The first part of the Insurance Market Trends Conference taking place at FIAR 2018 brought into debate the changing insurance landscape, as well as the CEE markets in the European insurance landscape, but also the concept of mutual insurance and its benefits for shareholders.
Michael THEILMEIER, Senior Vicepresident, GEN Re
- I have been familiar with the Romanian insurance market for many years, before 1989: it was a monopolistic market, after which it diversified, a bit too much maybe, and now it's starting to become an oligopoly.
- During past editions of FIAR, we used to talk about the destructive results on the motor insurance market. Today, the situation is completely different.
- The situation in Romania is not singular. We find a similar context in most markets in the region. The CEE market is an oligopoly, 3-8 international groups activating in each country in the region.
- I remember that, in the 80s, most specialists were saying that in 10 years, the international insurance market would be dominated by 10 Japanese groups. This did not necessarily happen. In the United States, 80 insurance companies are founded every month. For example, I know a group of teachers who founded an insurance society to insure their profession. The future trend is mutuality.
- GENERALI is selling some of its business. Similarly, ALLIANZ is leaving some markets. The general tendency is to leave markets, not to enter new ones. Why? Because of too much complexity... nowadays, the price of corporate governance is extremely high. Why AXA, for example, does not have operations in Albania or in the countries near the Baltic Sea? Because those markets are too small. Today, the implementation of an informatics system is too pricey.
- This is the tendency: of diversification. The future belongs to those who are small and fast, which adapt quickly.
- The same tendency is also encountered on the business lines. If the motor market does not go well, it must not be compensated by property, because there is the risk that both lines will be ""destroyed". The Polish market is the best example for this: it is a market which reached the 4th cycle of evolution. It grew from horrible results in the motor market to really performant ones. It is a market in which, for example, the property segment did not suffer from the evolution of the motor segment.
Cornel COCA CONSTANTINESCU - Vicepresident, Insurance Sector, ASF - Financial Supervisory Authority, Romania
- Such a Forum is welcome for those interested in the insurance industry. It's a great pleasure to be here, at Insurance Market Trends Conference, organized at FIAR, considering the themes of interest to be debated on the insurance-reinsurance activity, in the context of new regulations.
- I'm starting with a retrospective of the last year. The insurance business has been marked by profound transformations of new risk-based approaches and on the prospective thinking of the business. We continue with the consistent regulation of the brokerage activity and the introduction of higher transparency requirements for our clients, through the application of the IDD Directive. At the same time, we have other regulations in other areas with significant impact and risks and I refer to GDPR - General Data Protection Regulation.
- As a result, we must all be aware that intermediaries and insurance companies will need to implement changes on both organizational and operational level and rethink their strategy, especially for products created in partnership.
- We must not ignore the fact that, for the development of the Romanian insurance market, we need to be realistic and analyze the need for creating insurance products tailored to the needs and possibilities of potential customers.
- From autumn (October 1st), we will also pay more attention to consumer protection in the light of IDD Directive's stipulations, regarding the compliance with the rules of conduct and how to interact with the consumer, by: correct and complete consumer information and honest, correct and professional conduct; the existence of agents/intermediaries with a high level of professional training and competence; higher transparency requirements with regard to informing clients about conflicts of interests or how to grant incentives; information on combined sales; the requirement that any proposed contract corresponds to the consumer's insurance requirements and needs (suitability of the product), based on the assessment of its needs, especially on the sale of insurance products with an investment component, based on customized recommendations;
- I am convinced that the implementation of the IDD Directive will bring long-term benefits for insured, intermediaries and insurers and will contribute to market development, by promoting more transparent insurance products, especially life products, by increasing the level of information for both policyholders and the general public about product characteristics and associated benefits.
- At the same time, we are considering the diversification of the legal forms in which the insurers work, namely by establishing the legal form of the mutual insurance company, which implements the principle of the social economy in the insurance industry.
- The mutual insurance company is a legal form established in other EU countries, this type of companies representing about a quarter of the markets where this form is used.
- Mutual societies have proven that they can contribute to job creation and also that they are a factor of social cohesion. At the same time, it promotes the key values of the socially active state: solidarity, non-discrimination, equal access and functioning for members' benefit. In the context of the latest financial crisis, these companies have proven resilient by not being directly orientated towards profit.
- I can not help but mention the "technological innovation" that will follow, sooner or later, in the insurance sector, the widespread appearance of some products or distribution channels that use mostly digital technology to create a competitive advantage and to meet the demands of new generations of consumers familiarized with the use of the new technologies. Many insurance companies are preparing to use predictive analysis and process automation techniques.
- I think that, after a period of turmoil on the insurance market, 2018 will mark a reassessment stage in terms of business, as well as form a legislative point of view, as a result of the efforts of all those involved in this industry.
- I hope that the end of the year will confirm that we really are on the right track, encouraged by 2017's results, of which we can mention three indicators: lowering the combined damage rate on the MTPL sector, reaching the Romanian historical minimum of 99.75%; the growth of life insurance GWP with 20%; SCR and MCR overhead for all companies.
- ASF's objectives for 2018 are aligned with the development in the European legislation and focus on creating the premises for a healthy market development and strengthening the supervisory function by developing risk-specific risk-based tools.
- The actions and the support of ASF for different events and financial education campaigns will continue to raise the awareness of a larger segment of the population on the necessity and benefits of insurance and, implicitly, to increase the level of financial education and inclusion.
- As part of the European Surveillance System, ASF is actively involved in ensuring the consolidation of the supervisory function, by the convergence of practices, and also ensuring the link between micro and macro prudential supervision on European level.
Michael BRANDSTETTER, EU & International Affairs, VVO - Austrian Insurance Association
Gorazd CIBEJ - Director, AZN - Insurance Supervision Agency, Slovenia
- IDD Implementation: The transposition deadline was postponed until 1 July, and insurers must implement certain aspects until 1 October.
- There is an avalanche of legislative projects which can generate high costs for companies.
- Does this mass of new legislation really bring benefits to consumers? In my opinion, there are certain doubts concerning this aspect, in certain cases.
- We have a regulatory iceberg. Level 1 - The European Parliament, Level 2 - The European Commission, Level 3 - EIOPA - many laws that must be implemented by the companies.
- If we follow the three levels, we see that, although the available time for implementing certain legislations is two years, when it comes to certain provisions, companies only have a few months or weeks left to do this.
- The IDD provisions must create, first of all, juridical reliability from day one; all insurance distributors must have legal basis from day one.
- As far as the situation in CEE is concerned, in Slovakia and Hungary, IDD is already being implemented. On these markets, companies must already follow the provisions of IDD, hence a large diversity in the implementing process.
- Moving on to PEPP - Pan-European Pensions - this is a product which should be added to the 3rd Pillar of private pensions. It should be a cross-border product and, for reasons depending on the competition, it can be offered by insurers, banks and investment funds.
- PEPP must be a long-term product, a pension product which should lead to fulfilling the consumer's objective; this is why, in my opinion, the biometric risk should be mandatory, not optional.
- PEPP must not be a complex product, but an accessible one, which can also be offered by smaller players in the market.
- Another important project is the creation of ESA - an entity which unites the European supervisory authorities - EIOPA, EBA and ESMA. The legislative project was already started and should be finalized by the end of May 2019, when the European Parliament has elections.
- Would a unique supervisor of the financial markets work in this regulatory ocean? Yes, it is correct to have an European supervisor, but, I must remind you, when it comes to the insurance industry... we have so many local specific aspects, that EIOPA's help is needed; The purpose of the European supervisor is to make sure that there is enough transparency and democratic control and that the legislation is implemented at national level.
- It's the first time I speak at FIAR. I really love Bucharest. For sure, it's the Small Paris.
- Today, I'll speak about legislative changes at EU level. We know that the financial crisis has become a crisis of consumer confidence, due to inappropriate treatment of conflicts of interests, inappropriate supply of insurance products and services. For consumers' needs, the existing legislation has not been adapted sufficiently fast to highlight the increasing complexity of financial services.
- The financial sector must put the consumer in the spotlight, the products must be safer, the information - clearer and the product sales to be subject to the highest of standards. For this reason, we adopted a package exclusively for consumers and they can choose financial services, information and professional advice, putting consumers in the center of interest.
- It's been 10 years now since the financial crisis, we are in another stage of the regulatory cycle, which is influenced by new critical priorities, including investments, economic growth.
- The European industry is stronger with Solvency II, because the risks have been analyzed and measures have been taken to mitigate them. There is also more transparency.
- We need regulated markets that focus on consumer interest and take into account consumer confidence and economic growth on the medium and long-term.
- The new legislation raises the standards and has stipulations for consumers' benefit.
- Regarding Slovenia, the KID PRIIPs oversight has not yet begun, we are in the process of drafting the implementing legislation. Once this law enters into force, our agency will ensure that all players report on the basis of legislation requirements.
- IDD aims to ensure better consumer protection and improves the competitive environment at industry level.
- GDPR will produce its effects in 10 days, on May 25. Insurance companies often use personal data and it is crucial that they are prepared for the new rules.
- GDPR drastically increases the fines up to EUR 20 million or 4% of the turnover registered in the previous fiscal year.
Catherine HOCK - Vicepresident International Relations, ICMIF - International Cooperative Mutual Insurance Federation
- The negative events can have positive effects. This is how insurance mutualism arose, when the great fire in London, in 1667, destroyed 13.000 homes and dozens of churches, with estimates losses, for today, of 1.5 billion pounds.
- Further, in the US, several mutual companies were set up, where, for example, in the case of a fire, the insured houses were marked. Until 1920, more than 2.000 such companies have been set up, for lots of risks, the companies being set up by teachers, traders, taxi drivers, municipalities, universities etc.
- Today, at a global level, there are approximately 5.000 mutual insurance companies, generating about a quarter of the global value of PBS. From this point of view, North America (especially, US) - 36%, Europe - 31% and Latin America - 14% - are the main markets for the mutual insurers.
- If the mutuality in insurance will also be regulated in China, we expect major changes on the Asian continent.
- As a volume, mutual insurers registered revenues of $ 1.3 trillion in 2015; statistics show that it is a stable market, reporting linear growth, with a global share of 26% each year.
- Also on a global level, it provide 1.1 million jobs; around the world, there are approximately 990 million members - policyholders.
- In 45% of all countries on the globe, mutual insurance are not regulated; it's a shame, because, in the most of these countries, the lack of insurance market is very high.
- The advantage on the financial field is firstly given by diversity.
- Mutualiy in insurance - it's a successful model, which may be destroyed by the avalanche of regulations.
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