RIGA - Last week's unexpected November snow storm complicated things for Latvian auto insurers. The storm caused over 200 accidents in a 24-hour period, the fault mostly falling on aggressive drivers, unplowed roads and cars driving without winter tires. The storm was just one more headache for insurance companies, already struggling to keep up with Latvia's record number of newly registered cars and skyrocketing repair costs.
At the beginning of November, there were 808,637 passenger cars registered in Latvia, 8.9 percent more than in January, the Road Traffic Safety Directorate reported. What's more, insurance companies were shocked by a coinciding jump in auto-theft and repair costs.
From January to September of 2006, Latvia's nine auto insurance firms were operating at a 2.7 million lat (3.9 euros) loss, according to data presented by Balta's CEO Janis Abasins at a Nov. 8 event sponsored by the Danish Chamber of Commerce.
Auto theft, especially high among SUV models such as the Audi Q7, Lexus RX300, Porsche Cayenne, and the BMW X5, has prompted Audi and Latvian insurers to try and come up with new, high-tech ways to prevent break-ins.
Meanwhile, prices in auto repair have risen almost as fast as in the construction sector, accounting for the lion's share of increased costs to the insurance industry. Abasins estimated that auto repair costs had increased by 30 percent during the last year. He added that some dealerships, such as Audi, have doubled their rates. AutoScania's repair rates recently rose by 50 percent.
As a result, the sector will likely see a rise in prices with possible coverage reductions. Abasins noted that, currently, the sector needs more of a "pince-nez approach" to auto coverage, not the "hammer approach," currently in place in determining premiums. He said that Latvian insurers were on their way to developing a more technical-based price analysis, the type widely used in more developed auto insurance markets for determining premiums.
One of the other factors influencing the market is the fact that Latvia lacks a statute of limitations for claims against insurers; companies often are paying claims for incidents that occurred 10 years ago. That being said, the amount of personal and property claims paid pales in comparison to auto repair.
According to Abasins, in the EU there is about a 50/50 split in claims paid for auto damage and personal damage. In Latvia, the difference is a 95/5 split, with companies paying 95 percent of their claims for auto repair and only five percent for personal and property damage.
The CEO concluded his presentation with another East versus West comparison. In Scandinavia, he pointed out, insurance companies pay 70 percent of their revenue in claims and 20 percent in administrative costs, leaving 10 percent as profit. In Latvia, 50 percent is paid out in claims, 40 percent in administration, leaving 10 percent in profit.
Abasins attributed the 20 percent sector inefficiency to a market that is dominated by agents rather than companies actively taking in sales, even if insurance brokers are gaining ground. Nina Kukuskina of the American AON insurance broker's Riga office estimated that Latvian brokers accounted for 20 percent of the Latvian market. Comparatively in Estonia, the figure was 50.5 percent, and 35 percent in Lithuania.
