To provide you further insights in the car insurance market and especially in the MTPL part, we have invited our insurance brokerage and risk management specialists from Marsh, to answer a few questions. Marsh is a global leader in insurance broking and risk management providing corporate clients solutions to grow and develop. In Romania, Marsh is the leader of the corporate insurance broking market.
Mr. Groza, how did the MTPL insurance market in Romania develop in 2018?
According to the information published by ASF, the insurance premiums subscribed on the RCA segment decreased in the first nine months of last year by over 6%, compared to the same period of 2017. The average insurance premium decreased by 13 percent. The RCA insurance contracts for legal entities represent about 20% of the total.
In the first 9 months of 2018, the level of the RCA market generated around 2.7 billion lei, down from the 2.9 billion lei registered in the same period of 2017. For a more reliable evaluation, we need to consider that the highest value of the market in the past 5 years was reached in 2016 when, on the first three trimesters the amount of 3 billion lei was exceeded.
In Romania, there are nine RCA insurance companies authorized. Of these, the top two of the rankings on gross insurance premiums have a market share of almost 58%.
Furthermore, besides the trends in figures, we appreciate that the MTPL insurance market has evolved as practice, standards and training, but also as rules and regulations
How has the average RCA insurance premium evolved?
In the first nine months of 2018, the average RCA premium decreased by approximately 13% compared to the same period of 2017. Nevertheless, this is a trend that cannot be maintained in 2019.
What are the main factors that will influence the RCA market in 2019?
Insurance specialists identified an ensemble of factors that could lead to an increase in MTPL premiums for the current year:
- Implementation of IDD in Romania (Insurance Distribution Directive) – will increase operational costs of insurance companies. In the same time the implementation of the norms (IDD) will contribute, from the perspective of the insurance consumers, to their better information about the products and the insurance terms.
- Insurers report the existence of an inflationary phenomenon in repairing damaged cars. The increasing trend of the average damage is maintained and has an alert rhythm.
From the point of view of the average damage pay for bodily injuries, for the first months of 2018 it decreased to about 50,000 lei, and the value of the same indicator for material damage increased to 6,288 lei.
- The law does not limit in any way the repair costs that a service unit may require the TPL insurer, and therefore we find that the average RCA damage is often higher than the average damage recorded in the CASCO optional insurance segment.
- In the beginning of the last year, the legal provision capping the TPL (RCA) tariffs ceased to be effective, leaving the freedom of insurers to calculate rates on actuarial basis.
- Although it has improved in the past years, the damage technical combined ratio still gets over 100%.
- At the end of last year 8 of the 9 authorized companies on the MTPL market were fined by the Competition Council. The investigation addressed incidents that occurred several years ago.
How does this RCA insurance market work? What are the practices in the market?
MTPL is a compulsory insurance and every vehicle registered in Romania must have such a valid insurance. There are nine companies authorized to issue MTPL on the entire territory of the country. Insurers subscribe to RCA, based on actuarial principles of premium calculation and must advise their rates on ASF. The injured party (the beneficiary of the insurance) has the freedom to repair the damaged vehicle at any RAR authorized service in Romania.
As a novelty, the year 2018 brought the direct settlement clause which can be purchased in addition to the RCA policy. The clause allows the insured party to repair a possible damage to his own RCA insurer. The latter will recover the repair costs from the RCA insurer of the party who caused the damage.
How are the RCA insurance prices calculated for natural persons, corporate entities and operational leasing?
Insurers calculate on actuarial bases the payments for the RCA insurance premiums which are based on criteria such as the type of policyholder – Natural Person / Corporate entity, vehicle technical characteristics, drivers´ age, geographical area, vehicle use, damage history. In case of Operational Leasing the lease company is the insured and the TPL (RCA) premium is based on the damage loss ratio of the total fleet To optimize the TPL (RCA) insurance program, we consider the appointment of an insurance broker specialized in the management of fleet programs to be a significant asset.
Can the damage rate influence the prices of the RCA’s?
“It is likely that in the case of a fleet, portfolio or corporate client, the insurer also takes into account the damage loss history in the calculation of the renewal rate. It is obvious that a high damage rate leads to an increased insurance premium, symmetrically applying the same principle when the damage rate is low, “said Valentin Groza, Manager of the Motor Insurance Department of Marsh.
Business Lease remark: As a consequence, as well as based on the information forwarded by our insurers, as of 1 January 2019, the MTPL insurance premiums are expected to increase by about 15-25%. For clients of Business Lease this measure shall reflect in increased MTPL premiums and therefore from the renewal date of the insurance policy slight higher lease prices.
Article made in collaboration with Business Lease, Marsh.