The insurance market hasn’t overcome the transition phase, and is 10 years behind the banking system, Ionut Radu, former minority shareholder of Safety Broker, the biggest insurance broker in Romania, told Business Review in an exclusive interview. According to him, when you buy an insurance product you actually buy a promise of a current sale and you have to trust the promise. Also, he underlines that the RCA can be the key to success only for companies and consultants who make the best of the RCA portfolio via customized cross selling.
Ionut Radu’s 25 year long career is impressive, having worked in management for companies like Philips, Agfa, ING Life, Volvo Trucks and Iveco Romania.”It took me 17 years to get from sales representative to general manager”, he admits. He says that discipline is the key to his success. Today he is one of the most appreciated insurance expert on the market. He owned until recently 30% of Safety Broker, the biggest insurance broker company in Romania. The shares were sold to his former partner Viorel Vasile. He told Business Review he decided to exit the company out of principles. “I felt like the company matured at its capacity on solid principles, and there was not much to offer anymore”, he explained. The transaction is waiting to be approved by the Financial Supervisory Authority (ASF).
How do you assess Romania’s insurance market today? Why is it atypical, compared to other EU countries?
Just as in many other areas, statistics accurately report the current state of the insurance market. If we look at the dynamics and, in comparison with other EU countries, it is obvious that we have a long way to go to fulfill our potential. I recently reread the latest data provided by the Financial Supervisory Authority (ASF). The penetration rate of insurance in the GDP in Romania was 1.23 percent in 2016, decreasing to 1.13 percent in 2017. Europe’s forerunners, such as Germany and France, have a penetration rate of 6.25 and 11 percent, respectively. Even if they are perhaps the ideal, we look closer to home, to Hungary and Poland, where the rate is approaching 3 percent.
This is also the case if we analyze the behavior of the Romanian consumer in terms of the weight of the insurance density in the annual average gross salary. I believe the insurance market in Romania is going through a transition phase, and it will take a few years to mature. It is necessary to move from volume and the mandatory RCA product, to the quality stage. A former ASF president said “insurance is today where the banking system was 10-15 years ago.”
Although I have many years of work experience on this market, I have no arguments to contradict it. I can only be optimistic, and to try to nuance a little my statement. The time for hesitating, improvising and RCA “campaigns” has passed.
Does RCA dominate the market? And if so, why?
I think financial education should not be perceived as a sophisticated issue. When you buy an insurance product you actually buy a promise of a current sale. You have to trust the promise of buying and the seller of the product gives off confidence when they know the product and sells the added value of the product. That’s why I’m convinced that we need to talk about education from two perspectives: of the internal customer, of the seller and the external client, the buyer. If we look at the increases in the life insurance market, they are made in the same buyer base of more or less financially educated customers. It is the insurance consultant and the life insurance companies that make the difference for the domestic client and the consumer. The question arises naturally: what motivates the life assurance consultant? The right answer, I believe, is: the construction and management of a client portfolio developed on the basis of fair, personalized sales.
Returning to general insurance, the RCA can be the key to success only for companies and consultants who make the best of the RCA portfolio via customized cross selling. RCA insurance is a compulsory insurance, the car fleet is growing, and to close an RCA insurance there is no need for effort, or particular professional qualification to take into account.
How will the RCA sales transform in the near future? How long will it take to go online?
Let’s recall one important thing: RCA is a mandatory product that is not sold, but is bought. The entire RCA discussion revolves around the price. Here’s a good enough reason to make this product easy to buy online in the future. I estimate that the full online transition totally will take three to five years, at most. You put in the data via a platform, call a call center for information and the best price is one click away.
The portfolios and profits of insurance companies as well as those of brokers continue to be built on the sale of RCA, even though we have seen spectacular bankruptcies based on this formula. Are companies that today consolidate their market share using the same formula exposed to the same bankruptcy risk?
I think what we can assume that it is very unlikely for cases similar to those of insurers that went due to focusing on the RCA, primarily due to changes in legislation and supervision. ASF managed to solve, via regulation, several market abnormalities. However, there are still players on the market that launch RCA “campaigns”, increase their portfolio based on a volatile product and the real consolidation depends on the diversity of products, valued on a rising RCA portfolio. According to data published recently by the ASF, the combined RCA damage rate rose in the first quarter of 2018 to 110 percent compared to 97 percent in 2017, with the first annualised RCA average down 19 percent. It’s hard to think about profitability when managing such a reality. Interests in the market are divergent and one more time the need to change the RCA regulation and to harmonize the relationship between insurers, consumers and service providers. Given that there are repair services with over 90 percent of repairs on the RCA, it seems they are the profitable ones in this formula.
How would a balanced insurance market look like?
In the future, mobiles, tablets, and social networks will grow even more popular and will be the main option for customers who compare and buy online anytime, anywhere. Being the landmarks of the future, insurers, brokers, need to develop tailored products, innovative and friendly solutions, all built around the digital experience. The rate of adoption of new trends, whether we consider new products or services, is so fast that the customer will have higher expectations of digital experiences and their functionality in the future. Companies in the field will lose a lot of ground if they do not adapt to new developments in technology.
Did direct settlement partially solve the problems in the RCA market?
The increase in the number of customers that benefit from direct settlement is significant in the first quarter of 2018. It is further proof that when you add value to a product, even if it is mandatory, the client notices and is willing to pay the correct price and is therefore more careful with selecting the insurance company from which it purchases the product.