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 Interview of the week 

Interview of the week



In Romania there are still important steps to make in order for the insurance industry to mature. Like any market in transition, we see here more challenges, but also the potential is different as compared to developed countries. I believe on the medium and long term, all the insurance LoBs, without exemption, have a significant growth potential. Romania is far from reaching a saturation level on all insurance segments.

XPRIMM: The motor LoBs (lines of business) represent an important segment in the entire market portfolio and in your company portfolio as well. Is it possible to make profit with motor insurance?
There is no secret for anybody that motor insurance has been generating losses for years now for most insurance companies in Romania. In fact, based on the information I have, no local insurance company makes profit from the MTPL operations. Yet this is the LoB (line of business) having the largest share in the insurers total revenues, followed by MOD - where the aggregated market also recorded loss.

According to statistics, there are seven consecutive years in which, mainly due to the negative contribution of these motor LoBs, the local insurance market registered net annual average losses of around RON 300 million. I believe the insurance market set a record in respect to the results, being the only financial sector which recorded relevant losses for so many years in a row. This is not an encouraging situation, especially if we take into account the fact that this has been a situation which perpetuated even if, from the occurrence of the risks perspective, there were years without major catastrophic risks which might have substantially affected the results of the local insurers.

Under these circumstances, I see no other perspective than the one where, sooner or later, the companies will reconsider their development strategies - starting with the motor segments, but also property - and will adopt a much more prudent approach. There are signs showing us that many companies - and here we can include our company as well - are using various levers to improve the profitability of their portfolios.

I would like to point out that profitability is not only a desire of the shareholders but it can also have positive effects on the quality of services, given the fact that the business stability increases and the pressure on limiting costs decreases.

XPRIMM: In your opinion, what are the solutions meant to increase profitability?
For example, one of the levers which might contribute to the decrease of the loss ratio would be the deductible. I have noticed this is an element people here are not talking very often about because I understand there is a certain hostility from the policyholders regarding the acceptance of taking on one's own account of a part of the insured sum (even 1%) for MOD policies.

The lack of use of deductibles on a large scale in Romania - as it is happening on most of the markets worldwide - is substantially contributing to worsening results for the insurance companies and much more, to maintaining MODs tariffs to a relatively high level. A more pragmatic approach which might contribute inclusively to the increase of responsibility of the drivers as well, through the deductibles system would have a significant effect on the MOD claims frequency. One cannot ignore that, as far as I know, Romania is among the countries with one of the highest MOD claims frequency in Europe. In fact, for every 2 MOD insured cars, every year we have at least a claim filed for one of them. An important part - probably more than half - of these claims have low values which would not exceed the equivalent of a deductible of 1-2% applied to the insured sum. For an insurance company, the level of the fixed expenses for handling a claim of Euro 100-200 is comparable with the value of the same costs booked for a claim of Euro 3000-4000.

The Romanian clients have to understand that accepting a deductible is not a "tricky-trap" but on the contrary, it generates important financial advantages for the policyholder. First of all, we have to say that in many situations, accepting the deductible generates a pricing discount with a value close to the one of the uninsured amount itself.

The advantages of applying deductibles also go for the policy holders on medium term. The policyholder will be able to benefit from the favorable effects of the bonus-malus system in case he does not turn to the insurance company to solve the claims with very low values. Of course, there is another factor which might contribute to promoting the deductible system, namely the existence of a common database for the MOD insurers.

For the insurers, the positive effects coming from applying deductibles are obvious: the decrease of the loss ratio, of the administrative expenses and even of the tariffs, which might have - why not - positive effects even on the penetration rate of the MOD insurance.

XPRIMM: One of the insurers' main problems is related to the increase of the indemnities paid for bodily injuries. What are the steps necessary for diminishing the effects of this trend?
R. V.:
Indeed, one of the factors aggravating the MTPL portfolio situation from the profitability perspective refers to the evolution of indemnities for bodily injuries. Looking at the statistics, especially from the last 3 years, the MTPL claims matrix has changed significantly, due to the exponential increase of the indemnities for bodily injuries and moral damages.

Aside from the fact that this trend could have been anticipated, the increase rate of the bodily injuries obligations was beyond any expectations. At least in part, this high dynamics was generated by the fact that in the insurance industry as well as in the legal system in Romania there is no uniform and coherent practice in establishing the level of indemnities for bodily injuries and moral damages caused by car accidents.

The solution might be the acceptance of a convention, of a decent indemnity scale which takes into account the economic and social situation of the Romanian society as well as the capacity of the Romanian insurance system to support - from the insurance funds created exclusively from the MTPL policyholders' contributions - the MTPL indemnity payments for bodily injuries.

XPRIMM: How do you see the connection between the business volume and the quality of the services? Is the price war an "enemy" of quality?
In spite of an almost general opinion that in Romania, more than anywhere else, the price is "the king" when it comes to choosing one's insurance provider, my perception is that there are several criteria taken into account by clients when choosing an insurance company. There is already a large number of clients who, when evaluating an insurance offer, do not simply compare the tariffs, but have defined a complex evaluation system. They are also evaluating the quality and the earnestness of the insurance company and its development perspectives.

ALLIANZ-TIRIAC did not abandon even for a second the quality criteria in its relationship with the policyholders and this contributed significantly to the evolution of our business. I consider this approach as being the winning one because it generates on the medium and long term a significant competitive advantage in the Romanian competition environment and the effects of such a policy, which we will continue to promote, will reflect more and more in our business volume.

XPRIMM: How do you see the future of the insurance sector in Romania?
In Romania there are still important steps to make in order for the insurance industry to mature. Like any market in transition, we see here more challenges, but also the potential is different as compared to developed countries. I believe on the medium and long term, all the insurance LoBs, without exemption, have a significant growth potential. Romania is far from reaching a saturation level on all insurance segments. Starting with the life insurance, then on household insurance segment and even on the motor lines of business there is room for growth, even for a substantial growth on the medium and long term. Not to mention several segments such as health insurance or other non-motor LoB, such as general liability...

| Published on 22.01.2013

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