The combined ratio, which shows how well a company set its prices relative to its expenses, stood at 114% last year, up six percent on 2012. A combined ratio above 100% indicates losses from the insurance business.
The claims rate and the administrative expenses, which are two components of this indicator, highlight the sources of trouble as far as insurers are concerned: the prices that do not match the risks undertaken, the too high costs of managing the policies issued and the value of such expenses compared with the insurance penetration rate.
“Expenses cannot be cut by way of administrative measures. Insurers have already laid off staff and are not paying exorbitant salaries. The only other thing that could have been adjusted is rents,” explained Gheorghe Grad, general manager of insurance broker SRBA.
“The problem is not with costs and tariffs, except for the auto liability policies (RCA). The problem is the low insurance penetration rate and the high expenses compared with very small premiums.”
Insurers settled RON5.3 billion claims last year, while administrative and procurement expenses stood at RON3.4 billion and gross written premiums were half a billion lei lower. Therefore it is no surprise that most companies ended 2013 in the red. The combined ratio had dropped from 114% to 108% in 2012 only to go back to that level last year.
Insurers’ costs went up during the crisis, even though many companies adjusted their networks and headcounts. The obstacles in the way of cost reduction include the high fees paid to insurance brokers and banks to use the bancassurance channel. Most of the cost, however, comes from the high volume of claims settled. Whereas the claims rate stood at 69% for the entire industry in 2012, it went up 3% last year.
(English version by Loredana Fratila-Cristescu)