BR SPECIAL! Romania’s RON 9.7 bln insurance market, thirsty for a more educated consumer

The Romanian insurance market increased by 3.5 percent in 2017, to RON 9.7 billion. A change in the trend over the previous years was the consolidation of the life insurance segment, which registered a significant increase of 21 percent last year. In spite of these results, Romania is the last EU member state when it comes to spending on insurance services, with only EUR 40 per year.

By Ioana Erdei

Why do Romanians stay away from facultative insurance? Leonardo Badea, the president of The Financial Supervisory Authority (ASF) talked to Business Review and underlined the main issues of the market and gave some solutions. In his opinion, the low level of financial education of the public represents one of the main obstacles in buying facultative insurance. “Unfortunately, we are the worst performing European countries on this matter. This is why I consider that we need extensive campaigns of financial education at all levels. A well educated individual can easier understand and decide in all awareness when it comes to buying an insurance product”, he said.

According to him, ASF is currently performing a national program of financial education in kindergartens, schools, high schools and universities. “Early financial education plays a very important role in shaping the future consumer of financial products. The ASF financial education program includes 159 schools from 28 counties including Bucharest. The estimated number of the pupils attending this program is over 22,000. In addition, within the Academic Lab, the ASF program designed for the financial education in universities, nine university centers from all over the country will be involved in. We are making all efforts to include the financial education as compulsory subject in the schedule for 8th grade, starting 2020”, Badea announced.

Back to balance

The Romanian insurance market is stable, after facing a series of deficiencies, “well capitalized and has a remarkable growth potential”, says Badea. “As you know, within the mature market the weight of the facultative insurance is higher than in case of compulsory insurance”, he added. In spite of these positive results, in Romania, the market is still dependent on the compulsory insurance (especially MTPL). “One of the fundamental ASF objectives is focused on reversing this trend. If we analyze the insurance market evolution since 2017, we notice the strengthening of the life insurance segment that, last year, registered a significant growth of 21%, compared to year 2016. This aspect is particularly gratifying and must be further encouraged”, Leonardo Badea explained.

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He underlines that we cannot overlook the fact that 2017 has been a reference year for the compulsory insurance market. The Romanian Parliament has adopted the new MTPL Law, to which the ASF experts have had an important contribution, that introduced a series of new elements and concepts (reference tariff, high risk client, direct compensation), that contributed to a more stable and predictable market. ”In my opinion, I do not think that we will witness again the imbalances from the past”, he concluded.

Solutions, solutions

In order to accelerate the maturity of the insurance market, there has to be a joint effort, from the supervisory authority, and from the companies operating on this market, the ASF President underlines. “And here I refer both to insurance companies and brokers. This is a complex approach, which involves action on several levels”, he said.  A first area to act on is consumer confidence, as trust is perhaps the most important capital in the financial markets. “Market players need to convince consumers that they can trust facultative products and that these products meet their needs and are an important option in managing risks related to their life, health and safety of their goods”, Badea underligned.

How can this be done? Simple – by respecting ad litteram the contractual obligations and by settling the claims files without delay, he explains.

When it comes to the obligations that the institution he represents has to the consumer, he sais thata ASF must make sure that their rights and interests are protected in accordance with the legal provisions and that no deviation from these principles is tolerated. “At the same time, I believe that better information on voluntary products must be a priority for all of us. People need to know in detail the risks they are protecting and must make informed choices when purchasing a life insurance, health insurance or one motor insurance. In other words, both insurance companies and brokers must provide advice at a very detailed level”, he concluded. On the long term,  the Romanian market will also need more diverse and sophisticated insurance products.

Facts and data

If during 2012 – 2014 the life insurance activity was decreasing in terms of the volume of gross written premiums, starting in 2015 this segment resumed its growth and in 2017 the evolution of the insurance sector was due to the insurance segment life, according to The Financial Supervisory Authority (ASF).

The insurance market in Romania is characterized by a high degree of concentration. In 2017, approximately 89 percent of the total gross written premiums were made by 10 insurance companies out of the 31 companies performing insurance and reinsurance activity on 31 December 2017.

Considered by segments, gross premiums written (PBS) for general insurance (AG) amounted to roughly RON 7.7 billion last year, with the largest shares held by classes A10 – Civil liability for the use of land vehicles, A3 – Land vehicles, excluding railway rolling stock, A8 – Fire and natural disasters (for goods other than those insured in classes A3 to A7).

In 2017, the share of these three classes accounted for 88 percent of the total gross written premiums for non-life insurance. In the area of civil liability for the use of land vehicles, gross written premiums amounted to RON 3.82 billion, representing 50 percent of total non-life insurance. The provision of land vehicles, excluding railway rolling stock, had a gross written premium of RON 1,89 billion, representing 25 percent of total non-life insurance, up 8 percent. In the segment of fire and natural calamities, gross written premiums went up to about RON one billion, representing 13 percent of total non-life insurance.

In the life insurance segment, underwritings increased by 21 percent, to about RON 2.02 billion.

The highest weights are held by C1 – life insurance, annuities and supplementary life insurance respectively, C3 – life insurance and annuities related to investment funds, which together account for 96 percent of the total gross premiums written for the insurance business life.

In 2017, insurance companies reported gross indemnities paid (excluding partial and total maturities and redemptions), cumulated for the two categories of insurance, amounting to RON 4.21 billion, of which RON 4.05 billion are related to the contracts general insurance (96 percent), registering an increase of 12.6 percent compared to the similar period of 2016 (RON 3.6 billion). Another RON 158.4 million are paid for life insurance, about 2.8 percent above the level of RON 2016 (RON 154.06 million).