A new law on auto insurance is coming into effect: how much will policy prices increase?

The new law on mandatory civil liability insurance for vehicle owners will come into effect on January 1, 2025. The cost of policies will increase.

This was reported by RBK-Ukraine citing the press service of the NBU.

Cost of Policies

According to the press service, the information suggesting that the prices of auto liability insurance policies will immediately rise by 2-2.5 times at the beginning of the year is not accurate.

According to the NBU, the new law indeed allows insurers greater freedom in determining policy costs, which will be based on the individual driving history of the driver. Therefore, the price increase will primarily affect customers with a negative history of traffic accidents or those categorized as higher-risk drivers (for example, drivers with limited experience or those in large cities).

"Preliminary estimates suggest that, in the context of high market competition, the scale of such an increase will be around 25-30%", the statement reads.

The NBU also reminded that the new law does not terminate existing policies but only applies to new ones. Additionally, for certain privileged categories, there remains the option to obtain a policy at 50% of its cost.

Paper Policies

The regulator also refuted another myth that paper policies will become invalid at the beginning of the year.

"No. The transition to an electronic format for auto liability insurance contracts will occur gradually. Only after a year, on January 1, 2026, is a complete transition from paper to electronic policies expected, with mandatory entry into the centralized electronic database of the Motor (Transport) Insurance Bureau of Ukraine," the NBU stated.

The central bank believes this will permanently end the practice of signing paper contracts in "vans" and numerous instances of fraud.

Policy Sales

The NBU denies claims that the new law will significantly complicate the sale of policies.

"No. We are indeed determined to end the semi-legal sale of policies below market prices, which has distorted competition for many years, and we are fundamentally changing the regulation of insurance intermediaries' activities. However, according to NBU estimates, most companies in the market are capable of meeting the new requirements, particularly regarding consumer rights protection, and are prepared to increase their customer base by pushing out unscrupulous players," the statement reads.

As noted by the NBU, the new law aims to transform the popular insurance product from a mere formal document for the police into an effective tool for covering the risks of vehicle owners, as it includes the following innovations:

• the abolition of the wear-and-tear coefficient and the introduction of a principle that insurance compensation must restore the vehicle to its pre-accident condition;
• the introduction of direct damage settlement for vehicles resulting from accidents, or the option for the victim to claim insurance compensation from their own insurer;
• a limitation on the maximum timeframe for making a decision on insurance payouts to 90 days, with penalties imposed on the insurer for breaching this timeframe;
• the removal of the cap on the maximum amount of insurance compensation under the European protocol;
• the implementation of payouts by the MTSBU instead of the insurer whose license has been revoked, even before the relevant bankruptcy court case is concluded and final liquidation occurs.

Legal Provisions

In May 2024, the Verkhovna Rada adopted a new law on mandatory civil liability insurance for owners of ground vehicles, replacing the law that had been in effect since 2005.

The new law provides for a gradual increase in the maximum amounts of insurance compensation:

starting January 2025:

• - for harm to life and health - from 320,000 UAH to 500,000 UAH;
• - for property damage - from 160,000 UAH to 250,000 UAH;

starting January 2026, but after the end of martial law:

• - for harm to life and health - up to 1 million UAH;
• - for property damage - up to 2 million UAH;

within four years from the moment Ukraine joins the European Union:

• - for harm to life and health - up to the equivalent of 1.3 million euros per injured individual and up to 6.45 million euros per insurance case;
• - for property damage - up to the equivalent of 1.3 million euros per insurance case.

In the event of an insurer's license being revoked, payments will be made by the MTSBU on their behalf, without waiting for the conclusion of the bankruptcy court case and final liquidation.

It should be noted that increases in compensation amounts for traffic accidents have previously led to rising costs of auto liability insurance policies. In 2022, the National Bank of Ukraine changed the terms of mandatory civil liability insurance for vehicle owners, resulting in price increases.