“Trial CASCADE Strategy” To legal claims “Tsunami” flow reductionMaxim Petrov, the Legal Claims Center DirectorMoscow, February 2014

Legal statistics

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In 2012 around 320,000 customers filed insurance claims, total amount of recoveries equaled to 19 bln Rub. During the first half of 2013 there were 185,500 lawsuits, while recoveries amounted to 11 bln Rub.

Combination of negative factors

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• Two main external negative factors1. From 2009-2010 the government has become more focused on protecting the interests of citizens

especially in the economic sphere. In particular, the government’s approach to insurance disputes resolution, where a citizen (consumer) is one of the parties, has changed.

2. The second factor is a lack of uniform methodology for vehicle damage assessment based on objective criteria.

• Internal problemsThe factors mentioned above are combined with such internal problems as manual processes, weak

IT system, outdated regulation, lack of lawyers, etc. You may believe that nothing is wrong, however there is a high-risk business model, which leads to uncontrolled sale of OMTPL policies in locations where there are no Insurance agents.

• These conditions together with a high-risk business strategy contributed to spread such a phenomenon as

«Local schemes» which involve experts, lawyers, police, etc. who deal with collecting insurance indemnity.

The so called customer protection organizations take advantage of insurance disputes by redeeming the claims of victims and immediately filing a lawsuit like a conveyor.

Legal claims control & administration

Incoming cases statistics. “Ideal Storm”.

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2010 – 325 MOD & 2737 OMTPL 2011 – 568 MOD & 4886 OMTPL 2012 – 1850 MOD & 12346 OMTPL2013 – 3823 MOD & 15103 OMTPL

In response to sales explosion, with loss settlement services lagging behind, the army of “customer protectors” quickly offered service focused on the so called “gray” clients. All of the factors mentioned above have led AZR to the “Ideal Storm” effect. The figures below demonstrate the results.

But! Things are not that bad. It is not like the all-Australian bushfire. It’s just a series of common local forest fires which happen in Russian province yearly.

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We can see heavy smoke from fires as well as the source of fire. It means that we just need a competent and well equipped fire-brigade and strong operational support.

Strategy. Two possible ways

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The nature of the problem is not legal. It is understaffing and operational failures on limited local markets. Therefore

• The two main strategic goals are as follows:reduce the total number of lawsuits against AZRreduce the total amount of recoveries from AZR• The first goal is complicatedIt implies the measures to be taken on a company level. It requires changes of a

business model starting from underwriting and proceeding to sales and claims settlement. We would also need closer cooperation between different business units in order to reengineer the processes to achieve higher operational efficiency, etc.

• The second goal is to be reached by means of the Legal Claims according to the Plan below which has been partly fulfilled

This is the first stage of the “CASCADE” trial strategic plan.The next stage is the accurate response to each claim.We continue analyzing legal practice and giving feedback to the Claims Centers in order

to improve their service.Legal claims control &

administration

Strategy. Reduction of total number of lawsuits.

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In order to achieve this goal it is necessary to understand the reasons of treatment of clients in court. These reasons are as follows:

• failure to agree with the insurance payment amount;• unjustified refusal to pay insurance (either due to misapplication of insurance

rules or in case insurance policy use is formally correct, but refuted in practice);

• delaying losses settlement timing by the insurer;• remote location and inconvenient work schedule of the insurer’s offices;• uncontrolled OMTPL policies sales in regions;• aggressive marketing of "avtoyuristy“. Our opponents are leaving us behind as they are using aggressive

attack strategies. We have to give up manual handling and start defending in the same

way, but at the same time we need to think how to move on.

administration

Strategy. Reduction of total recoveries amount.

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The main conditions of performing this part of strategy are staffing levels both in Moscow and regions and operational efficiency.

20132014 Corporate Motor Moscow/St-P. Motor regions

July

August

September

October

November Reigeneering of the processes, IT modernization targets are set

December Renewal cooperation interface and reglaments, IT requirements done

January Fast payment process begins. Design KPI's and new job description

February Recruitment of lawyers in regions and suboordination to HQ.

Marchbegin to monitor, control and blok technical funktions

AprilBacklog to be decresed

May

June

In cooperation with Regions and Operational block control administrate the regoinal legals. Transmit to Operational

Widespread practice of digital legal files management shall be applied in the AZR

Output the strategy "adequate response to each claim"

The trial strategy "CASCAD" shall be extended widespread. Practice KPI as enviroment indication and motivation

Problem areas

Reorganisation of legal claims

New Head of legal claims on duty

Analysis of the situation (Trasversal Audit, Motor Claims WorkShop)

Optimization of the structure of legal claims

The aim of “TRIAL СASСADE” is to reduce total amount of recoveries. This is a part of Complex multilevel system “СASСADE”.

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We have already started to significantly reduce the recoveries amount.

«CASCADE» – complex multilevel system of projects and measures aimed at reducing the number of lawsuits

1st level Reduction of risk segment in the portfolio

2nd level

Minimizing claims in risk segment on the

stage of losses management

3rd level Work with claims received

4th level Work with lawsuits

Project «Mediation»

Project «Global Expertise»

Project «Voluntary Court Settlement»

Project «ЕСС»

MeasuresProjectsBan on insurance calculation payments in

the affiliated companiesBan on OMTPL insurance calculation

payments in regions of concern

Introducing KPI for heads of affiliated companies

Introducing regulation on making decisions for refusals with unfavorable

judicial perspectiveEncouraging Clients to choose vehicle service stations - introducing scripts for

employeesIntroducing KPI for employees according

to the number and share of vehicle service stations authorizations

One single example: Summary of the audit of 164 court decisions on motor

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The Legal Claims Center has audited 164 court decisions on motor insurance

Full amount of legal recovery 54.2 mln RubEstimated recovery (without penalty in case of local lawyers acting) 37.5 mln Rub Revenue that could be saved (just customer protection penalty share) 16.7 mln RubAverage savings per lawsuit 101,820 RubNumber of incoming lawsuits on motor in 2013 (registered in IT) 20,300

Local lawyers are necessary to deal with the court office and to appeal to the judge directly. Acting in only 10% of lawsuits could have reduced legal payments by 150-200 million Rubles in 2013! These measures will increase administrative workload in the Headquarters but the balance balance will stay positive anyways.