Fast-spreading borrowing frenzy forces Insurance Supervision Commission to take steps

The fast-spreading crediting frenzy among individuals has alarmed not only the banking system supervision authorities but also the insurance supervisors. The sales of credit and guarantee insurance policies, by which the insurance companies undertake the risk of defaulting on loans, have gone up so much lately, that the Insurance Supervision Commission (CSA) has announced it will impose a series of special provisions for this type of insurance.
Whoever takes a loan for a washing machine has no idea that in case they default on instalments the bank can avoid the loss. The banks that have a credit and guarantee insurance policy can recover their money from an insurance company. As they think debtors will no longer pay their instalments if they find out the banks are insured, the insurance companies try to be as discreet as possible when closing these deals and their representatives are rather reluctant to talk about it. Still, even though the bank takes an insurance to have the default risk covered, this does not necessarily mean debtors no longer have to repay the money and cannot be prosecuted in justice for this. Only that the “prosecutors” are the insurance companies this time.
The premiums collected from credit and guarantee insurance amounted to 413bn ROL ($12.5 million) in 2002, up 50% in ROL from 2001. There are no statistical data available for this year yet, but the growth is estimated to be at least equal to the one last year.
Alarmed by the transfer of the risk from the banking system to the insurance system, CSA plans to exert a tighter control over this type of insurance.
“We are now working on a series of prudentiality norms by which we will set reinsurance conditions and request separate in-depth reports for this type of risk. As we’re talking bad risk here, which comes with a rather high loss ratio, it is only natural that we would pursue a wider spread and reinsurance. Our concern is to avoid the transfer of non-performing credits into the insurance industry,” said Nicolae Crisan, CSA chairman.
Fanel Plopeanu, Omniasig’s vice-president says he finds CSA’s action only natural. “This is a very risky field. The risk is moved from the banking sector to the insurance sector, even though the banks are stronger institutions and the insurance companies are weaker. Furthermore, reinsurance for this type of policy is hard to find. Subsequently, CSA will have to analyse the companies’ own underwriting capacity,” Plopeanu says. Omniasig’s credit and guarantee insurance policy-related revenues doubled in 2002, to 70bn ROL, but the amount is not alarming, Plopeanu explains. sorin.pislaru@zf.ro