Russian Automotive Market – an Insurance Perspective From Maiden Russia LLC

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Blog
October 2017


In 2012, the Russian automotive market peaked at 2.7 million vehicle sales (cars and LCVs) and international manufacturers were enthusiastically talking about how Russia was going to overtake Germany as Europe’s number one car market. As a result of the well documented economic and political challenges, the Russian market has since collapsed and sales volumes plummeted to 1.3 million in 2016. Manufacturers closed or mothballed factories, some downsized workforces and others just left the market not wishing to continue losing money on each vehicle sold.

However, in 2017, whilst European markets have been focussed on the plight of the diesel engine, Co2 emissions and autonomous and connected vehicles, the Russian automotive market started showing signs of a recovery with six straight months of sales growth, with August sales up 16.7% year on year.

Maiden Russia LLC, our Moscow based insurance agency business has been leading the charge in highlighting to manufacturers and captive finance operations how business diversification and promoting branded insurance programs could help alleviate some of the pain from lost vehicle sales and perhaps make the difference between survival or closure for some of their dealers. Branded retail Casco (vehicle own damage) programs, tactical insurance marketing campaigns to support vehicle sales, the introduction of new insurance products such as GAP, warranty products and loan protection covers could generate brand new income opportunities that would further boost customer service and increase customer retention within the dealer network.

Maiden carried out in-depth reviews of some dealer finance and insurance service propositions including a series of mystery shopping exercises to measure the effectiveness of their insurance sales approach. It was clear that too many dealers were chasing the diminishing number of new car customers and not supporting existing customers or identifying new income streams. Others were paying lip service and appearing to offer products and services but in reality there was no long-term conviction to the products. Consequently many that didn’t diversify and change their business model were forced to close dealerships or consolidate with competitors.

Specific ways dealers could increase sales volume of Casco products include highlighting the financial benefits of voluntary deductibles to better entice cost conscious customers, differing levels of cover to suit the range of new car values, utilising telematics solutions to monitor/reduce risk and a multiple insurer approach to encourage competition.

Vladimir Kozhaev, Managing Director of Maiden Russia said “In the boom years up to 2012, one of the key problems for motor manufacturers and dealers was actually sourcing enough vehicles to meet consumer demand. The success was not just limited to car sales but also finance and insurance; we saw our own business peak at USD120 million annual written premium. Since 2012, it’s become obvious that many dealers were not capable of surviving the down turn as they remained focused on chasing a shrinking consumer base and not diversifying their business.

We know there is a significant opportunity for those manufacturers and captive finance companies that remain to start re-building their insurance business, this time on its own merits with a solid strategic approach rather than simply as a side bar to the vehicle sale”.

Maiden has expanded its client list in the last 2 years to include SsangYong, UAZ and Suzuki, adding to a portfolio of partnerships already including Chevrolet, Cadillac and GM Niva. A new manufacturer program is also due to start at the beginning of December and a number of other business prospects are currently in detailed discussions. Vladimir adds ”We have been successful in winning new clients which demonstrates that whilst the automotive industry has been savaged by the economic difficulties, manufacturers understand the importance and value our products and services deliver. We work with very supportive insurer partners including Ingosstrakh, VSK and Rosgosstrakh so with the market now in recovery, we expect insurance sales to continue their upward trend”.

For the auto insurance market, 2013 to 2017 has also been a challenging time for insurers as losses from Osago (the mandatory third party coverage) provided many insurers with a severe headache. Higher policy limits, capped tariff rates, favourable legal judgements supporting the private consumer over the insurer have all taken their toll on combined loss ratios. Conversely, despite lower written premiums primarily due to falling vehicle sales, Casco has been performing well.  With a range of cover levels now available, insurers are selling the benefits of utilising deductibles whilst undertaking a more comprehensive approach to rating and risk profiling.

With the automotive market now benefitting from lower interest rates, supportive measures from the government and a general recovery in consumer confidence, the manufacturer networks that have focussed on their supporting services are well positioned to make the most of the recovery. Russia still has 50% lower vehicle ownership levels than many Western European countries as well as an ageing car parc (average age of a car in Russia is 12 years old). Consequently whilst there are still challenges to overcome, the long-term future looks very promising to those 20 manufacturers that have Russian-based production facilities; and this is also true for those that invest in and fully support a robust branded insurance strategy.

For more information on the services provided by Maiden Russia LLC, please contact Vladimir Kozhaev