Angela TONCESCU, President, Insurance Supervisory Commission
Regarding the supervisory and control process, since 2010, ISC has a new approach, which starts, primarily, from the analysis of how the business of insurers is run, the way of establishing their objectives, as well as the ways of reaching them and monitoring the performances. Also, objective examinations of risk management and of internal control system have become major targets of the surveillance process.
XPRIMM: We can speak now of the "adulthood" of
this field and, why not, of the whole industry. What would the most
benchmarks of these years be?
Angela TONCESCU: It is very difficult to answer this question briefly,
because so many important things have happened, that have contributed
to today's market. Among the main steps I should mention, firstly, the
training and development of a competitive market as a result of investments
made by many internationally renowned insurance and insurance brokerage
companies. This would had not happened if, at the same time, a specific
insurance legislation, appropriate to economic realities, had not been
created or if a supervisory authority had not been created and consolidated.
As it was natural, to regulate and to reinforce the supervisory process
were actions done in several stages, taking into account the fact that
the Romanian market had to absorb all these changes in a very short time,
compared to traditional markets in other countries.
Firstly there were Law No. 47/1991 and OSAAR, as insurance supervisory
entity, that created the conditions for shaping and strengthening the
competitive market in the first post-December 1989 decade.
The accelerated development of the market, insurers taking higher riks,
increased claims ratio – all these required the necessity to strengthen
the financial capacity of insurance companies, but also to strengthen
the supervisory capacity of this market. Therefore, in the late 90s, the
transition to a new round of major legislative changes, as well as extending
the attributions and competencies of the supervisory body became necessary.
This is how Law No. 32/2000 and the supervisory authority today, the Insurance
Supervisory Commission, have emerged. More detailed and more appropriate
prudential requirements regarding the insurance activity have been introduced,
and I mean, for example, capital requirements, solvency requirements,
liquidity, reserves, assets and more. Existing insurers and brokers have
gone through a re-authorisation process, thus being eliminated those companies
that could not meet the new requirements. In the perspective of EU accession,
the Romanian legislation was further amended and completed, to fully correspond
with European directives.
All these modifications that took place over time, the development of
new products by insurers, but also the increasing role and importance
of insurance brokers had resulted in the continuous development of the
insurance activity, reflected in annual growth rates often higher than
those recorded by other sectors of the national economy.
Insurance Supervisory Commission has extended the collaboration, internally
and internationally, especially with European bodies, thus being more
actively involved in ellaborating specific insurance legislation, applicable
in the European Union.
XPRIMM: How was the insurance market affected by the current economic
A.T.: In terms of quantity, we already know that the insurance market
has felt the downward trends from other markets, such as, for example,
the motor sales market or the bank loans market, but also the rising unemployment,
lower disposable income of the population and its pessimistic expectations
regarding financial security, so I will not go into details.
This situation is quite different in terms of quality, since in the past
two years, major projects for the development of insurance market and
to increase the protection of policyholders' interests have been implemented.
I am referring to the introduction of the amicable report, the establishment
of the Insurance Management Institute, organization and support of numerous
professional training seminars for insurance companies’ specialists,
on the implementation of the future Solvency II concept.
Also, in the series of measures taken by ISC for the benefit of insurance
consumers, one can also count the implementation of the bonus-malus system,
the MTPL insurance electronic issuing, regulating the method of solving
complaints and monitoring compliance of insurers and brokers to the obligation
to inform the consumers.
Regulating the professional qualification process for those involved in
insurance distribution, improving the quality of CEDAM data on claims
paid through MTPL, as well as many activities of public information through
seminars and information leaflets are also other measures beneficial for
policyholders, insurers and insurance brokers, at the same time.
Other prominent benchmarks of 2010 are also the start of sales of mandatory
household insurance against natural disasters, as well as the fact that,
for the first time, insurers and ISC have joined forces to launch a campaign
of social responsibility regarding insurance benefits. The campaign has
also occasioned a gesture of humanity towards those affected by flooding,
consisting of the rehabilitation of kindergartens-schools and the afforestation
of areas prone to landslides.
Regarding the supervisory and control process, since 2010, ISC has a new
approach, which starts, primarily, from the analysis of how the business
of insurers is run, the way of establishing their objectives, as well
as the ways of reaching them and monitoring the performances. Also, objective
examinations of risk management and of internal control system have become
major targets of the surveillance process.
XPRIMM: What do you think are the main causes that led to the positive
evolution on life insurance segment, in 2010?
A.T.: Indeed, the nine months figures show that the volume of written
premiums from life insurance grew by about 3% compared to the previous
year. The positive trend is due to the 18% increase of unit-linked insurance,
insurance class that represents 38% of all life insurance underwritings.
Also, the total surrenders volume is maintaining its downtrend, marking
a 10% decline compared to the same period in 2009.
I think that policyholders better understand that life insurance can also
offer, in addition to taking over specific risks, the possibility of long-term
savings, and due to the diversification of financial instruments included
in the available investment plans, they could obtain better returns than
with other savings instruments. I also think that policyholders have begun
to realize that it is not in their best interest to surrender policies
before maturity, despite the uncertainty of the surrounding economic
Insurance Supervisory Commission, UNSAR, life insurance and capital market
specialists, with the very important help of the media, held a campaign
to educate policyholders, in the spirit of keeping a life insurance policy,
showing its benefits and the disadvantages of surrendering before it reaches
I am convinced that, in time, consumers will be more informed about the
insurance products they buy and will better understand their benefits,
the more so as the Insurance Supervisory Commission imposed, by rules,
certain obligations to inform customers before closing the contract and
throughout its validity. I hope the media will give a helping hand to
policyholders and persons interested in buying insurance and will provide
information on their legal right to receive a minimum set of information.
Thus, according to regulations implemented by ISC Orders and No.23/2009
and No.11/2010, insurance companies and brokers are required to provide
potential customers and policyholders a range of information about the
company and, most importantly, about the insurance contract. The information
should be clear and accurate, on paper or on another durable support,
via one or more documents, and is to be submitted to potential customers
or policyholders in a way that confirms that they have knowledge of the
By Order No.11/2010, ISC also provides other obligations for life insurance.
Thus, before concluding the contract, the insurer is required to do an
analysis of the client's financial needs, based on which, subsequently,
he is to be offered a financial solution, to draw a risk profile of the
client if the offered product is unit-linked or index-linked, as well
as to give to the client a projection that describes the detailed evolution
of the contract.
Because we pay great attention to the consumers’ need for correct
information, the way these rules are respected is an important part of
the ISC control during the on-site inspections.
XPRIMM: After an over 6 years effort of the ISC, of the Romanian insurance
industry and of the authorities, this year, the first mandatory household
insurance policy was issued. What is the importance of this moment for
the profile market?
A.T.: I think it is very important that the activity of underwriting of
mandatory household insurance has begun, as floods and other natural disasters
do not wait for the system to be perfect to manifest. We have all seen
the devastating effects of floods this year and, given that they occurred
with much greater frequency over the last five years compared with earlier
periods, it is expected that in the near future we will have to deal with
events of such magnitude or even greater.
Even if mandatory insurance is controversial as a concept – a proof
being the fact that it took us almost a decade to get to this stage -,
it is the only viable solution for Romania to finance the potential damage
to housing, caused by natural disasters. This is because, in the case
of our country, there is an imbalance between the great risks we are exposed
to and the low coverage in voluntary household insurance, imbalance doubled
by significant budget constraints.
As with any project that starts up, especially if it addresses a very
large number of consumers, it is understood to cause fear, reluctance
or even suspicion. Therefore, I consider it very important for representatives
of the insurance market, of the state authorities and not only to explain
to the population that this insurance is not a new tax, but it is intended
to compensate them for the damages suffered by their homes as a direct
or indirect consequence of the manifestation of the three insured catastrophe
Since the mandatory form of the insurance is a minimum protection tool
in case of disaster, with premium rates set at acceptable levels, maybe
this activity will not be an important business for the insurance market.
However, the application of the mandatory insurance system may be another
step in educating people on what insurance protection is, thereby creating
the conditions for increasing voluntary insurance underwriting activity.
XPRIMM: What new trends will put their mark on the insurance market development
in 2011, after another year of crisis, dominated by restructuring and
rethinking of strategies?
A.T.: Under the circumstances in which the insurance market is closely
connected with other markets and with business development in other sectors,
it is very difficult to make a forecast close to reality. If the socio-economic
context does not change significantly in the right direction, we expect
the market to evolve in the same parameters as this year or to remain
at the same level. From this perspective, if social and economic situation
does not improve, insurers will have the quite difficult task to maintain
a balance between financial capacity and priorities of consumers, on one
hand, and the need to conclude insurance contracts at actuarially established
rates that would enable them subsequently to pay their assumed obligations,
on the other side.
Surely, the Insurance Supervisory Commission will do everthing that the
legal framework allows in order to support market development and will
be flexible in finding optimal solutions to specific problems, as we have
done so far.
Another important milestone of 2011 is that insurers and the Insurance
Supervisory Commission, together, must continue preparations for the smooth
implementation of the future solvency regime, Solvency II, knowing that
it will be much more complex than at present, since it takes into account
numerous quantitative and qualitative aspects of the activity carried
out by an insurer.
XPRIMM: Although the insurance market in Romania is far from having no
more major problems, the deadline for implementation of Solvency II is
also rapidly approaching. After impact studies already done in our country,
do you think that the insurance market is ready or can be prepared in
time for this moment?
A.T.: Allow me to disagree: the insurance market remained stable and has
no major problems, even in this period, when we are talking about a severe
economic crisis. Regarding preparations for Solvency II, I can say that
in recent weeks, the Insurance Supervisory Commission actuaries have made
great efforts to verify, analyze and aggregate the high volume of data
received from Romanian insurers for the fifth quantitative impact study,
QIS5. This study is conducted simultaneously in Europe and is considered
by the European Commission as the true test to validate the measures of
implementation and of calibration of Solvency II.
We have already started to send aggregated data to CEIOPS and we are close
to finalizing the QIS5 Country Report, so we will be able to submitt it
to CEIOPS in the near future. However, we will be able to make public
the conclusions of the QIS5 Report for Romania only after the QIS5 Report
is finished at European level and after its official presentation, scheduled
to take place in late April 2011.
Participation in QIS5 exercise will allow us an even more accurate assessment
of the impact of the future solvency regime upon Romanian authorized insurers.
The previous exercise, respectively QIS4, showed that the impact on the
balance sheet of assets of most insurance companies in Romania will not
be a major one. Also, even if the solvency capital requirements are expected
to increase, especially for general insurance business, the number of
companies that would be forced to raise capital to meet these requirements
is not significant.
ISC has made and will make great efforts to inform and prepare the insurers
for the future solvency regime, having organized since 2007 numerous technical
seminars on this topic, with ISC participation, but also with the participation
of specialists from supervisory authorities of other states, closely involved
in ellaborating the specific legislation at European level.
XPRIMM: What is your message for the Romanian insurance market?
A.T.: I believe that representatives of the industry should learn from
the lessons of the economic crisis, namely that they should get more
actively involved in educating people about the usefulness of insurance
in everyone’s lives, they should offer better quality services,
especially in the claims payment stage, they should strengthen people's
confidence in insurance services and, last but not least, they should
make more efforts for the development of other business lines with high
XPRIMM: Thank you!
| Published on 16.12.2010