2023 August-September Analysis

Why Georgia’s insurance market is poised to grow 30%

A self-proclaimed nation of petrolheads is about to run into some road checks. Starting in the beginning of 2024, motor third party liability insurance (MTPL) will become obligatory for Georgian motorists, bringing with it new costs and penalties.

Currently, according to Georgia’s State Insurance Supervision Service (SISS), only 10% of the country’s cars are insured, so for insurers, the scope for growth is huge. For consumers this will have the most impact of the many insurance industry changes planned. Coverage levels are even lower for motor than in other liability markets which the industry is now eyeing, including infrastructure, building, and architecture.

This long-awaited move-in on drivers, a part of Georgia’s efforts to harmonize legislation with that of the EU, has been three years in gestation and is great news for the Georgian insurance industry’s 18 members. It is likely to increase the size of the market by 30%. It is also bringing excited comments that this, along with the passing into legislation of internationally recognized standards, will help build an attractive regional insurance hub.

Asked what would boost Georgia’s international insurance potential, Devi Khechinashvili, chair of the Georgian Insurance Association, says: “I think there will be a growing interest from professional actors after the introduction of regulations that are international standards (first of all, proper MTPL). Then, retail (the category for the whole range of consumer needs from travel to home and contents) in general is unexplored and has enormous potential.”

Motorists may baulk at yet another additional cost, but the “the cover and tariffs proposed are affordable – less than one lari per day,” Khechinashvili points out. Policies will start with fixed tariffs that depend on the type of vehicles and size of motor, and after three trial years, the industry is hoping to be able to produce reliable statistics that enable it to price policies based on a driver’s individual risk profile.

“We are currently working to provide consumers with a variety of vehicle insurance options so that people can use customized products at various price points,” says Aldagi, the longest established insurer in the Georgian market and the lead in personal and commercial lines. “As for MTPL prices, the market will be experimenting during the first three years and there may be some adjustments of price in accordance with the general data and the number of accidents.”

What about the penalties? Devi Khechinashvili believes that: “Penalties don’t need to be particularly high. The existing system of penalty enforcement is effective. I think it will be important to organize payments in such a way that a driver needs to buy insurance before he can pay the penalty.”

While MPTL is not going to make the companies a fortune (it is investments and add-ons, and not fees and charges as some policyholders might believe, that provide motor insurer’s main profits,) it will benefit both government and the industry in other ways. Mandatory motor insurance helps raise road safety levels, research shows, probably takes polluting old bangers off the road, and leads to cuts in government emergency healthcare spending. Plus, the handing-over of credit and other data by over a million new customers should give the insurers plenty of leads for potential business in their full range of products.

Other changes in the market

Behind the scenes other changes are being lined up, in common with insurers globally. While around the world consumer preference is for personal service, the digital revolution could save the industry billions, so insurers are pressing on with going digital, using modern technology to assess risk, thus improving underwriting performance, streamlining back offices and fine-tuning and personalizing interaction with clients. “The system of offering/selling various insurance products through digital channels is developing more and more, and growing. It should be outlined that in order to avoid unhealthy competition in the market, it was also considered to sell compulsory MTPL policies through online channels,” the head of the SISS, David Onoprishvili, told insurance media group XPRIMM a couple of months ago.

For health insurance, already around 85% of claims are made online, according to GPI, the largest Georgian insurer by premiums in 2022. The company invests “several million GEL a year for technological development” and has introduced an app, MyGPI, to serve as a focal point of digital contact with clients.

While Georgia’s insurance market overall looks quite healthy, ending 2022 with an increase in premiums of 18% to around GEL 909 million compared to the GEL 495 million they paid out for claims, that was largely due to inflation, said Paata Lomadze, GPI’s CEO, in an interview with XPRIMM. The market is looking for new products in order to drive growth. Among the market product range, life insurance last year only slightly increased market share and there was a rise of only 1% in the issue of private health policies.

What at GPI could lead future development since health, auto, and property did well for it last year? Paata Lomadze told XPRIMM that apart from cargo and marine, the development of professional liability insurance looked promising: “this can be both medical liability and liability insurance for architects and lawyers… The level of professional liability has great potential.”

Aldagi expects that development of its second largest P&C Product (personal lines in property, commerce, and casualty) will follow with an emphasis on property. “Currently, the size of the property insurance market is around GEL 100 million, which represents about 20% of insurance premiums. However, most property insurance consists of loan-based insurance (thus enforced),” it points out, and not a voluntary bought, commercial purchase.

Both insurers and governments have to learn this market as the consumer side is relatively new for a former USSR country. “Motorists are inclined to view it as a form of tax rather than as a protection against personal liability – a concept that is not familiar to the general public,” says Aldagi. Though the gap between what insurers believe that they should sell, and what consumers actually want to buy, is large in all markets internationally.

Market size

Georgia’s entire insurance market is miniscule, even by regional standards. “The share of insurance in Georgia’s GDP is just over 1%, which is 2-3 times less than in Eastern European countries, while in developed countries this figure is even higher – about 6-7%,” says David Onoprishvili. However, Georgian insurers “managed to avoid significant losses” through the pandemic crisis and have weathered the ongoing war in Ukraine well. Last year, medical insurance policies rose by 23%, motor casualty by 16%, MTPL by 46%, and life insurance by 25%.

To give a few more numbers on the motor business, the size of Georgia’s car fleet last year was estimated by Georgia’s statistics agency, GeoStat, at 1.3 million – up 5% on the previous year, with 529,300 vehicles registered in Tbilisi (a rise of 20%). According to the financial accounts of Georgian insurance companies, in mid-2022, only around 108,000 were insured, states online media Business Georgia.

Listed by Business Georgia as the largest motor insurers with their vehicle totals were: TBC Insurance (14,259); GPI Holding (11,696); Aldagi (10,600); New Vision Insurance (6,046) and PSP Insurance (5,492). Motor insurance was described as the second segment after health insurance. In the first half of 2022, premiums amounted to GEL 84.4 million, up GEL 10 million in 2021. Total paid claims of motor insurers reached GEL 54.6 million.

More change behind the scenes includes the growth of “embedded insurance,” in which the policy is sold along with the product or service – a car, for example – very popular with insurers as the customer is delivered to them with minimal sales effort. Aldagi puts its share of the embedded market at around 33% and says it is likely to grow as technology plays an increasing role. Aldagi went largely digital from the onset of the Covid-19 pandemic and launched the first digital insurance app – the Backapp, which uses the driver’s record and mileage covered to set the tariff.

A new strategy in another direction announced by Aldagi at the end of last year was a move into re-insurance – insurance for insurance companies, in which risk coverage is offered to other insurers This is a first in Georgia and has attracted regional interest.

Increasing confidence in Georgian insurance is that, in line with EU models, the increase in commercial innovation is coming against the background of new rules, legislation, and monitoring systems, as well as tightening up of financial standards and oversight. The actuarial function in insurance companies is becoming mandatory and all insurers will have an actuary – a professional with advanced mathematical skills who deals with the measurement and management of risk .

Hopefully these moves, the products, regulations, and controls will help overcome two major challenges remaining: the attraction to Georgia for international capital and international players. As Aldagi comments, success in developing the Georgian insurance market could both expand customer experience and provide investment tools to bring financial benefits.