Samir OMERHODZIC: According to the results achieved in the insurance market of Bosnia and Herzegovina for 2015, a continued trend of growth in insurance premiums from previous years is evident. Total insurance premium in 2015 is increased by the rate of 4.72%.
Despite the underdeveloped economy and high unemployment rate, the insurance sector from year to year was recording an increase in insurance premiums. Total growth in insurance premium in 2015 was a result of growth in life insurance premium by the rate of 7.91% while the non-life insurance premium growth was recorded in the amount of 3.91%.
In recent years, there is an evidence of the fact that the total insurance premium growth is based on the growth of life insurance. In the last five years it has increased by 65%. (The insurance premium in 2010 amounted to 38.11 million while in 2015 to 63.16 million)
The level of development of the market of Bosnia and Herzegovina is still at the low level. Dominant types of insurance in the total portfolio are still mandatory types of insurance.
Non-life insurance premium in total premium amounted to 79.01%, while life insurance premium amounted to 20.99%.
Voluntary types of insurance still do not take a significant place in the total insurance premium. They have not been yet properly recognized in Bosnia and Herzegovina and thus the growth of these types of insurance is limited.
The development of this part of the insurance sector in Bosnia and Herzegovina is limited by general economic conditions, but also by the need of the support of the state in the form of tax and other incentives and incentives for certain types of insurance. It is necessary to establish the new forms of compulsory insurance modelled on the developed European countries by the national legislation.
The limiting factor in our country for the growth of premium of voluntary types of insurance is certainly the limited opportunities for profitable and safe investing in the domestic market.
In the upcoming years it is realistic to expect the growth of life insurance and health insurance due to the reform of the pension and health systems which Bosnia and Herzegovina shall face with in the future.
XPRIMM: According to the market statistics published by the NADOS and AZORS, in 2015 the MTPL insurance line was the market driver in GWP terms. Please comment on the factors that determined the significant growth recorded on this market segment.
S.O.: Premium of motor third-party liability insurance in 2015 is increased by 8.29%. In the total premium of non-life insurance this type of insurance amounts to 49.38%. In 2015 an increase in premium on this type of insurance was recorded and an increase in the share in the total premium of non-life insurance as well.
The result of this growth is not an introducing any new calculation of insurance premiums, but is the consequence of increased supervision of the Entity insurance supervisory agencies in the application of the premium system, as well as bonus and malus.
Insurance companies are required to apply an adequate calculation of compulsory insurance premiums depending on whether someone has caused damage or not.
Increased supervision and activities of the entity agencies for insurance supervision on the adequate application of the premium system in Bosnia and Herzegovina has led to an increase in total premium of compulsory motor third-party liability insurance of 8.29% and an increase in the share of this type of insurance in total premium in non-life insurance of 3.41%.
XPRIMM: What is the current status of the property insurance lines, especially in what nat cat risks are concerned?
S.O.: Property insurance has not been yet sufficiently developed nor represented in Bosnia and Herzegovina. In the total premium of non-life insurance, property insurance amounted to 9.89%, which is negligible compared to developed countries. The reason for the small share of this type of insurance is certainly underdeveloped economy and the lack of investments in Bosnia and Herzegovina. The economic development of the country and greater investments would open the possibility of employment, greater financial capacity of citizens and businesses that would certainly have a positive impact on the development of the insurance sector in Bosnia and Herzegovina.
In Bosnia and Herzegovina insurance against natural disasters is a voluntary type of insurance and the number of insurance policies concluded by this insurance is negligible. In the previous period, Bosnia and Herzegovina was exposed to natural disasters (floods, droughts), due to which there has been a destruction of property of citizens and businesses. A small number of citizens and businesses have concluded insurance policies on the basis of property insurance and as a result of natural disasters there had been a lot of damage to the assets that were only partly compensated with the payments of insurance companies.
The fact is that the state of Bosnia and Herzegovina, following the example of developed European countries, in the upcoming period must make a greater effort and be interested to insure its property as well as to provide some kind of support for citizens and businesses to insure their property.
XPRIMM: How would you describe the current status of the life insurance segment in your market? Which are the most popular products and how much of the life insurance sector volume is owed to the bank lending conditions?
S.O.: The growth rate of life insurance premiums in the market of Bosnia and Herzegovina is largely the result of growth in the bank insurance products, respectively the banking products with the component of life insurance products.
After the problems caused by providing loans through guarantors, the banks offer life insurance policies as a collateral by the approved loans in order to secure their claims under the given loan. In absence of other loan collateral instruments large part of clients are opting for a life insurance policy as an instrument for ensuring the return of approved loans.
Of course, besides the growth in purchasing power of citizens, the promotion of the importance of the life insurance is the most important prerequisite for the continuation of the trend of growth of life insurance premium. Promotion should definitely move to the direction of promoting life insurance as an important instrument of saving for old age and its improved standard. Therefore the role of the state in this area is even more crucial because of the lack of a single insurance market in Bosnia and Herzegovina.
The insurance market of Bosnia and Herzegovina needs systematic education of citizens on the need and the benefits of life insurance.
XPRIMM: Which are the main priorities of the supervisory authority in 2016?
S.O.: Bosnia and Herzegovina still represents an underdeveloped insurance market with the small share of premiums in GDP. The fact is that the market has not yet been integrated into a single economic area and that the regulations in the entities are not fully harmonized thus creating conditions for unequal position of the beneficiaries within territory of Bosnia and Herzegovina.
In line with the Law on the Insurance Agency of Bosnia and Herzegovina, activities on alignment of regulations in the insurance sector as well as the activities stemming from the Stabilisation and Association Agreement in the process of European integration shall be the main priorities of the Insurance Agency of Bosnia and Herzegovina in 2016.
Insurance companies must shift their focus from compulsory motor third-party liability insurance to the new products. The regulatory framework in Bosnia and Herzegovina must approach to and be harmonized with international standards. Accordingly it is needed to apply a new approach to the risk management.
In the future the development of modern sales channels and more transparent operations of insurance companies are expected, as well as better informing of the insureds.
The fact is that one part of the insurance companies in Bosnia and Herzegovina survives in the market despite a very low market share, the low level of premium income and negative trends in the main indicators of business.
Survival in the market and profitable business of insurance companies in the future will increasingly depend on the adequate management of costs, not just be focused on the constant struggle for premiums increase.
The liberalization of the insurance market which Bosnia and Herzegovina will face is inevitable but it will also need an adequate preparation. The future state of the insurance market will depend on adequate preparation for the market liberalization process, in order to avoid the problems faced by the countries that have introduced liberalization without preparing the market.
XPRIMM: Recently the local press has spoken about some potential privatizations in the insurance market. How do you comment on this topic? Are there any chances to see new players on your market in near future?
S.O.: Insurance market in Bosnia and Herzegovina is small but still having 25 insurance companies operating in it. Due to a large number of insurance companies operating in the market of Bosnia and Herzegovina in the next period it is expected this number to be decreased by merging several companies or by buying of smaller companies by the major insurance companies.
In the Republic of Srpska in late 2015 privatization of "Krajina osiguranje" insurance company occurred and the Government of the Federation of Bosnia and Herzegovina announced the sale of packages of shares of "Sarajevo osiguranje" insurance company.
Whether the new participants will appear in the market or the purchase will be done by some insurance company that currently operates in the market of Bosnia and Herzegovina is unknown for now.
It is evident that the change in ownership structure of insurance companies in future will occur certainly in favour of the private sector.
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