Each autumn Bulgarian insurers come to close quarters fighting for customers. However, auto insurance may play a practical joke on companies
Auto insurance season 2009 promises to offer the audience violent and dangerous passions. As it usually happens every year. The campaigning for compulsory MTPL policies will set the corporate
nerves on edge and will automatically direct customers to the cheapest insurance. At the end of this insurance rodeo, companies will report even worse financial results, but drivers will become
even more dissatisfied by insurers. Déjà vu.
Everybody is fully aware that purchasing of an insurance policy is nothing like shopping at an all-for-lev store. However, nobody engages to remove the product from the low-price segment for fear
of losing customers. The harvest might turn out to be infertile, especially given that the “guarantee period” of the insurance stands at 5 years.
"Compulsory MTPL insurance should rise at least double next year or in a year and a half. Urgent adjustment of the price is necessary because of the enormous losses generated in this sector,"
announced Ralitsa Agayn-Guri, vice-chairman of the Financial Supervision Commission (FSC) and head of the Insurance Supervision Service, in the framework of the 10th Economic Forum on Southeastern
Europe. The insurance-dedicated panel of the forum held on November 6, whose first part was devoted to car insurance, was attended by insurers, brokers, leasing companies, government experts,
representatives of the NGO sector. The panel was organized by Insurance.bg.
Auto insurance occupies some 60 percent of premiums in general insurance income. Nearly half of it is composed of MTPL insurance. Meanwhile, virtually all companies have reported losses on
insurance. In 2007 losses accounted for more than BGN 37 million; only for the first half of this year total losses have accumulated to nearly BGN 43 million.
According to the Financial Supervision Commission (FSC), the average size of claims for moral damages in MTPL and "Green Card" stands at about BGN 20,000 for the past 3 years. In 2005 it was BGN
19,152; in 2006 – BGN 22,918; and in 2007 – BGN 18,900. However, growth is recorded in their number.
Mrs Ralitsa Again stressed on the fact that compensations paid out last year amounted to BGN 123 million, which accounts for nominal growth of 40.9 percent. For comparison, in 2006 compensations at
the cost of BGN 87 million were paid out (annual growth of 16.9%), while a year earlier the payments reached nearly BGN 75 million (annual growth of 16.3%). The first half of this year has recorded
paid damages at the cost of BGN 77 million, which formed nominal growth of 44.2 percent. It is expected by the end of the year total insurance compensations to reach approximately BGN 150-160
million.
Given the damage quota varying from 20.19 percent (for "Bulgarski Imoti") to 67.99% (for "Allianz") and average market rate of 41 percent, it means that insurers have paid BGN 41 per each BGN 100
of collected premiums, explained Vladimir Todorov, chairman of the Bulgarian Association of Accident Insured and Injured.
He added that insurance kept generating losses also due to the large commissions to brokers and agents, standing on the average of 30-40 percent. You should add the administrative and advertising
costs, costs of reserves provisioning legal claims. On the factual background of constantly increasing regulations by the court and the extension of insurance scope in the EU, it could lead to
dangerous consequences both for individual companies and the discrediting of the insurance sector as a whole.
At the same time, the battle for customers has driven companies nearly hysteric rivaling to offer lower prices and hidden bonuses.
Mrs Again said that due to competition insurance policies have dropped to the cost of BGN 60-80 after the insurance regulator removed minimum price (BGN 120-140). Bulgarian policies are among the
cheapest in the EU. Meanwhile, the risk on the companies is identical with the rest of the community. Therefore, the idea of insurance appreciation comes forward even more urgently. Everybody is
aware, however, that such rise cannot be shocking. But no one dares to identify any specific price parameters in any time run.
According to Ralitsa Again, given the half-year loss of BGN 43 million, the price of insurance policy should be such as to cover that amount and to prevent future losses. "The issue of the price
rise, however, should be strictly individual – it depends on administrative costs and commissions that each company offers. It cannot be therefore summarized on the market price rise, Mrs Again
also said.
"The issues you fight against recall the experience of Greece," said Dieter Krumbholz, Organization Manager of International Life General Insurance S.A., Greece, who attended in the capacity of
speaker at the insurance panel of the Southeast Europe Forum. "As soon as MTPL policy prices were liberalized, we have prepared a technical analysis showing that adequate price policy is about EUR
300. The market was difficult to access with such a price and insurance policies of all companies have sharply depreciated. Of course, companies set on the loosing side. Currently, the policy costs
about EUR 289, but the market needed time to reach this "normal" price", the insurer said.
Broker commissions in Greece have been also very high – although about 35 percent at the beginning, now they reach some 18-20%. Official statistics shows that after such a long period of
liberalized market, yet 6 percent of cars in Greece lack MTPL policy. According to informal information, however, they stand at 20 percent, Mr Krumbholz noted.
He added that companies should realize the fact that prices of their insurance policies should cover the risk involved in order to pay out claims – so that they are able to work, although these
prices seem not to be attractive to consumers, especially in the beginning. He believed it is in the interest of consumers to understand, as soon as possible, that the companies' provisions should
be sufficient to enable them to serve the interests of their customers. And it will happen – there is no way round, the speaker assured.
Mr Dieter Krumbholz made an exhaustive presentation of the Greek insurance market before the forum's participants, along with all its issues and potential, positioning it in the context of
Europe.
The cost of MTPL insurance in Bulgaria should increase up to fair and adequate social cost, a fair price, which is the one sufficient to pay out compensations, said Tsvetanka Krumova, member of the
board of the National Bureau of Bulgarian Car Insurers and CEO of Insurance and Re-insurance Joint-Stock Company "Armeec". The policy price should equal the European price of the product. But how
the market would react to a price of EUR 300 is another issue. Mrs Krumova was reluctant to forecast for what period the price of this policy in Bulgaria would make up with European rates.
The silence clout over the insurance industry is provoked not only by the social impact of policy appreciation throughout the public and the forthcoming campaign, but also by a coming regulation of
the competent court. Indeed, insurers were accused by the Commission for Protection of Competition (CPC) for entering into cartel agreement to regulate the prices of MTPL insurance. This cold
shower stood to a total of BGN 2.45 million in fines imposed on companies.
Amid this tense situation expectations on the 2009 MTPL season are it would instigate sordid desires among companies. Everybody has the apprehension that policies would rise on the average of about
50-60% compared to last year's prices. Several companies have already announced tariffs calculating such growth. Other companies have decided to up the price in two steps until the start of active
campaigning in early December. A third group of firms are focused as potential underminers of the market and already experience the rage of their colleagues. So, the déjà vu soap opera called "MTPL
insurance" will eclipse this year’s Latin American soap-opera hits.
Obviously, insurance should rise, discounts for brokers and agents should be cut down and finally the famous "bonus-malus" system should be introduced. Proposals have been made to waive payment of
insurance, but those voices rather feel the ground of public opinion than reflect a serious demand for change. Whether it would be soon for someone to seriously engage with these adamant measures,
or after a notorious Bulgarian tradition one or another company would "go bang" with a colossal insurance claim – we are about to see.
