Insurance Market Trends Conference (II): GDPR and IDD, European regulations affecting all business lines, as well as the compliance with the Solvency II framework, are the main challenges ahead for the Romanian market
Keynote speakers included:
• Valentin IONESCU - Director, ASF - Financial Supervisory Authority, Romania
• Alexandra SMEDOIU - Vicepresident, CFA Romania
• Adrian MARIN, President, UNSAR
• Virgil SONCUTEAN, CEO, ALLIANZ-TIRIAC Asigurari
• Dan GATAIANTU, Member of the Board, ASIROM VIG
• Nicoleta RADU, General Manager, PAID Romania
• Michael THEILMEIER, Senior Vicepresident, GEN Re
- The total assets of the non-banking financial system (the insurance market, the capital market and the private pensions system) increased in 2017, reaching 12.3% of the GDP, from 12.2% in 2016.
- We have good news as far as GDP is concerned, with a 76.9% increase in 2017, compared with 4.8% in 2016. The Romanian economy was the second in the EU (after Ireland) as far as the economic increase is concerned.
- The annual increase of the net salary remained high in the private sector (+11.6%), and at national level it was even higher (+14.2%) as a result of the salary increase in the public sector.
- Who are the consumers of insurance products in Romania? We have 12,422,480 general insurance contracts and 1,867,988 life insurance contracts.
- As far as the statistical data for the insurance market are concerned, we have a few issues with the insurance penetration degree in GDP, which is 1.21%, as well as with the insurance density - 528 RON/ person.
- In 2017, the claims ratio on the MTPL segment decreased to 99.46% (109.07% in 2016), which means that some companies are making profit on this insurance segment
- The MTPL act (No. 132/2017 on compulsory insurance for civil liability) introduced new elements that contributed in stabilizing the market, and supply, and demand: the reference tariff, the high-risk insurer, direct settlement, damage compensation, flexibility on the period of MTPL policy.
- The Draft Law on Mutual Insurance Companies: Mutual insurance companies contribute to the formation of a more resilient market by prudent risk management, considering the dual quality of members.
- The European Parliament has issued resolutions asking the European Commission to regulate the status of European mutual companies.
- Mutual companies are solid and sustainable (they have resisted the financial crisis), they create jobs, promote the key values of the socially active state: solidarity, non-discrimination, equal access, functioning for members' benefit (with no shareholders).
- In Europe, in 2016, there were about 3.000 mutual/cooperative insurance companies, representing a market share of 31%.
- Mutual companies have no commercial object, but a self-protection one. They are economically active, viable and may have a surplus and the surplus may be distributed to members or reinvested.
- Central and Eastern Europe in 2017 vs Romania in 2017: we have a substantial GDP growth in both areas, Romania being, from this point of view, "a star of the region".
- CEE: 11.5% PBS growth, mainly due to Poland, the biggest regional market.
- Romania: 3.5% PBS growth; we can notice a change in trends, even if the basis is small, life insurance has generated impressive increases.
- Romania in CEE: From a market of EUR 36 billion, we are on the 6th place as market share, with EUR 2.12 billion; we are the 6th largest in terms of life insurance and 3rd in general insurance.
- The European insurance industry and the challenges: not necessarily CEE specific; there are challenges that insurers are fighting globally: they are demographic, geopolitical, technological advances, financial markets' volatility, changes in the regulatory framework, climate changes - all have an impact on insurers' business.
- If we refer to the Romanian market, the main challenges are given by the European regulations: GDPR and IDD, with effects on all our business lines, as well as the compliance with the Solvency II framework.
- As solutions: we need to put the consumer in the center of attention; we need a broader framework of protection and transparency - imposed by the regulatory framework, but also necessary to develop the business itself. Let's not forget about emphasizing on quality. Last year, we had a significant drop in petitions number.
- As business challenges: if we refer to life insurance, we are on the last places in Europe, with a GDP share of 0.3%, 10 times less than the European average. The amount spent by a Romanian is EUR 18, compared to EUR 1.326. Thus, we encourage the increase of financial education's level (encouraging individual accountability) and we aim to introduce a tax incentive scheme.
- Talking about voluntary health insurance, they have been on an upward trend over the past few years, perhaps overcoming the expectations of the players on the market. We have a significasnt growth compared to previous years. However, the AVS market in Romania is far from the European one. UNSAR advocates for legislation improvement, in order to create a favorable framework for the development of the voluntary health insurance segment.
- On the motor segment, they generate 74% of total non-life PBS or 59% of total PBS. There have been major changes and the market is in a continuous growing process. UNSAR is involved in introducing the table system on corporal injuries, enhancing insurance coverage, digitization and introducing the telematics system, increasing road safety and continually striving to improve the regulation in the field.
- On the property chapter, we have a 6% increase in PBS values and UNSAR's development projects of this line aim to increase the coverage of housing insurance (only 19% coverage for PAD insurance and only 16.4% degree of coverage in optional insurance), the conduct of information campaigns or the subsidization of agricultural insurance premiums.
- As a horizon: the consumer is at the forefront and, for services improvement, we must move the focus from the activity of just covering the risks, to giving consumers what they need. We can do this through permanent dialogue.
- We find ourselves in a very good external economic environment. We have a strong global economic growth.
- We are in a moment of stable macroeconomic factors.
- We have a 1.3% inflation worldwide. Inflation is very healthy for the growth of the world economy. In a world without inflation, there would be no economic growth.
- Increasing interest rates - it's a good thing for the insurance industry, it measn better returns for the insurance companies' investments.
- Romania had the second largest economic growth in the EU, in 2017: 6.9%.
- The insurance industry captured only half of the economic growth. The economic growth was based on consumption, but the Romanians' money did not go so much towards insurance.
- We anticipate, at the end of the year, a ROBOR at 3 months of 3.3-3.5%.
- This year, the National Bank of Romania (BNR) has raised twice its monetary policy interest rate, up to 2.50%. it may increase.
- What can we expect for the next 12 months? Inflation will increase to 5-6%, interest rate hikes will continue, while Romania's cureency, LEU, will continue to slightly depreciate against EUR.
- Social spending is on the rise. They will reach about 14% of GDP, according to the European Commission's estimates, by 2050. We hope to receive our pensions then.
- Population Evolution: There will be a 21% drop by 2060; in the same year, 30% of the population will be 65+ years old and the retirement dependency ratio of employees will be 60%.
Valentin IONESCU - Director, ASF - Financial Supervisory Authority:
Monitoring must continue. For now, two companies hold more than 50% of the market. All companies are within the regulated legal limits. There are still things to adjust, to improve. We want more companies on MTPL. To be a more competitive competition, not to have such a high degree of concentration. The main issues have been resolved. It has been seen that, working together - authorities, professional associations, market players -, we can do great things.
Virgil SONCUTEAN, CEO, ALLIANZ-TIRIAC:
The official figures are looking good. From ALLIANZ-TIRIAC's perspective, we have not yet succeeded in finding the formula to make profit on MTPL, although the technical outcome has improved, the combined rate has also fallen, the MTPL business has fallen. It is possible that this year will be the year we will be on 0. MTPL is not a line to bring a profit margin. Things seem to be heading in a good direction. It's important for companies to comply with their obligations. The MTPL market comes after a fantastic stressful period, but, with a little caution and attention, things can evolve positively.
Dan GATAIANTU, Member of the Board, ASIROM VIG:
The MTPL market's trend was positive in 2017, once from the legislative framework and also from market's players. And here I am referring to the 44% decrease in the number of petitions. However, all the changes produce some effects that we do not fully encompass today. For example, monthly policies, which constitute a facility for the client, are at risk of generating a lower coverage in the future. This is an aspect we muist carefully monitor. In principle, the fact that MTPL was technically positive is very good news and it is very important to us, as we are trading companies. We are dependent on positive technical results. Only in this way can we guarantee predictability and stability and even generate consumer trust in this market. We have even noticed a decrease in the average premium, which will have an important impact on 2018's results. We are on the right track and we need to continue at this pace.
Adrian MARIN, President, UNSAR:
It's obvious that we are dealing with a more stable framework. Let's not forget that MTPL has been the "star" of the market in the last 5 years. MTPL subject dominated the media. Today, we have a more stable framework, but also a strong risk of concentration. Also, depending on pricing, eah insurer absorbs a certain type of consumer. It's worth noticing that the market managed to decrease the combined rate, but let's not forget that some damages went to FGA - Guarantee Fund of Insured. It's important that those on the market to continue based on the price paid. In the last years, companies have gone through many, and I'm not only referring to MTPL, but also to other legislative issues - IDD, GDPR. It's important to have stability. Monitoring must continue and we must stick to the promises we made when concluding a policy.
Nicoleta RADU - General Manager, PAID Romania:
2017 was a good year also for PAID, with a low rate of damage. PAID had another year in which it continued to financially sustain and heavily increased its own funds. PAID has reached its goal of having a fairly consistent reinsurance program: EUR 900 million. The purpose for which PAID has been created was to attract as many households as possible in Romania, something that did not happen last year. We managed to attract the remained portfolio from ASTRA and CARPATICA, but we did not pass 19% coverage in insurance. At the same time, it is noteworthy that we have taken many steps forward, together with UNSAR and ASF we have attempted to amend the law, because our law is implemented through the local authorities. If they want to get involved, there will also be results. We already have the Brasov example, where the city hall has been very involved and the degree of coverage is more than 50%. There, the local authorities sent notifications to the citizens and the situation improved. This year, we hope to find new leverage through which the law could be better implemented. We have ASF's full support and we hope that the political factor will understand we need to support and have a functioning law. In the distribution field, we also want to allow brokers to complete PAD policies, which is a step forward. They can increase the insurance coverage.
Valentin IONESCU, Director, ASF:
The PAID Board of Directors renewed its mandate. One of our conditions was to come up with a strategy, because it is a very important company. Thus, the Board undertook to reach a 30% coverage in the current mandate (4 years) without changing the law or 40% if the law changes. I think these are some decent figures, considering that the coverage rate in Romania is a little more than 19%. Very important and the main changes we want in the legislation also refer to the shareholders who can participate in the PAID social capital. Now, shareholders are only thosw who issued these policies. We want 70% of PAID to be held by all insurance companies and 30% to be publicly open. It's a proposal we've undertaken for greater transparency and for the participation of a larger number of shareholders. Of course, PAID's control remains in the hands of insurance companies. Now, we are in a situation where 2 PAID shareholders are bankrupt, so we have to do something to diversify and increase the number of shareholders. Other projects target direct sales, online sales, direct claim management by PAID.