At the time of UNSAR’s establishment, there were 43 insurers on the market, mostly Romanian held and only 37 are still in business now, 90% held by foreign companies that do not seem willing to invest in the development of the industry any more. Gross written premiums amounted to $185 million in 1997, according to the earliest data available and stand at more than $2.5 billion today.
On a market below the peak of 2008 after five years of crisis, many companies got tired of waiting for a recovery and decided to leave.
Three major foreign groups, Aviva, Eureko and AXA, have left the local insurance market in the last four years alone. Market sources say other companies have at some point intended to make a full or partial exit by portfolio sales in the last few years, but the intentions did not materialize, precisely because of the low interest in a market that has been in the red for eight years and is described as having potential.
Misu Negritoiu, the chairman of the Financial Supervisory Authority (ASF), harshly criticized insurance companies right at UNSAR’s 20th anniversary conference.
“There are substance, structural problems, not just image problems. We must put the cards on the table, stop hiding our problems. The market has makeshift, abusive, weak companies. It’s an industry of the lawsuit-happy, which does not resemble a financial market. It looks more like a SME (small and medium-sized enterprises i.e.) market.”
He asked UNSAR to take part in cleaning up the industry and suggested the association to look in its backyard and revise standards, values and professionalism level.
Romania has the second largest insurance market after Poland in the region by number of inhabitants, but the local industry is unable to become an important pillar of the economy, a significant contributor to the formation of the gross domestic product (GDP). Insurance sector contribution barely reaches 1.5% of GDP, the lowest in Europe, where the average is 8% to 10%.
“The local insurance market is trapped in a vicious circle because of the too low tariffs compared with payment obligations. Fierce competition led to the structural problems the insurers are facing,” said Bogdan Andriescu, chairman of the UNSICAR, the association of insurance brokers in Romania.
“There’s a lot of talk about the potential of insurance, but we must not only look at the number of inhabitants and potential clients, we must consider the purchasing power of the people, as well.”
The insurance industry posted 350 million lei (EUR80 million) loss in 2012 and most likely ended last year in the red, as well, considering Vienna Insurance Group alone, which accounts for one fifth of the market, posted EUR99 million loss in 2013.
UNSAR chairman Remi Vrignaud said that profit should be the number one goal of insurers, adding one cannot provide quality services to customers unless one makes profit.
Most insurers are saying now that unlike the strategy they used at the beginning of the crisis, the only viable solution to return to profit is to hike tariffs. Some point out the likely problem of losing some clients because of the tariff level.
“Everyone is for raising tariffs. I agree, but we must also think we will no longer have a critical mass of people buying insurance, many people will stop doing that,” said Viorel Vasile, general manager of Safety Broker.
The number of insurers is down to half from the peak in the nineties, after the industry went through a wave of bankruptcies in the 2000s and after the exits of foreign companies and mergers of the past decade.
There were more than 70 insurers in late nineties, compared with 43 in 1995, 40 of which Romanian-owned. Romanian-held companies accounted for 50% of the total capital subscribed in this industry in 1995. Today, the market is a foreign companies’ market.
(English version by Loredana Fratila-Cristescu)