How your driving record impacts upon the car insurance policy price

IN VAIN The Bonus-malus system applied to the mandatory car insurance (MCI) policies came into force four years ago and is now acting upon 15% of Romanian drivers. Unfortunately, the system failed to make any improvements to the daily road traffic, as we still report one of the highest accident incidence rate in the EU

The insurance system in Romania aims to reward the obedient drivers and punish those who collide with another traffic partner. This is where the bonus-malus came along. It came into force on the 1^st of January 2010 for individuals and two years later for legal entities and comprises of 14 bonus classes (consisting of a discount in the premium which is given on the renewal of the policy if no claim is made in the previous year), 8 malus classes (an increase in the premium if there is a claim in the previous year) and another one called B0, implying neither a discount, nor an increase.

“The maximum discount possible, found in the B14 class, accounts for 50% of the premium and is only available 7 years after the bonus-malus enforcement”, stipulates a norm issued by the Financial Supervisory Authority (FSA).

Are Romanians decent drivers? Well, 7 out of 100 Romanian cars were involved in a MCI-covered incident, more than Poland (5), Croatia (4,4), Lithuania (4) or Hungary (3). A recent analysis published by the National Association of Insurance and Reinsurance Companies in Romania (UNSAR) shows that last year, the combined damage rate on the MCI segment was among the highest in Europe: 130.8%

Some of the companies on this market tend to think a little different. According to Ionel Dima, CEO, Avus Romania, “our research indicates the damage rate in Romania, of 8-9%, is not that impressive, compared with, let’s say, Hungary, with a 10-12% level. In truth, countries such as Austria or Germany report lower rates, around 4-5%”.   

 

Why are we so accident-prone

 

“Among the main triggers I would nominate anxiety, the tendency to disobey the law, our social furiousness, the lack of responsibility… And, of course, the poor infrsatructure”, says Dima. 

Neither the FSA, nor UNSAR know how the bonus-malus system impacts upon the average MCI policy price. In Ionel Dima’s opinion, this market segment is still confronted with major (and, unfortunately, age-old) hindrances, leading to price increases. “This is a free makret, where every insurer sets its own premiums. Of course, some of them choose volume over quality, then find it hard to pay for damages and eventually lack the resources to survive. There were times when the ratio of the most expensive to the cheapest car insurance was four, even five.” Lately, this ratio lowered, due to harsher FSA norms regarding insurers’ liquidity and solvency standards.

 

High costs, low salaries

 

According to Viorel Vasile, managing partner, Safety Broker, “between 10 and 15% of clients are affected by the bonus-malus system”. He notices drivers in Romania are liable to tough sanctions if they fail to abide by the rules, which would entail they should be much more cautious. “A 6-points penalty accounts for a 800 lei fine, while repairing a broken car is quite expensive compared to our purchasing power. A 1,000 euro-worth repairing wouldn’t cost much more in Germany, for example. Under these circumstances, it is important to emphasize an insurance premium in Romania is three, maybe four times cheaper than on the Western markets”.

 

 

CASETA

 

How the system works

 

The FSA norms provide that the reference period the bonus-malus system is refering to is the calendar year preceding the year the policy was issued. If no paid damage is found on the record during the reference period, the correspondent bonus-malus class is adjusted by a class, for the 6-months policies, and by 2 classes, for the full-year policies. If any paid damage is identified during the reference period, a malus is applied, accounting for a 5%-100% rate.