Tensions on the Insurance Market
HUGE TENSIONS IN INSURANCE:
The brokers and insurers, taken by surprise by the new supervisor, Cristian Constantinescu, insurance specialist: It is not the brokers’ fault that very high fees were reached on the civil liability insurance for motor vehicles (RCA); it is the insurers’ fault for having accepted them in their rush for market share.
The insurance market is going through maximum tension moments in the conditions in which the players on the market, both the insurers, but especially the brokers, were taken by surprise by the new management of the Financial Supervisory Authority (FSA) with a set of measures for the radical transformation of an industry tormented by loss for eight.
The capping of the fee paid by the insurers to the brokers for the brokerage of mandatory civil liability insurance policies for motor vehicles (RCA) to maximum 10% is the proposition having generated most protests, whereas the measure of increase of the minimum solvency threshold for general insurances by one third, from 1 to 1.3 upset most part of the insurance companies.
If the insurers refused for now to have a firm position related to the new regulations, the brokers eagerly claim that such a norm, illegal in their opinion, will brush away the intermediaries from the market of the mandatory civil liability insurance for motor vehicles (RCA).
“Brokers will disappear from the market if these propositions are implemented, because they will no longer be able to cover their expenses, and the effect will be the decrease of the insurance coverage degree of the car fleet, as the insurers no longer have the necessary territorial coverage. Under these circumstances, we risk the infringement procedure from the European Commission”, Viorel Vasile explained, managing partner of Safety Broker, the biggest broker, with business of 242 million lei last year.
According to the information on the market, the authority called UNSICAR (the association of the local brokers) on August 14th for consultations. The brokers complain that FSA made decisions without consultation and state that the authority superficially treated the level of the costs. Furthermore, the brokerage companies ask to the FSA the implementation of a reference fee also in the case of insurers.
On the other hand, FSA motivated that it is inadmissible for brokers to make big profits from the sale of mandatory policies and brought up the fees in other European countries, way below the average on the local market.
“The substantiation of the fee ceiling to the level of 10% took into consideration the European practice, where the fee level is much lower, the realities of the Romanian market, where the fee percentage significantly increased over the last years, but also the calculations of the FSA that took into account the stability of the market and the interest of the insured”, FSA explained, upon the request of ZF, via Radu Soviani, spokesperson.
Brokers counterattack and draw the attention of FSA also to the average premiums in other countries, whose much higher level also translates into higher collections for the brokers.
“FSA should also take a look at the medium premium in the European countries, not just the fee. For a medium premium for the mandatory civil liability insurance for motor vehicles (RCA) of EUR 500, a EUR 50 fee covers the expenses; in our case however, the average premium is of EUR 100, which means a EUR 10 fee. You cannot cover the cost with EUR 10”, Viorel Vasile remarked.
According to the market sources, the local brokers collect between 15 and 20% by the brokerage of mandatory civil liability insurance policies for motor vehicles (RCA). More than half the total subscriptions of the insurers come via the brokerage companies, and, since market of the mandatory civil liability insurance for motor vehicles (RCA) is dominant, the brokers’ portfolio is also primarily made up of mandatory policies. The sales of mandatory civil liability insurances for motor vehicles (RCA) cumulated last year 2.5 billion lei (570 million Euros), being the only increasing segment. Brokers claim that the high level of the expenses of the insurers, having reached last year 40% of the premiums, is not going to be solved by fee capping. Last year, only the expenses on distribution and promotion amounted to 26%, which, at a brokerage degree of 50%, means costs of about 10% on the distribution via brokers.
The decision of the FSA is encouraged by some specialists on the market, who state that a fee of maximum 10% is sufficient for the coverage of the expenses and is able to bring normality to the market. “A 10% fee covers without problems all the brokers’ costs. Nowhere in the world are fees similar to the ones for the optional insurances paid to brokers for the mandatory policies. It is not the brokers’ fault that very high fees were reached on the mandatory civil liability insurance for motor vehicles (RCA), it is the insurers’ fault, for having accepted them in their rush for market share (...). The broker can demand, no one stops them”, Cristian Constantinescu, one of the most experienced people in insurances and former general manager of Allianz-Ţiriac, commented. According to him, there were also brokers on the market that used to receive fees of 50% on the mandatory civil liability insurance for motor vehicles (RCA).
As regards the regulations directly aiming at the insurance companies, Constantinescu is very firm and states that no measure is going to solve the problems as long as the legislation is not complied with. “FSA can set a margin of 2 just as well, but, since the legislation is not applied, it is useless. The question that no one has an answer to is why insurers not having at least the minimal current margin of 1 are still on the market? They had to be taken out of the game. Astra, Carpatica still take out mandatory civil liability insurance policies for motor vehicles (RCA), despite the fact that all the problems thereof originate therefrom. Why us a company very clearly breaking the law tolerated?”
The project launched for public debate by FSA at the end of July is intended as the “antidote” putting a stop to the unfair competition on the market of the mandatory civil liability insurance for motor vehicles (RCA), the dumping fees and “out of the line” fees collected by brokers for the simple sale of a policy mandatory by law, as Mişu Negriţoiu, president of FSA, claimed on numerous occasions.