Bank of Lithuania
2018-01-16
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Within the market of compulsory insurance against civil liability in respect of the use of motor vehicles, there are cases when different insurers submit proposals to the same user of a vehicle in which the amount of insurance premiums differs a few times or the difference is even tenfold. The Bank of Lithuania will consider such actions of insurers, when users of a vehicle are offered exclusively high compulsory insurance premiums, as efforts to avoid the obligation to conclude an insurance contract with these persons, and will apply enforcement measures provided for in legislation for that.

‘Insurers providing the compulsory motor insurance service may not offer a potential insurance policy holder insurance premiums that cannot be reasonably explained. We are not talking about a difference of 20–30 per cent or somewhat higher, which can be reasonable. There are cases in the market when the user of a passenger motor car is offered to pay an insurance premium of EUR 5,000 and the user of a truck – EUR 100,000. This can be done just in order to avoid the insurance obligation, although the law requires doing so. The Bank of Lithuania will not tolerate such cases and will take every possible action to eliminate such faulty practice,’ says Mindaugas Šalčius, Director of the Financial Services and Market Supervision Department of the Supervision Service at the Bank of Lithuania.  

The Republic of Lithuania Law on Compulsory Insurance against Civil Liability in Respect of the Use of Motor Vehicles obligates the user of a motor vehicle to cover it by that type of compulsory insurance, and the insurer engaged in this activity – to conclude such insurance contract where the person applies for such insurance and submits all documents and information required. And while the insurer has the right to assess the insurance risk assumed using the methods of its choice and calculate the insurance premium ensuring that it could duly perform under all insurance contracts, the insurance premium must not harm the insurance premium holder’s interests and the obligation of paying the insurance premium may not become an excessive burden*.  

The insurer, in fixing the cost (premium) of the compulsory insurance against civil liability in respect of the use of motor vehicles, assesses risk factors such as accidents caused by the potential client in the past, the client’s age and driving experience, the weight, power, engine capacity of the motor vehicle, etc. Insurance companies also take into account the total number of accidents, the cost of repair, treatment and similar expenses, cases of fraud, etc.

‘In spite of that, models of insurance risk assessment and calculation of the premium may not be constructed so as to allow the insurer to avoid the obligation to cover the person wishing this compulsory insurance with insurance even in cases when such potential client entails higher a risk or is potentially riskier than others,’ says Mr Šalčius. 

Nevertheless, except in those cases when the premiums have been increased to deter clients, this market has been posting general growth in compulsory insurance volumes and costs. Each year, ever since its introduction, compulsory insurance against civil liability in respect of the use of motor vehicles has been a loss-bearing class of insurance, with a very great contribution to the market’s overall performance.   The loss of insurance undertakings incurred from this insurance class in 2016 since the introduction of compulsory insurance against civil liability in respect of the use of motor vehicles was one of the highest – more than EUR 19 million. Insurers took action to reduce the loss: the average insurance premium increased by an average of almost 30 per cent during 11 months of 2017 year on year.  

The Bank of Lithuania will further monitor this compulsory insurance market and, upon practical identification of cases of violation of the obligation to conclude agreements of compulsory insurance against civil liability in respect of the use of motor vehicles with any person meeting legal requirements, will apply enforcement measures provided for in legislation.

* Decision of the Constitutional Court of the Republic of Lithuania on compliance of Article 11 (1) of the Republic of Lithuania Law on Compulsory Insurance against Civil Liability in Respect of the Use of Motor Vehicles (wording of 5 March 2004) with the Constitution of the Republic of Lithuania.