Greater competition in motor insurance

The Motor Liability Insurance Act is being overhauled to make traffic insurance provisions clearer and facilitate competition among insurance companies. "The hope is that this will bring new insurance products to the market and as a result reduce insurance premiums," says Senior Actuary Pertti Pulkkinen of the MSAH Insurance Department.

The world has changed since 1960, when the current Motor Insurance Liability Act took effect. The act has been supplemented over the years and as a result has become something of a mixed bag of measures in need of updating and clarifying.

Pertti Pulkkinen, who is on the committee dealing with the reform of the act, points out that the basic provisions of the act will remain unaltered. The act concerns compensation for personal and material damage caused by motor vehicle accidents and the compulsory third party motor insurance vehicle owners must have against such situations. All persons injured in traffic accidents are covered by this insurance, which is provided by private insurance companies.

FlexibilityThe amendments to the act aim to clarify and improve the status and rights of those who are insured and of accident victims. Participants in motor vehicle competitions will nevertheless be excluded from such compensation.

The biggest change for the ordinary motorist is that vehicle accident history will be dealt with more flexibly.

"At present, accident history is vehicle-specific. In future the same accident history could be used concurrently, for instance in setting premiums when there are additional family cars. The aim of easing this regulation is to help increase competition between insurance companies and enable product development. We hope this will show in consumer's wallets," says Pulkkinen.

The expectation is that insurance companies will develop new and more varied insurance products. The position of people taking out insurance will not alter, though. The act will also require that motor vehicle insurance premiums be kept at a reasonable level.

"One of the benefits from the point of view of the insured is the clarification of the rules concerning compensation procedure. Insurance companies will have to settle claims more quickly than before once they receive settlement reports."

Bonus system unaffectedThe press has reported that the new law will put an end to the bonus system in motor insurance, but such fears are unfounded.

"Insurance firms will be able to retain their bonus systems when the new act comes into force. Vehicle accident history will have to continue to take into account at least one quality and usage in premiums on vehicles of the same kind. In parallel with this, companies may bring in systems in which the accident history of one vehicle affects the premiums for an additional vehicle or vice versa.

"Accident history will still affect the insurance premiums, but the law will not stipulate what sort of system should be used. The kind of bonus system we now have will probably also be the most common one in the future," explains Pulkkinen.

There has also been some debate about the increase in motorcycle insurance premiums. The price spread in motorcycle insurance is greater than in car insurance. Insurance firms set motorcycle premiums based on independent risk mapping and premium pricing models. The new act will not try to influence this.

"It will be possible for accident history to be better taken into account in motorcycle insurance too. The change of principle will correspond to that concerning cars. In other words, the accumulation of bonuses will not necessarily start from zero when one buys a new motorcycle."

The draft bill for the New Motor Liability Act is currently under consultation and open to amendment until 25 February this year. The bill will be put to Parliament at the end of the year, and the aim is that it will come into force at the beginning of 2017.


Text: Leena Filpus and Mark Waller