Motor Hull Insurance Market: Died on Elevation

Fast decline - slow recovery: according to forecasts of Expert RA, in 2010 the market of motor hull will be in stagnation. Following the results of 2009 the motor hull insurance declined by 20.5%, in 2010 the amount of premiums will remain at the level of 2009 (forecasted rates of increase 0%) and will reach 138 billion rubles.

In 2009 premiums for motor hull insurance received through bank and dealer channels of sale were going down with the fastest rates. Within the agency channel of sales premiums were redistributed in favor of reliable insurers. Direct sales on the background of general decline grew up to the contrary.

In 2010 the amount of premiums for motor hull insurance received through banks and car saloons reduced to a certain extent, in particular, on account of increase of premiums in direct insurance and the crisis of confidence towards insurance companies.

The crisis strengthens: Expert RA highlighted 4 negatie tendencies facilitating development in the market of motor hull in 2010.

1. Left with ruins. Companies relying upon the balk channels of sales and sales through the car dealers found themselves in the risk area. In 2009 they faced the problem of sharp and sudden reduction of premiums which led in its turn to liquidity gap and increase of competition for remaining insurants. For reorientation of business towards other sales channels or insurance products, the factor of safety was required which was available not for all Companies.
2. Damping needle. Damping which strengthened in the motor hull market since the end of 2008 as a result of aggravation of the competition level, reached incredible sizes in the middle of 2009. And only at the end of the past year a certain increase in tariff rates at a number of major insurance companies was observed. However, many insurers who firmly put on the "damping needle" and not having a reserve of liquid assets are not already able to "come out" of it since increase of tariff rates for them will mean loss of liquidity, non-payments and finally withdrawal of the license.
3. Not to pay at any price. The most serious consequences of damping in the market of car insurance will manifest themselves with a year lag, i.e. in 2010. According to forecasts of Expert RA, in 2010 more than a quarter of players will leave the motor hull market, including several large insurers among top 50. In addition, many remaining insurance companies will continue the policy of "cost optimization" which was commenced in 2009 already and supposing to direct all efforts for reduction of payment amounts. Such policy will lead to deterioration of reputation of the entire insurance market and will cause unfavorable influence on dynamics of voluntary demand for services of insurance companies.
4. Nobody merits trust. During the crisis period the number of cases of insurance fraud increased on the part of all groups of participants of the insurance market (insurants, insurance agents and insurance companies themselves). In 2010 this tendency will strengthen.

If it weren't for bad luck: Expert RA highlighted 4 positive tendencies which manifested themselves in the motor hull market during the crisis.

1. Repair trump. If previously the main source of incomes for cal saloons was sales of new cars, then now about 60% of their gross profits fall on incomes from service. Many dealers before the crisis relied upon continuation of increase in sales, increase their repair capacities. As a result, during the crisis period the main direction of interaction between dealers and insurance companies was receipt from insurers of the repair resource. Requirements to size of the fee left for the second plan.
2. Product innovations. Fearing to loose in price competition many insurers relied upon development of new insurance products containing various types of franchise ("hidden" franchises, franchises applied from the second insurance event) and incomplete coverage of risks (for example, protection only against stealing and loss of the car).
3. Reliability of price. Under the conditions of deterioration of the entire insurance industry and increase of the number of cases of default, agents have become more interested to deal only with reliable partners. As a result, agency sales of motor hull policies from reliable companies not only have not fallen down but even grew up.
4. Informed choice. Certain companies remark increase in growth for insurance of used cars in 2009. Car owners make an informed choice in favor of insurance as a risk management and cost fixation instrument.