Without the same visibility enjoyed by the banking system or, lately, the investment funds system, the Romanian insurance market, especially life insurance, are growing up both rapidly and steadily, despite the “war-time” economic decline.
From less than $100 million in premiums in ’93, the market is leaning toward $300 million this year, whereas life insurance has developed even more spectacularly, from $5 million to $30 million in the same period.
With all the growth, insurance premiums as a share of the gross domestic product remain scant, at 0.7-0.8%, compared to 3-4% in countries like Hungary, Poland and the Czech Republic, and compared to the USA, Western Europe or Japan, where the figure is 8-10%, it is outwardly ludicrous.
In other words, the growth is explicable. As with milk teeth, the rate of growth is so high because this is barely the beginning, and the economic collapse has only influenced the sector to a small extent, perhaps just braking it a little. Nothing special so far. For several years, however, there have been new kids on the insurance block, especially in life insurance.
As in no other industry, the brand names came in: Nederlanden – the biggest Dutch insurance company and one of the biggest in Europe, American International Group – the biggest insurance and financial services company in the world, Generali – the biggest insurance company in Italy.
Last year, the majority stake in Omniasig, a company founded under the now-defunct Bancorex, was bought by Israeli investment fund TBI Holding, controlled by Deutsche Bank.
In the meantime, a major Greek company sprung up, Interamerican, and this year one of the biggest life insurance companies in Great Britain, CGU, entered our market.
These days, German insurance powerhouse Allianz, Europe’s largest market-cap financial institution, announced its purchase of the majority stake in ASIT, the most powerful fully private Romanian insurer.
The French market leader, Axa, is also poised to arrive, and Winterthur, a major Swiss company, already has an office in Bucharest.
Why this grand battle? Does the Romanian market have any potential? Maybe, but something else is certain.
The market will soon open for privately managed public pension funds, and life insurance networks are very well suited to sell this product, which is similar in nature.
All these companies have already established a presence in the Western part of Central and East Europe, where pension systems are already being reformed, and the Romanian market is second population-wise.
The deficit of the social insurance budget in the present pensions system, wherein the ever-fewer employees pay for the ever-more pensioners, makes it a time bomb.
Under the new legislation, which could pass this autumn under a Government emergency ordinance, all employees with 20 years or more to retirement, as well as the others as an option, will choose a fund to deposit one-third of the money that now goes to state pensions.
Funds will be managed by private companies, which will have to bring in millions of dollars and will manage money from hundreds of thousands of people. Consequently, the milk teeth will be put through the test: they won’t have to “chew” $30 million, but ten times as much.
This is the biggest business in Romania for the next 20 years, and the reputation and financial might of these multinational companies will be an added advantage to the future deponents. The tougher the competition for their money, the safer it will be.