CBK reviews insurance fees for passenger vehicle categories

The Central Bank of the Republic of Kosovo, according to the legislation in force, is an independent institution responsible to license, supervise and regulate financial institutions in the Republic of Kosovo.

One of its main objectives is to promote and maintain a stable financial system, which provides the security necessary for all users of financial services.

In this context, one of the main areas of responsibility of the CBK relates to the insurance sector, where the CBK continuously engages in the protection of the interests of policyholders, providing the necessary conditions for the injured to be treated in accordance with the prescribed conditions with the insurance contract.

To this end, the Central Bank of the Republic of Kosovo, acting in accordance with the legislation in force and based on the Financial Sector Stability Review Assessment Report 2019 conducted by the International Monetary Fund, has initiated the review and evaluation process of the risk premium on compulsory motor liability insurance.

Current premium prices for compulsory motor third party liability insurance have remained unchanged since 2001.

Since after they were defined, numerous developments have taken place in the market where insurance companies operate, which in one way or another have had an impact on insurance companies as well as policyholders and have made it necessary to initiate the review of these prices so that they more adequately reflect market conditions.

The key factors that have influenced the market conditions during this period include:

  • Increasing the number of damages and increasing the value of the payment of damages, especially of category I vehicles;
  • Increasing the compulsory minimal insurance amount for contracting motor liability insurance with the entry into force of Law no. 04/L-018 on Compulsory motor liability insurance in 2011;
  • The effect of the application of the Bonus-Malus system implemented since 2013 according to the calculations and the decreasing trend of insurers' incomes for the Bonus Malus effect. It is projected that by the end of 2019 these incomes will be reduced by about 19 % and that 93-94 % of policyholders do not cause accident and thus receive bonuses which causes lower incomes for insurers;
  • And especially the inflation rate, which has had a direct impact on increasing and recovering the cost of damages in terms of repair prices in material damages and in terms of wages in compensation for lost profits or lost retention in non-material damages, as a result of the increase in the average wage.

As a result of the aforementioned developments, an actuarial study has been undertaken, which has suggested a 36.56% increase in Category I (passenger vehicles) fees. However, in its assessment, the CBK has identified some factors that are not fully reflected in the actuarial report, and therefore rejected the request of insurance companies to amend fees based on that report. However, the CBK estimates that insurance companies should be allowed to adjust Category I fees for the inflation rate incurred during the period 2002-2018 so that these insurance rates reflect the current economic conditions the best way possible.

Adjusting fees to inflation conditions has a direct impact on strengthening the sustainability of the sector, thereby enhancing the ability of insurance companies to fairly and timely compensate for damages to policyholders. 

Therefore, in order for insurance rates to better reflect developments in the country's economy and thus create the conditions for enhancing the sustainability of the insurance sector, as well as fulfilling the recommendation of the International Monetary Fund for their review, the Executive Board of the Central Bank of the Republic of Kosovo, at its meeting held on 31 October 2019, pursuant to Article 36 paragraph 1, subparagraph 1.17 of Law No. 03/L-209 on Central Bank of the Republic of Kosovo, in accordance with Article 8 paragraph 5 of Law no. 04/L-018 on Compulsory Motor Third Party Liability Insurance, as well as Article 5 paragraph 2, Article 7, paragraph 7 of the Regulation on Determination of Premium’s Structure for Compulsory Motor Liability Insurance, has decided to amend the premium fees of the premium on compulsory motor liability insurance for category of passenger vehicles (fee group I).

According to this Decision, the CBK has required insurers to adjust the current compulsory motor liability insurance premium fees for fee group I, which have been in force since July 1, 2001, with the official inflation rate published by the Kosovo Agency of Statistics from 01.01.2002 to 31.12.2018. The adjustment of the relevant premium fee to inflation should be done by subtracting the tax rate on turnover by 5 % which was in force until 25 July 2019 with the entry into force of Law no. 06/L-105 on Corporate income tax, according to which insurers are subject to profit tax.

The CBK will intensify its commitment to ensure that the insurance sector is in full compliance with applicable legislation and regulation. Failure to comply with such requirements by the insurers shall be followed by adequate administrative measures, not excluding the revocation of licenses for companies that do not comply with the legislation in question.