The role of actuarial profession in developing obligatory MTPL insurance in Russia

1. The role of actuarial profession in developing obligatory MTPL insurance in Russia Vladimir Novikov, Head, Rating and reserving committee of Russian union of Motor insurers (RUMI) Deputy General Director, “Soglassye” insurance company, Member of the Board, Russian Guild of actuaries Dubrovnik, 23 April 2004

2. OMTPLin Russia • Law adopted in 2002 • Started 1.07.2003 • Limit of liability – 400 th.RUR (app. 14000 USD) • Common rules, approved by the Government • Licensing • – Ministry of Finance • - membership of RUMI (RSA) • - claim representative offices in 89 federal region

3. OMTPLin Russia • Rates • - Common • - approved by the Government • Reserving rules • -established by Insurance Supervision Department • -may be modified by the company in agreement with Insurance Supervision Department

4. Actuarial Problems • Rating • -Ministry of Internal Affairs statistics fixroad accidents with bodily injury • - Insurance statistics covers less than 5% vehicles • - Risk factors can be investigated only in Moscow (about 10% of the fleet in Moscow) • Reserving • - no experience of long tail business • - changes of claim developing process are expected

5. Players of the game • RUMI Committee of rating and reserving • Insurance Supervision Department • Working Group • Guild if actuaries as an expert • Universities as experts • Foreign organizations as experts

6. Solution of the tariffication problem • STATISTICBASE • BASIC RATE CALCULATON • RATING FACTORS • TARIFF STRUTURE

7. I. STATISTIC BASE STATISTIC • COMPANIES RUMI-MEMBERSON VOLUNTARY MTPL INSURANCE (01.01.2001 – 01.07.2002) IN MOSCOW; • MINISTRY OF INTERNAL AFFAIRS; • GOSKOMSTAT (Russian State Statistics Committee); • UNO (United Nations Organization) AND OTHERS OFFICIAL STATISTICINFORMATION SOURCES

8. II. Fundamental results of calculations Companies statistic: • Exposure to hazard - 233 118 policy-years • Estimationof ultimate losses 22475 - 25203 • Tariff rate estimation for individuals – from 116 till 130 USD for insurance for property damage The Government statistic • Tariff rate estimation of bodily injury – from 21 till 30 USD.

9. Types ofvehicles for setting Basic tariffs

10. III. RATING FACTORS(article 9, clause 2ofthe Law) Depending on: • OCCURENCE ORABSENCEOF PREVIOUS PERIODS REIMBURSEMENTS (BONUS-MALUS SYSTEM) • DRIVEN EXPERIENCE AND AGEOF PERSONS PERMITED TO DRIVE VEHICLES – EXPERT ASSESSMENT • PRIOR USE LOCATION • SEASONAL USE OFVEHICLES –EXPERT ASSESSMENT

11. III. RATING FACTORS(OTHER LAW ARTICLES) 5. Depending on period ofinsurance: vehicle registered abroad(article 10, clause 2);vehicle in transit (article 10, clause 3)- expert assessment 6. Rating factors applied due to gross infringements of insurance terms and conditions (article 9,clause 3)-expert assessment

12. III. RATING FACTORS Bonus-malus – by other countries experience

13. 3. FACTORS OF USE LOCATION /TERRITORY FACTORS/ • ACCORDING TO SOME COMPANIES STATISTIC AND EXPERT OPINION OF RUMI-MEMBERS

14. CENTERS OF POPULATION GROUPS AND FACTORS • Groups 1-6 • From Moscow - 1 torural areas • Differential – 5 times

15. ACTUARIAL PROBLEMS • Political problems According to a Deputy of the State Duma the value of the policy should not be more expensive than one petrol tank.

16. IV. TARIFF STRUCTURE

17. Process chronology • The procedure was worked out in 2001, the final formulation was inAugust 2002. • Statistic was accumulated in September 2002. • Preliminary tariff calculation – October 2002. • Updating model statement, The final tariff calculation – November 2002.

18. Coordination • Calculation methods were submitted to expertise (Guild of actuaries, Moscow State University, and others) • Results of the work were discussed in the Insurance Authority of Ministry of Finance • The Project was approved on RUMI General Committee • The presentation was made in Ministry of Finance

19. Problem matters • Enginecapacity factor – it was notified that domestic vehicles are more dangerous than ones vehicles of foreign make • The dependence on engine capacity was not revealed • The dependence on model year /year of manufacture/ of vehicles alsowas not revealed

20. The final Resolution of the Government • Tariffs are on the minimal diapason level • Factors in dependence on capacity are from 0,7 till 1,9 • Tariffs do not depend on the year of manufacture

21. Reservation • The forming of special reserve was offered till 2006. • The offering was accepted.

22. Problems after OMTPL • The game of politicsover the tariffs • «Down with extortionateOMTPL, insurershave gained 24 times larger than they have paid out, etc.»

23. ACTUARIAL AIMS AND PURPOSES • TARIFFS – ECONOMIC CATEGORY • ACTUARIES – THE BEST TARIFFICATION EXPERTS • HIGH-SKILLED ACTUARIES – AN INTEGRAL PART OF ANY MODERN INSURANCE COMPANY

24. WORK PLANS OF TSR COMMITTEE • FOLLOW-ON REVISION OF THE METHOD • LIST OF PRELIMINARY INFORMATION WHICH IS TO BE FIXED IN COMPANYS IS FORMED • PRELIMINARY INFORMATION ACCUMULATION IS PLANING FOLLOWING THE RESULTS OF THE 1stYEAR • CONFERENCE OF METHODS AND TARIFFICATION PROBLEM – SEPTEMBER 2004. • TARIFF CALCULATION – OCTOBER 2004. • PASSING ON THE OFFERINGS IN THE GOVERNMENT – NOVEMBER 2004.

25. CONCLUSIONSFOR THE PROFESSION • POSSIBILITY TO ADVANCE THE STATUS • THE FORMATION OF THE DEMAND ON THE PROFESSION • Russian Guild of actuarieshas TO REALISE TRAINING AND QUALIFICATING SYSTEM IN THE FIELD OF MOTOR INSURANCE BY 2006