Adaptation proves the best policy for insurers

The local insurance market has been hit hard by the current economic crisis, and specialists expect its performance this year to be much the same as in 2010. Many insurers are now focusing on adapting their portfolio to the new economic conditions, entering on new market segments and adjusting their products to the needs of their customers.

Anda Sebesi

The economic recession that blighted Romania in 2010 has definitely stifled the development of the insurance business. The depressed economic climate reduced consumption, including of financial services like insurance. Simultaneously, austerity measures taken by the government hit individual income, leaving people with fewer resources to devote to financial planning as well as consumption.

Available statistics show a cutback of 5.7 percent in total – life and non-life – gross written premiums in 2010 from 2009, with the market volume declining to RON 8.3 billion. “The non-life sector caused this drop, having contracted 7.5 percent, especially due to the decline of the Casco segment which plunged by more than 25 percent. This reduction in the Casco business volume was caused largely by the huge fall in car sales in general and through the leasing system in particular,” says Rangam Bir, CEO of Allianz-Tiriac Asigurari. He adds that life gross written premiums posted a marginal growth of around 2 percent in 2010, but this reflects an improvement in the retention rate rather than an increase in the number of life customers.

“The decline of the insurance market was brought about mainly by the regression of the car segment, which unfortunately is the driving force for the Romanian insurance market, making up over 60 percent of the total sales,” says Marie Kovarova, general manager at Generali Asigurari.

Bir raises the issue of profitability, where the VAT increase has had a major effect on overall costs. “The biggest impact is on the claims side. We have had to pay higher claims costs mainly related to spare parts, labor and a range of other activities that we have to undertake in order to settle the claims. All these expenses have risen as a consequence of the VAT increase. This had a direct impact on insurers’ results in terms of pushing up claims costs. And it was reflected in bottom-line results: the insurance market posted an aggregated net loss of around EUR 10 million in 2010, according to Insurance Supervisory Commission (CSA) data. This is the fifth consecutive year with losses for the Romanian insurance industry,” says the Allianz-Tiriac representative.

The economic crisis has greatly altered the consumption patterns of Romanians in general and of financial services in particular. According to Kovarova, already purchased insurance policies have been wrongly perceived as reliable sources of liquidities so holders have decided to cash in their policies before their maturity. “In addition, customers have put off taking out new insurance indefinitely,” she says. This situation is opposite to Western European countries, where the insurance market continued to grow because people were aware of the protection afforded by an insurance policy.

Asked about the main changes in Romanians’ financial behavior, Anca Babaneata, CEO at Platinum Asigurari-Reasigurari, says that there are two major trends. The first is that Romanians have dropped insurance that was not considered absolutely necessary. The second is that they have started to pay more attention to the type of insurance they buy, its cover and quality. “It is a very good sign that the price is not the only element that determines the acquisition of a policy,” says the Platinum CEO.

A cautious approach to 2011

Babaneata says that there will be no surprises on the local insurance market this year in terms of its evolution. “Globally, it is likely to see the same descending trend in 2011. But in time, because of insurers’ efforts to increase the market on other segments than car insurance and to balance their portfolios, it is likely to see growth,” predicts Babaneata.

According to Kovarova, the best case scenario for this year is for the value of the local insurance market to be similar to 2010. “The relatively good news from the economy will be manifested in visible positive results for the insurance industry in 2012. The local insurance market maintains its potential for development over the long term. In fact, international specialists believe that Romania and Poland have the greatest potential for development on the medium and long term,” says Kovarova.

Ileana Horvath, directorate member of Uniqa Asigurari, thinks that the general insurance market will drop by about 10 percent this year as a result of the decline of Casco and mandatory car insurance (RCA). “Gross written premiums from RCA are suffering because of the lower prices compared to 2010 and limited promotions for this product. In addition there has been an increase in home insurance because it is mandatory and owners are aware of the need for it. The development of home insurance is a natural step for the local insurance market, as the number of insured homes is still low compared with other countries,” says Horvath.

Bir of Allianz-Tiriac anticipates that 2011 will be the third year of falls in the Casco business, with the decline mainly the result of the huge drop in car sales and the leasing system. “Statistics show that both new and second hand car sales decreased by almost 20 percent in the first four months and this continued movement generated a further decrease in the Casco line of business,” says Bir. “As for the overall 2011 results, our best case scenario sees some recovery for gross written premiums but only if the pricing policy for MTPL (motor third party liability) and business changes, and this should mean an increase in the average premium for most car segments. Rising car sales may also help stabilize the situation in the Casco segment.”

Life insurance overview

Remus Lapusan, directorate member of Uniqa Asigurari de Viata, says that according to the CSA, the life insurance market posted an increase of 3.34 percent in total gross written premiums in the first quarter of 2011 on the same period of 2010. “Overall, the value of the Romanian life insurance market in 2010 is similar to 2009. But within this segment we saw some changes: life insurance with traditional annuities decreased, while life insurance and annuities linked with investment funds increased by about 9 percent. It is also notable that health and accident insurance expanded,” says Babaneata. But the current crisis also has a bright sight: once the downturn passes and their income begins to rise again, local consumers will start paying more attention to the need to protect their families or save money. “Romanians have become more interested in their and their family’s financial future and more careful about the way they manage their money. This is confirmed by the evolution of the life insurance market in 2010, which posted an increase of 2.3 percent while general insurance dropped by 7.5 percent. In addition, the number of customers who decided to re-activate contracts that they had allowed to lapse because of financial difficulties increased constantly,” says Cornelia Aurelia Coman, general manager of ING Asigurari de Viata. According to her, the company doubled its number of such returning customers in the first quarter of 2011 on the same period of 2010. Besides, the average gross premium for contracts

signed at ING in the first quarter of 2011 rose by 6 percent on the same period of 2010.

Going forward, Coman says that the types of insurance that allow investments will continue to develop if their performance remains stable and positive this year. “I think that financial plans for children will be top of customers’ preferences, as this is a category that remains important to customers despite the economic circumstances,” says the ING Asigurari de Viata representative. She expects at most a marginal increase of about 5 percent in the life insurance market.

Lapusan also expects a better development for local life insurance compared with the general market in 2011, estimating an increase of 5 percent on 2010. “Although Romanians’ income has fallen, there is demand for life insurance. Because of the difficult economic conditions, people are thinking more about savings and prefer a long-term investment in life insurance rather than spending money on immediate consumption,” says Lapusan of Uniqa Asigurari de Viata.

Players’ strategies

The economic crisis has forced players to adapt to the new economic conditions. For example, Allianz-Tiriac Asigurari has launched some innovative products to enter new customer segments that were not in its sights in the past. It also managed to achieve stable development in other non-life insurance lines like MTPL, property, liability and travel, and to stabilize its life insurance portfolio, which provided the company with alternative options to diversify its overall portfolio.

“The key words for 2011 are stable, sustainable development for the company, measured in terms of the quality of the portfolio, the customer base and distribution capabilities. We also have to maintain our financial and capital strength including profitability,” says Bir. He adds that Allianz-Tiriac will go for balance, which means having an adequate and prudent underwriting process. “We are working to further invest in building state of the art risk management capabilities to deal with major catastrophe risks like earthquakes, to which Romania is exposed. We will pursue growth only if the opportunities do not harm our profitability,” says Bir of Allianz-Tiriac’s strategy on the local market.

He adds, “We continue to identify opportunities with our valuable clients, aiming to develop a long-term partnership which means having a balanced and sustainable portfolio. We will continue to review and restructure our product range to ensure better alignment with our customer’s needs.”

As for Generali, Kovarova says that the company will keep on developing life insurance this year but will also support other business lines with high potential like home insurance, travel assistance, corporate insurance and property prejudice insurance.

“We will also continue to invest in professionalizing our sales force and consolidating our relationship with our partners in order to improve our sales and profitability,” she says.

Elsewhere, Uniqa Asigurari has bold plans for the Romanian insurance market this year, focusing on developing new sales channels and its partnership with Raiffeisen Bank. “Our objective for 2011 is to capitalize on the business opportunities that the local market offers, maintain our market position and continue to grow on profitable segments. We also intend to increase our team of controllers to 1,000 people by 2015 compared with 414 at the end of last year,” says Horvath of Uniqa Asigurari.

Representatives of Alico Asigurari Romania say that the company will focus on coming up with competitive products of benefit to employees of SMEs in addition to the packages offered to multinationals at present. It will also continue the specialized training of its own distribution team, aiming to pursue new partnerships with banks and financial institutions. “We have developed the IT infrastructure and organized many training programs. We also have a financing program for sales agents and managers through which we provide financing for up to two years so they can set up their own business in life insurance distribution,” says Theodor Alexandrescu, general manager of Alico Asigurari Romania.

Coman of ING Asigurari de Viata says that the company intends to continue to increase the benefits and transparency for its customers, improve the sales process and maintain its current market share and leader position. She adds that there is an increased need for financial consultancy from ING’s customers.

“People need to be sure that their needs are understood and addressed correctly. Studies conducted by ING Asigurari de Viata show that one out of three Romanians would be interested in meeting a consultant to have their financial needs analyzed,” adds Coman.

Accentuating the positive

While 2010 was a hard year for many players on the market, several managed to register positive financial results. Generali Asigurari posted an increase of 8 percent on the life insurance segment last year, reaching a RON 91 million volume of gross written premiums. Unit-linked products posted the best performance (an increase of 19 percent), followed by traditional individual insurance (a 7 percent increase) and group ones (a 3.5 percent increase). “The consolidation of our portfolio of customers and lower cancellation rate of life insurance policies were two of our major achievements in 2010,” says Kovarova of Generali. She adds that overall, the company posted a total volume of RON 440 million in gross written premiums in 2010, down 13 percent on 2009.

As for Allianz-Tiriac Asigurari, Bir says it remained one of the top insurers in Romania, with a 2010 market share of 14 percent for non-life business and around 5 percent on the life segment. “Based on our 2010 results, we remain the most important Casco insurer, with a market share of around 20 percent, the number one property (fire and associated dangers) insurer with an estimated 17 percent market share on this line of business, and on general liability, with approximately a 16 percent market share,” says the CEO.

He goes on, “We registered a decline in gross written premiums which was mainly driven by the Casco insurance segment. But we still took measures in order to better control our portfolio development. We carried out a detailed review of our product portfolio, to evaluate whether our products were in line with the crisis environment and we tried to see if there was a need to adjust some of the products to our customers’ ability to buy.” The businessman adds that the company had to focus on profitable segments of the portfolio and give up other loss-making lines to preserve profitability and still have room to offer reasonable products to its target customers.

In addition, Alico Asigurari Romania posted an increase of 7.07 percent in its income from gross written premiums last year on 2009, according to audited financial results for 2010. Its value of premiums exceeded RON 205 million, and it notched up a net profit of RON 69 million. “The growth we posted last year was supported by projects launched in 2009 when we extended the distribution lines and types of products in order to stop customers from becoming too blasé about satisfying their insurance needs. Both in 2010 and before, our projects were based on a strategy of profitable growth, staying open-eyed to the opportunities of the market,” says Alexandrescu of Alico.

Last but not least, ING Asigurari de Viata posted a gross profit of RON 46.47 million last year compared with RON 92.7 million in 2009. “This result was in line with our objectives and was influenced by our projects launching new products, extending our distribution channels, increasing the benefits and services for our customers and investing in the significant development of activity from the third pillar,” says Coman.

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