Re-formatting the insurance market in Moldova

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Duminică, 21.02.2016 09:53   3162
A few minor – at the first sight – changes which the National Financial Market Commission have passed recently might bring about significant editing in the insurance market as a result of tough competition.

The board of the National Financial Market Commission (CNPF) has decided to modify the method of calculation of the mandatory insurance premiums for motorists. It argued that, “these changes provide for the possibility of a fairer and more prudent assessment of the premiums, in compliance with the insured risk and based on a new approach.”
 
First step towards the market liberalization 

The change in question represents a first step towards the liberalization of the domestic insurance for this type of insurance and towards creation of a healthier competition environment, thanks to inclusion of two new coefficients in the basic premium. Insurers will have to take into account the amount of theirs effective expenses related to insurance of motorists and the profit margin in the basic premium. These coefficients would allow clients to benefit from legal reductions depending on insurers’ financial possibilities and marketing strategies. 
 
Regulatory framework being adapted to reality 

A study upon which the change is based and the analyses of operational and acquisition costs showed that Moldovan insurance companies currently bear more expenses than the level established by regulations, when it’s time to pay premium earnings. It was proposed to merge the operational and acquisition costs into one factor, and to set out their minimum and maximum limits. 
 
Until now, the coefficient for expenses for the mandatory internal insurance of motorists (RCA) was 25% of the premium, so the CNPF has raised it up to 30-40%, depending on insurers’ policies for each case. In the case of external insurance (Green Card), the coefficient jumped from 20% to 22%.
 
Another piece of news is that insurers are allowed to apply a bigger margin of maneuver regarding their discounts. Companies now can cut the price down by 10% and compensate this move from the optimization of their expenses and by another 5% from their profit. 
 
Insurance expert Alexandru Zgardan, CEO at Digital Finance, told Mold-Street.com that the CNPF did nothing but legalized a state of facts. “Those discounts existed anyway thanks to various schemes. The sad thing is that insurance companies Grawe Carat and MoldCargo were excluded from the Green Card system two years ago exactly for this sort of price&discount measures; they were accused at that moment of using a price dumping policy, which could harm the entire system,” he said.

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CNPF expects more expensive insurance premiums 

The commission said in an official communication that the new approach could slightly push up the prices for mandatory insurance of motorists, but it underlined that the effect of its measures would be positive overall as they would also influence the size of clients’ compensation earnings, the quality of services, and the number of litigations between companies and between companies and clients. 
CNPF deputy chairman Iurie Filip said the insurance cost might increase between 15% and 30% in the case of RCA – given the additional 20% expenses related to the payment of compensations in 2015 on the background of stagnating sales. In the case of Green Card insurance he admitted a discount of 3-4%. 
In turn, Mr. Zgardan believes that the CNPF’s fears are groundless. “There is no reason to think that the prices will increase. The only change here is that competition will increase between those two market shares – RCA and Green Card. 
 
RCA benefitting more from new regulation 

According to Angela Popil, from the law firm Avornic & Partners, which has a long history of insurance litigation settlements, the decision to amend the insurance regulation was necessary because most insurers were unable to compensate their operational and acquisition expenses. The acquisition commission and the premium discounts based on the bonus-malus system are quite big, especially in the case of companies with a limited range of products that would compensate losses. Damages that must be paid represent another factor: in the case of Green Card they are paid in foreign currencies, and in the case of RCA they depend on the growing prices for repairs of motor vehicles. 
 
”If we look at the structure of our market, and here I mean products, the changes are good both for RCA and Green Card insurers. In the short run, they gain time to generate additional income in order to cove the damages and avoid bankruptcy.
 
“On the other side, neither insurers nor intermediaries have learned from their negative experiences in the past. They will not reduce the acquisition commission or the meaningless discounts – which represents a faulty practice and ultimately prevents the correct management of risks and effective marketing actions,” the lawyer explained.
 
Alexandru Zgardan shares another opinion. He believes that companies earning from RCA insurance alone will be forced in time to diversify their portfolios, in order to survive. The companies that have a diverse portfolio can afford good discounts in order to gain a bigger slice of market. “In this case the losses on low-income products are compensated from revenues from more successful products. Insurers who live from RCA only cannot afford this luxury,” he observed.  
 
Most companies not prepared for tougher competition 

Angela Popil says, ”It is ok to relax the prices for these products, but the success of the new measures [adopted by the CNPF] depends exclusively on the insurers, on how they will manage their portfolios and revenues. What I see at present is a race for clients rather than a competition of quality services and strategies.” 
 
With a few exceptions, she continued, domestic RCA and Green Card stakeholders are not ready for a fight in a liberalized market. “The CNPF does an effort to make them adapt to the new modifications, but it does not solve their problems. And it’s not the CNPF’s job to do that. Companies need to pull together and change the way they work,” the expert concluded. 
 
In other words, Moldovan insurance companies will have to compete under tougher conditions and learn to manage more skillfully their portfolios. Professionalism and flexibility will now define their future. 
 
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This material was produced as part of the project "Investigative business journalism for transparency and European integration,” which Business News Service (Mold-Street.com) is implementing with the support of the National Endowment for Democracy (NED). The opinions expressed therein belong to their authors and do not reflect necessarily the stance of NED or the U.S. Government.
 


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