Ramize Ramadani: Kosovo insurance market remains underdeveloped with a relatively large untapped potential for growth and development. As of the end of 2019, the ratio of premium per capital was EUR 55.2 while the insurance penetration rate (insurance premiums to GDP) was only 1.4%.
At the end of the first half of 2020, the total assets of the insurance market amounted to EUR 208.6 million, which represents an annual increase of 9.8%. The Kosovo insurance market is mainly driven by non-life insurance, which amounts 91% of the total assets of which almost half is foreign owned capital. The life-insurance sector participation remains below the double-digit threshold and consists of foreign owned life insurers.
In the midst of the COVID-19 pandemic situation, the financial performance of the insurance sector in Kosovo remained stable in the face of declining premium income and renewable contracts. The total amount of the gross premium written at June 2020 reached a total of EUR 45.4 million, which marks an annual decrease of 4.1%, whereas the amount of gross claims paid were similar the previous year.
Nevertheless, during the first half of 2020, the insurance market registered a profit of EUR 5.7 million, a welcomed improvement from a loss of EUR 3.7 million recorded in the same period of last year. The improvement in the financial performance is also reflected in the combined ratio, of which at the end of the first half of 2020 stood at 88.5% vs. 106.1% in the previous period of 2019.
R.R.: Even though the financial performance of the insurance market throughout the COVID-19 pandemic has been stable and improved in comparison to the previous year, the lockdown had a significant negative impact on the demand for insurance products in Kosovo.
The non-life insurance sector, as the key source of revenue in the insurance market, recorded 27.1% less insurance contracts compared to previous year. The most affected line of business was the compulsory motor third liability insurance in both domestic and border insurance, where during January-June 2020 a total of 10.7% less contracts in domestic motor third party liability, and 45.7% less contracts in border insurance were issued, compared to previous year. Similarly, the health insurance also suffered significantly from the pandemic, registering 42.3% contracts less than in 2019. The decreasing amount in the premium income and collecting payments from the insured has posed a big challenge in maintaining credit, as well as underwriting risk for insurers.
To alleviate the negative impact of the pandemic situation, the CBK, as a supervisory body, has taken certain measures as per IAIS recommendations. Taking into consideration the difficulties the insurers faced during this period, initially we extended the submission deadlines of the financial results. Likewise, we also requested from the insurers to prepare continuous improvement plans regarding the actions they will undertake in maintaining capital and liquidity indicators, and procedures of treatment, including claim payments. The CBK has also decided to temporarily reduce the border insurance premium by 35%, where the Government of Kosovo is covering the premium of the border insurance for all compatriots and foreigners entering the territory of the Republic of Kosovo.
R.R.: The major legislative change during 2020 was the introduction of the new corporate income tax law, which changed the basis and rate of taxation of insurance companies, from a 5% tax levied on gross premiums to a 10% tax on taxable income. This had a positive effect on the performance of the sector as a whole. Currently, we are in process of revising the law on MTPL.
In terms of secondary legislation, during 2020 the regulation on operational expenses and commission for non-life insurers entered into force, the main purpose of which is to limit the overall commission and operational expenses of non-life insurers to a maximum 24% of all non-life gross written premium volume.
In addition, the regulation on corporate governance and the new amended regulation on bonus-malus system were also introduced by the CBK during the same year.
It is worth mentioning that during 2019, the CBK has reviewed the MTPL tariffs by increasing them by 26% in line with inflation. These tariffs have never seen any kind of revision whatsoever since 1999.
Another notable measure in the insurance market during previous year was the introduction of agricultural insurance product. Despite the existence of this product, the demand for agricultural remains low by comprising less than 1% of total gross premium written in non-life insurance market. Taking into account that more than 13% of the GDP in Kosovo consists of the agricultural sector, developing agricultural insurance products is quite an important issue for us.
Furthermore, in terms of supervision from the beginning of 2020, for the first time, the CBK has started to perform risk-based supervision inspections based on a new supervision manual, in line with best practices of risk-based supervision approach.
R.R.: Property insurance remains small with only 7.9% in total portfolio of gross premium written in non-life insurance. Most of the written premium for property insurance comprises from international companies, or is generated through public tenders, while the demand from individuals and homeowners remains relatively small, even for catastrophe insurance.
By the second half of 2020, the total number of contracts of insurance against fire and natural disasters registered an increase of 11.9%, while the insurance against other damages and loss of property saw a decrease of 31.9%. The increase of property insurance was a result of the newly insured international companies that contracted property coverage for high amounts of sum insured including flood, earthquakes, and other insurance against property damages.
R.R.: During 2020, there were no structural changes in the insurance market in Kosovo. Nonetheless, in 2019, the CBK revoked the license of one non-life insurer in the local market that faced financial difficulties in fulfilling necessary legal requirements of the CBK on capital adequacy and solvency. In 2017, the CBK approved the transfer of portfolio of one life insurer to another in the local market, and revoked the license of one life insurer subsequent to the approval of its voluntary liquidation.
R.R.: We, as the regulatory and supervisory authority, are constantly working on catalyzing the growth and development of insurance sector with focus on non-compulsory insurance products.
Taking into consideration the consequences of potential floods and earthquakes, in the medium-term we are considering taking necessary policy measures to boost the demand for natural disasters insurance coverage. Such measures may include:
- making it compulsory for all mortgage loans made by commercial banks in disaster-prone areas to carry relevant insurance coverage in addition to other perils;
- developing and making public detailed disaster risk maps for flood and earthquake risks;
- possibly joining a regional catastrophe insurance pool for Southeastern Europe. In addition to property insurance, we are working towards the development of other non-compulsory insurance as well, namely making personal accident insurance in construction and engineering fields a compulsory product, as well as a professional liability insurance product.
In terms of strengthening supervision, during 2020 we worked closely with international financial institutions to define our operational and strategic objectives, which foresee a gradual alignment of revised laws and regulations with the EU regulatory requirements, increasing actuarial capacities, and a roadmap to solvency II regime.
The Central Bank of Republic of Kosovo (CBK), a successor to the Banking and Payments Authority of Kosovo and to the Central Banking Authority of Kosovo, was established on June 2008 with the approval of the Kosovo Assembly. The CBK is an independent legal entity with full authority as a legal person according to law in force in Kosovo, and reports to the Kosovo Assembly.
Find more information about CBK on the institution's official website: bqk-kos.org