Great potential. Awaiting confirmation
The first day of the event organized in Sinaia started with the opening of FIAR 2007, with the Insurance-Reinsurance Conference, held in the Magic View Hall of the Mara hotel. The first part of this conference’s three sections focused on the Romanian insurance market.
Dumitru Mugurel CERACEANU, President of ASIBAN, the chair of the section, stated: Among the specific features of the Romanian insurance market, as revealed recently, we can count: a low weight in the GDP, as compared to the European average, a fragile market and a distorted portfolio structure, with low percentages of life insurance and high percentages of motor insurance; on the other hand, we are very pleased to see an extraordinary dynamics over the past several years, which increased more than 100 times in 11 years, and the increase on the market can be measured in tens of percentage points. Moreover, I must point out that in 1997 the participation of public insurance companies amounted to more than 57%, while now their presence went down to zero. Last but not least, we should mention a factor that contributed largely to the explosive growth of the market: insurance brokers.
The Insurance Supervisory Commission offered its support, this year as well, the organization of FIAR - The International Insurance-Reinsurance Forum, an event that facilitates the dialogue between the representatives of the relevant industry, contributing to the promotion of the insurance market both nationally and internationally, but also at the development of the insurance culture among the population, stated Tudor BALTA, Vice-President of the Insurance Supervisory Commission.
The Insurance Supervisory Commission offered its support, this year as well, the organization of FIAR - The International Insurance-Reinsurance Forum, an event that facilitates the dialogue between the representatives of the relevant industry, contributing to the promotion of the insurance market both nationally and internationally, but also at the development of the insurance culture among the population, stated Tudor BALTA, Vice-President of the Insurance Supervisory Commission.
Romania’s accession to the European Union does not bring advantages alone, but also the responsibility of getting involved in the drafting of the European legislation and being permanently represented in the European relevant bodies, mentioned Tudor BALTA. Thus, ISC drafted a series of principles that regulate its activity, among which we can mention the equal, equitable and non-discriminatory supervision for all entities. ISC is also changing its philosophy, in order to be perceived as an authority providing first and foremost prudential supervision.
Tudor BALTA. Thus, ISC drafted a series of principles that regulate its activity, among which we can mention the equal, equitable and non-discriminatory supervision for all entities. ISC is also changing its philosophy, in order to be perceived as an authority providing first and foremost prudential supervision.
The dialogue with the insurance companies and brokers, as well as with the professional associations in the field must be deepened so as to allow for the Commission to be more aware of their actual problems and streamline their regulation and supervisory activity consequently, concluded the above-mentioned official.
We shall witness a concentration of business in the insurance field in the future, this was the opinion expressed during the same conference by Cristian CONSTANTINESCU, President of UNSAR - The National Association of Insurance and Reinsurance Companies from Romania.
These processes shall be generated by the increasing interest that international strategic investors have for the Romanian insurance market, either in entering the market, or in strengthening their existing position in Romania. In this context, including from the operational structure perspective, local hierarchies are far from being stable, stated the official. This endeavor to gain higher market shares can lead to structural unbalances which, in the end, might impact on the market’s reputation, as a whole. This is why, during this period, all those involved in this activity must be aware of the responsibility we have in the market’s consolidation process, continued Cristian CONSTANTINESCU.
Thus, the need to identify joint initiatives aimed at improving the public opinion’s perception of the insurance concept is a must. This is the context whereby UNSAR, as an association representative for the operators in the field, plays a decisive role, states the President of UNSAR. The 24 UNSAR members reached a level of EURO 1.5 billion gross underwritten premium income in 2006, and the estimations for this year exceed EUR 2 billion.
Bogdan ANDRIESCU, President of the National Union of Brokerage and Consultancy Societies from Romania (UNSICAR), stated at the beginning of his intervention: Ten years ago, we were ten times fewer at FIAR. Meanwhile, the number and the income of the insurance brokerage market increased exponentially.
The quoted official underlined the most recent trends on the Romanian insurance brokerage market. It undergoes a segmentation process, due to the brokers focus on certain insurance classes, added the President of UNISCAR. Another development on the market, according to Bogdan ANDRIESCU, was that the role of consultant played by the brokers becomes more important, and the income of those who used the well-established practices in this field increased exponentially. UNSICAR is a member of the European Federation of Insurance Intermediaries, BIPAR. The UNSICAR members represent approximately 70% market share on the Romanian brokerage market.
To conclude the session for the domestic insurance market, Daniela GHETU, Director of the PRIMM Magazine - Insurance & Pensions, presented an overview of the Romanian insurance market, with facts and figures for the 1997-2007 time interval.
Ten times in ten years - this is the today’s image of the Romanian insurance market, compared to the insurance market in 1997, states Daniela GHETU. The Romanian market is still a very young one and has all the specific features: motor insurance stays the star of this market, life insurance is still insufficiently developed, and according to the penetration rate we have a lot to grow, so the potential is here. However, a sign of market maturity is a sensitive shift in the insurers’ priorities, from focusing on gaining market share to focusing on making profit.
The discussions revealed the fact that the market development perspectives can be encouraged by numerous factors, such as: insurance companies’ concern for diversifying the product portfolio and the migration from the motor insurance area towards other insurance classes, the European legislation bringing a positive influence on the insurance related fields, which shall stimulate the insurance market’s growth. Moreover, the major infrastructure projects together with the direct investments to be made in Romania shall implicitly require an insurance component.
One of the conclusions expressed by the Publishing Director of the PRIMM magazine was that spectacular increases are expected in this field, and only time can confirm it. We are talking about a huge potential that needs to come to life.
Upon conclusion of the debates, Dumitru Mugurel CERACEANU summarized: The Romanian insurance industry has a special dynamics and a high potential. The perspectives are good and we are on the right track, but we should keep in mind a saying from the eastern world: Even when you are on the right track, if you don’t move quick enough, someone might step you over.
Romania was still the focal point for the second section of the International Insurance-Reinsurance Conference organized at FIAR 2007, the main topic proposed to the participants being the management of natural catastrophe risks, with a special focus on the Romanian Catastrophe Insurance Program.
Reinforcing the main technical coordinates of the draft law on compulsory home insurance, Mircea Radu POPESCU, Advisor with the Ministry of Interior and Administrative Reform underlined: The legislative process continues on its course, and after obtaining all the endorsements from the ministries involved, the decision to submit it for discussions to the Parliament, by the Government, or to include it in a Government Emergency Ordinance shall be made. The official also mentioned that, according to the estimations, after the law’s entry into force, a six month period will still be needed in order to draft the secondary legislation, to set up the pool and to launch the reinsurance program.
If nothing can be said yet with regard to the date when the system for catastrophe insurance is to become operational, the conference brought other news, even more interesting, on the steps already taken in setting up of the reinsurance program. Thus, according to Mircea Radu POPESCU, The Ministry of Interior and Administrative Reform accepted the offer of a group of four reinsurance brokerage companies that shall form a consortium with the purpose of preparing the reinsurance offer required for the program.
The above-mentioned consortium shall include AON, BENFIELD, GUY CARPENTER and WILLIS, international, reinsurance brokerage companies with a wide experience in the field of catastrophe risks and an excellent reputation in business.
Simon FOREMAN, Director AON Limited, the consortium leader, described the tasks of the four group members: We shall be dealing with much more than the actual negotiation of the reinsurance contract: exposure assessment, financial and actuarial management, market and legislative research, training and claims management in the relation with the reinsurers. Briefly, our task is to create and maintain a functional system that can provide Romania and Romanians a functional and sustainable solution to natural catastrophe insurance. Lucian CHIROIU, NatCat Expert BENFIELD Group, presented the first details on modeling assumptions used to establish the financial parameters of the insurance/reinsurance scheme, and Harry HATFIELD, Senior Vice-President GUY CARPENTER, added details regarding the main elements that represent the foundation of the reinsurance scheme. Designed so as to answer best to the needs of the future Romanian catastrophe pool, the reinsurance scheme, negotiated already with several European reinsurance companies, is based on a dynamic and “self-adjustable” stratification of the limits, according to the aggregated exposure dimension. This solution meets extensively the pool’s need to rely on a flexible reinsurance program that can offer the necessary coverage at bearable prices, especially given that the rate of inclusion in this insurance system, at least for the first years of operation, is still difficult to forecast.
According to the studies conducted by the four members of the consortium, in case of a 100% inclusion rate, the probable maximum claim, in case of an earthquake with a return rate of 1 to 250 years, would be of approximately EUR 3 billion, with a total undertaken exposure of EUR 113 billion. In case of flooding, the second major hazard covered by this program, the value of this parameter is estimated to approximately EUR 250 million. Similar calculations done by the MUNICH Re specialists based on the claims recorded during the catastrophic earthquake from 1977, and revealed that a similar earthquake would produce, in the capital city alone, damages of USD 20 billion. This is one of the conclusions from the presentation delivered by Dirk HOLLNACK, Geo Risks Research Dept., for the reinsurer, at FIAR 2007. The estimations regarding the damage concern only the capital city, without taking into account the disasters in other areas, considering that the necessary information for an assessment is lacking, added Dirk HOLLNACK.
As stated by the MUNICH Re expert, a proper conclusion would be that large-scale insurance for cat risks represents an indispensable component, which is not by far sufficient in cat risk management. They need to join forces in creating efficient partnerships between insurers, reinsurers and the capital market, which provides the specific tools able to limit the financial exposure to these risks and, at the same time, the steady implementation of governmental programs aimed at components such as works for protection against flooding, the construction regime, the emergency response in case of catastrophes for rescue and damage control.
Parallel Developments
The third part of the Insurance-Reinsurance Conference of FIAR 2007, called “International Markets - Trends and Perspectives” turned into a round table where the debates were focused both on the relevant international markets’ development and on the domestic insurance market trends. The discussions were facilitated by Romeo JANTEA, CEO, FINCOP Broker, and had as main speakers: Hamish DOWLEN, Vice President MARSH & McLennan Companies, Eva KOIS, Legal and International Affairs VVO - Austrian Insurance Association, Nuria CASTAÑER CARRASCO, Director of International Affairs UNESPA - Spanish Union of Insurance and Reinsurance Companies, Yuriy KHARAZIAN, Director International Division MALAKUT Insurance Brokers (Russia) and Olga RAKHMANINA, Business Development Manager OSLO Marine Group (Russia).
The presentations prepared for the Conference tackled topics like: The changing reinsurance marketplace (Hamish DOWLEN), Recent developments of the Austrian insurance market (Eva KOIS), Implications of EU accession on the insurance market (Nuria CASTAÑER CARRASCO), New coming reinsurance capacities - Russia, CIS and Asia overview (Yuriy KHARAZIAN) and The developments of the Russian market (Olga RAKHMANINA). The presentations can be downloaded from the FIAR web site (www.fiar.ro/ro/international_conference.php).
Initially designed as a conference for the international markets, the discussions could not just ignore the realities on the Romanian market and its growth perspectives. Through a panel dedicated to the relevant international markets we have tried to place the Romanian insurance market in the context of mature markets, on the one hand, and of markets from Central and Eastern Europe, on the other hand, stated Romeo JANTEA.
The facilitator summarized the main discussion topics and the conclusions:
The Romanian insurance market in 2007 can be described by a clear increase in the volume, several times faster that the dynamics of the Gross Domestic Product; a diversified demand for non-life insurance products, directly connected to economic growth and expansion of the investment sector, both in infrastructure and in small and medium-size businesses; the impact of certain factors that encouraged the orientation of certain financial funds of the general public towards certain types of life insurance with medium and log-term saving components.
The discussions lead to the conclusion that there are major similarities between the Romanian market and the markets in Central-Eastern European countries, in terms of development. Moreover, a comparison with existing mature markets, but considering the development stage of these markets some 20-25 years ago, shows clear similarities, Spain and Greece being relevant examples in this respect.
Starting from the existing trends in Romania and after assessment of the historical evolution of markets that reached maturity, it can be estimated that the Romanian insurance market shall follow a trend towards a market where:
• The ratio between the volume of premiums underwritten in life insurance and the volume in non-life insurance will overturn, and life insurance will have a higher weight;
• The distribution of life and non-life products, in general, will be focused towards specialized channels, more than just through insurance companies channels;
• Non-life insurance for commercial activities shall be generalized and diversified, while motor insurance will no longer have the dominant weight in the total non-life insurance volume.
