The talks are part of a more extensive plan seeking to bring mandatory home insurance back to its feet.
“We are also having talks with insurers not part of PAID about the possibility of them becoming shareholders of the Pool. They are long-term talks because one needs the approval of the companies’ management boards and of PAID shareholders,” said Aurelia Cristea, general manager of PAID.
Cristea did not wish to provide the names of companies interested in becoming PAID members, but said talks were held with three major companies and a lower-sized one. Out of the top ten general insurance companies in terms of gross written premiums, only Omniasig, Allianz-Tiriac and Asirom are not shareholders of the company.
Legislation changes
The three companies had initially declined to take part in the system of insurance against natural disasters. Negotiations to join the system started this summer when PAID changed its management, as well as in the wake of changes to the norms on writing natural disaster risks.
As of September, insurers can no longer conclude policies for damages up to EUR20,000 caused by earthquakes, flooding and landslides, as these risks can be covered only by PAID. This provision basically forces homeowners who want supplementary coverage or want to insure their homes at market value to seal two policies.
The mandatory policy covers damages caused by earthquakes, flooding and landslides up to EUR10,000 or EUR20,000 depending on what the home is made of, while the voluntary policy insures homes at market value and against an extensive range of risks, such as fires, explosions and home theft.
The mandatory insurance is distributed exclusively through the 12 member companies of PAID, so companies outside the system risk to lose market share, given that clients who seal a mandatory policy from the agency of an authorized insurer are likely to also buy voluntary insurance from the same insurer.
A market potential of EUR400 million
At stake are the 4.4 million home insurance policies valid at the end of last year, as well as those of the remaining 4 million owners who have yet to insure their properties. At an average annual premium of EUR50 for a voluntary policy, the potential of this market is EUR400 million.
In addition, a system is being built at the moment, which will allow insurers who are members of PAID to include in one policy both the mandatory clauses of the mandatory insurance and the supplementary risks and amounts covered by the voluntary insurance. Basically customers will be put in the situation where they can choose between one policy that includes both types of insurance and two policies sealed with two different companies.
“We will integrate into one policy both the mandatory clauses and the supplementary risks covered by the voluntary insurance. The policies are issued electronically and the information about the insured are automatically also included in PAID’s IT system. The current [mandatory] PAID policies will continue to be issued for clients who don’t want additional coverage,” Cristea explained.
The head of PAID says there is also a plan for issuing mandatory policies online. Basically clients will be able to buy insurance by accessing the www.paidromania.ro portal without having to go to the agency of an insurance company. But no deadline has been given for the implementation of this project.
Watchdog steps in to the rescue
The norms on the mandatory insurance of homes have been modified by the Insurance Supervisory Commission after PAID faced significant competition from the other insurers in the past two years as the latter put on the market similarly priced products to the mandatory insurance, but which covered more risks.
As a result, PAID’s portfolio has been on a steady decline, to around 300,000 policies at present, which put in danger the very existence of the system of insurance against natural disasters. According to initial calculations, which set the insurance premiums at EUR10 and EUR20 per year respectively, the mandatory insurance system was supposed to cover Romania’s entire housing stock, i.e. over 8 million houses and apartments.
“The modification of norms on mandatory home insurance was the only way of rescuing the program of insurance against natural catastrophes. We could not increase the price of the policy while the number of clients was dwindling and at a time when a price increase would have removed the social character of this insurance,” said the general manager of PAID.
(English version by Daniela Stoican)