Interview with Rumen Georgiev in the Presa newsletter
About the Greek crisis and the challenges to the insurance sector
Mr Georgiev, will the Greek crisis have an impact on the insurance sector in Bulgaria?
To a limited extent, and most probably with respect to the business concerning the “financial loss”, “Travel Aid” and some other insurance contracts. What could prove to be more dangerous for us on the long run are the consequences from the blow that the crisis inflicted on the reputation of the European financial institutions – the European Central Bank (ECB) and the European Financial Stability Facility (EFSF). The International Monetary Fund and ECB purchased the private debt of Greece, appointed a European commissioner to see how the money is spent. But, as you see, nothing good happened.
It is not true either that Greeks work a little. The European statistics shows that they work 7 hours a week more than Germane. Yes, their retirement age is low. But our policemen retire at the age of 45. This is unique for the whole wide world. So, there are imbalances, but it is neither true that Greeks are no industrious, nor that they have spent their money.
It is good that the European banking system is stable in terms of its key parameters and an agreement with Greece will be made under certain conditions. The situation about the bankruptcy of the county will be formally settled. The debt will be partially written off and partially restructured. The European Union will return to “normal” business and most likely the necessary serious transformation of the Union integration will be postponed for later on. Until a new crisis, which would be inevitable in the absence of a radical change.
Some Bulgarian companies are planning an invasion on the Greek market at this very moment. Do you plan such investments?
Greece is a very competitive and closed market with exceptionally high requirements and prices, unlike our market. But at this time an invasion there would be inappropriate.
Our parliament adopted at first reading amendments to the Protection in Case of Natural Disasters Act. According to them the state will grant aids only for those who are socially weak in case of a flood or another major disaster. What will be the impact of this on the insurance sector?
These amendments are not going to have any actual effect on insurance business, because they only refer to support for people that due to their social and economic status could not have insured their property.
Does it not pose a risk of increase of corruption? After all, state servants will decide who is eligible for aid and who is not.
Yes, there is such risk, and therefore there is another solution. The state must encourage the entry into of property insurance contracts for residential buildings against such risks, without creating a special fund or a catastrophic pool for covering of the damages. The conclusion of an insurance agreement could for example be linked to a decrease in the building tax. The discount will only be granted after submission of the policy when it covers minimum compulsory parameters. This will in practice bring about mass conclusion of property insurances and expansion of the market.
Do you think that this variant is applicable to the poorest people – Romas and Bulgarians with miserable incomes?
It is true that there are small groups of people that could not insure their houses for their actual value. But they also have available options. It is about the so called package property insurances with minimum limits of liability, which provide the absolute minimum in case of occurrence of total loss of the house – total losses like the ones that happened during the disaster in the village of Biser. These package insurance contracts cost about BGN 30 per year and ensure sufficient funds to people, so as to make sure that they do not find themselves on the street when a disaster occurs. With the indemnity the victims can build a small building with basic furniture.
The problem is that some people find even BGN 30 too much.
The Agency for Social Assistance could assume the payment of these minimum premiums. In this way the insurance will not be mandatory but people generally will be encouraged to enter into it. It is exactly this model, rather than palliative measures, that would actually decrease the funds paid by the state for disasters and emergencies and would contribute to the wider awareness of the population of the need of joint activity for decrease of the risk of disasters.
You say that people will gradually realize the need of joint activities. However, is there any growth in the number of home and property insurances after the floods in the country?
This year, like the past year, there is growth in all insurance contracts, except for the motor hull insurance. Of course, this growth is not as much as it should be, but this is the market. Let’s talk about “Third-Party Liability”. If you go to Italy you will see that it is not possible to enter into such an insurance contract for a price of less than EUR 1000. Even in Russia the bonus-malus system applies, while in Bulgaria this insurance is sold at a price that does not exist anywhere in the world. But this is a fact that cannot be changed all of a sudden. It is obvious that things will gradually change and the prices will gradually go up.
The war on the roads goes on. What is the amount of damages paid by insurers?
According to official data the damages under “Third-Party Liability” are close to 70% of the incomes, which is a serious number. In absolute value, this is BGN 345 million paid for 2014. I actually wander how we survive on the roads given the fact that we have the largest number of policemen per capita in the EU. We regulate our traffic alone. Cars are driven actively, rules are broken actively, there are no policemen. I am even surprised by the small number of car accidents.
The head of the Military Medical Academy, prof. Nikolay Petrov proposes that people who drink and drive pay alone their own and the victims’ medical treatment, by using for this purpose a part of the “Third-Party Liability” insurance. What do you think about this idea?
Statistics show that a small portion of car accidents are caused by drunken drivers. Most of the accidents result from failure to comply with the traffic rules in a sober condition. This is where the “Third-Party Liability” policy must apply, and as regards drinking, there are sanctions provided for in the Criminal Code. The court imposes them if the court wishes so.
Is it true that there is a boom in the car thefts this year?
No, I could not say so. It is possible that some of the companies have changed their portfolios. Let’s say that they started insuring some of the official importers or cars of a specific brand. And if it is preferred by thefts, they have a boom situation. Otherwise, thefts are generally at the past year’s level. In 2014 there was a sharp increase compared to 2013 but the level now is preserved. In the different periods different cars are stolen – one year it would be BMWs, another – Audis, Hondas, etc. So if someone’s portfolio covers mostly Toyotas, they can have even 10 thefts every day.
Which is the most stolen model at this time?
Thieves do not have any particular preferences. This is a market like all other markets, although this one is black. And insurers pay.
Why do innovative insurance products find difficultly their way in Bulgaria?
It depends on what you understand as innovations. If you include in this terms the one side of the market only – the demand, this is not true. The types of insurance products grow. The change in the economic situation resulted in the appearance of new products. E.g. “Unemployment” and “Worker’s compensation”. But the innovative and competitive development of one insurance company and the market as a whole presupposes also uniqueness. Being a leading insurance company in Bulgaria Armeec performs acts that allow us to claim that we create actual competitive advantage. We call this advantage “excellent customer service and interaction.”
Young people talk more and more about online insurances...
Yes, it is about online applications for insurance and online creation and obtaining of insurances. The insurances that are easiest and most appropriate for computerization of this activity are the “Third-Party Liability” of vehicle owners and drivers and “Travel Aid” insurances. In Bulgaria they are very popular in the age group from 18 to 35 years. E.g., an application for the “Third-Party Liability” takes place in real time as a policy number is generated for all insurers by the uniform information system for risk evaluation, management and control at the Guarantee Fund. The validity of the online concluded mandatory insurance can be verified through an inquiry made to an email or on the site of the Financial Supervision Commission, which contains a reference to the Guarantee Fund. These sites, as well as the sites of insurance companies additionally submit useful information for the acts that must be undertaken when an insured event happens. The delivery of the policy is free of charge – by a courier within two working days to a specified address.
Many insurance companies are currently expanding by purchasing packages from other companies in Bulgaria. Are you going to do the same?
We do not have such plans. The difference between insurance and reinsurance company Armeec, which ranks first in terms of premium incomes in car insurances, and the second ranking company is two times. So, we would not gain anything from acquiring a small company. It is therefore more important for us to develop our products. In the past year we bought a Russian insurer and we are active there, i.e. we do not buy companies in Bulgaria but we try to operate on a market, which is a big and perspective market.
Interview get by Leonora LEKOVA, Presa newspaper