of the latest OSAGO contract). This will streamline the use of the coefficient and make it more transparent. It will also mitigate the risk of associated mistakes and malpractice, and will help avoid the cases of double BMC.

The clear benefits of the new approach are as follows: each driver will possess a single insurance record (at present, there are cases when an individual may be assigned one BMC as a driver and another BMC as a vehicle owner); elimination of practice when a driver’s insurance record is started afresh after a pause in driving (including, when driving conditions do not limit the number of persons allowed to drive a specific vehicle).

Each legal entity will be assigned a single BMC covering all vehicles in its pool. This will considerably simplify the procedure of tenders for OSAGO contracts.

After these changes become effective (on 1 January 2019), all drivers having more than one BMC in the records of the Russian Association of Motor Insurers will be assigned the smaller of the available values.

The draft proposes to widen the range of basic insurance tariffs. The lower bound of the range will be 20% down for all motor vehicles. The upper bound will be lowered for motorcycles and scooters (by 10.9%), and also for legal entities’ vehicles (by 5.7%), whereas for other categories of vehicles it will be 20% up.

These changes will help insurers to customise insurance tariffs within all territories of prevailing use of motor vehicles and to set more differentiated insurance tariffs depending on drivers’ incident rates in various regions.

Innovations will also concern the insurance coefficient depending on the driver’s age and driving experience (AEC). There will be introduced a more detailed gradations for AEC with a bigger number of grades lowering a driver’s insurance tariff during his life (50 grades instead of currently operating four ones). AEC values will be reduced for experienced middle-age and older-age drivers, whereas for young and inexperienced drivers AEC values will be raised (by roughly 4.5%). These changes aim to set a more reasonable cost of OSAGO policy depending on a driver’s age and driving experience.

14 June 2018

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