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Price of car liability premiums to rise again

WHILE THE recent lifting of a monopoly on third party car liability insurance has brought new players to the Slovak market, motorists are likely to face a major rise in premiums next year.
The eight insurance houses which started providing the coverage at the beginning of this year after the Slovenská Poisťovňa (SP) monopoly came to end have already increased prices for 2002 premiums by an average of 20 per cent, and say that rates for optional collision and theft insurance are likely to be raised as well.
While five years ago the average liability insurance policy for a passenger car cost less than Sk2,000 ($46), this year motorists had to pay over Sk4,000 ($90), still lower than in western Europe.


THE BAZ-Inalfa joint venture produces parts for VW, Porsche and Škoda.
Photo: Courtesy of BAZ-Inalfa

WHILE THE recent lifting of a monopoly on third party car liability insurance has brought new players to the Slovak market, motorists are likely to face a major rise in premiums next year.

The eight insurance houses which started providing the coverage at the beginning of this year after the Slovenská Poisťovňa (SP) monopoly came to end have already increased prices for 2002 premiums by an average of 20 per cent, and say that rates for optional collision and theft insurance are likely to be raised as well.

While five years ago the average liability insurance policy for a passenger car cost less than Sk2,000 ($46), this year motorists had to pay over Sk4,000 ($90), still lower than in western Europe.

"I don't want to speculate about any price increases for car liability insurance for next year, but we should certainly see one of the same magnitude or much higher than last year," said Manuel Bauer, a member of the supervisory board at SP.

The roots of the steadily rising prices lie in SP's state-owned past. Customers are only now being forced to pay for a decade of state-subsidised insurance.

While SP lost its monopoly position at the end of the last year following a government move to liberalise the market, it has managed to keep the biggest market share, at close to 50 per cent, followed by Kooperatíva and Allianz, both with about 23 per cent. Smaller market players include Česká poisťovňa Slovensko, Komunálna poisťovňa, Uniqa, Generali and Ergo.

As of next year, all branches of SP and Allianz are to merge, and the two insurers will control a solid majority of the car insurance market.

SP, which was a state-owned company until the end of 2001, when it was bought by the German Allianz, had since 1993 kept premiums at low levels without pricing in real costs and creating reserves for coverage of accident claims.

This policy resulted in a total deficit of Sk2.8 billion ($63.3million) in car liability insurance over the decade, a loss which was covered by the state and other SP insurance divisions.

As a condition of opening the car insurance market, the government required the eight insurers to cover part of the former debt, with the amounts each owed based on their share on the new car liability insurance market.

Private insurance houses must now pay both the debt assessment as well as the costs of providing the insurance from their turnover, a fact which in turn must be priced into the premium.

"On every Sk1,000 ($23) in revenue we gain from our clients through liability insurance, we have expenses of about Sk1,500($34). We also expect to pay between Sk15 million and Sk16 million ($362,000) to cover our portion of the SP deficit. So, an increase in liability car insurance next year is justified," said Marián Hrotka of Generali insurance.

"If the premium had not increased, few insurance companies would have been interested in getting a license for selling the product," said Ľubomír Kubík, the head of the property insurance department at Kooperatíva.

While liability car insurance as well as optional collision and theft insurance are traditionally less profitable products for insurance companies, Kubík said that they were the key to recruiting customers for more profitable types of insurance, such as property or life insurance.

"If a client has a car insured with us, there is a great chance that he will come back to us after he builds a house or buys a flat to insure it," Kubík said.

To woo clients to buy car liability insurance last year, insurers temporarily discounted accident and theft insurance by about 30 per cent and introduced a range of services, including special deals with companies on tires and car security systems.

To improve the quality of car liability insurance, they launched special bonuses for people who drove without accidents for the whole year, which may reduce the premium by about 10 per cent each year.

Under Allianz's influence, SP as the biggest market player has cut back on bureaucracy and simplified procedures by printing a common application sheet for both types of car insurance.

However, while talking about better quality services and higher premiums for car liability insurance, sector players are also starting to warn that premiums for accident and theft insurance could increase.

"The current rates cannot be offered for long because the prices of cars, spare parts and service rates are getting more expensive," Kubík said.

He added: "Insurance companies have to apply various new criteria for setting the premium for accident and theft insurance such as the driver's age, whether he lives in a city or village, whether he parks inside or outside, etc.

"In practice, this will mean that the premium for the same car model will not be identical, but for example a car owner from Bratislava will pay Sk2,000 or Sk3,000 more than one from north Slovakia."

One year accident and theft insurance for a basic model of the most popular car in Slovakia, the Škoda Fabia, now goes for Sk12,632 ($286) at SP, Sk14,036 ($318) at Kooperatíva and Allianz and Sk12,282 at smaller insurance house Uniqua.

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