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 Interview of the week 

Interview of the week


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 important benchmarks of these years be?
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 climate?
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?
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 climate.
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 maturity.
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 content.
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?
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 risks.
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?
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?
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?
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 growth potential.

XPRIMM: Thank you!

| Published on 16.12.2010

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