Remi VRIGNAUD, CEO, ALLIANZ-TIRIAC Asigurari
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.
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?
Remi VRIGNAUD: 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.
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.
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.
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.
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.
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
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.
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.
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