TPL Insurance in Lithuania - probably

The Lithuanian Cabinet recently approved the essence of a bill that would at last make third party liability (TPL) insurance compulsory for all drivers. As well as requiring all drivers to be insured for the damage that they do to other road users, the bill also envisages setting up a compensation fund. This would ensure compensation to a victim when the guilty driver has no insurance cover or is not known.

Assuming that parliament adopts the law, the government will have to approve the regulations of compulsory civil liability insurance, the size of premiums according to the type of damages, and a standard insurance policy form.

Enactment of this law would make Lithuania eligible to apply for membership of the European Green Card driver insurance system and will bring it into line not only with Western Europe but also Poland and its Baltic neighbors.

Exactly why Lithuania has been so slow in making TPL insurance compulsory is something of a mystery. I sometimes wonder if there hasn't been a secret lobby of the insurance companies themselves fighting against it. The logic behind this thought is that driving in Lithuania is generally so awful and there are so many accidents, that it is hard to see how it would be possible to write TPL business profitably.

With this in mind and also considering that the consumer will be legally obliged to buy TPL, the adoption of the law must be expected to result in a rise in premiums. This is, of course, not going to be well received by the general public and it is to be hoped that the parliamentarians do not lose their nerve in the event of any public protests taking place.
It may also mean the end of another traditional feature of driving in Lithuania - the animated roadside negotiations between drivers that one so often sees, as the matter of compensation is settled between the parties and before the traffic police arrive.
At least evading insurance should be pretty difficult. As a driver one of the things that annoys me most about driving in the Baltics is the right the police have to stop a car at any time and check the drivers documents.

In the UK this is simply not allowed - no one can be stopped unless there are reasonable grounds for the police to believe that the driver has committed an offence.

From the insurance company point of view, however, this is a wonderful control and should ensure that most drivers obey the rules.

Most importantly perhaps, the new law should be a big step in the development of the insurance industry in the country. The statistics show that the market still has a long way to come, even when compared to its nearest neighbors.

By way of illustration, each Lithuanian spent on average only $17 per year on insurance. The average Estonian, by contrast, spent something like $80.

Why might this be?

Perhaps there remains some of the Soviet-era thinking that the state rather than the company or the individual is responsible for compensating for accidents; or perhaps, more mundanely, it is simply a question of cost.

Either way, the new law may be crucial to the attraction of significant foreign investment into the market in the coming years.

A majority of the insurance companies in Lithuania are still funded by local investors, in particular the Lithuanian government which owns 70 percent of Lietuvos draudimas (Lithuanian Insurance). Plans are afoot to privatize this giant, which has about 90% of the life insurance and 50 percent of the general insurance markets and would be a significant beneficiary of the proposed TPL law.

When the law may come into force is not yet clear, but certainly its likely impact on the insurance sector and generally should not be underestimated.

Chris Butler is a Senior Manager with Pricewaterhouse Coopers in Vilnius.