BR EXCLUSIVE. Leonardo Badea (ASF): Market development must be doubled by the timely and efficient approach of potential operational and conduct risks

Leonardo Badea, the president of the Financial Supervisory Authority (ASF), told Business Review that market development in Romania must be doubled by the on time and efficient approach of the potential operational and conduct risks.

He points out that the local insurance market is growing this year driven by some sectors like health or fire and natural catastrophes, reducing its dependency to the MTPL segment.

How do you appreciate the overall insurances market evolution, this year?

The current data shows a robust growth of the market, overall and on different important segments that we usually monitor more closely. Particularly, we are pleased that the life insurances maintain their uptrend, confirming a healthy increase in market diversification and a gradual development of the risk culture and saving/investment behaviour of the consumers, also considering their correlation with the credit evolution.

We also notice the growth of the health insurances market, above the average level, confirming the good perspectives of this sector as well as the last years’ efforts of all the stakeholders. Furthermore, the house insurances (both voluntary and mandatory) have increased significantly.

Thus, the current outlook uncover a good year in terms of gross written premiums in Romania, whereas the insurance companies’ solvency and liquidity ratios remained stable, almost similar to levels of 2018.

Can you confirm the same favourable perspectives for auto insurances markets, especially MTPL?

The market evolution presented above shows a slightly decrease of the market dependency to the MTPL insurances as a result of the robust development of the life, health, house insurances, etc.

For example, the insurances for fire and natural catastrophes have risen strongly this year, holding the third position in terms of gross written premiums in the non-life insurance market (after MTPL and CASCO). We hope that these tendencies will continue and even amplify, as they enhance the market stability and efficiency through diversification.

It is true that the auto insurances dominate the Romanian markets for the time being and, even for a long period in the future, we will see the same trend. However, in 2019, we have noticed a more consistent expansion of the A3 Class (CASCO insurances) as compared with A10 (MTPL insurances).

Are these increases the result of the insurances prices increases or are there more consumers that buy policies?

We cannot have an extremely precise outlook regarding the policy holders, because a person usually hold more policies, sometimes to different companies (which it is a good thing for the market and the consumers, as it shows efficiency, diversifications, etc), similar to the capital markets where investors can trade through more brokers or can simultaneously invest in different investment funds.

However, we have data and statistics regarding the number of insurance policies by each insurance class and notice a surplus in 2019 as compared with 2018.

Of course, many of them are CASCO and MTPL policies as they have shorter maturities, even for less than a year, whereas the life insurances roll on 20-30 years thus the number of new policies is lower. You can see that, even in Romania, the insurance market is highly complex in certain aspects such that the analysis must be different, depending on products or segments.

Overall, we have found an increase in the number of the policies, not only in the value of the gross written premiums for many of the non-life insurance segments mentioned above. These figures will be more relevant at the end of the year, given the end of short-term cycle of the auto insurances.

For example, the growth of the MTPL market is less based on the prices rise because, at least in the first semester of the year, the dynamic of the average premium has been lower than the dynamic of the total gross written premium, as compared with the similar period of the last year.

Also, the number of the MTPL contracts has increased both in terms of annual units and also as effective number (the latter must be careful interpreted because there is a high weight of the 6 months and one month policies).

We know that quantitative growing can sometimes bring some vulnerabilities. Are there such potential threats for the future market evolution?

There are always potential risks and we careful monitor all the market evolutions, both at micro and sectorial levels. We are also aware that the threats can be endogenous, caused by the market structure and characteristics, or exogenous, produced by external factors, sometimes unpredictable.

As you know, ASF has a double objective: to develop the non-banking financial market in a robust, sustainable and stable manner and to protect the consumers against improper practices. I have intentionally referred to a double objective and not to two distinct objectives.

I strongly believe that the two objectives interconnect naturally and you cannot develop a market if the consumers are not confident that their rights are thoroughly respected.

Back to the potential threats, I am sure that the most important ones are well known, as we have been mentioning them in our frequent publications for a long period: insurance companies’ concentrations (the first two insurance companies in the MTPL market account for two thirds of the gross written premiums); insurance classes concentration ( for example the dependency to the auto insurances that I have mentioned in previous answers); and the losses in the MTPL segment (and recently CASCO) (on long term, the losses can affect the solvency, even if, for the time being, this risk is low at the level of the whole market).

Which are the new key elements that we will see on the Romanian insurances market in the near future?

As I have said, ASF Board oversees all the market evolutions, trying to anticipate the tendencies and, if possible, acting pro-actively to the potential risks identified.

We have recently set up a department responsible with the supervision of insurance companies and brokers rules of conduct, as we realised that our effort to contribute to the market development must be doubled by the on time and efficient approach of the potential operational and conduct risks.

It is natural that an increasing volume of activity to pressure first on the operational flows of the supervised entities, especially on those entities that had previously operated with minimum staff (for maximum efficiency), managing sub-optimal the activities on rise.

Thus, we have supplemented the ASF resources dedicated to the conduct supervision, without affecting the prudential supervision activities. We expect this effort to bear fruits this year and to contribute at the increase of the consumers trust in this market.

Also for the consumers trust, we are thinking to make mandatory the direct payment for the MTPL insurance. The ASF Board has not decided yet, but we carefully weight and pay attention to the benefits for consumers and the positive market adjustment that this solution could bring.

If the direct payment would be mandatory, we believe, it would diminish the moral hazard and the adverse selection, the consumer being more preoccupied with the services quality and promptitude, instead of the policy price as it happens now.

Moreover, the behaviour of drivers could improve, knowing that the insurance company chosen for its good services quality and promptitude will request a higher premium when renewing the policy because of her/his fault in causing an accident.

Thus, she/he will be more careful how she/he drives in order to benefit of an excellent protection at a convenient price if she/he would be the victim of an accident.

In the same context, we hope that the telematics auto insurances to be more present in the market in the future and to contribute to the improvement of the efficiency for both the consumers and the insurance companies.

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