In November the Bulgarian parliament approved the introduction of a temporary partial limit on compensations for emotional distress paid by insurers in case of road accident fatalities. The purpose is to stop the steep rise in the price of obligatory motor third party liability (MTPL) insurance required for all car drivers, which was prompted by a ruling of the Supreme Court of Cassation (SCC) issued in the summer.
The court's decision paved the way for awarding compensation for non-pecuniary damages to a wider range of individuals linked to the victim of a road accident. As a result, the number of claims filed soared by 380 in the following three months, according to the Association of Bulgarian Insurers (ABZ). The average compensation in such lawsuits awarded by courts is close to 118,000 levs, whereas the number of relatives who have filed these claims is around 800. Consequently, in order to pay, insurers would have had to double or even triple the price of motor third party liability insurance.
The new ceiling only applies to the peripheral circle of the victim's relatives, who will now be entitled to receive up to 5,000 levs each. The situation for spouses, children and parents will remain unchanged - compensation will be as high as the court decides.
Though Bulgaria has one of the cheapest MTPL insurance in Europe at an average of 330 levs per year, the cap on compensations sparked public outrage and turned the financial problem into a political one, particularly in view of upcoming elections for local governments in 2019.
Most of the three million policyholders in the country see MTPL more as an annoyance rather than a safeguard. Combined with the fact that for many people 330 levs is a significant part of their income, any news of a possible increase is met by public anger.
Where it all began
In the summer of 2018 the SCC issued an interpretative decision, which extended the circle of those entitled to compensation for road accidents by including people with a "lasting and deep emotional connection" to it. Moreover, because by law people close to the victims can file claims for accidents that happened five years earlier, the insurance sector estimated that costs can rise to a sum between 800 million and 1.3 billion levs. And in order to cover them, insurers would have to triple prices for policyholders.
By itself, the SCC decision may not have led to such a massive problem, but according to insurers, the case was exacerbated by nine law firms colloquially called "The Gravediggers", who have stepped up their search for plaintiffs in order to make a profit. The court's decision has doubled their potential clientele, experts say.
A temporary solution
Following an initial attempt to cap compensations to the victim's closest relatives at 20,000 levs per person, which was met with an avalanche of public outrage, the government tried again, this time with a partial temporary limit of 5,000 levs for non-pecuniary damages payable only to more distant relatives of the deceased.
The idea is for the newly approved limit to be temporary - it will be valid in the next 12 months, during which a methodology for the formation of caps on compensations under third party liability insurance must be prepared and adopted into law. The methodology will cover compensations awarded for both pecuniary and non-pecuniary damages. Within the next six months, the Guarantee Fund will have to be ready with a draft, which will then have to get approvals from the Financial Supervision Commission (FSC), the Ministry of Health and the Ministry of Labor.
Doomed to increase
Public sentiment aside, the price of MTPL insurance cannot be kept at its current levels forever without a risk to insurers' solvency. Last year, revenue from MTPL insurance amounted to 660 million levs, whereas compensations cost insurers a total of 407 million levs. Experts say that this ratio is unsustainable, and revenue is insufficient. Moreover, an FSC report published in July shows that for the three most common, and also largest, categories of vehicles - cars, trucks and buses - the end result is a loss for insurers.
In addition, the price of insurance policies in the country does not correspond to road accident statistics. Bulgaria had 96 people killed in road accidents per million inhabitants last year - double the European average. At the same time, the average compensation awarded to plaintiffs by courts was close to 118,000 levs (60,000 euro), or 280 million levs in total, whereas the average compensation in Europe stands between 5,000 and 25,000 euro.