Lada Bales on Plan to Boost UBI in Russia

Bad work attracts bad clients.

Years of expensive, albeit inconvenient, service had taught Russian car owners to shun many offerings from insurance companies and buy nothing but mandatory liability insurance. Only 1-in-10 consumers buy extra options, according to the Bank of Russia, and these are mostly accident-prone drivers. Faced with a constantly increasing share of ‘bad’ clients in the pool of repeat customers, insurers have raised premiums until they can now exceed 60% of the average claim. These higher premiums are also now driving away ‘better’ clients. Even connectivity-based solutions have failed to break the vicious circle and bring back safe drivers to the marketplace, a situation bemoaned by telematic and insurance experts at the International Navigation Forum in Moscow in April.

Earlier this decade insurers laid much hope on telematics and UBI, said Timur Kuzeev, development director at telematics vendor Smart Driving Lab. Between 2013 and 2015, Russia had risen into the top-10 of countries with the highest numbers of UBI policies. However, the UBI industry has since hit the wall. In 2017, J’son & Partners Consulting estimated that the share of automotive smart insurance products in the domestic market was still below 1%.

Why? The insurers had discovered that in most cases telematic-based products did not attract new customers but cannibalized their own sales to repeat customers, said Denis Gavrilov, director of insurance investments at IT-company CROC. Besides, the cost of on-board equipment is still considerably high, accounting for 10% of premiums.

The issue could be easily solved if vendors of different services would agree to share one device. Today, 12% of Russian cars carry two or more trackers because of lack of collaboration between vendors. Gavrilov concluded that: “Active development of telematics will start when the telematics users such as insurers, leasing companies, and auto dealers have agreed on using one device for everyone’s purposes.” He conjectured that it could be a carmaker’s own on-board unit. J’son & Partners predicted the penetration of smart car insurance in Russia could flourish after 2018 with products from automakers and obligatory telematics solutions ERA-GLONASS.

Lada dis-connect

Carmaker AvtoVAZ had a chance to set the trend in the passenger car segment with the launch of Lada Connect in October last year, ahead of most of its competitors. The automaker was preparing to make the next step and introduce a telematic-based Lada Insurance program this May, said Kuzeev. The Lada brand is very popular among Russian car buyers and it could be strong enough to boost the UBI market.

However, just as if the automaker had become scared by its own boldness, it decided to slow down the program and ‘hold off’, said Alexander Vinogradov, head of the GR office at AvtoVAZ. As of the end of May, the system it is still only offered with the carmaker’s most expensive model, the Vesta. Without Lada Connect throughout the range, taking out Lada Insurance starts to make little sense.

Following a typical pattern for companies to launch new products with hype and bury failures quietly, the automaker did not reply to a TU-Automotive inquiry about the reasoning behind its decision. Yet, Gavrilov blames high pricing as a probable cause of a weak uptake. AvtoVAZ had charged its clients 36,000 rubles (roughly $550) per car. The price later dropped to 25,000 rubles ($380) but that is still too high for most low-budget Lada cars. This is in comparison to Russian commercial vehicle maker GAZ which offered its GAZ Connect program in 2018 free of charge. Naturally, this automaker justifies its telematic-related costs through retaining clients for regular vehicle maintenance at dealer outlets which, in turn, stimulates sales of original spare parts and boosts GAZ competitive advantage over rivals.

From the point of view of a car owner, Lada Insurance might justify the connectivity expenses in three to five years but the problem is “insurers had found other efficient ways to estimate risks and decrease price for promising clients engaging no telematic equipment,” Gavrilov said. One of them is mobile phone tracking which “was not taken seriously in previous years but is growing fast now”.

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