The International Insurance Markets Day at the 2009 edition of FIAR was intended to outline this year’s main challenges for the local insurance market, starting from the implications of the international financial crunch, but also to define the influences from Central and Eastern European countries in the same context, focusing on opportunities, sources of growth and need to re-shape the product offering.

Review vs. Perspectives, at FIAR 2009

In the first three months of last year – for the very first time in the recent history of insurance in Romania – we were experiencing a one-digit average growth rate of the market. After the first three months of this year, unfortunately, another unwanted piece of news: an approximately 12% decrease in euros.
The last quarter of 2008 and the beginning of this year represent a true “challenge”, both for the Romanian economy, and for the insurance industry. The effects of the crisis are not negligible, 2009 being the year of re-orientation and of identifying the “opportunities” under the current market conditions, Sergiu COSTACHE, President of Media XPRIMM, mentioned, at the start of the conference.
Therefore, the insurance companies active on the Romanian market experience more and more acutely the effects of the economic crisis, a situation clearly reflected by the preliminary results for 1Q 2009, when Romanian insurers underwrote about EUR 80 million less than in the same period of last year.
Unfortunately, the evolution of the life insurance market was below the insurance market average. The decrease in euros seen on this segment (-16%) was almost 4 percentage points higher than the market’s decline, which caused a lower share of life insurance in the total insurance industry, up to 16.6%, from 18.35% over the similar period in 2008.
Non-life insurance also decreased, but not as steeply as life insurance. Covering more than 83% of the insurance industry, namely almost 2 percentage points more than the share they had at the end of the same period last year, non-life insurance went down by a nominal 11.6% in euros, respectively a real 4.18% in RON.

And yet... no crisis at FIAR

Generally, but especially in a turbulent business context like the one that financial markets experience at the moment, the activity of the supervisory authority, regarding the fair regulation of the relevant segment, as well as the protection of the insured’s interestsis extremely important.
2008 might be the last year with a two-digit growth rate for the Romanian insurance market, and the difficulty in forecasting the trend in car sales and the lending re-launch makes it impossible to give an accurate and realistic prediction for the insurance market’s evolution in 2009, according to the statements of the ISC President, Angela TONCESCU, at the opening of the International Markets Day.
ISC will do its best to strengthen the customers’ confidence in the insurance industry and I am convinced that the companies from the market will make all necessary efforts in this respect. In my opinion, there are enough arguments that support the idea of a two-digit growth this year, but everything depends on the actual insurance companies, the official said. Actually, although the first quarter brought about the first decline of the market, the interest of the foreign players for the business in Romania was demonstrated by the capitalizations created in the first three months, amounting to RON 300 million.
As for the implications of the crisis on the insurance market, if we consider them from a macroeconomic perspective, the estimations are that the industry will experience a decline this year because insurance is part of the secondary economy and will be affected just like the other financial sectors – banking, leasing, capital market, according to the statements of Dragoş CABAT, President of CFA Romania.
He explained that the effect is combined and it will further impact both on assets, and on liabilities. Thus, first of all, the underwriting volume will diminish because of the lower purchasing power and of the collapse of loan insurance, and second of all, the investment component – highly relevant in the insurance business – will also undergo a major decline. We expect the returns to be much lower, with a very high volatility, therefore the insurers’ return on investments will decrease a lot. As for the insurance market’s results, a return to growth is expected in the second or third quarter next year. This is not a V-type, but rather a L-type recession, or in the best case scenario, a U-type recession, and we’ll stay at the lower end for at least 2 or 3 quarters, CABAT mentioned.
Nevertheless, as we realized during this year’s edition of FIAR, the crisis is not visible, the President of the Insurance Supervisory Commission concluded.

A communication issue...

The president of UNSICAR, Bogdan ANDRIESCU, explained that if we take out the motor class, Romanians spend EUR 50 per year on insurance, while in developed economies people spend at least 20 times more. For instance, on the household insurance segment, the insurance coverage rate in some countries is 80-90%, but the increase there is boosted by deductibility.
I think that, as people start to understand the need for insurance, this business will advance some more. I think this period is the best one possible for all insurance companies to review their strategies, especially the ones related to costs. Of course, overall, the trend of the first quarter was not the same as in previous years, but there are still some resources for growth, some uncharted territories. For instance, we found resources in property and especially in retail, and this is where the benefits will be on the long run, Radu MUSTĂŢEA, President of the Board, ASTRA Asigurări - UNIQA, specified.
Actually, the main problem insurers face is communication. The dialogue among us doesn’t always have everyone’s approval, our discussions don’t always end in a ... common denominator, MUSTĂŢEA said. On the same line, Bogdan ANDRIESCU believes that the entire industry should work together for the soundness of the Romanian insurance system and meet more often to find solutions together, for instance with regard to the introduction of the bonus-malus system and of the common database.

MAI demands the cohesion of the insurance market regarding the AOL Law

MAI (Ministry of Administration and Interior) requests the insurance market to have an unitary approach regarding the AOL law (Law on mandatory household insurance)
The Ministry of Administration and Interior is asking for the support of the insurance industry and of the supervisory authority for the successful implementation of the project on mandatory household insurance, as well as for the market’s unity regarding Law no. 260/2008.
We know there are technical issues that still need to be debated. We also know that not all of you agree with the principles used in developing this law. But the topic has already been discussed for too long and the main threat comes from the customers, who will lose their confidence in the concept of insurance, Radu STANCU, Secretary of State, Ministry of Administration and Interior, stated on the Official Opening of FIAR.
Neither the time, nor the resources that have been used so far to protect the citizens by this normative act can be easily overlooked and people expect us to deliver on our promises, he added.
PAID will be incorporated as an insurance-reinsurance trading company, by an association of shareholders represented by insurers authorized to sell mandatory household insurance. After creating PAID – the Natural Disaster Insurance Pool, the Ministry of Public Finance will contract a loan to finance the reinsurance contract for the following 4 years, the size of this loan to be set by PAID, he added.
Until now, about 20 companies expressed their interest in selling mandatory household insurance, according to the statements of the ISC representatives, but only seven of them also received the shareholders’ approval to join PAID.
According to the State Secretary from MAI, January 1st 2010 is the final deadline for introducing the mandatory household insurance, thus exceeding by half a year the initially estimated deadline.

In a crisis, insurance is not a priority

Another essential topic focused on the changes in the customers’ perception of the insurance products, starting from the psychological barrier placed by the crisis in the saving behavior, given the uncertainty of income, but also from the people’s lack of confidence in financial institutions - once you become aware of these facts, the “re-shaping” of the insurers’ offer can be influenced decisively.
Thus, less than a quarter of Romanians who planned to buy insurance in 2008 did not do it eventually, according to a Panel Survey conducted by MEDNET Marketing Research Center in collaboration with Media XPRIMM and presented for the very first time on the International Markets Day.
The survey, conducted in 2008, indicates that 36.5% of the interviewed Romanians planned to buy insurance in the near future. Most of them (15.1%) considered life insurance, followed by those who wanted to buy household insurance (12.8%). Almost one year later, from the 36.5% who stated they planned to buy insurance, only 22.3% actually did it, while the options remained, however, unchanged.
Personal security (physical and psychological) and financial security are the main reasons why respondents bought insurance. On the other hand, money scarcity, other priorities and other effects of the crisis represented the main reasons why more than three quarters of the interviewed gave up the idea of buying insurance.
As for the intent to buy, in April 2009, 35.3% of the interviewed Romanians plan to buy insurance in the near future, but they changed their preferences for the insurance products: now 53.9% want to buy household insurance and 31% want life insurance.

CEE, a “reservoir” for growth in Europe

The second part of the Conference outlined an overview of the markets from Central and Eastern Europe and how to overcome the effects of the crisis regionally. Thus, representatives of groups with a wide experience in Central Europe - AEGON, GENERALI PPF Holding, as well as specialists on the insurance and reinsurance markets from Russia and the CIS area pointed out some features of the region’s industry, focusing on the specifics and the growth perspectives under the current economic conditions.
Certainly, the markets from the CEE region represent the main reservoir for growth on the European insurance market considering that even in a crisis, they reached two-digit growth rates, although the underwriting volume does not amount to more than one medium size mature market, according to a presentation delivered by Daniela GHEŢU, Editorial Director of PRIMM Publications, assessing the insurance realities in the regional context.
Therefore, although too small to bring a significant contribution to the European turnover, the CEE markets give extremely attractive signals in terms of potential, even more so as, beginning with 2008, the region is clearly moving towards maturity. Thus, the prevalence of motor insurance is now less acute, life insurance advances, revealing the trend to get in line with the European specifics. Still, this trend is in its incipient stage in the countries that joined the EU in the second wave, which gives the somewhat special character of Romania in this context.
Although, in terms of underwritings volume, Romania occupies an honorable 4th place, it also has one of the lowest insurance density rate, being the only regional market with a high underwritings volume where motor insurance is clearly dominant, and the life segment keeps at an approximately 20% share. Also, the Romanian insurance market is among the only ones in the region that ended 2008 with a negative financial result, the loss being double the previous year’s loss, namely EUR 156 million.
The situation of insurance in Romania is optimistic, as this is a market with many perspectives, although sales are not at the desired level. Many companies experienced major increases, without making a special effort, but, at the moment, the situation changed and there is a need for a change of strategy – first of all a better spending management -, because the target is to keep a good ratio between spending and underwritings volume, Marie KOVAROVA, President, GENERALI Insurance, in charge with the operations of the GENERALI PPF Group in Romania, said.
The president of ARDAF, Stanislav UMA, thinks that the Romanian market has been stable for ten years now, the insurance companies are loyal, they subject to ISC rules, and a very relevant aspect is the support granted by the government to the private pensions funds and to life insurance.
As for the current economic conditions, besides certain general issues, the effects of the economic crisis impacted every country differently, depending on their exposure, level of economic development and strategies applied in the field, Romeo JANTEA, CEO, GUILD Broker, moderator of the Conference, added. In this context, the manifestation of the crisis in the region, the methods for mitigating the negative effects, as well as the sources of growth identified in the CEE countries provide the basis of experience needed for identifying the opportunities we can take on now.
The financial crisis will cause the emergence of more rules in the field, which can be beneficial only if applied correctly, and not bureaucratically, KOVAROVA concluded.

From crisis to opportunity

The financial crisis did not generate major problems for the insurance market’s development. These problems have been there for some time, and the crisis only triggered a series of threats, more precisely with regard to the changes in the customers’ behavior. We are talking about a psychological barrier, namely the people’s lack of confidence in the financial institutions, as well as in their financial future, therefore the insecurity of income that might be allotted for an insurance plan is perceived more and more acutely.
In fact, the role of insurance doesn’t change in times of crisis, on the contrary: the financial future security should be the insurers’ main selling argument. They have as weapon the creation of new opportunities, so it is up to each company to adapt their customers approach in order to survive the effects of the crisis and, moreover, to develop profitably and healthily on a market that still has plenty of resources for growth.