In a study of 42 garages, the Auto Association concluded that the pressure for the lowest price encourages the grey market to flourish. Another negative factor of the price wars is that the quality of service provided by garages drops and the loser is ultimately the car owner.
Around ten insurers offer OCTA in Latvia. There are several OCTA calculators on the internet where you can find out how much it will cost to insure your car with a few clicks and by entering some information about your car. This means that any car owner can quickly and easily compare insurers’ prices and find the best and most affordable deal. People most often choose the insurer that offers the lowest price, as confirmed by both car and insurer associations.
The Auto Association has also carried out a study confirming this principle. Krišs Lipšāns, a board member of the Auto Association, said that there are downsides to lower price battles.
“There are services that have a larger customer base and also insurers that have a larger customer base and of course then it can [..] set the rules of the game in the industry because they have this customer flow quite large and so then they also have to play more or less with the service costs and so on and the others sometimes have to adapt a bit,” Lipšāns said.
According to Lipšāns, in order to be able to offer a low price, insurers choose cooperation partners, i.e. car repair shops, which also offer their services at the lowest possible price. However, the Auto Association is ringing alarm bells, saying that this situation is contributing to the flourishing of the grey or shadow economy on the side of the car repair shops. And car drivers are not immune from poor quality car repairs.
“The insurer comes to them and says: we will work with you if you can give us such and such price per hour of service. And here, of course, it is quite difficult for the garage to stay below this normal hourly price offered by insurers. And consequently, the better, whiter, more transparent companies concerning the State Revenue Service are excluded from this cooperation with insurers in a large number of cases,” Lipšāns said.
He explained that insurers are not obliged by the legislation to set any criteria for the choice of cooperation partners, in this case, car service companies.
“Insurers say that yes we make all payments by bank transfer, yes we check whether there are tax debts or not. But there is another aspect to this. You have to remember that the repair shops don’t only work on insurance cases, it has other clients too. They may be partly legalizing insurance cases and they may be serving other clients with cash transactions, and so this also contributes to the shadow economy in a way, because for him to offer the insurer a price of, say, EUR 15 an hour, then clearly he has to be compensated somewhere for that.
“We are very short of mid-level services in Latvia. At the moment, there are, if I may say so, the expensive services in Riga, and then there are the small, semi-gray ones, who somehow manage to survive,” said the representative of the association.
He said that in this race, the biggest loser is the customer, who often receives a poor-quality service.
“Because in this case the insurer is not thinking about the clients at any point, they are thinking about their business, how to earn more on the price of the insurance, not on the number of policies, firstly, and secondly, how to pay less,” Lipšāns explained.
Jānis Abāšins, President of the Latvian Insurers’ Association, rejects the accusations of the Auto Association, saying that insurers do not cooperate with underground services.
Abāšins said that most often drivers buy standard OCTA, which is required by law.
“Clearly, our consumers, we as people in Latvia, are quite price sensitive in the various surveys that have been conducted showing that for about 70% the price is a very important factor. [..]. They are basically 30-40%, for whom factors other than price are very important,” said Abāšins.
However, there are also drivers who, for a shorter or longer period of time, decide not to buy OCTA at all. The Latvian Insurers’ Association estimates that about 1-2% of drivers tend to drive without an OCTA.
The Road Traffic Safety Directorate (CSDD) also has its own estimates.
“If we talk about light vehicles, which is the largest section of vehicles, then at the moment there are about 790 thousand registered vehicles in the weight category up to 3.5 tonnes, and about 90% of them are also in roadworthy condition and have compulsory civil insurance,” said Mārtiņš Mālmeisters, CSDD representative.
And who are these ten percent?
“Most of these ten percent are vehicles that have not yet been written off but should be handed over to recycling companies, but, of course, every day we also see vehicles on the roads of Latvia that either do not have compulsory third party insurance or do not have a valid roadworthiness test,” said the CSDD representative.
Mālmeisters said that the absence of OCTA is also recorded by average-speed cameras. “All the offences recorded by the average speed cameras, with no OCTA purchased or no valid roadworthiness test, the number is the same as for speeding offenses.”
Mālmeisters said that the search for the lowest price is understandable, but if a customer receives a poor quality service, then there is an opportunity to complain.
“You have to understand the position of the user, because of course they want to pay less for the same service, but maybe deal with the consequences later. If there has already been bad service from the service provider and the repair has been of poor quality, then of course there are various other tools for the customer to get his or her justice. For example, by contacting the Consumer Rights Protection Centre,” noted Málmeisters.