As of January 1, 2025, a new law has come into effect, reshaping the rules of the game in the motor insurance market. This is not just a formal change but a true revolution: digitalization, the abolition of state regulation of tariffs, and increased insurance coverage limits to European levels. As a result, policy prices have almost doubled, and December 2024 saw a record number of contracts signed—up by 63.8% compared to December 2023! How will these innovations impact drivers’ wallets and the future of the insurance market? Let’s dive into the details.
The year traditionally begins with changes in the Ukrainian insurance market. On January 1, 2025, the new Law “On Insurance” No. 1909-ІХ came into effect, significantly updating the requirements for insurers’ operations. This year, on January 1, 2025, a new law of Ukraine, “On Compulsory Insurance of Civil Liability of Owners of Motor Vehicles” No. 3720-ІХ takes effect, substantially reforming the compulsory motor third party liability insurance (MTPL or liability car insurance) market.
Motor insurance is one of the most widespread types of insurance in Ukraine, with a significant share of collected insurance premiums coming from compulsory MTPL. In 2023, this type of insurance accounted for 19% of the total insurance premiums (Figure 1).
Figure 1. Dynamics of the total amount of insurance premiums and payouts under auto liability insurance policies
The share of motor third-party liability insurance in total insurance payments varies significantly across European countries (Figure 2), ranging from the highest value in Romania at 49.2% to the lowest in Liechtenstein at 2.7% in 2023. However, a high share of liability car insurance in total payments does not necessarily indicate a well-developed insurance market; rather, it often reflects the low popularity of other types of insurance in the country.
Figure 2. Share of motor third-party liability insurance in gross insurance premiums across European countries in 2023
The prevalence of this type of insurance is explained by its compulsory character. Every car owner is required to purchase a motor third-party liability insurance policy to protect themselves from unforeseen expenses in the event of a road traffic accident (RTA). Over the past 10 years, a significant decline in demand for this type of insurance in Ukraine was observed only in 2022, when the number of policies issued decreased by 2 million (-20%) compared to 2021, falling below the 2016 level (Figure 3). The decline was primarily caused by the unstable situation in the country, uncertainty about the future, and an information vacuum, in addition to the mass emigration of citizens. Closed insurance company offices and reduced police checks for policy compliance led many drivers to question the necessity of purchasing policies during martial law, postponing their acquisition. As a result, in March 2022, Ukrainians bought the smallest number of policies in 10 years. However, following an informational campaign in April 2022, active policy purchases resumed, with a growth rate of +87% compared to the previous month. A crucial factor in this recovery was the introduction of remote policy issuance (electronic policies). Notably, the new law mandates complete digitalization of the insurance market. Starting January 1, 2026, paper-based liability car insurance policies will be prohibited, which will reduce the number of fraudulent policies.
Figure 3. The dynamics of the number of liability car insurance contracts that came into force during the year
The compulsory motor third-party liability insurance market is likely to continue growing as the new law eliminates exemptions for specific categories of individuals, increasing the number of potential policyholders. For example, before 2025, combatants were not required to purchase a compulsory liability car insurance policy. However, starting on January 1, 2025, they are obligated to obtain one with a 50% discount, which the state will reimburse to insurers.
In addition to the growing number of potential policyholders, the average price of an insurance policy is also increasing. Annual price hikes for liability car insurance have become a common trend in the Ukrainian market (Figure 4). However, a significant change introduced by the new law is removing government regulation on policy pricing. This means that insurance companies now have the freedom to set their own rates for these policies. As a result, in January 2025, liability car insurance premiums nearly doubled. Consequently, record-high collected premiums are expected by the end of 2025. Interestingly, in anticipation of the price increase, December 2024 saw a record number of policies issued—63.8% more than in December 2023.
Figure 4. Trends in the average premium and average paid claims for liability car insurance policies
* The average insurance premium for MTPL policies is calculated as the ratio of the total insurance written premiums over the year to the number of policies issued within the same period.
** The average insurance claim paid for MTPL policies is calculated as the ratio of the total insurance claims paid over the year to the number of policies issued within the same period.
*** The loss ratio for MTPL policies is calculated as the ratio of total gross insurance payouts to total gross insurance premiums.
The loss ratio is calculated as the ratio of claims paid to the total premiums written by an insurance company. A higher loss ratio indicates that a smaller portion of written premiums remains available for covering the insurer’s operating expenses and profit. For example, in 2024, insurance companies collected UAH 10 billion in premiums and paid out UAH 4.6 billion in claims, resulting in a loss ratio of 46%.
Interestingly, auto liability insurance in Ukraine is one of the types of insurance with the highest loss ratio—exceeding 40% annually, except for 2022, when, despite a certain market slowdown, the ratio decreased to 39.5% (Figure 4). In 2023, claims paid by liability car insurance policies accounted for 22.8% of the total insurance claims in the market. This is why it is extremely difficult to find an insurance company that deals exclusively with car insurance, as they need to balance the risks of MTPL insurance policies with less loss-prone types of insurance in their portfolio.
Changes to several terms of the liability car insurance contract also drive the increase in policy prices. Firstly, under the new law, starting on January 1, 2025, purchasing a policy with a deductible will no longer be possible, which previously allowed for lower policy prices. This change increases the burden on insurers due to the rising volume of insurance claims.
Secondly, while previously direct loss settlement mechanism applied in MTPL insurance only between companies participating in the Direct Loss Settlement Agreement—just 11 companies as of the end of 2024—starting January 1, 2025, direct loss settlement will be introduced among all 28 insurance companies operating in the compulsory liability car insurance market. This means that accident victims now have the right to claim compensation from their insurer rather than the at-fault driver’s insurance company. The victim’s insurer will later receive reimbursement from the at-fault driver’s insurance provider. Additionally, insurance claims will now be calculated without considering vehicle depreciation, increasing insurance companies’ financial liability.
Thirdly, the new law provides for a gradual increase in coverage limits (the maximum claim amount) under liability car insurance policies. As of 2025, the coverage has increased to UAH 500,000 for bodily injury or death and UAH 250,000 for property damage per individual. Furthermore, after Ukraine accedes to the EU, these limits will gradually rise over three years to UAH 32 million per individual (up to UAH 160 million per incident) for bodily injury or death and UAH 32 million per incident for property damage (Figure 5).
Figure 5. Comparison of auto liability insurance terms after the enactment of the Law of Ukraine “On Compulsory Insurance of Civil Liability of Owners of Land Vehicles” No. 3720-IX
Marketing VS Sales Comparison List Instagram Post (A2 (альбомная ориентация)), копия автор: Mariia Balytska
Source: Law of Ukraine “On Compulsory Insurance of Civil Liability of Owners of Motor Vehicles” No. 1961-IV (effective until December 31, 2024), Law of Ukraine “On Compulsory Insurance of Civil Liability of Owners of Motor Vehicles” No. 3720-ІХ (current law).
Thus, the new MTPL insurance law requires insurance companies to rethink their risk assessment approaches, implement technological solutions, automate processes, and enhance staff qualifications. For policyholders, the law encourages a more responsible approach to choosing an insurer. Previously, many policyholders focused solely on the lowest policy price, as compensation was provided by the at-fault driver’s insurance company. Now, it is crucial for clients to select a reliable insurer, as their insurance company will pay claims in the event of an accident.
Photo: depositphotos.com/ua
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