site.btaUPDATED Third-Party Motor Liability Insurance Prices: Unchanged or Edging Up in Near Future

The prices of third-party motor liability insurance will remain at the level they are currently at or will increase smoothly in the near future, said Konstantin Velev, Chairman of the Board of Directors of the Association of Bulgarian Insurers, in an interview with BTA. In his words, what the change will be, will show the market, which is driven by the laws of competition.

There is intense competition on the market, which had even led to some extent to not quite logical price cuts. Gradually, the trend has reversed because benefits have an impact and once they go up, there is no way that prices can move downwards permanently or stay low, he said. Velev stressed that for almost the entire period of the pandemic, and last year as well, they have been rather down, and for the time being they have not yet reached as an average premium the pre-2019 levels.

Inflation is among the factors that directly affect insurance benefits. The rise in the prices of cars, spare parts, labour in garages, etc., is also reflected in the direction of an increase in benefits, both under third-party liability, when we are talking about damage to motor vehicles, and under comprehensive insurance, he said. According to him, the increase in compensation for both insurances is in the range of 5-6%, but it is in the upward direction and we can hardly expect a decrease in these prices in the near future, within a year or two. The increase in compensation for non-pecuniary damage, which has no direct inflationary correlation, has been slower.

Velev noted that the insurance market in recent years has been developing in an entirely upward direction, which is gratifying for the Association of Bulgarian Insurers. Tonight, at an official ceremony in Sofia, the industry will award its best colleagues in the insurance and pension sector for 2023.

Last year, according to preliminary data of the Financial Supervision Commission, the insurance market recorded growth in most business lines. The exception is third-party liability vehicle insurance, which is hovering around 2021 levels. Property insurance grew about 13-14% comprehensive vehicle insurance - about 15%, which is indeed a good signal, Velev said.

Excerpts from the interview:

BTA: What is the state of the insurance market in Bulgaria today?

KV: The insurance market in recent years has been developing in a completely upward line and this is a satisfaction for us. The Covid pandemic, as well as the war in Ukraine that has superimposed since last year, have had their effects, but have not seriously affected it in terms of volume and opportunities to realize growth annually. 

For last year, according to the preliminary data of the Financial Supervision Commission, the market also developed upwards in most business lines. The exception is third-party liability vehicle insurance, which is hovering around 2021 levels. Property insurance grew about 13-14% comprehensive vehicle insurance - about 15%, which is indeed a good signal.

BTA: What do you attribute it to? Is the insurance culture of Bulgarians increasing?

KV: There has been a lot of talk about this over the years, I think there are various factors that influence the motivation of customers to take out insurance. In a very large number of cases, it is not only a question of culture in the sense of understanding the need for insurance, but also an objective opportunity. Among these factors is the standard of living, which, unfortunately for Bulgaria, is still one of the lowest in the European Union. In recent years of crises, many sectors of the economy have been affected, which has had an impact on people's wages and jobs. This also has a bearing on the taking out of insurance.

The fact is that the insurance market is developing upwards, as has been said. It is mainly property insurance on larger sites that is increasing, and this is usually taken out by legal entities or state-owned enterprises.

With regard to the comprehensive vehicle insurance, we cannot say that there has been any serious increase in the car fleet, but there has been an impact of other factors that have had a positive effect on premium income. The pandemic affected the automotive market as a lack of new cars and delayed fleet renewal, which increased the prices of used vehicles, correspondingly increasing their policy values. That is to say, there has been an increase in premiums rather than in contracts written, but I would stress that they are also increasing. This is an example of the influence of objective economic processes.

BTA: In this regard, could you also comment on the factors affecting the market, will the high inflation in recent months lead to an increase in the prices of third-party liability vehicle and other insurances?

KV: Inflation is among the factors that directly affect insurance benefits. The rise in the prices of cars, spare parts, labour in garages, etc., is also reflected in the direction of an increase in the indemnities of both third-party liability vehicle insurance, when we are talking about damage to motor vehicles, and comprehensive vehicle insurance.

The increase in compensation for both insurances is in the order of 5-6%, but it is upwards and we can hardly expect a decrease in these prices in the near future, within a year or two.

The increase in non-pecuniary damages has been slower. It does not have a direct inflationary dependence, it mainly depends on case law, but the trend there is also upwards, albeit more slowly. In reality, the factors influencing the increase in insurance compensation are present and will not diminish in the near future.

Logic suggests that third-party liability vehicle insurance prices, if they are not going up, have no reason to be lower. There is intense competition in the market, which had even led to some extent to not quite logical price reductions. Gradually, the trend has reversed, because indemnities have an impact and once they go up, there is no way that prices can move downwards or stay down permanently.

It is more likely that third-party liability vehicle insurance prices will be at the level they are at now, or that they will increase smoothly in the near future. By how much, the market will tell because it is driven by the laws of competition. It should be stressed that, despite the slight increase in liability insurance prices in recent months, for almost the entire period of the pandemic, and even last year, they were rather down. For the time being, they have not yet reached the pre-pandemic levels, i.e. 2019, as an average premium, so we are by no means talking about any serious increases.