Analysis: Life insurers in Romania seek new growth drivers | The role of financial education

Newsroom 07/03/2017 | 15:45

Even though insurers have struggled to increase the penetration of life insurance policies on the local market, Romania is still lagging behind its European peers in this area. Investments in long-term financial educational programs, combined with some fiscal facilities, could boost Romanians’ appetite for insuring their future.

Anda Sebesi

The Romanian life insurance market is still underdeveloped despite significant steps in recent years. The lack of fiscal facilities to foster growth, limited disposable incomes, and the absence of financial education and a proper tax regime kept the increase in this segment marginal last year.

“Unlike the European insurance market, which is dominated by the life insurance segment – about 61 percent according to Insurance Europe, in 2014 – in Romania the life segment makes up only about 17 percent of gross written premiums, with the rest of the market being dominated by P&C segments, particularly motor products,” says Virgil Soncutean, general manager of Allianz Tiriac Asigurari. According to him, the growth posted last year on the life insurance segment was driven by traditional life products and individual and group policies. “However, the low or negative interest rates put additional pressure on traditional products, while whetting the appetite for life products with an investment component (unit-linked),” adds Soncutean.

According to data provided by the Financial Supervisory Authority (ASF), gross written premiums for the life insurance business grew by 2 percent in the first nine months of 2016, compared to the same period last year, to stand at RON 1.17 billion. Growth was driven mainly by traditional life products, which registered an increase of 12.8 percent, while unit-linked products decreased by 20.6 percent. According to the report, the two classes of insurance account for 95 percent of the total gross premiums for life insurance. “There are several areas where further improvements can be made within the market, areas where we will also focus our future efforts. There is still a low level of understanding of the life insurance category among Romanians, who continue to have the mindset that it is difficult and expensive to buy a life insurance policy,” says Emilia Bunea, CEO at Metropolitan Life.

Across the entire life insurance market, according to www.1asig.ro data, the top ten life insurers on the market generated RON 1.09 billion of gross written premiums last year. In addition, the top two players, NN Asigurari de Viata (top) and BCR Asigurari de Viata Vienna Insurance Group (second) posted cumulated gross written premiums of about RON 619 million and had a combined market share of some 53 percent in 2016.

Market analysis conducted by Metropolitan Life last year showed that one extremely dynamic segment is individual customers concerned with their own and their family’s protection. “Consumption increases at important moments of their lives. We have identified an increased appetite from customers for life insurance when building a family, having children, buying a house or taking out a loan, aspects which are important for the entire family. Whether it’s about a mortgage or a personal consumer loan, it is a pretty big responsibility, and for some people, it may represent a significant burden that would be hard for the rest of the family to bear,” says Bunea. She adds that the SME segment is very dynamic and the company has identified some development opportunities in this area. “Over the past two years, our portfolio has increased by a few hundred companies, of which several dozen are SMEs,” she adds.

Education is key

Bunea also highlights the importance of financial education as the life insurance segment is developing in an environment where consumer needs are constantly changing. “That requires organizations in this industry to place increased importance on financial education. It is a topic which we have put on the table this year as well,” says Bunea. According to her, in Romania, financial education starts pretty late in a person’s life. For this reason, many young adults have problems in managing their own resources, largely due to the lack of financial information needed. “Besides this characterization of the life insurance market, there is the digitalization process that all market players must keep up with. It is an area where we have already started investing in 2017, and we are looking forward to seeing how it is received by customers,” she adds.

The Life Changer program, in which the insurer has been involved alongside the Junior Achievement Association, is an example of an action taken by Metropolitan Life in supporting financial education. In 2016, more than 3,000 grade-school students from 19 Romanian cities received support towards learning elementary financial concepts, in order to develop the necessary financial skills for adult life. “We will continue to invest in this initiative this year, when 4,000 pupils will benefit from financial literacy workshops in Bucharest as well as other Romanian cities,” adds the Metropolitan Life representative.

Medical disorders boost the market

As Soncutean of Allianz Tiriac says, serious medical disorders have seen an alarming increase among the Romanian population, boosting demand for policies covering such risks. “For example, the sale of Allianz-Tiriac ‘Best Doctors’ Critical Illness Rider, which covers treatment for illnesses and medical procedures in the best clinics worldwide, registered results beyond our expectation. In the first nine months of the previous year alone, Allianz-Tiriac sold more than 2,000 such policies,” he says. There is also strong interest in taking out additional riders attached to life insurance policies, covering accidents, sickness and surgical interventions requiring hospitalization. Gross written premiums generated by these riders increased by 36 percent in the first nine months of 2016, versus the same period of 2015, says Soncutean.

Romania lags behind its peers

Compared to other European countries, life insurance is not a strong category in Romania, with a relatively low insurance density. According to the European Insurance Report, in 2015 Europeans spent an average of EUR 1,200 per capita on life insurance policies. While in Romania the life insurance density was around EUR 20 per capita, people from Finland, Switzerland and Lichtenstein spent more than EUR 3,500 per year on insuring their lives.

“The financial education sector in Romania is not very well developed; hence the underdeveloped [insurance] market, but this can also be an opportunity. The Financial Supervisory Authority (ASF), the National Bank, other important players on the market, all of us are making sustained efforts in this regard,” says Bunea. She adds that this year the company will also continue its efforts to show Romanians that insurance is neither difficult to get, understand or buy, nor expensive.

Looking ahead

“This year, we hope to witness some market maturation, hopefully reflected in first quarter figures. Despite the changes in 2016, such as switching to Solvency II, the bankruptcy of several insurance companies and Romanians’ pretty low confidence level in life insurance, the figures are encouraging,” says the CEO of Metropolitan Life.

According to Business Monitor International research, life insurance penetration in Romania will remain significantly weaker than in other major European states. Total gross life premiums reached just 0.2 percent of GDP in 2016, compared with the European average of around 4 percent and lagging behind other major Central and Eastern European countries. As the Romania Insurance Report Q4 2016 (CEE) shows, in countries like the Czech Republic, Hungary and Slovakia, this indicator is still above 1 percent of GDP. “However, the life segment still offers great potential for growth as the average insurance premium is below an average motor insurance one (MTPL or Motor Hull),” says Soncutean. He adds that the group insurance segment is also expected to grow in the future as companies buy such products in order to retain their employees.

Elsewhere, Bunea of Metropolitan Life says that it is likely that Romanians’ appetite for insurance will increase on the medium term, in addition to the slight but steady increase in the life insurance market. “Whether it’s about policies that cover basic risks, with a cost of less than RON 30 per month, easily accessible to the low-income segment, or about a more complex protection product or a unit-linked insurance with a protection component attached, we expect the benefits of these products to be better understood by Romanians,” she says. However, she warns that customers’ behavior will not change significantly on the short term, but that rather, over time, Romanians’ perception of insurance, generally, will change. “On the medium term, the need for financial education among young people must remain a priority for all of us,” she concludes.

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