Why is the "Bonus-malus" system being announced now and what could follow after the expiration of the deadline given to insurers for its implementation? Is there a connection between the new model, the financial condition of the guarantee fund and the upcoming increase in the price of "Civil Liability"? Bogdan Milchev from the Road Safety Institute spoke to FACTI.
- Mr. Milchev, the "bonus-malus" system has already been officially announced. You define it as a pseudo one. What don't you like?
- First, this is not a system that is being offered to us. We are being offered, in principle, a better refinement of risk, but of the financial risk to the insurers. In reality, there will be a bonus for the insurers and a malus for the citizens. This is because what they are proposing will not work centrally. That is, we do not have a clear "bonus-malus" system that would work according to precise rules for everyone, but would allow each company to build its own. And at the moment, nothing prevents any company from building such rules for its clients.
And I will give you an example right away for the riskiest segment of the "Civil Liability" insurance. These are taxi drivers.
You know that for many years they were in a company with special promotional conditions. But there was a murder there and then no one wanted to take them. There were even protests because all the insurers had raised their hands from "Civil Liability" to taxis. Then another company intervened, which soon declared bankruptcy. Then this a company that is about to go bankrupt took the taxis' insurance. But what's happening right now? The second company had its license revoked a few months ago.
And I wonder why exactly in August, when everyone is on vacation, when there is no news, the Financial Supervision Commission suddenly comes out with such a revolutionary at first glance system for managing the "bonus-malus" system. And at the same time, there are no protests and reactions from the public.
- But years ago, such a system was proposed again. Was it developed by a foreign company then?
- I immediately recall - in 2018, a real "bonus-malus" system was proposed, which was developed by a Greek company. Several million were given then. Everything was again coming down from the Financial Supervision Commission, because money also went through it and there were great protests, great events. People organized themselves, they did not want to be judged by their violations.
Now no one is worried and that is because at first glance absolutely nothing will come of this system. Here are some numbers and figures.
- In your opinion, the system will affect less than 3% of car owners?
- Exactly. And here are the numbers. In reality, the frequency of damage by 2025 is 3.6%. 10 years ago, the frequency of damage was 4.5%. We have a 1% drop in the frequency of damage over a period of 10 years. But one damage does not mean an equal number of traffic accidents, because very often multiple damages are reported in one traffic accident.
This means, roughly speaking, that less than 100 thousand car owners would be subject to a malus. But since there are no clear rules, insurance companies will immediately be found that will give a formal malus and a formal bonus. And you know that the Bulgarian goes where it is cheapest for him.
The Bulgarian is not interested in his behavior on the road, although this is exactly what the insurer should be interested in, because the fewer accidents there are, the less damage he would pay.
But historically speaking, in Bulgaria, insurers have not participated either actively or passively in road safety and have never invested in it. They have no interest, because their portfolio and their interest are very successfully protected by the regulatory body, in this case the Financial Supervision Commission. And now I want to explain something that is very important.
- Why, in your opinion, is the Financial Supervision Commission commenting on the introduction of the “bonus-malus“ system at this very moment?
- I am asking the same thing - why do they have to announce it now? People are on vacation, there is no news, something is simply being noted. I find it very strange too. It also turned out that the insurers are not ready to introduce the system. Then the commission also added that the system will be ready to start operating within 6 months.
- But the Commission is giving a grace period of 18 months, in which the system must be built for all insurers?
- Exactly. Let's think about what happens after 6 months. We get the perfect storm. After the New Year, the "Third Party Liability" insurance rates go up significantly. Here are some numbers and facts. Two months ago, a company's license was revoked. Currently, it turns out, I say official data, that over 200 million euros are missing from the company's coffers, which it should keep as compensation for the insurance policies that have been taken out.
At the same time, in the guarantee fund for “Civil Liability“, where all companies contribute money to their portfolios, for exactly such cases, and the purpose of this fund is to provide for clients of bankrupt companies, but there is less than 80 million euros there.
So it turns out that of these 200 million euros that are missing, the guarantee fund can provide only 80 million euros.
The difference - what happens to it? It must be supplemented by insurers in Bulgaria. As a percentage of their “Civil Liability“ insurance portfolio. The companies will not give from their profits. Everyone should understand this for sure. And they will simply raise the "Civil Liability" insurance. But not to provide a better service, but to replenish this fund. It's just that the poor management by the Financial Supervision Commission over the years has led us - the Bulgarians - to pay about 120 million euros out of our own pockets, that is, in a very short period, as early as 2027. This means, roughly speaking, between 30 and 50 percent of the "Civil Liability" insurance being raised. This will immediately cause protests and unrest, resentment. But these protests and this resentment will not be against the Financial Supervision Commission, because ordinary people do not even know the names of the people, but will be against the government. We elected a government a few months ago that should solve all our problems and currently the government is sitting on the sidelines like an uninterested observer. And I want to use this interview to ring the bell to them that at the beginning of next year there are very serious problems to solve, both with road safety, and with “Civil liability“ and with people's money. Because no matter what we talk about, everything comes down to money.
- And how should a driver who has had no violations for years be treated, in your opinion?
- First, let me correct you. What is being proposed by the Financial Supervision Commission does not treat the driver. I want to emphasize this strongly. They are commenting on the owner of the vehicle. When a vehicle owner is also the driver of the same vehicle and commits a violation, causes damage, he will be penalized. But the criteria are not yet clear on how exactly this will happen. But the same owner can transfer the vehicle to his mother, his daughter, his brother, whomever you can think of, next year, and a completely new and clean object will appear on the market, which will not have any penalized. We know that Bulgarians like to circumvent the laws. Even when this is essentially laid down in the laws themselves.
Bulgaria is one of the few countries in the European Union where the insurer does not care who drives the car. Almost everywhere, when you take out “Third Party Liability“ insurance, you indicate the persons who will drive this car, and based on their behavior, age, experience, etc. the risk, respectively the price of the “Third Party Liability“ insurance, is determined.
The purpose of the “bonus-malus“ system is not, as the Financial Supervision Commission wants, to specify the financial risk of the insurer, but the purpose is also to change the behavior of the driver.
- That is, proposed in this way, the system becomes meaningless as a tool that assumes that the goal is to have less damage. The idea is: you cause damage – you pay more expensive “Civil Liability“, you don't cause damage – cheaper, right?
- No one intentionally causes damage. Damage occurs when there is dangerous behavior on the road and, you understand, the law and rules are not followed for some reason. The goal is to influence the driver before he causes damage. Here it's a bit like a hood after a rain. And there's something else. When you have an accident, “Civil Liability“ never covers you 100% for damage. And when you are at fault, it pays you absolutely nothing. No one wants to be involved in an accident, because one way or another, the person will have a headache and will create trouble and discomfort. “Civil Liability“ is a quasi-tax that we are obliged to pay, but at the same time we do not receive real compensation. Proof of these words of mine is that there is no driver who has a more expensive car, for example, for 10 thousand euros, who has not taken out comprehensive insurance, a second insurance.
If “Civil Liability“ actually covered our damages, we wouldn't be paying for two insurance policies in Bulgaria. Car insurance is very well developed, mainly in Bulgaria, and in other countries very few people take out such additional insurance, even as an exception.
Everything in Bulgaria is an imitation of a “bonus-malus“ system, which will not contribute in any way to the main indicator - fewer road violations. I can guarantee this 100%. Accidents in our country have actually decreased over a 10-year period. I'll give you an example: 10 years ago there were 127 thousand road damages reported to insurers. After 10 years there are 127 thousand again, only in these 10 years we have an increase in the car fleet by 1 million new cars. 10 years ago there were 2.5 million cars, now there are 3.5 million. So you see that accidents are at the same level now that we have more cars on the road.