Antonio SOUVANNASOUCK,
Managing Partner of ASIGEST and
member of the Steering Committee, UNSICAR
PRIMM: At this moment, we already know the results in insurance for 2006. What is the perspective of insurance brokers on the market’s evolution?
Antonio SOUVANNASOUCK: I think the Romanian brokerage market is now going through a unique situation. This will become more obvious in 2007 when, for sure, we won’t find more than 2 independent companies in the top first 10 brokers, besides the captive leasing companies. It would be good if MARSH and AON, independent companies, were still in Top 10, but they contracted with major leasing companies. It may sound weird, but I think the real competition for a Romanian broker is not the other brokers, although numerous, but the leasing companies and the banks. The legislation on leasing allows leasing companies to impose on their customers a captive broker and, implicitly, the insurers. I wish this unfair competition did not exist. I think that nowhere in the world the leader of a brokerage market is a captive broker.
I consider it a major drawback for the brokerage market. Basically, this situation allows the majority of brokers to have access only to a small part of the most productive insurance line. Obviously, income is also affected and, what is worse, their ability to provide services in other less productive lines, but whose development would be extremely useful for the market. Thus, 70% of the business volume is distributed among the first 10 brokers, and if we talk about the first 20, the percentage is 95% and, in fact, even though we are dealing with a market that has 400 operators, in real terms, less then 30% of them don’t manage to grow and become strong enough to have an effective contribution to market development.
People talk about our role of consultants in risk management but, unfortunately, we reached the conclusion that brokerage on corporate segment, except for the motor lines, is a luxury, as it does not provide a high volume, and the margin is low. There is a false belief that volume comes from the corporate segment. The investments are not that many, nor that large to substantially generate business. Besides property insurance, the range of insurance policies requested by corporate customers is not too wide. Liabilities are insured for very small amounts as, on the one hand, there are many legislative gaps, and on the other hand, there is no justice that operates quickly and efficiently. Thus, most disputes are settled amicably, through a deal involving relatively low amounts, especially since they concern property damages. There are some policies with business interruption clauses, but very few. As for managers’ liability, although the relevant law exists since December last year, we only wrote several such policies. Anyway, few customers ask for coverage other than direct material damages.
With regard to large corporations, with foreign shareholders, most policies are written directly abroad, in their country of origin. In fact, this is one of the major risks on the Romanian insurance market, namely that a large part of the major contracts will actually bypass our specialized market.
We are still faced with issues related to the characteristics of the market, which is still a primitive one. I am talking here about the habit of concluding contracts with payments made in installments, cash or split. All these imply, in addition, the management of a large number of documents, which is time-consuming and generates difficulties in using the management software.
Besides these still primitive procedures, the current offer on the market is not too extensive. The products are, in general, simple and non-sophisticated.
PRIMM: Is the opportunity to work directly with European insurers an alternative?
A.S.: Of course, the free movement of services might be considered a solution for the access to complex products, but in reality things are not quite like this. Many of the respective products require a physical representation of the insurer in Romania. The risk assessment and certain services must be provided locally. I shall give you an example: we do not have a series of products that are complementary to CAR and EAR policies for constructions, such as the bonds, namely the financial guarantees related to various phases of the construction operations. The offer is very poor and the products have low reinsurance ceilings per each customer. Basically, I cannot find the necessary coverage in Romania, a country where constructions represent one of the most important factors for economic growth. Europe is not a convenient solution because, although the products exist, it is very difficult for a European insurer to assess the financial solvency of the customer in Romania, for no other reason but for the fact that Romanian accounting balance sheets are not entirely adapted to the IFRS norms. So, the solution should be searched for on the Romanian market.
PRIMM: In the same context of an explosive development in construction activity, I cannot but notice that construction insurance doesn’t seem to follow the same growth rate. What would be the reasons?
A.S.: Indeed, construction insurance does not have a dynamics comparable to the one existing in the construction field itself. I think this is largely due to the insurers, who did not capitalize on this potential. It’s true that, in terms of risk management, the construction activity in Romania is not conducted under such strict conditions, as it happens in western countries. This situation leads to certain difficulties in correctly assessing and rating the risk and would require an extra effort from the insurance companies to train specialists in this field. From my point of view, the argument that says there is no sufficient demand on the market to justify these efforts does not apply. I believe the demand is there and must be encouraged, especially by approaching the beneficiaries who can force the construction company to get insurance. But in order to do this, there is a need for a training effort and, of course, the “education” of investors in constructions. However, for now insurers prefer to focus on insurance lines that sell easily and quickly.
PRIMM: I assume you mean the motor line of business. Don’t they also cause numerous problems?
A.S.: Actually, motor insurance produce very good results, namely exactly what insurers want most: rapid growth of the market share. For years now, market share has been and will continue to be a priority objective. The motor lines of business offer exactly this, but everything comes with a price. Making efforts to gain market share implies making an investment, and bearing the non-profitability of these insurance lines is practically the investment companies make so as to occupy a better position on the market. But there comes a moment when you realize that your portfolio is stable, you don’t get any significant increases, and this means that it’s time to be concerned with profitability and take measures. But as long as you want to grow, you must keep on investing. Unfortunately, motor insurance and especially CASCO are capable to generate significant results at present, because here we can see the most considerable growth. The bad news in my opinion is that no efforts are made to develop other insurance lines that could generate growth and simultaneously give a balance to the portfolio’s structure. I am thinking about house insurance, life insurance... in general, all types of insurance for individuals and families, retail products.
PRIMM: Could mandatory house insurance become an incentive for the market?
A.S.: It’s debatable. In house insurance things progress at an extremely slow pace: a few years ago we had 7% of the houses insured, it seems that now we head towards 10%. But the next question comes up: what did insurers do to contribute to “launching” this market, with such a high potential? In as far as I know, nothing significant. I am aware of only a few isolated initiatives. It is also true that the state did not do anything in this respect, although it had a direct interest in having a strong house insurance market. I have not even heard from the government, upon granting the aids after the flooding, to require for uninsured reconstructed houses to be insured for a period of several years, and by doing so to emphasize the need for insurance. In fact, how many state buildings, some enlisted as national patrimony, are insured? How many infrastructure works are insured? I haven’t really heard of any. Briefly, if the state does not set a good example, how can it create a culture of insurance? In my opinion, making it mandatory is not a form of education. On the contrary, I think it will generate a rejection effect, both from the population and from insurance operators that have numerous objections regarding the drafting of the law.
PRIMM: What about agricultural insurance? I know you approached this segment.
A.S.: In theory, things should have worked out. Romania has a very good agricultural potential, state subsidies are granted for agricultural insurance, and more than this, there are even compensations paid by the state for those who have agricultural insurance. In practice, however, only 70% of the total area is used. Prices for agricultural insurance are extremely low, partly due to the competition, partly due to the fact that many farmers buy insurance only to have access to the state aid. On the other hand, we are mainly dealing with subsistence farming, and the respective farmers cannot afford to pay their part in such a policy. Even major farmers just manage to survive from one crop to the next.
However, our company managed to progress quite a lot, but this only happened because we indicated our availability to assist customers not only in the settlement of claim through the insurance policy, but also in drafting the documentation to be submitted at the county agricultural directorate in order to get the compensation from the state. This goes to show that the brokers’ role is to bring a net added value, besides negotiating the policy. But market development depends directly on the evolution of agriculture.
PRIMM: Finally, what should change right now that would strengthen the insurance brokerage market?
A.S.: I will go back to the idea I started with: I would like to see a truly free brokerage market. A less concentrated market would mean more brokerage companies, way stronger, a real chance to invest in making it more professional and in the development of other insurance segments that Romania really needs.
Daniela GHETU
