Daniela GHETU Editorial Director

> In 1997, the first market report was published by the insurance supervisory authority of the time, the Insurance and Reinsurance Supervisory Office (OSAAR). Seven years after the insurance state monopole was removed with the dissolution of ADAS and the take-over of the assets and liabilities of this company by three new insurance companies, ASIGURAREA ROMANEASCA [ROMANIAN INSURANCE] - ASIROM, ASTRA and CAROM, and after the first Romanian private insurance company, UNITA, was set up, the first OSAAR Annual Report made public all the financial data of the Romanian insurance market.Analysing the financial data one can easily see that, at least in quantitative terms, the 10 years that went by signified a ten-fold growth for the Romanian insurance industry. We will now try to find out how hard this journey was from the most prominent voices of the market in 2007.

In a nutshell, the 1997 results, compiled in this document, were the following: a market made up of 55 registered insurance companies, of which only 44 were actually active. Having to work under the negative influence of a “completely obsolete legal framework”* and an unpredictable economic environment, with an inflation rate of 151%, the 44 active insurance companies made aggregated incomes from gross premiums of approximately ROL 0.12 billion, in other words around ECU 161 million**.

It is easy to notice that, at least in quantitative terms, in the following ten years the insurance market managed to reach a ten-fold increase in turnover. We talked to the most knowledgeable representatives of the 2007 insurance market in order to find out how difficult these ten years were and what this road was like to travel.

Our collocutors, remarkable personalities of the Romanian insurance market, expressed extremely interesting and diverse points of view. Looked on from different angles, based on the personal experience or line of work specific to each company, the development of the Romanian insurance market is defined below by summing up the most relevant issues that its main players underlined.

10 Times in 10 Years, and More

The 1996 - 2006 decade will go down in the future history of the Romanian insurance market as “a decade of creation and consolidation”, thinks Karina ROSU, CEO, AON Romania. The ground rules were written and rewritten even better at all levels: operation, regulation, supervision. The dynamics were ever growing, even if they were not constantly spectacular. However, even small steps required great efforts and investments from those who shaped the market. At the time, great names from the international market came to Romania, strong local professional teams came to life and competition mechanisms started to be more and more clearly structured. The operators’ transparency and accountability began to develop together with the trust in the usefulness of insurers.

The attempt to give a summary definition of this period in the Romanian insurance industry is not an easy task. Still, the chair of ASIBAN, Dumitru Mugurel CERACEANU, gave us a possible solution: the constant of this period was the change, the dynamics at all levels, without exception. Indeed, maybe the insurance market is one of the areas that went through the deepest makeover. Without intending to make a full analysis, we will try to overview the most important trends and makeovers, with the help of market experts.

Although they are the most obvious ones, quantitative developments are not, necessarily, the most significant. Briefly, very briefly, summarises the leader of ASIBAN, compared to cashed-in premiums (a basic indicator at the time) in 1997, the volume of gross underwritten premiums in 2006 grew about 44 times, life insurance policies over 140 times, non-life insurance policies over 35 times - with motor insurance policies recording a growth of over 91 times; the volume of paid claims increased by over 37 times, reinsurance cessions about 110 times, the capital stock by approximately 200 times. Spectacular as they are, the figures also highlight the quality trends of a maturing market. First of all, however, we need to clear one thing up: the insurance penetration index was very low at that moment (Timo Van VOORDEN, CEO, INTERAMERICAN), which underlines the fact that the market was still quite small-sized, as compared to mature markets and even to other relatively young markets from Central and Eastern Europe. Consequently, the market potential is not yet fully used or, in other words, compared to the European Union average, clearly there is place for more development (Mihai TECAU, Chair of BCR Insurance).

One of the first major changes that our collocutors brought up was the increasing presence of life insurers on the market, which reflects a maturing market. The life insurance market almost doubled as compared to non-life insurance, states Florina VIZINTEANU, Chair of BCR Life Insurance. It may be true what they say that, to some extent, this phenomenon is due to the last five years’ boom of bank loans and, implicitly, of related insurance policies (Fanel PLOPEANU, Chair of OMNIASIG Life Insurance), but it is also true that this tendency has many chances to get rooted, because, in the last years, people have become much more informed and interested in life insurance policies, although the population is still not very educated with regard to these products (Florina VIZINTEANU). Moreover, Timo Van VOORDEN forecasts that in the next few years, the non-life insurance share will drop in favour of life insurance as well as health insurance and pension-related products, which is all due to a growing middle class.

New Actors on New Stage

Just like in a movie production where the strong personality of great actors colours up the original screenplay, the path of the Romanian insurance market in the last decade was strongly influenced by top companies, which contributed substantially to changing the structure and the quality standards of the insurance market.

The market potential caught the attention of great international operators who didn’t miss the chance to enter the market through greenfield operations (for example, ING Group, GENERALI, AIG or AVIVA) or by buying off the majority stocks of the most interesting local companies (ALLIANZ, VIG, EUREKO, UNIQA). Moreover, as insurance companies wanted to specialise in underwriting certain specific risks, insurance portfolio transfers took place. For example, such transfers were handled between the companies of VIENNA Insurance Group: the life insurance portfolio of UNITA was transferred to OMNIASIG Life, and the non-life insurance portfolio of AGRAS went to UNITA company, details Iulian DUMITRU, Chair of UNITA. In short, Romania became an interesting market for international operators, which was reflected in their dynamic presence on the market. The fact that some strong, experienced players entered the market was encouraging. Thus, a know-how inflow took place, leading to the development of new, complex, personalised products, which were insurance needs-oriented, concludes Radu MUSTATEA, Chief Executive Officer of ASTRA.

The penetration of international market players was smoothed by more rigid requirements related to financial stability indicators, which had a significant impact in the area. Between 1997 - 1999, due to an obsolete legal framework, numerous companies could launch on the insurance market thanks to low minimum capital requirements, which were actually much below the world’s minimum capital stock threshold. The new minimum capital stock thresholds (editor’s note: imposed through legal amendments), the new thresholds for technical reserves, as well as other provisions in the area forced some small companies to merge, to look for investors for a potential take-over so that they could comply with the legal stipulations, in other words to be able to meet the first mandatory but insufficient condition to work on the market, notices Mihai TECAU. With or without external capital, it is obvious that all companies recorded a substantial capital stock growth to meet legal requirements and to strengthen their financial power, too (Radu MUSTATEA). Nevertheless, compared to Western European markets, the Romanian one is undercapitalised, thinks Fanel PLOPEANU. One of the reasons is the fact that, in most cases, the capital stock of the insurance companies was raised to be in line with new legal provisions, without taking into account how developed the business was (Mihai TECAU). This supports the opinion of Florina VIZINTEANU that the Insurance Supervisory Commission played a major role in market crystallisation and strengthening.

We were of course interested to find out the extent to which the quality of the services and products provided by Romanian companies meet the needs of the market. The insurance products have become more sophisticated, covering the most diverse needs. They have actually evolved as the consumers became more informed and interested in insurance. Currently, the insurance products available on the Romanian market are of just as good quality as the ones from the European Union, states Florina VIZINTEANU. As for services, their quality has been gradually growing as the level of competition rose and the operators specialised in different types of risks in order to attract and improve their customer portfolio, thinks Mihai TECAU.

Soldiers Needed for Our Country!

During all this process, human resources represented a vital “capital” and the insurers invested in their development maybe just as much as they invested in capital growth. The insurance companies became aware of the need to train and develop human capital, and thus, training departments were created to train a competitive and strong sales force. Nevertheless, the human resources of the insurance companies are far from covering the market need, thinks Radu MUSTATEA. More optimistic, Timo Van VOORDEN says that insurance professionalism developed compared to other countries from Central and Eastern Europe. Actually, experience grows at the market development pace. At present, however, the human resources market is overheated and the insurers have to cope with this problem. We are looking for trained experts and, thus, we invest a lot in the benefits package. The shortage of skilled staff seems to be one of “today’s topics” in the insurance business too, just like in other industries. This may also be due to the fact that higher education institutions providing economic training haven’t yet included a major in insurance with a highly individualised curriculum to serve the new specialisations required in this line of work. There are just a few well-trained graduates in the field and, moreover, students are not attracted to this business. In our company, over 75% of employees have a university degree, comments Fanel PLOPEANU, but however, we still lack insurance-trained experts. I personally believe that this is a niche to be exploited by the labour force.

A Growing Up Industry

When we talk about the development of the insurance market we can’t ignore a profession that becomes more and more important each year: the insurance brokers. Before the year of 2000, this profession was completely overlooked by the Romanian legislation in the area, while the status of “insurance broker” was clearly defined only a few years ago.

Even if the brokers themselves call this period a decade of defining and setting the basis of a profession (Karina ROSU) and think they are still at the beginning of a complex development, it is worth mentioning that quite an important number of insurers find that the brokerage market has enjoyed a significant growth. Clear separation between professional and opportunist brokers (Timo Van VOORDEN), the newly-come professional and active reinsurance brokers (Radu MUSTATEA), the creation of UNSICAR, with a positive impact on the professional ethics and deontology of insurance brokers (Iulian DUMITRU) are some of the advancements that the representatives of the insurance companies wanted to point out.

But, what do the brokers say? The positive side of the development is top market players who set the pace and a fair competition, creating the modern era of insurance. The legislation progressed as well and brought forth clarity and safety. The brokerage market was born from the idea of intermediary and managed, by 2007, to have a word in risk management consultancy as well, thinks Ovidiu DEMETRESCU, Managing Director, LONDON Brokers. We can’t however not mention a phenomenon whose development, favoured or even“forced” by the provisions of Law No 32/2000, reached an unprecedented scale at European level: “in house” brokers belonging to banks or non-banking leasing companies and who are now holding the leadership on the brokerage market (Mihai TECAU). Consequently, as asserted by Gheorghe GRAD, Chief Executive Officer of SRBA, unfortunately, the brokerage went through very slow real development on the insurance market despite the very high number of brokerage companies set up until now. I chose the term “real development” because real brokerage is what we actually have after we leave aside the “brokerage” made by captive companies controlled by banks and leasing companies. And this real brokerage represents, according to my estimates, 10% of the total market share at most.

Even without this abnormality determining a brokerage market hierarchy which values more intermediary work than the brokerage itself, the brokerage business would have however been dominated by motor insurance services because of the general market portfolio structure. The great difference would have been a larger motor insurance market share held by independent companies giving them extra financial power which could have been useful for strengthening the line of work that the quoted interviewees called “real brokerage”. However, under current circumstances, the independent companies face a truly “original” situation, where, as Antonio SOUVANNASOUCK, Managing Partner ASIGEST, said recently, the true competitors of a Romanian broker are not the other brokers, although numerous, but leasing companies and banks. I don’t think that anywhere else in the world the leader of the brokerage business is a captive broker. Nevertheless, the laws allow leasing companies to impose on their clients their captive broker and, implicitly, the insurers. There is no wonder that one of the biggest wishes of independent brokerage companies is for this disloyal competition to stop.

Fighting for Name

The development of the insurance market was not made only of milk and honey. More than once, the growing process proved to be difficult and, sometimes, even painful. It made some victims along the way. The important thing is that each hardship finally generated more solid solutions for the future. Here is what our interviewees identified as the most difficult moments for the Romanian insurance market during the decade we have been talking about.

The problems of the beginning, caused mainly by an unstable economic environment, pop up constantly. Florina VIZINTEANU thinks that the most difficult times were the years 1997-2001, a period which was dominated by the problems of the Romanian financial system (scandals related to the Romanian People’s Bank, The International Bank of Religions, FNI - The National Investment Fund), which rendered people distrustful. At the same time, the high inflation rates, unemployment and a constant price increase for basic products had a negative impact on the insurance market, mostly on life insurance, which requires a long-term commitment. Still, the adverse effect was a shortly lived one as the insurance market managed to cope with all problems. Moreover, at the time, the insurance market was not sufficiently regulated, adds Fanel PLOPEANU.

If lack of regulations was a problem, compliance with the provisions of Law No 32/2000 was not an easy process either. Most companies made sustainable efforts to adjust their internal standards, informational book keeping systems, products, etc. to the new legal stipulations in the field, thinks Iulian DUMITRU and, as highlighted by Dumitru Mugurel CERACEANU, the change of the stockholders’ nature, based on the full transition from public ownership to private ownership, was another difficult issue.

Without notorious dramatic events, in general, the recent history of the insurance industry has however lived the bankruptcy of some insurance companies, some of them holding top 10 positions for years. But, in the context of a young growing insurance market, as the Romanian one was a few years ago, this sort of experience is nothing else but lessons to be learnt (Mihai TECAU). Of all these lessons, the one given by the bankruptcy of GRUP AS and METROPOL was one of the toughest because the other companies active on the market had to take over the Green Card payment duties. That was the decisive moment when companies became aware of the important role the actions of each of them played in the financial stability of the insurance market and in winning people’s trust in the insurance business of today’s Romania, asserts Radu MUSTATEA.

The last few years were not easy either. Last year was a tough year for two reasons. The first reason, and the most important one, was the high motor insurance claim rate, which cut off all profit in the area. The other reason was some insurers being placed under the close supervision of the Insurance Supervisory Commission. Strict supervision is not necessarily something bad because it can enhance the feeling of trust that people have in insurers, but, nevertheless, if throughout a year a series of special decisions are made, it could affect the image of the insurance market, explains Timo Van VOORDEN.

As to the brokerage market, the point of view expressed by Ovidiu DEMETRESCU comes as a relevant synthesis: Actually, there wasn’t any difficult time. Each remodelling step was hard, but the goal was reached each time. The most important thing is the fact that hybrid techniques are no longer used and that the European and London brokerage service experience was taken as a reference point which ensured quality and continuity.

Like all successful entrepreneurs, Romanian insurers belonging to the generation of market creators are basically optimistic. Looking back with realism, adding up the pros and the cons, they know that the most important thing is to learn from your mistakes and from the lessons of the past, using them to build a future that you believe possible at all costs. That is why, we have chosen to end our synthesis with Gheorghe GRAD’s point of view: The toughest moment was the insurance market creation itself and we successfully managed to do that during this last decade. Thus, the tough times are behind us. We had to deal with bankruptcy, important capital growth - which cracked the shareholders’ nerves - with pressures from the European Union to create the CEDAM database, with fees imposed by the ISC ... Now, we are finally “free” and we can enjoy a real market. We just have to manage it carefully, with responsibility and full respect of the insured because we, all operators working on this market, owe our existence to them, the insured.