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 Interview of the week 

Interview of the week


Angela TONCESCU, President, Insurance Supervisory Commission

The evolution registered by gross written premiums by the entire insurance market in 2009 met ISC expectations. General insurance increased slightly, despite the difficult economic context. I would characterise it as a success given the declines registered by car sales, the leasing and real estate markets, and enterprises in other economic sectors.

XPRIMM: How would you draw up a balance sheet of the Romanian insurance industry in 2009?
The evolution registered by gross written premiums by the entire insurance market in 2009 met ISC expectations. General insurance increased slightly, despite the difficult economic context. I would characterise it as a success given the declines registered by car sales, the leasing and real estate markets, and enterprises in other economic sectors.
The Life insurance segment felt the financial crisis most acutely, given rising unemployment and the lower income of consumers of insurance products. One of the elements that had a major influence on this sector was the psychological factor, because fear and uncertainty regarding the financial security of consumers led, in the first part of 2009, to both an increase in of the number of contract surrenders and the postponement of an intention to buy an insurance policy.
The first signs of a revival of the Life insurance segment were felt in the last quarter of last year when the premature termination of contracts diminished significantly.

XPRIMM: Can we talk about a maturing of the market given the difficult economic conditions it has had to face lately?
To talk about a maturing of the Romanian insurance market we should have to notice a maturing of the financial behaviour of the population. The evolution of the insurance market in 2009 demonstrated that long-term savings products, such as Life insurance, lost ground to short-term bank deposits. There was a change in the financial behaviour of Romanians that was insufficiently sophisticated even before the crisis began. Similarly, if we look at the structure of written premiums, we see that Motor lines - Motor Hull and MTPL - still account for the major share of total gross written premiums. We cannot yet talk about a maturing of the segments that should really matter - Life insurance, Health insurance and Household insurance.
However, if we consider the economic context, then we should mention that this industry has made strenuous efforts, both at the Commission and company level, to identify and apply best practice to counteract the effects of the crisis. Certainly, we all had to respond almost spontaneously, but very cautiously, to the challenges of this period, so that at the level of insurance product consumers the affects will weaken. Somehow, the financial crisis has encouraged a more responsible behaviour by companies, and here I refer not only to the insurance industry. And that is because the economic environment was the same for all industries.
When we compare insurance with other financial markets, for example leasing which lost over 75% of its business volume in 2009, we can say that the insurance industry had a satisfactory development last year.
Yes, the insurance industry's efforts should focus further on increasing an awareness about the concept of insurance. I would say that insufficient knowledge of this market among its potential customers is the main obstacle to the development of the insurance industry.
Regarding the management of insurance companies, I think they understand that the market has reached a maturity and that they should not run after market share anymore, but should manage their portfolio in a more profitable way.

XPRIMM: How did the Insurance Supervisory Commission get involved during this period in managing the financial crisis? Did it start initiatives, did it offer advice to insurance companies to deal with the problems?
It was a year in which the Commission got more involved in all the problems of insurance companies. Throughout 2009 we tried to meet with the management of the companies more often to discuss all their problems, to see how they could be solved for the market to develop normally and smoothly. All the steps that the Supervisory Commission took last year (including reducing taxes paid by insurance companies and brokers) were for their support, and for the support of the insurance market and the consumer. I believe this support from the Supervisory Commission contributed to the fact that insurance companies came through the crisis more easily than others.

XPRIMM: Which new trends will put their mark on the development of the insurance market this year, after a crisis year dominated by restructuring and rethinking of strategies?
I think this year will be a year of rethinking strategies. The financial crisis is still having an affect. For most of the insurance companies, policies that focused on increasing market shares are already in the past.
Money has not yet become as cheap as it was two years ago, so shareholders are not willing to bear financial losses only for the sake of increasing market share.
Remember that the shareholders of insurance companies in Romania are financial groups of importance on the European market that were subjected to difficult tests in their own countries. Today, these shareholders seek profit and this cannot be achieved without seriously rethinking their business strategies in Romania.
My recommendation to the companies is to carefully manage their portfolios, to evaluate the risks of each type of insurance, to better foresee their administration and acquisition costs and, of course, to try as much as possible to reduce Motor insurance in their portfolio.

XPRIMM: What would be the greatest achievement of the Commission in this period and how do you intend to contribute, further on, to the so necessary maturing of the insurance market?
The stability of the market in the current economic context represents, I believe, an important achievement. The Commission has taken numerous steps to this end. To support the activity of insurance companies last year, ISC decreased the quantum of operating tax paid by brokers and insurers, and the MTPL insurers' contribution. The measure was taken to support insurers' efforts to reduce costs at a time of economic and financial crisis, but primarily to ensure the stability of the local insurance market. I think that for insurance products consumers, the stability of this market during the financial crisis represents a fundamental factor that will lead to increased confidence in insurance.
Regarding the Motor insurance regulation, I would like to summarise some of the measures adopted by the Commission during last year. So, starting on 1 January 2009, according to a rule issued by the Insurance Supervisory Commission with effect from that date, any Motor Hull insured has the right to obtain directly from the insurer the document for taking his own vehicle to be repaired if it was the only damaged vehicle, without a police presence being necessary anymore.
For MTPL policyholders, from 1 July 2009, an amicable constat report form was introduced to allow drivers to reach an amicable settlement of an event in which they were involved if it resulted only in material damage. In addition, the amicable constat procedure simplifies the recovery of damages. Also on the MTPL segment, a bonus-malus system entered into force that aims to encourage prudent behaviour by drivers on the road by reducing the insurance premium or penalising drivers depending on the number of accidents they are responsible for, and making the electronic issuance of the MTPL policy mandatory. I would not like to rank the Commission's achievements. All measures taken by the ISC are aimed to protect the interests of policyholders and to increase market stability. Therefore, I believe that all our decisions are important.

XPRIMM: What do you think can be done to increase customer trust and the demand for insurance solutions? Do you believe that insurers have the necessary means and that they should be the ones who act in this direction?
I think so. Moreover, last year the Insurance Supervisory Commission set as an objective an increase in seminars and training to inform the population and the insured about the necessity and the importance of insurance. Surely, in 2010 one would expect people to be better informed about what insurance is and why it is necessary. So all these seminars and training sessions are welcome, and I think insurance companies should get a lot more involved in this aspect by preparing and sending correct information to the insured in order to encourage their feedback.
For example, Romanians should understand that MTPL is an industry that operates within the same parameters throughout the world. Motor third-party liability is a mandatory insurance to protect third parties that has existed for many years and it was not invented in Romania. We, who are active in the field, understand it better. I think we had quite a lot of presentations so that the public understood this and so that it understands, first of all, what motor liability does and why it is mandatory. Any one of us, being a driver, can cause an accident and if we have such an insurance, we don't have to use our own earnings. And population needs to have a better understanding of Life insurance too because these products have a lot of benefits for those that buy them; they are long term and obviously the protection is active throughout all the time period. Slowly, people are beginning to improve their perception and certainly at the end of the year we will see more Life insurance contracts in the companies' portfolios.

XPRIMM: There are currently several initiatives to amend the MTPL legislation in Parliament. Are such changes really necessary?
No. MTPL legislation, in fact all insurance legislation, is transposed from EU directives through rules issued by the Insurance Supervisory Commission. Lately, we've consulted with both insurance companies that are authorised for Motor third-party liability and with insurance brokers, and in the coming period we will complete the final adjustments of the regulation for Motor liability that will only be to the benefit of and for the protection of the insured. But there are no fundamental changes to the regulation because its basis is well regulated and does not require any further changes. We will only improve some details of practice, where it was noted that perhaps not everything was perfectly written in the regulation - and here I refer in particular to claims resolution. I believe that the rule was clear, but if the market operators feel the need for further clarification we will do that - for the benefit of policyholders, certainly.

XPRIMM: Last year the ISC regulated the process of professional qualification and the continuous training of insurance brokers who are required to obtain a certificate of professional attestation. How do you think these new laws will regula- te the problem of insurance sales in Romania and how do you see the reaction of brokers to this issue?
As any educational system regulates a field as specialised as the insurance market. A well-trained sales force that can respond to consumer demand at a high professional level is the objective underlying the ISC decision to regulate the professional qualification process. Insurance contracts are, in fact, complex financial products that require a trained sales force, be it agents or brokers.

XPRIMM: What do you think insurers can do to encourage a more rapid development of a risk management culture in their companies?
The insurance industry is based on risk management. Therefore, I find it hard to believe that insurance companies operate without optimal risk management. Surely, this activity can be continuously improved, especially as the types of risk have diversified in recent years. However, this is linked to the policies and strategy of every company. It is clear that those companies that have a strong culture of risk management are those that have an advantage over their competitors.

XPRIMM: How did the Romanians' behaviour change in 2009, in the sense of interest manifested for protection and savings products and how do you estimate it will change this year?
As I said, lower population income, dramatically increased unemployment, as well as fears about job stability are the factors that made their mark on the life insurance segment in the first half of last year. I would not yet estimate the evolution of this sector in 2010. It is still too early for such predictions. Let us not forget that insurance market development is determined by the evolution of other markets, but especially by the economic conditions that favour the resumption of population consumption.

XPRIMM: What are the main reasons why society in general is reticent when it hears of insurers and insurance and how should companies counteract this attitude?
I think the main reason is insufficient knowledge of insurance products and of the benefits they provide. In Romania a culture of risk management does not yet exist as it exists in mature markets.
But it is built, as is anything durable, over time. We cannot make things move overnight because this industry is based on trust. All our efforts go in one direction, that of gaining consumer confidence that we are a strong, stable industry that provides protection and guarantees that it will pay for the effects of the insured risks.

XPRIMM: Although the Romanian insurance market is far from having no other major problems, the deadline for implementation of Solvency II is rapidly approaching. In light of the impact studies already conducted in our country, do you consider the insurance market is ready or it can be prepared in time for its implementation?
For Romania as for other countries, Solvency II will require changes to current business models - both in terms of insurance lines and of investments.
The Solvency II project is a set of directives that fundamentally alter many aspects of European insurance legislation. The basic structure of Solvency II will be similar to that in the banking sector, with three pillars: quantitative requirements, supervisory activities, and reporting and transparency. The objective of Solvency II is to increase the protection of insured persons and of the beneficiaries of policies, to deepen the integration of the European insurance market and to increase the competitiveness of insurers and reinsurers.
It is too early to comment on the impact that the Solvency II regime will have on insurers. However, since the purpose of this regime is to establish a more efficient allocation of capital within the insurance industry we can assume that better-managed companies will have an advantage over their competitors.

XPRIMM: What message do you have for the Romanian insurance
To work with professionalism as it has worked before, and to forget about market share. Market share is not obtained by running after it but through the quality of services each company offers.

XPRIMM: Thank you!

Editor: Alexandru CIUNCAN | Published on 03.06.2010

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