Ukrzaliznytsya entrusted its troubled insurer Inter-Policy with a breakeven insurance

The Ukrzaliznytsia passengers risk to get the whole array of problems with the new insurer

Photo: Konstantin Melnitskiy

Ukrzaliznytsya replaced all insurers which used to insure passengers from traffic accidents with one company – Inter-Policy. More than 50% of the shares of this company belong to Ukrzaliznytsya and the state, according to First Deputy General Director of Ukrzaliznytsya Maksym Blank. “We did this on four of six roads and we still have to register some documents for the remaining ones,” reads a message on his personal page on Facebook.

One soldier does make a battle

In the past four insurance companies – Ukrainian Insurance House, Dominanta, Zlahoda and Dnister – sold mandatory insurance for railway passengers. “But the main volumes of premiums passed through the first two companies,” says Blank. Ukrzaliznytsya suspects these companies of corrupt activities. “We cannot say anything for sure because this is a job for law enforcers, but we suspect there was a corruption component in the part of the premiums that remained in the possession of the insurers,” suggests Blank.

He says in order to dismiss such suspicion and reduce the burden on passengers, Ukrzaliznytsya decided to replace the old insurers with a new one. Blank predicts that because the company has agreed to work at reduced fares, from now on every month passengers will pay for insurance against transport accidents UAH 3 mn less than in the past. “The main issue is that the insurance premium is now 0.4% of the cost of a train ticket compared to 1.5% according to the old scheme. This is more favorable for passengers and there are less grounds for corruption,” says the deputy general director of Ukrzaliznytsya.

As a reminder, according to the order of the Cabinet of Ministers On Approval of the Regulation on Mandatory Insurance against Accidents on Transport passengers in intercity transport shall pay for their insurance 1.5% and passengers on suburban transport – 3% of the cost of tickets, and not of the amount insured, which is 6,000 untaxed minimum incomes (UAH 102,000).

Unequal choice

The state monopoly’s approach to passenger transportation was interpreted by the players on the insurance market quite ambiguously. “I have not heard of a tender among insurers for cooperation with Ukrzalіznytsya. And even if its actions will curtail the corruption component, secrecy and transparency in selection of insurer casts doubt on the respectability of such a venture,” believes CEO of the Knyazha insurance company Dmytro Hrytsuta.

“On what grounds was Inter-Policy chosen? The company’s statements show its lack of sufficient amount of reserves and assets so that it could assume such sizeable responsibilities and data of the Motor (Transport) Insurance Bureau of Ukraine indicate the company’s problems with payments,” says the Chairman of the Insurance Commission at the Ukrainian Society of Financial Analysts Vyacheslav Chernyakhovskiy. According to his calculations this year the company’s premiums could reach UAH 26 mn. “This is 1.6 times more than the premiums of all insurers for this type of insurance last year,” calculated Chernyakhovskiy. Moreover, this type of insurance is considered to be one of the most profitable in Ukraine – its level of payment does not exceed 4% of the premiums collected, whereas, for example, in vehicle insurance it reaches 60 – 70%.

Blank attributes the uncontested choice of the insurer to the need for quick rejection of services provided by former insurance partners: “This does not mean we have abandoned the idea of open tenders, it just gave us an opportunity to maneuver quickly and terminate relations with the previous insurers,” he says. In addition, the “alien” insurers might not agree to lowering rates as long as the Cabinet’s order envisages a rate of 1.5% and the “familiar” company agreed to such terms. Representatives of Inter-Policy refused to comment on the situation.

Rearrangement of terms

Representatives of Ukrzaliznytsya promise to hold a tender for insurers after the government adopts the new order of the Cabinet, which not only provides for the reduction of the rate to 0.4%, but also an increase in the amount insured from 6,000 to 24,000 untaxed minimum incomes of citizens (from UAH 102,000 to UAH 408,000). “We prepared the draft of this order and submitted it for review by the Ministry of Transport,” says Blank. He does not know when the order will be adopted.

In their turn insurers believe that replacement of one company with another will not eliminate corruption in this type of insurance. “Insurers give the lion's share of received premiums to Ukrzaliznytsya for precautionary measures. When we ask about the exact assignment and purpose of the money, they immediately say it is none of our business. Those who do not like it are welcome to leave, because there are plenty of others willing to take our place,” complains a former CEO who worked with this type of insurance on condition of anonymity. According to him, such deductions are the main corruption component.

Blank admits that insurers deduct 77% of received premiums for preventive measures aimed at provision of Ukrzaliznytsya’s traffic safety. “This money goes to the general fund and accounts for a miniscule share,” he says. Of UAH 1 bn transferred to the fund, insurers bring 50 – 60 mn.

“Such costs cannot be traced or monitored. And it is not even necessary. In many countries for a while now they have been insuring not passengers against accidents, rather the liabilities of carriers. It is time to introduce such insurance in Ukraine,” believes President of the League of Insurance Organizations of Ukraine (LIOU) Oleksandr Zalyotov. Blank agrees with such an opinion. Both officials and insurers are working on the draft project of a corresponding document, but for now passengers will be insured by Inter-Policy.