Floods, droughts and flu outbreaks in the past years have still not turned Romanians onto house, crop or health cover. Cars continue to be people's most valuable assets and the only ones most of them choose to secure. The market is as immature as the people uninformed.
“Romanians look for short-term gains and are not open to savings opportunities that will offer them long and medium-term protection,” said Elena Bunea, CFO and vice-CEO of Interamerican.
Consequently, almost 70 percent of last year's general insurance premiums came from the motor segment, said Mirela Antohi, spokesperson for the Insurance Supervision Commission (CSA). “The percentage is similar to that of the previous year, which proves that cars continue to be Romanians' most prized assets,” she said. They are also responsible for the poor results of the whole general insurance segment, because deficits on the motor insurance market influence the entire industry.
“What is eye-catching about the local insurance market is the low level of profitability for each sector. Net aggregated profits in 2005 represented less than 1 percent of incomes resulted from gross subscribed premiums. Our estimates for 2006 do not indicate that the situation has improved,” said reps of market leader Allianz-Tiriac.
In 2005, 16 of the 28 companies that were active on the motor insurance segment had negative technical results, said Allianz-Tiriac.
From 2004, distortions in non-life insurance portfolios caused by deficits on the motor segment have amplified: from EUR 2.4 million in 2003 to over EUR 13 million in 2004 and no less than EUR 30.4 million in 2005, said the company. The situation is getting worse.
“In previous years, positive operational results in the other general insurance segments covered these deficits, but in 2005, there was a total market loss of EUR 15 million in general insurance operations,” added Allianz-Tiriac reps.
The causes for that lie in the high number of accidents, the rising price of car parts and manual labor, the renewal of the national car fleet and in the administration cost of insurance contracts, said Antohi. She added that the CSA would monitor the rising value of damages and their impact on insurers. The commission will then decide if it needs to limit or forbid sales on one or more insurance lines, said the spokesperson.
Allianz-Tiriac added that companies preferred to hunt for market shares and post prices, sometimes not covering technical costs, rather than act cautiously.
The situation might change for the better starting this year, following changes in motor insurance billing systems implemented in 2006.
“Primary evaluations show that the total value of car insurance damages will be lower, which will certainly generate an increase in the profitability of the entire general insurance industry,” said Allianz-Tiriac.
The positive developments are welcomed, since the dominance of motor insurance does not change significantly from one year to another and the market will continue to rely heavily on this segment for profits, said Daniela Ghetu, editorial director at XPRIMM Publications, a media group tackling insurance and pension matters.
This business brings in most of companies' cash-ins, while other products – sometimes worth more than important things such as life insurance – had decreasing profits in 2006.
More specifically, gross subscribed premiums for life insurances totaled EUR 322 million last year, down three percent in the total subscription volume against the previous year.
Insurers should seek undiscovered land
Other than motor insurance, players might consider less crowded, but faster growing segments. The industry provides for increased flexibility, and virtually anything can be turned into a money-making business provided there are enough clients in need to secure that asset.
“There is big growth potential in health and traditional life insurance, as well as in cover connected to investment funds. Financial loss and general civil liability insurance are also on an upward trend,” said Antohi.
She said health cover was a fast-growing business as it represents a much needed supplement to what the public medical sector has to offer and now benefits from specific legislation and deductibility facilities.
For instance, Interamerican will focus decisively on developing the private health insurance market and increasing its market share on this segment, said Bunea. The company is the biggest investor in the private health system through the private health center Euroclinic and the Medisystem network.
“Aside from our focus on health insurance, we will also consider other development opportunities provided by the market,” said the Interamerican CFO.
The general rule is that sectors that are considerably behind but will need to adapt to European standards make the best bets for insurers.
Just as developments in the health system will soon boost the number of premiums on this segment of the market, civil liability cover will also catch up and turn into gold.
“Financial loss and general civil liability insurance are products aimed at companies, which can no longer afford to ignore them now that amplified competition inevitably follows European accession,” said Antohi.
Ghetu also observed the potential in this business line.
“In absolute figures, the motor segment will remain leader. In relative terms, we will observe the highest growth rates in civil liability, health insurance and so on,” she said. “My sole observation is that these noteworthy rates apply to very small volumes. Still, eventually these business lines might snatch up to one percent from the market share of motor insurance.”
Along with financial loss and civil liability insurance, professional liability cover might also increase earnings, if it were not surrounded by intense debate.
The latest changes in the law force managers to sign liability insurance contracts, but the Romanian Businesspeople Association (AOAR) is currently lobbying against such measures, which they described as “unclear, expensive and not in line with the Fiscal Code.”
New business fields are thus proving to be as blurry for insurers as they are for potential clients and sometimes regulators. Until businesses and people steer from car-related indemnities to more sophisticated ones, players will seek alternative ways to make ends meet.
Companies seek support from related sectors
Help that does not come from clients is sought elsewhere.
“The market is still looking for support from adjacent financial segments like banking,” said Bunea. Indeed, three of the top ten insurers by gross subscribed premiums are controlled by banks: BCR Asigurari is managed by Banca Comerciala Romana (BCR), Asiban is controlled by Banca Transilvania, BRD-SocGen, BCR and the National Savings Bank, CEC, and finally BT Asigurari is run by Banca Transilvania.
This class of insurers has been thriving in the last couple of years and continued its upward trend in 2006, which goes to show that help from banks gets insurers a long way.
For example, last year was the year when BT Asigurari made it into the top ten with revenues worth EUR 59.8 million. The company more than doubled its 2005 subscriptions, posting a growth rate in euro of 112 percent.
Also, BCR Asigurari was one of the few companies to retain its position on the Romanian market: it was sixth both in terms of revenues and growth rate – 34.7 percent against 2005.
Asiban did well, too, climbing to fourth position and posting a growth rate of 34.7 percent and revenues of EUR 128 million.
Insurers need all the help they can get, since rising competition from foreign players might dilute the profits of companies caught off-guard.
There were 41 local active insurers at the end of 2006 and 66 others from abroad who notified the CSA of their intentions to start operations locally, said Antohi. Many of them come from countries such as Germany, Austria and France, but companies from Great Britain are dominant.
Antohi said 44 intermediaries also submitted notification documents to the CSA. Another company, Coface Austria Kreditversicherung AG, announced its intentions to set up a branch in Romania.
Its arrival will shake up the market and lead to some companies' extinction and others' rising as undisputed market leaders. Takeovers are also to be expected.
“We will certainly witness some acquisitions. There are a number of high-caliber international players which up to now have waited for Romania's European accession and are currently closely monitoring the market for opportunities,” said Ghetu.
Some important moves have already taken place on the market this year.
Two major insurance companies, Ardaf and Roumanie Assurance International (RAI), both majority-owned by the Czech private equity fund PPFI, last month announced they would merge and thus attain a bigger market share.
Aside from a growing number of M&As, some companies should also expect the worst.
“This year, there will surely be companies that will set high standards of financial strength due to their international experience. This will lead to the disappearance of smaller companies from the market,” said Bunea.
The pressure is mounting and should drive local players to develop their businesses in new directions. Private pensions is one of them, but insurers are not exactly rushing to get the CSA's approval to manage them.
“Until now, insurers have shown a limited interest in managing voluntary pension funds. Only five of them have requested our consent to start doing this,” said Antohi of the CSA.