Motor insurance market: Dumping kamikaze

Systemic mistakes at the motor insurance market, made at the prosperity period, would backlash in 2009.

Mistake one: imputed insurance. The motor market growth was inspired by credit boom. At the same time voluntary insurance segment at the motor insurance market was almost standing idle. It resulted in negative trends: poor quality of servicing, absence of specific customized insurance products, low level of professional training of insurance employees.

Mistake two: dangerously close planning horizon. Numerous market players set their task for a brief period of time - attract as many clients as possible through dumping and exorbitant commissions to insurance middle men. Tariffs were deliberately set below statistically grounded level. Such a business model is quite remindful of a classic financial pyramid, when older clients are paid at the expense of newcomers, attracted by low policy price.

Consequence one: the motor insurance market would be seriously hit by the crisis. According to Expert RA, in 2009 shrunk crediting capacities would diminish the motor insurance market by 25%, or by 44 bln rubles, comparing to 2008. After paying credits imputed-insurance clients would refuse to be served by insurance companies. To save the situation, insurance companies would have to take into serious consideration interests of their clients, serving voluntary demand of quality.

Consequence two: in 2009 many motor insurers would go bust. According to Expert RA, due to the crisis the dumping situation at the motor insurance market turned for the worse: amount of dumping at the market scaled up. Ruble devaluation has already caused sufficient increase of an average insurance payout. Dumping under current circumstances undoubtedly implies drastic fall in liquidity levels and worsened financial state of an insurer.