Higher insurance payouts, increased prices, and direct settlements: how the conditions for auto liability insurance will change in Ukraine.

Starting January 1, 2025, Ukraine will implement new rules for mandatory auto insurance. Insurance payouts will gradually increase to European levels, direct settlement will transition from an "additional service" to a basic option, and insurance companies will have the autonomy to set their own rates.

Alongside this, the cost of "auto liability insurance" may also rise. Market forecasts suggest that policy prices could increase by 2-2.5 times.

What changes can vehicle owners expect from 2025, and will they justify the increased cost of "auto liability insurance"?

Long-awaited changes in "auto liability insurance"

In Ukraine, every owner of a land vehicle is required to insure their liability in the event of an accident. This is officially known as "mandatory civil liability insurance" (OSAGO), which is more commonly referred to as "auto liability insurance".

The current OSAGO law was adopted back in 2005. After nearly two decades, much of its provisions have become outdated and no longer meet the needs of either insurance companies or their clients.

Therefore, in early 2024, the Verkhovna Rada adopted a new law that aligns with the European Parliament and Council Directive 2009/103/EC. This document will come into effect on January 1, 2025.

The new law includes provisions for gradually increasing insurance sums to levels established in EU countries, abolishing deductibles (the amount the liable party must cover in case of an accident), and implementing direct settlement.

This means that starting next year, if the driver of an insured vehicle is not at fault in an accident, their insurance company will compensate them for the damages incurred, and will recover these funds from the insurer of the party at fault. Currently, this option is considered an additional feature and is only available when both parties' insurance companies participate in a direct settlement agreement (currently, there are 11 such insurers).

Additionally, the new law allows for free pricing. This means that insurance companies can independently determine the factors that will influence the cost of the policy for each driver.

There are also innovations for the Motor Transport Insurance Bureau (MTSBU). In the event of a license cancellation for an insurer, the bureau will handle payouts for contracts issued prior to this, without awaiting a court decision on the insurer's bankruptcy.

How insurance payout amounts will change

Insurance companies have specific limits for compensating losses to the affected party in the event of an accident. Until the end of 2024, these amounts are set at 320,000 UAH per victim and 160,000 UAH per vehicle (800,000 UAH per event).

If there is no "auto liability insurance," the liable party will have to cover all mentioned expenses out of pocket—either voluntarily or through court action.

However, starting in 2025, these limits will increase—up to 250,000 UAH for property damage (1.25 million UAH per event) and 500,000 UAH for health damage (5 million UAH per event). These changes will only apply to policies issued from January 1, 2025.

This means that if a driver has a valid policy from December 2024, in the event of an accident the following year, the insurance will only cover 160,000 UAH for vehicle repairs.

The next stage of increasing insurance payouts is scheduled for January 1, 2026, but only after the military state of emergency has ended or been lifted. The amounts for life and health will rise to 1 million UAH per victim and 20 million UAH per insurance case. For property damage, there will be no limits per individual victim, but the total for the entire insurance case will be capped at 2 million UAH.

What are the reasons for the increase in insurance payouts? "First, there is the rise in repair costs for vehicles due to inflation and currency fluctuations, which has significantly impacted the cost of material compensation. The prices of spare parts, materials, and services at service stations are constantly increasing, necessitating a corresponding rise in insurance payouts to cover losses," explained MTSBU General Director Alexander Bernaziuk.

The second factor influencing the increase in insurance sums is the rise in the frequency of insurance claims. "Statistical data indicate a 20% increase in the number of insurance events. This may be related to more intensive use of vehicles, increased road traffic, and other factors that contribute to accident risks," Bernaziuk stated.

Moreover, considering the statistics on active "auto liability insurance" contracts, in more than 40% of cases, the losses significantly exceed the limit of 160,000 UAH, as noted by the insurance company ARX.

Taking this into account, the MTSBU believes that raising the maximum compensation amount under the OSAGO policy could encourage Ukrainians to take out this type of insurance.

The third stage of increasing limits will occur once Ukraine joins the European Union.

How prices for "auto liability insurance" will be determined

Previously, the calculation of "auto liability insurance" costs was regulated by the government using certain coefficients—such as the vehicle's registration location and engine size. The National Bank determined these coefficients as the regulator.

Starting in 2025, the coefficients set by the NBU will cease to apply, and each insurance company will be able to establish its own method for calculating insurance rates. Insurers will publish these methods on their websites.

"It is expected that insurers will use coefficients similar to the bonus-malus system already in operation in Europe (bonus - discounts for accident-free driving, malus - increases for each recorded accident)," the MTSBU noted.

ARX states that the cost of their policy will depend on: the type and year of manufacture of the vehicle, the registration location according to the technical passport, the owner's year of birth, the purpose of using the vehicle, and any available discounts. Currently, factors such as loss history (accidents) do not affect the policy cost with this insurer, but they plan to consider this in the future.

Insurance companies will even be able to assess driving style using telematics systems.

INGO board member Viktor Shevchenko noted that policy costs may be formulated based on the actual risks associated with a specific driver. "Those who have a clean driving record will receive significant discounts, which will encourage safe driving. Conversely, for drivers with a high number of claims, the policy cost may be higher," he added.

According to Alexander Zavada, Executive Director of NASC "Oranta," the shift to free pricing in the OSAGO market raises the risk of bankruptcy for some MTSBU members, consequently increasing the risks of joint liability for others. Therefore, payouts from MTSBU funds for bankrupt insurers will also rise.

How much will prices for "auto liability insurance" increase?

The question that concerns vehicle owners the most is: how will the cost of the "auto liability insurance" policy change?

In the MTSBU, they explain that the final cost will depend on several other factors, including competition, insurers' underwriting policies (risk assessment), development strategies, loss analysis, client segmentation by risk indicators, and the overall market situation in the country.

Bernaziuk predicts that considering all factors, the cost of "auto liability insurance" may increase by 50-70%. Overall, the market anticipates a 2-2.5 times increase in average policy prices.

If currently, for vehicles with a small engine size registered in Kyiv, one can purchase "auto liability insurance" for about 2,200 UAH, the anticipated price increase will bring it to 4,400 - 5,500 UAH.

Although it is possible to buy