The local insurance market is still facing the difficulties caused by the economic crisis. Uncertainty is keeping up the pressure on Romania, influencing consumer behavior and purchasing decisions. But the local private health insurance sector has a huge potential for development, pundits told BR, as it represents less than 1 percent of the total insurance market.
By Anda Sebesi
Although the Romanian insurance market showed signs of improvement in 2012 judging by the evolution of general third party, health, accident and illness insurance, in 2013 it seemed to run out of steam. According to data, the local general insurance market posted EUR 392 million of gross written premiums in the first quarter of 2013, down from EUR 405 million in the same period of 2012. Gross written premiums for compulsory car insurance (RCA) increased to EUR 154 million in Q1 against EUR 142 million in Q1 of 2012, while CASCO insurance dropped from EUR 107 million in Q1 of 2012 to EUR 99 million in the same period of this year. “This situation is the result of the decision by car owners, who are under the financial pressure, not to buy CASCO insurance and assume the risk,” says Anca Babaneata, CEO at Gothaer Asigurari Reasigurari. Last but not least, property insurance registered a positive trend, with gross written premiums rising to EUR 67 million in the first quarter of 2013. “The descending trend on the majority of business lines continues and the diminished purchasing behavior is the result of the difficult local economic situation. We’re also seeing increased interest from insurers in non-car business lines that are being prospected for their effect of balancing the mainly car insurance portfolios,” adds Babaneata. She says that while price is a major factor in the decision to purchase compulsory insurance (especially for RCA), Romanians pay a lot of attention to the cover offered by insurance, quality of the package, credibility and profile of the insurer and its behavior and reputation in its relations with customers when it comes to facultative insurance.
Private health insurance is still small…
According to specialists, the local private insurance market is not yet a developed one. “It is rather a marginal market that was worth RON 80 million in gross written premiums in 2012 – both group and individual insurance. This is under 1 percent of the total Romanian insurance market,” say representatives of Allianz-Tiriac Asigurari. According to statistics provided by the Romanian Insurance Supervisory Commission (CSA) the private health insurance market increased by 54 percent in 2012 on 2011. “Although in the last few years it has grown rapidly, it remains a small market both compared with the results posted by other countries and its weight in the gross domestic product (GDP),” says Bram Boon, CEO at ING Asigurari de Viata. He adds that according to European Insurance in Figures (issued in January 2013) in 2011 private health insurance represented 6.7 percent of GDP in Holland, 1.6 percent in Switzerland, 1.3 percent in Germany and 1.2 percent in Slovenia, while in Romania, according to the internal calculations based on INSSE and CSA stats it accounted for less than 0.01 percent of local GDP at the end of 2012.
Carmen Radu, general manager at Eureko Asigurari de Viata, says that the local private insurance market is small, based on retail and dependent on the corporate segment. “It is obvious that all the top 10 players have the potential to grow when the market recovers,” says Radu. She adds that as a general rule, spending on promotion and awareness campaigns needs to increase. “The corporate market remains sensitive to the pre-paid packages that benefit from fiscal advantages. Yet, demand for health insurance on this sector is increasing,” adds the representative of Eureko Asigurari de Viata. But there is also good news. Political debate about the reform of the health sector has touched on the possibility of opening up the health insurance market to private insurers. “The pace of implementing the reform and the form that it will take are very hard to quantify but the low level of penetration leaves space for growth,” adds Radu.
…but has many rivers to cross
Probably one of the most important steps to develop the local private insurance market is to offer fiscal incentives, which are currently almost nonexistent. “There is just a deductibility limited at EUR 250 per year that is applicable to the employer only. Adequate fiscal stimulants could help increase the market, developing interest in health insurance products,” say the representatives of Allianz-Tiriac. At present only facultative health insurance taken out by employers for their employees benefit from deductibility. Insurance premiums are exempted from compulsory social contributions rather than income tax and only to the limit of EUR 250/year/employee.
Allianz Tiriac representatives add that it is important to educate consumers and make them aware of the fact that their health costs and that they should take responsibility for it. “In addition, although many Romanians understand the benefits of private health insurance, a communication and information effort about health is needed, which should involve both private companies and the authorities in order to generate awareness among large audiences,” says Boon of ING Asigurari de Viata. He adds that the company is actively involved in education and information activities about health, supporting the interests of the insured party.
Elsewhere, Allianz Tiriac representatives also emphasize that compatibility between the state medical services package and those provided through health insurance is crucial. “A medical services package that overlaps with those covered by health insurance does not allow space for the latter, while individuals who want private insurance are doubly insured – they pay both the compulsory contribution to the health fund and the premium,” they say.
How can the local market be stimulated?
Boon of ING Asigurari de Viata says that offering fiscal deductibility for all forms of private health insurance for employee and employer along with defining the package of medical services covered by social insurance could bring about the quicker development of the private health insurance market. “To that effect we drew up and presented to the Ministry of Health and Ministry of Public Finance some proposals: the application of fiscal deductibility to all types of volunteer health insurance – regardless of the class or the principle of functioning – the introduction of deductibility for insurance taken out individually, increasing the limit of deductibility of premiums to EUR 400-600/year/employee and ensuring their total deductibility,” says Boon.
Such incentives put the social insurance system in line with the voluntary health one. “The health system could attract additional funds of EUR 400 million to EUR 1.3 billion in the next six-seven years from facultative health insurance alone. This would supplement the annual budget allotted by the Romanian state to the health sector and be a critical step in enlarging the base of financing the health system, developing the private health services sector and the culture of private health insurance,” says Radu. “Meanwhile the social pressure surrounding the implementation of the new legislation in the health sector would be diminished.”
Specialists say that one of the measures that could increase the private health insurance market is the limitation of the package of basic medical services covered by the public health system on the medium term. Implementation of some infrastructure measures, such as devising and implementing clinical toolkits, protocols of medical practice, clarifying patient records in the system, quality control and standardization of the medical act could also provide an impetus. “These measures could contribute to a greater transparency while every individual could access medical services knowing more clearly which ones can be accessed through the basic package, the level of quality and the price. They can then sign up for private health insurance for those services that are not included in the basic package,” say the representatives of Allianz Tiriac.
They add that as a result, the user of the health system could change from a passive patient into an active buyer, with the opportunity to become more responsible for his or her health. “It is necessary to set a clear long-term strategy that specifies the next steps required to develop and implement complete reform in the health field. It also has to include attracting additional funds from private insurers. From our perspective as a player on this market, predictability is crucial for the development of the health insurance market. That is why we are calling for a strategy that provides the necessary level of predictability,” they add.
Plenty of space for growth
The health insurance market is one of the most dynamic sectors of the insurance industry. Its development potential is still very high because of the low level of penetration of private health insurance and the demand from patients for quality medical services. Furthermore, using a private operator offers benefits both in terms of the quality of the medical services and transparency and safety, say players. “Yet the accelerated development of this sector is conditioned by the implementation in the coming years of real reform of the health system in Romania that will aim to solve the problems of financing and control of the expenses in the system and to provide a healthy public-private mix so patients have access to quality medical services,” says Boon of ING Asigurari de Viata.