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Direct settlement of MTPL: what it is and how it works
The classic scheme of compensation for losses under CMTPL is as follows: the initiator's insurance company compensates the victim of a road accident. Three months are allocated for payments. An alternative project of direct settlement of insurance events under the MTPL policy was launched in the country in 2016. The purpose of the direct indemnity programme (DIP) is to protect law-abiding car owners from difficulties and delays in receiving payments under the CMTPL policy.
The problems have three sources. The culprit of the accident does not have an MTPL policy. Statistics show that 10% of vehicle owners fall into this category. The accident is provoked by drivers whose cars have a Euro number. They have policies, but there is no desire to take responsibility for their actions. The perpetrators of 9% of accidents annually flee the scene. The policy turns out to be fake, expired, or issued by a company that has been stripped of its licence. For the above reasons, payments may be delayed.
n European countries, the practice of direct settlement has been successfully operating for more than 40 years. It has proven effective in improving the quality and speed of service delivery. 18 major Ukrainian insurers have joined the project on a voluntary basis.
The essence of direct settlement of MTPL insurance
DDS makes it possible to compensate for losses in the event of an accident with the insurance company from which the driver purchased the CMTPL. The process is appropriate in cases where the owner of the CMTPL policy was injured in an accident.
Insurers pay compensation to their policyholders faster and more readily, because the next year's MTPL will be issued by the same company. The customer base is maintained and growing with this approach.
Direct settlement covers the following types of road traffic accidents
- accidents with two participants in which one party is at fault. It is processed according to the European protocol or with the involvement of the police;
- no people were injured in the accident. The amount of indemnity is determined by an expert and does not exceed the statutory limit (UAH 130,000);
- both parties to the accident have a valid motor third party liability insurance policy. It is issued by insurance companies that have signed the Direct Settlement Agreement;
- there are no corrections in the policies of the parties to the accident that deform the content of the documents;
- both participants have no signs of alcohol/drug intoxication or the effects of drugs that reduce reaction time.
If the above conditions are met, the victim chooses an insurer: he or she contacts the company where he or she bought the policy or the insurance company of the culprit of the accident. The insurance company compensates its client for the losses. Every month, a register of counterclaims is compiled between the insurance companies that have fulfilled their obligations to the victims and the companies where the road traffic accident perpetrators purchased their policies. Compensation of expenses is made through the MTIBU's settlement and clearing system.
The concept of direct settlement encourages drivers to take a thoughtful approach to choosing an insurance provider, to buy CMTPL from an insurer that will make full and timely payments, rather than at the first available point on the road.
Benefits of the OTP
The introduction of the mechanism will lead to an increase in the quality of insurance services, as competition for consumers intensifies between market participants. When entering into an MTPL insurance contract, the insured can analyse the list of services, find out the terms and procedure for paying losses to third parties, and choose the best insurer based on information about the insurer's performance of its obligations.
There is an advantage for the insurance company. It lies in the fact that if compensation is paid in full in a timely manner, it is highly likely that the company will re-enter into MTPL insurance with its client.
The settlement period is reduced and the procedure is simplified. To ensure timely fulfilment of obligations, insurers form a guarantee fund in the amount of half of the average monthly amount of insurance payments. The introduction of the DIS makes it possible to quickly identify insolvent insurance companies that will not be able to maintain a minimum balance in their bank accounts to pay claims.
Key benefits of the project for policyholders:
- Convenience. No need to apply to two companies;
- reliability. The risk that the insurance company of the culprit of the accident has become bankrupt or lost its licence is excluded;
- speed of receiving payments. Car owners receive compensation for repairs in 20-50 days, not 90 days, as in the classic scheme.
The shorter payment period was made possible by a simplified payment procedure. The funds on the account in an authorised bank are guaranteed to be available, and the system participants make monthly advance payments.
Disadvantages of the programme
The programme has not become widespread since its launch. Some large Ukrainian insurers are leaving the project. Company executives justify their decision by arguing that the system is not well balanced.
A significant disadvantage of the project is that the insurance company of a road traffic accident victim must receive confirmation from the insurer of the culprit of the accident that direct compensation is possible. The notification mechanism has not been fully developed. If no notification is received, the victim applies to the insurance company of the initiator of the accident. Last year, the probability that both parties to an accident had policies from members of the MTPL system was 20%.
The VMT is not possible if the accident was a non-contact accident, the initiator does not fully admit fault, or the insured event exceeds the statutory limit. For these reasons, not all drivers can use the system.
The idea of making participation in the system mandatory for all insurance companies has been discussed at MTIBU on several occasions. But it was not approved. Many insurance companies consider the idea useful, understandable, and designed to make the relationship between policyholders and insurers more transparent.
The CTP mechanism will work effectively when all insurance companies join the system. In this case, each driver will have the opportunity to settle an insured event with the company he or she trusts, and competition between market participants will be based on quality - payment of claims, timing, etc.
