Auto insurance pushes insurance market into the red

The insurance market ended last year in the red, a result of the pace of claim settlements (54%) exceeding the pace of gross underwritten premiums (34%). “I believe the insurance market posted losses last year. The industry made a profit of about 1% of turnover for 2005,” Cristian Constantinescu, chairman of the National Union of Insurance and Reinsurance Companies in Romania (UNSAR) told an insurance seminar organised by the Insurance Supervision Commission (CSA). The insurance market recorded a 38 million-euro profit in 2005, that is 0.03% of the value of the gross underwritten premiums.
“Had ARDAF stated correctly the level of solvency reserves in 2005, the insurance market would have also posted losses in that year,” Constantinescu added. ARDAF did not reveal the profit/loss figure for 2006, but it posted 30 million-euro losses for the first nine months of last year. Although he cannot estimate how large the losses are, Constantinescu believes that 90% of the 130 million-euro capital inflow on the insurance market in 2006 were directed towards offsetting the losses of previous years.
“We canet talk of significant price hikes for the comprehensive auto policies, but we can comment on an alarming trend in claims. The frequency of claims has reached 65% of the total market, which means 65 out of 100 comprehensive policy holders suffer damage every year,” Constantinescu explained. One of the reasons why the UNSAR chairman feels RCA (compulsory auto liability insurance) policies are more profitable than the comprehensive policies is that the risk dispersion is better in the formeres case, of about 90-95%, while the risk dispersion for the latter stands at no more than 15%.
Constantinescu believes that prices of comprehensive auto insurance should increase by 30% on the entire market, so that the domestic insurers could cover their expenses and return to making profit.
“Most companies that operate car service shops have announced they will raise their car repair rates; the insurance market cannot cover such costs from anything other than auto insurance premiums. Every company will have to revise its rates for the auto insurance policies,” Constantinescu said. He explained some companies might end up in default quite soon.
“About 1% of the volume of gross underwritten premiums was invested in recapitalisation last year and, if we continue this trend, the investors will grow reluctant. If a shareholder invests in a company for two or three years and the company doesnet turn a profit, they will eventually pull the plug,” the UNSAR chairman concluded.
The insurance market in Romania went up by 34% last year, to a volume of gross underwritten premiums of 1.6 billion euros.
General insurance generated 1.3 billion euros of this amount, while life insurance generated the remaining 0.3 billion euros.
The value of claims the insurers settled rose by 54% to 740 million euros, compared with indemnities of 478 million euros in 2005. General insurance claims settled in 2006 amounted to 700 million euros, an increase of 55% on the 451 million euros of 2005.