Insurance representatives, however, say that third party insurance is financially viable and socially responsible, and see it as the future for the currently plummeting Georgian insurance market.
There are approximately 650,000 registered cars in Georgia, said Devi Khechinashvili, Chairman of the Georgian Insurance Association, and only 25,000 of these (3.85 percent) are insured.
The majority of insured drivers have purchased the so-called “Casco” policy, which covers only damages done to one’s own vehicle, with only a small number choosing to voluntarily buy more socially responsible third party insurance packages.
“Most people who choose to purchase Casco insurance are either employed with foreign companies operating in Georgia or have purchased a vehicle on credit. But when banks virtually stopped issuing credit during the economic crisis, purchases of car insurance packages also plummeted,” Khechinashvili said.
The situation on the roads in Georgia is quite disturbing. According to the WHO Global Status Report on Road Safety, published in 2009, Georgia has the highest number of traffic accidents in the Caucasus, with 5,482 occurring in 2009.
The report also said that Armenia, Georgia and Kyrgyzstan are the only countries in, what they identify as, the European region that do not require compulsory vehicle insurance (although the Armenian Parliament has recently passed a law for mandatory third party insurance, coming into effect in January 2011).
High accident risks notwithstanding, many Georgian drivers still refrain from purchasing car insurance.
Elguja, a translator, said he has never insured his cars even though he has been driving for years. “I think it is expensive, I have better things to spend my money on,” he said. “If I come into big money one day, I might purchase insurance, but not now.”
Over the course of his driving experience, Elguja has had four accidents, always bearing their financial cost. The last accident came with a price tag of more than 1,000 GEL.
Elguja said the other car was insured, but since he had been driving under the influence of alcohol, both parties decided to settle the issue privately without turning to the police or the insurance company.
Insurance representatives say, however, that Georgia simply lacks a culture that would prompt people to insure their vehicles; as it is not common to have insurance there is currently no compulsion to seek it. “Insurance is an instrument of risk management,” Khechinashvili said, and thus people who choose to purchase it are thinking about the future. “In Georgia though, we have a society that has too many problems today and the people simply cannot think about tomorrow,” he said.
In the EU, by contrast, at least third party coverage is mandatory. Such socially responsible policies ensure that third parties are covered in the event of any accident. Thus if a driver were to be involved in an accident with another vehicle and that accident was deemed to be his or her own fault, then with such coverage the liability to the other driver would be covered, but not damages to the person’s own vehicle.
Khechinashvili said that for Georgia it is financially viable to purchase Casco insurance only for expensive cars and third party liability for any vehicles. “For an average Georgian car buying third party insurance it will cost the equivalent of only 3-4 canisters of gas per year,” he said.
The cost of Casco policies can be slightly higher. GPI Insurance Georgia, part of the Vienna Insurance Group, offers several such packages, the cost of which start at 3 percent of a car’s market value per year.
GPI’s “Policy Autotronic,” for example, insures against “road accident; burglary; robbery; fire/conflagration; malicious act; vandalism; object fall; elemental forces (except for earthquakes and hail storms); damages to and/or theft of glasses, mirrors, details and accessories.”
Another insurance company, Vesti, offers a basic package costing 4 percent, which insures against such risks as “falling objects, including ice; theft; burglary; and accidents resulting in both total and partial damage.” It also covers damages inflicted by an earthquake, but not by hail storms. The company representative said that this is the most commonly purchased standard package because “it covers all the risks that happen most frequently.”
Such a 4 percent insurance package on a car valued at 7,000 USD, for example, would cost approximately 280 USD per year. For an additional 70 USD per year a customer can purchase third party insurance that would cover up to 50,000 USD worth of damages.
In the United Kingdom, by comparison, the “British Insurance Premium Index” reported that for the first quarter of 2010 the average price quoted for fully-comprehensive car insurance (based on an average of the three lowest quotes received by each customer) was 899 USD while the average price for third-party, fire and theft insurance, the legal minimum in Britain, was 1,200 USD (the higher price being a consequence of this type of insurance commonly being purchased by the at-risk groups of younger or inexperienced drivers).
With a relatively small customer base, however, Georgian insurance companies are forced to operate with negative portfolios (insuring for greater damages that the company can pay for based on yearly insurance payments).
“People receive the service, but it is difficult for the insurance companies, they are usually going into the negative,” Khechinashvili said.
There may well be hope for these companies yet. “The future of car insurance in Georgia is very closely connected with introducing mandatory third party insurance,” Khechinashvili also said. “If such a system came into play and began properly functioning, the damages would be compensated and this would also move the purchase of Casco policies ahead.” The Georgian Insurance Association is currently working a draft law for mandatory car insurance, which they plan to lobby with lawmakers in the near future.