Samir OMERHODZIC, Director, Insurance Agency of Bosnia and Herzegovina

Xprimm: Please present in a few words the insurance market in Bosnia and Herzegovina.
Bosnia and Herzegovina consists of two entities: the Federation of Bosnia and Herzegovina (FBiH), with approximatelly 2.4 million of citizens and the Republic of Srpska (RS), with approximatelly 1.4 million of citizens. Although 17 years have been passed since the war was finished, BiH is still facing dramatic and insecure political reality. The insurance industry was also badly affected by these adverse conditions.

However, we have to be aware of the fact that a growing and developing insurance sector needs to be regulated and supervised in accordance to European standards.

Bosnia and Herzegovina has three insurance agencies: at the state-level a coordinating Agency and at the entity levels there are two Supervisory Agencies. The insurance market in BiH is very fragmented. There were 25 companies performing insurance at the end of 1H2012 (14 in Federation BiH and 11 in RS) and one reinsurance company.

Other institutions in the insurance market also reflect its fragmentation and they are:
  • two Associations of insurers on the entity level,
  • two Protection Funds for MTPL insurance on the entity level,
  • Green Card Bureau in BiH (for MTPL insurance),
  • BiH Actuarial Association.
The Protection Fund of Federation of Bosnia and Herzegovina and the Protection Fund of Republic of Srpska provide compensation to parties injured by uninsured or unknown motor vehicles or in cases where an insurance company providing obligatory Motor third party liability insurance is in the process of liquidation or insolvency.

The Green Card Bureau of Bosnia and Herzegovina represents BiH insurance companies within the green card system.

Xprimm: In short, which were the main steps taken in the BiH's insurance market development?
Law on Insurance Agency of BiH was introduced in December 2004, while the entity laws on insurance (for Federation BiH and Republic of Srpska), on MTPL insurance and on insurance mediation were introduced in 2005.

The state-level Insurance Agency of Bosnia and Herzegovina was established in 2006 by the Council of Ministers of BiH. The Agency's tasks and responsibilities are defined by the Law on Insurance Agency of BiH ("Law") and it is funded from the Budget of the Institutions of BiH.

The Agency's activity is closely interrelated with the activities of all institutions and organizations operating in the BiH insurance sector.

In spite of the barriers existing within the legal and institutional framework, BiH insurance market has been developing in the last few years.

The first obstacle to the integration of the insurance market in BiH is current legislation. The entity laws provide that insurance companies from one entity may conduct activity in the other only through a branch office and not through free provision of services. To open a branch office of an insurer from the FBiH in the RS the RS Agency having received the notification will have the authority to issue approval as well as that the branch office shall be registered in the court.

Xprimm: How is regulated the market, considering the two entities?
The Insurance Agency of BiH operates in very complex supervisory system. By Dayton Peace Agreement, the authority in the area of insurance and insurance supervision is granted to the entity institutions - the Insurance supervisory Agency of Federation of Bosnia and Herzegovina and the Insurance Agency of Republic of Srpska.

As a matter of fact, two entity Parliaments are empowered to issue the insurance legislation and to adopt by-laws and other administrative acts. The enforcement of the application of the mentioned legislation belong to the respective entity authorities - the FBiH Insurance supervisory Agency and RS Insurance Agency.

The IABiH is responsible for drafting entity-level laws, amendments of such laws and other legislative documents; arbitration of litigations between the entity level insurance agencies; international relations of Bosnia and Herzegovina in the area of insurance; keeping the statistics regarding the activities of the insurance markets in Bosnia and Herzegovina.

The BiH Agency is authorised:
  • To conduct important tasks in order to ensure the uniform development and implementation of the entity legislation in the field of insurance with the purpose to further deepening the process of integration of the insurance markets in the country, to ensure:
    o The protection of consumers of insurance services.
    o Integration of BiH insurance market into European and world financial markets.
  • To represent BiH on the international level in the field of insurance supervision (including representation of BiH in international bodies and organisations in this area).
  • To prepare the aggregated insurance statistics of BiH.
The above mentioned tasks must be implemented in a situation where the BiH Agency does not have immediate access to the insurance market itself as it does not carry out the typical supervisory activity (issuing and withdrawal of licenses, ongoing supervision, application of remedial measures etc.).

Since 2008, the legal framework for insurance in BiH has completely changed. Previously, the two entity insurance laws were totally different. It was not possible for a company from one entity to conduct insurance in the other entity. Fortunately, since 2008 laws and secondary legislation, mostly harmonized and adopted in each entity, allow branch establishment, so that a company from one entity can have branch operating in the other entity after getting a permission from each entity supervisory agency.

Xprimm: Are there significant differences between the two markets? What about competition between insurers in the two entities?
Very important is the fact that since 2008 companies from one entity have been equally working in the other entity. In Bosnia and Herzegovina, currently, there are nine registered companies from the Federation of Bosnia and Herzegovina that work in the Republic of Srpska, and five companies from the Republica of Srpska which opened branches in the Federation of Bosnia and Herzegovina.

Insurance companies from the Federation of Bosnia and Herzegovina which have their branches in the Republic of Srpska, in 1H2012 earned a total premium value of EUR 7.25 million. This is an increase of 42%, as compared to 1H2011, when the premium was EUR 5.11 million. Companies that are headquartered in the Republic of Srpska, through their branch offices in the Federation of Bosnia and Herzegovina, in 1H2012 achieved a total gross written premium in the amount of EUR 2.93 million, what is 16% higher than total premium earned in 1H2011, which amounted to EUR 2,52 million.

These activities contribute to the development of a unified economic space and strengthening of competitiveness, which ultimately leads to an increase of service quality and development of insurance.

Xprimm: How would you characterize the local insurance market evolution this half year?
A total of 25 insurance companies registered in BiH made in 1H2012 a gross written premium EUR 127.27 million, what is more or less the same amount of a gross written premium earned in 1H2011 when it was EUR 126.11 million. A total gross written premium in the Federation of Bosnia and Herzegovina was EUR 95.08 million and in the Republic of Srpska EUR 32.19 million.

So, I would say that we kept overall steady evolution of the insurance sector thanks to the increment in life insurance. Almost 17% relates to life insurance slightly increased from 1H2011 for over 7% and 83% relates to the non-life insurance what had a negative change for less than 0.5%. At the end of June, to one non-life insurance company registered in FBiH, a license was revoked and launched a special liquidation proceedings in the company.

The first company in Federation of Bosnia and Herzegovina, considering a total gross written premiums is SARAJEVO osiguranje with EUR 17.12 million and 18.01% market share in FBiH and 13.45% of market share in BiH. The first company in Republic of Srpska, considering a total gross written premiums is JAHORINA with EUR 6.29 million and 19.56% of market share in RS and 4.95% of market share in BiH. All first ten insurance companies in BiH, except - Jahorina on 7th position, are licensed in FBiH.

It is very important to emphasise the fact that the life insurance, which represents a dominant type of insurance in developed markets, has been still in development in BiH resulting from the available data over past 6 years. The share of life insurance in the total portfolio increased from 16% in 1H2011 to 17% in 1H2012. In the order of the top five insurance companies in the life insurance market, the first is still MERKUR osiguranje, headquartered in FBiH, with a share of 25.96% in GWP life insurance of BiH and its growth of 4.63%. The first company in non-life insurance is SARAJEVO osiguranje, with a share of 15.34% in GWP non-life insurance of BiH and its growth of 0.35%.

Xprimm: What changed in the analyzed period from a year ago? How were the dynamics of the insurance classes?
The share of life insurance premium in Bosnian and Herzegovinian portfolio is only 16.6%, what is 1% more than in 1H2011, amounted to EUR 21.16 million in GWP. Nevertheless the smaller market in RS made only 13% of it, it showed a growth of 12.40% (what is lower than its growth rate from 1H2010 to 1H2011) in life insurance premium and reached the amount of EUR 2.68 million. Market in FBiH showed the growth of 6.46% (what is higher than its growth rate from 1H2010 to 1H2011) to reach EUR 18.48 million of life insurance premiums.

When considering the non-life insurance premiums, the situation differs more from the same period a year ago. While the non-life GWP in 1H2011 showed a growth of 3.5%, in 1H2012 it had a negative change, particularly on the RS market. The most important class of non-life insurance is definitelly a motor written premium (MTPL and motor hull) which amounted EUR 75.52 million in 1H2012 what represents almost 60% of total market portfolio and almost 2% positive growth. Insurance companies licensed in FBiH produced almost 69% of this amount.

The largest decline occured to the non-life premium collected in Aviation TPL insurance by 73%. Within the individual non-life insurance the largest increase occured in Credit insurance, with a growth of 6 times.

Xprimm: There were significant changes (decisions/legislation) in 1H2012?
Due to the current political unpleasent situation, there were no significant changes in 1H2012 regarding the legislative in insurance sector.

Xprimm: Which are the most important challenges and opportunities for the insurers/consumers in 2012?
We have certain problems in harmonizing our regulations, because there are differnces between the entities' insurance legislative. An important improvement is that until a few years ago it was impossible to imagine that society from one entity to operate in the other, and now we have a significant increase in premiums from the Federation in Republika Srpska, and vice versa.

It increases competitiveness and improves the quality of services, and ultimately have the final consumer satisfaction, which should be the goal of all participants of the insurance market in BiH.

Another problem is definitely a bonus system. Specifically, compared with the countries in the region, the average premium in BiH is twice smaller even though the price of vehicles is the same. So that our insurance companies have difficulties in covering the claims. We believe that in the near future the premium rate will be raised and in the same way would be more appropriate. Premium system is certainly too long period unchanged in BiH.

It can be said that the insurance market in Bosnia and Herzegovina is underdeveloped, what could be considered both as a weakness and a chance. To give you more clear picture of the insurance market of Bosnia and Herzegovina I'll give you the following indicators for 2011: GWP was EUR 249,57 million, premium per capita, or "density", is the lowest in comparison to other countries in the region and it amounts to EUR 65 in 2011, what is 1.91% of GDP.

Also, insurance sector in BiH is burdened with numerous problems that greatly hamper the growth of this financial activity. I shall only mention the most important: unfair competition, disrespect of the system of bonus and malus, insurance fraud and uninsured vehicles. Due to fact that the reform of the pension system still hasn't been done there are no pension insurance companies. The biggest problem on the market is dumping in premiums and violation of tariffs by market competitors.

Insufficient understanding of the role of risk management for individuals and society as well as macroeconomical environment and the actual crisis with its implications could be also obstacles to the market development. I think that more discipline of insurers will provide higher level of confidence in the sector. There is a need for better supervision of insurers in order to increase the level of confidence in insurers and to prevent in time unprofessional operating of insurers.

Xprimm: What are your expectations for the end of 2012?
According to the data available, the recession is felt strongly this first half of year in Bosnia and Herzegovina. In fact, a large number of people had already lost their job and further decline in employment is expected too. Although the insurance industry has not felt the impact of the recession until now, in the next 2-3 years we shall see the consequences. It is expected that there will be a drop of premiums, particularly in life insurance. We are expecting that many insured persons will be forced to cancell their life insurance contracts as they economically will not be able to maintain them.

Enhancing public awareness of the benefits of optional types of insurance as well as confidence in insurance companies are also activities on which the insurance companies in the future need to pay more attention.

Although Bosnia and Herzegovina is still not a member of the EU, the requirements of Solvency II directive relating to risk management and review of current capital adequacy requirements will certainly be the focus of events in Bosnia and Herzegovina in the future.

Download the 1H2012 Bosnia and Herzegovina insurance market statistics.

BiH insurance market indicators (FBiH and RS insurance markets, added-up):
  • Market portfolio (in EUR and BAM)
  • Life and non-life insurance market rankings (GWP/ Market shares/Growth rates)
FBiH insurance market indicators:
  • Market portfolio (in EUR and BAM)
  • Life and non-life insurance market rankings (GWP/ Market shares/Growth rates)
RS insurance market indicators:
  • Market portfolio (in EUR and BAM)
  • Life and non-life insurance market rankings (GWP/ Market shares/Growth rates)

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