Samir OMERHODZIC: According to results published in the first half of 2016, the insurance market in Bosnia and Herzegovina recorded an increase of the total insurance premiums of 7,86%. Within the overall structure of premiums compared to the same period last year, the non-life insurance premiums has increased by 8.46% and the life insurance premiums has increased by 5,46%. The share of non-life insurance premiums in total premiums recorded a slight increase of 0,56%, while life insurance premiums decreased by 2,24%. Motor third-party liability insurance still has the largest share of 49,04% in the total insurance premium, which compared to the same period last year recorded an increase of 4,36%. In addition to motor third-party liability insurance, the accident insurance, health insurance, goods in transit insurance, liability insurance for ships, credit insurance, insurance of various financial losses and assistance insurance have increased in the overall structure of insurance premiums, while other types of insurance are falling. The highest growth was recorded by credit insurance and assistance insurance. Total claims paid by insurance companies in the first half of 2016 have increased by 6,86%, out of which the claims arising from non-life insurance were paid for 7,48% more compared to the same period last year and those based on life insurance for over 4,71% more. In the insurance market in Bosnia and Herzegovina in 2016 there was an increase in the number of insurance companies. There were three new insurance companies registered, one based in the Federation of Bosnia and Herzegovina and two based in the Republic of Srpska. All three companies will initially deal with motor third-party liability insurance. The insurance market in BiH, especially the MTPL market, is a small and demanding for a large number of insurance companies that operate on it. The total number of registered companies in first half of 2016 is 27.
XPRIMM: What are your expectations for the end year results?
S.O.: By the end of 2016 it is expected to have a growth of total insurance premiums at the level of growth in previous years. The growth of life insurance in the structure of the total premium and a higher share of this type of insurance in the total portfolio in line with the trend of previous years is expected due to low interest rates on the free saving in banks and gradual increase in awareness of the significance of life insurance in terms of announcement of the reform of the pension and health insurance in Bosnia and Herzegovina. Former growth of life insurance premiums for the most part was related to the activities of banks on retail loans and condition of conclusion of life insurance policy as collateral.
It is expected that the adoption of the Law on pension and disability insurance in the Federation of Bosnia and Herzegovina which is now in parliamentary procedure and the announced changes to the health insurance system shall lead to the positive changes in the insurance market, to the development of new products and higher share of voluntary insurance premium in the total portfolio.
XPRIMM: Has the market seen any legal changes of some relevance in the first part of 2016? Are any in preparation?
S.O.: In the first half of 2016 in the Federation of BiH the Law on Amendments to the Law on Insurance Mediation which are giving opportunity to banks to sell insurance, except motor third-party liability, was adopted.
In the Federation of Bosnia and Herzegovina, the Law on Amendments to the Law on Insurance against Motor Liability and other Provisions on Compulsory Insurance against Liability is in the parliamentary procedure. The provisions of the amendments propose that the FBIH Insurance Supervisory Agency bring common conditions and premium system for compulsory liability insurance, which will harmonize regulation at the state level, considering that the above provision is in the same way regulated by the Law on Compulsory Insurances in Traffic in RS (adopted in 2015).
The main problem that has long been present is contempt of administratively determined premium, i.e. the provisions of the common MTPL premium system through unfair competition, and through directly and indirectly giving unauthorized discounts. It affects the rising cost of obtaining insurance, leading to a weakening of the financial position of insurance companies and, ultimately, to an inability of compensation for damage to the insured.
One of the novelties in the Draft Law is to reduce from 90 at 60 days the period within which the insurance company shall be required to pay a claim, or to explain why is unable to do so. When it comes to MTPL, it has been suggested that the insurance company for a period of five years from the date of entry into force of this Law use a common tariff premium and price list issued by the FBIH Insurance Supervisory Agency. After that, during the period of partial liberalization, insurance companies shall use their own tariff premium and price list for which they would received the prior approval of the FBiH Insurance Supervisory Agency. Upon the expiration of eight years from the date of entry into force of the Law, shall come the period of full liberalization and the end of the obligation of insurance companies to obtain prior approval of the FBiH Insurance Supervisory Agency. However, for the purpose of depreciation of possible negative effects from introducing a system of MTPL free pricing, it is envisaged that both in the period of partial and full liberalization, the insurance company, together with the tariff premium shall submit technical base that would be used in determining premium rates to the FBiH Insurance Supervisory Agency, as well as a positive opinion of the certified actuary on adequacy of premiums for permanent fulfillment of all obligations of the insurance company under the insurance contract. In case of insufficiency of established premium for permanent fulfillment of obligations of companies, FBiH Insurance Supervisory Agency, in addition to regular control measures, such as requirements for recapitalization, shall have jurisdiction to require changes or additions to conditions of insurance and premium tariffs.
The Law on Pension and Disability Insurance FBiH is in parliamentary procedure. The Draft Law on Insurance of FBiH has been prepared to ensure the functioning of the regulatory framework Solvency I with the elements of Solvency II which can be applied in the current market conditions in BiH, like specific provisions to regulate the life and non-life insurance, reinsurance, risk assessment, requirements for management of insurance companies, internal control, bankruptcy and liquidation process and etc.
XPRIMM: Did your market achieve a better level of harmonization between the legal provisions governing the insurance markets in the two territorial entities of the country?
S.O.: Taking into consideration the organization of the insurance market in Bosnia and Herzegovina, the laws and bylaws of the Federation and the Republic of Srpska unfortunately not comply completely and thus that situation leads to various problems in the performance of insurance activities. Nevertheless, the Insurance Agency of BiH undertook all necessary actions in order to ensure inter-entity harmonization in accordance with its legislative role. The problem of non-compliance is a problem that Bosnia and Herzegovina shall have to deal with seriously when meeting the conditions on the road to European integration.
XPRIMM: Property insurance lines have seen a negative change in GWP in 1H2016. We would highly appreciate more details explaining this trend.
S.O.: Property insurance have decreased despite the severe damage to which the public and private companies and citizens have been exposed due to severe flooding and natural disasters that occurred in Bosnia and Herzegovina in the previous years. Authorities at all levels in BiH are trying to avoid insurance and leave even some of the strategic public companies uninsured. This is unfortunately a fact that has been known for long in Bosnia and Herzegovina. It is not uncommon that many public companies (electricity, telecom, hospitals) do not have concluded property insurance although in the past they suffered significant losses due to fire, flood and other damage to property. Since it is a question of a public interest, which is essential for all companies as well as for all citizens, about this problem is necessary to speak publicly because the issue of uninsured risk in private ownership meets completely the wrong reaction of the state and society. Due to social sensitivity in Bosnia and Herzegovina, in cases like this, there are various resources (aid, grants, ect.) to remedy the negligence and irresponsibility of the owners and save jobs, but it does not solve the fundamental problem of ensuring risks. In such a situation it is not surprising that the property insurance premium falls. Relations between some forms of insurance are not getting better, but the trend is the opposite, leads to the growth of automobile liability insurance, which will be one of the many problems when entering Bosnia and Herzegovina to the EU.
XPRIMM: The MTPL insurance holds a significant share in the market portfolio. Which is the current status of this sector?
S.O.: MTPL has a significant share in the total insurance premium in Bosnia and Herzegovina. This proportion increase is actually a negative phenomenon considering the trends that should occur in the development of each insurance market. In Bosnia and Herzegovina due to the poor economic situation, high unemployment, lack of development of the economy, the mandatory types of insurance have the largest share of the insurance premium. The biggest share has MTPL insurance to which insurance companies in Bosnia and Herzegovina still give the greatest attention. This is corroborated by the fact that the new established companies are primarily engaged with this type of insurance, and thus the number of participants which in all possible ways run an unfair competition in a bid for greater share of the premium income under this type of insurance increases. Increase of MTPL insurance premium is partially due to the strict actions regarding the application of the premium system by both entity insurance supervisory agencies.