Compulsory insurance: Risk premiums between companies vary by up to 82%

The Financial Supervisory Authority (AMF) approved in March the updated mandatory property insurance risk premiums for insurance and non-life companies.

Risk premiums are the premiums on the basis of which insurance companies must calculate provisions (reserve funds) for the risk assumed with the insurance product.

The risk premium also represents a type of reference for the cost of the product or the premium below which the regulator cannot allow companies to offer insurance contracts.

As for cars, the risk premium is calculated in two bands, for vehicles with engine capacity less than 1600 cm3 and more than 1600 cm3. The risk premium for each of these two categories has significant differences.

For vehicles up to 1600 cm3, insurance companies calculate risk premiums in the range of 5000 to 9100 lek, while for vehicles over 1600 cm3, risk premiums start from 9100 to 12000 lek.

Companies have calculated risk premiums with quite large differences from each other, despite the fact that the product risk is assumed to be similar for all companies.

Based on the above figures, for vehicles with engine sizes up to 1600 cm3 the difference in risk premium between companies reaches up to 82%, while for vehicles with engine sizes over 1600 cm3 the differences are smaller, up to 32%.

On average, the risk premium for vehicles in the first group is 7,700 lek, while for those in the second group it is around 10,700 lek.

Although the risk premium varies considerably between companies, the same does not happen with the final price that drivers pay for insurance. If you calculate the price of vehicle insurance, through the automatic applications that companies offer on their websites, the differences are very small.

The minimum price of mandatory vehicle insurance has a difference of less than 2% between different insurance companies in the country.

The minimum price is the one that simultaneously includes the factors with the lowest level of risk, according to the new system that came into effect this year (engine power less than 1300 cm3, age up to five years, age greater than 21 years, vehicle registered in the lowest risk districts, vehicle owned by an individual).

The fact that large changes in the risk premium have almost no reflection in the final sales prices raises questions about the functioning of competition in the compulsory motor insurance market, TPL.

Last year, insurance companies sold approximately 703 thousand compulsory motor insurance policies, for a total value of approximately 12.7 billion lek. Of these figures, the average gross written premium for a TPL insurance policy last year was approximately 18 thousand lek.

Based on the AFSA's latest analysis of technical efficiency ratios, at the end of 9 months 2024, domestic TPL insurance resulted in a profit rate, net of reinsurance, of 15.3%.

For the 2-month period January-February 2025, with the application of the new system, the average premium per contract reached approximately 19.5 thousand lek./MONITOR