Significant increase of insurance prices is impossible
Interview with Tsvetanka Krumova for the Standart Newspaper
Auto repair shops do not have the capacity to deal with the number of vehicles damaged in the hailstorm.
There will be new developments on the market when the economy starts growing says Tsvetanka Krumova, Executive Director of Armeec.
- What is the status of the insurance market right now and what developments do you expect to see in the sector by the end of the year?
- We are expecting the hardest time of the year for us - the last quarter, at the end of which typically we speak of the start of the Motor Third Party Liability Insurance Campaign. The reason is that there are still a large number of drivers that renew their insurance policies around this time of the year. Up to 2004 mandatory insurance policies were purchased on calendar year basis and evidently ten years have not been enough to break that pattern. Because of this at end of each year people become interested in the subject of insurance and enormous increase is registered both in competition and in companies’ efforts to attract customers. Around this time every year we start talking about the need to increase prices but this never happens or if prices do increase it is only by a symbolic amount.
This year a number of new players joined the market as the former health insurance companies were relicensed as general insurance companies. Some of them have already grown out of their role as personal insurance providers and have started to offer motor and property insurance products.
- What are the next challenges the industry is going to face both globally and on the domestic level?
- The challenge, both for the Bulgarian and the European market, is that 2015 will be the last year before the Solvency II Directive takes effect which will bring about a significant change in the attitude of insurance companies towards the risks they take. Globally relevant issues such as climate change and terrorism have a direct impact on insurance worldwide. The global insurance market is preparing by increasing its capacity in order to meet these risks and by investing in risk modeling systems aiming to identify risks and the measures needed to prevent them. Aging population, which is another globally relevant issue, also has a direct impact on insurance. This is an area where the gap between us and western societies is extremely large. People there are talking about financially secure elderly population with specific requirements, whereas in our country the question stands about the survival of retired people.
- Is it possible to compare our insurance market to those of the developed countries in the European Union?
- The main insurance principles were developed a long time ago and they apply everywhere. However, each local market has its own set of characteristic features that stem from economic, social, and cultural differences. In many ways the terms and conditions offered by the Bulgarian insurers are not different and even have a wider range than those in the developed countries. One of the characteristic features of our market is that the demand for insurance services is small which is reflected in the low insurance density (premium revenue per capita) and the low insurance penetration (measured as the ratio between premium revenue and GDP).
- Which are the most popular insurance products among Bulgarians?
- Motor insurance comprises the largest market share, usually around 60 %. Sadly, the demand for life insurance and investment insurance products is low as opposed to the developed countries where such products account for most of the business. The property insurance segment is driven mainly by large facilities subject to public procurement procedures and tenders and personal property insurance is completely dependent upon mortgage loans.
- So far this year has been interesting bringing a fair share of accidents. Do you expect a significant increase in the prices of motor insurance?
- Given the strong competition and the low purchasing power of the population a significant price increase is hardly possible. It is beyond doubt however that the calamities will affect the market. So far this year we have experienced several catastrophic events and the hailstorm that hit Sofia in July was a test for all market participants – customers, insurers, spare part importers, and auto repair shops alike. In the wake of these events it became obvious that auto repair shops in Bulgaria do not have the capacity to cope with the large number of damaged vehicles and as a result of that for a long time to come we shall see in our streets vehicles, which will remind us of the event on 8 July 2014.
- Did the natural disasters make more people insure their vehicles?
- Our experience shows that the rising interest following natural disasters is a short-lived phenomenon. The growth in casco insurance we have registered so far does not give us reasons to believe that demand has increased. The market will enliven only if access to financing is improved causing respectively car import and sales to increase and this will be possible if the economy starts growing.
- Are Motor Third-Party Liability and Casco Insurance different for old and new vehicles?
- Casco insurance tariffs always take into account the age of the vehicles. The market value of automobiles declines over time and their parts are exposed to wear and tear. Sometimes replacing a major part of an older vehicle is not an economically viable option because the new component costs more than the vehicle itself. For Motor Third Party Liability Insurance the age of the vehicle is not reflected in the tariff. In Bulgaria tariffs are determined on the basis of the engine capacity although risk is influenced mostly by factors such as the driver’s behaviour, age, and driving experience. Having said that, statistics show that there is a slight difference in the frequency with which vehicles of less than 10 years of age and vehicles over that age tend to get involved in accidents. However, this has to do more with the fact that older cars are most often driven in small towns, less frequently or seasonally than with the actual age of such vehicles.
- Can you talk about the results of Armeec so far this year in terms of key performance indicators? Are they positive? What are your goals for next year?
- We can say that Armeec Jsc registered growth in the sales of all types of insurance products and ranked first in terms of premium income with a market share of 13 %. While the market grew by 4.4 % on average (including newly licensed companies), Armeec’s growth was nearly 20 %. We have been outperforming the industry (achieving a higher growth than the market average) for 19 years straight. Market shares and leading roles have never been the ultimate goal for us. Our ambition for next year is to have solid results and to improve our customer satisfaction.
- Do you believe that insurance costs should become a permanent part of people’s spending?
- Risk management is a science the basics of which should be taught in high school. Every individual should be aware of the risks that surround him and the ways to deal with those risks. Let’s say if your house burns down, will you be able to rebuild it with your savings? If you get ill while you are in a foreign country, will you have enough funds to pay for your treatment? Isn’t it a better idea to transfer this risk, or part of it, to someone else such as your insurance carrier? Of course, you can always avoid those risks by never buying a home or never travelling abroad. Such matters are a part of everyone’s life but unfortunately most people think about them only after some accident has happened.
- What innovations are to be introduced by the insurance industry?
- Mobile applications are massively introduced in the insurance industry across the world while in Bulgaria we are still lagging behind in the development of online insurance. To remedy this situation we need legislative changes especially with regard to insurance agreements.
- What is the best part and what is the hardest about working in the insurance field? What attracted you to this profession?
- I started in insurance in 1992 as a legal advisor. At that time regulation was minimal in light of the fact that the insurance business had been monopolized by the government for a long time. It was an interesting experience for me to take part in the development of Bulgaria’s insurance and to see it where it is today, being a part of the European market. The good thing about insurance is that it helps people in difficult times. For insurance professionals one of the hardest things is to fight prejudice. The media often describe insurers as the bad guy and no one bothers to speak about the good things we do. In 2013 the Bulgarian insurance industry paid out BGN 700 million in insurance compensations and another BGN 500 million are paid until August this year. This money went back to the people and the economy and this is the essence of our business.
Interview by Iveta Ivanova for the Standard Newspaper