MTPL Insurance Market Liberalization Challenges
Macedonian Case
Setting MTPL Market Standards Towards Profitability
Dr. Klime Poposki
Alma Qamo
Motor Insurance Conference
Istanbul, March 2013
Contents
I.
Macedonian Insurance market overview
II.
Benefits of a sound MTPL market liberalization
III. Positive developments and challenges of MTPL insurance
market in Macedonia
IV. Setting up sound market practices in MTPL insurance market
–
–
–
–
Actuarial Risk Pricing standards
Reserving Standards and compliance benchmarks
Reinsurance Standards
MTPL Data Quality and effective Information Systems
Istanbul, March 2013
Motor Insurance Conference
2
I.
Macedonian Insurance market overview
Istanbul, March 2013
Motor Insurance Conference
3
Insurance market in Macedonia
15
Insurance Undertakings
4
11
Life Insurance Undertakings
Non-life Insurance Undertakings
9
23
Insurance agencies
Insurance brokerage companies
742
Insurance agents
Istanbul, March 2013
Motor Insurance Conference
4
Structure of the Gross Written Premium
Istanbul, March 2013
Motor Insurance Conference
5
Gross written premiums – relative change, MTPL
m EUR
450.0
15.00%
12.76%
400.0
10.00%
350.0
300.0
1.18%
5.00%
-0.46%
250.0
2.96%
200.0
0.00%
-6.43%
-0.03%
150.0
Balkan
countries
-8.21%
100.0
-5.00%
-12.07%
-10.00%
50.0
0.0
-15.00%
Montenegro
Serbia
BIH
2009
Kosovo
2010
Albania
Bulgaria
2011
Croatia
Slovenia
Relative change 11/10
m EUR
Macedonia
54
52
50
48
46
44
42
40
10%
8.9%
0%
0.5%
-11.2%
-5%
-10%
52
46
50
2008
2009
2010
MTPL premium
Istanbul, March 2013
5%
6.6%
53
2011
53
-15%
2012
Relative change of the gross written premium
Motor Insurance Conference
6
Claims ratio, MI
Slovenia
Macedonia
Bulgaria
Croatia
Albania
Istanbul, March 2013
2008
67,3%
60,5%
46,8%
70,5%
27,2%
2009
70,8%
61,5%
56,9%
62,5%
31,6%
2010
65,4%
58,1%
57,6%
56,0%
39,8%
Motor Insurance Conference
2011
62,1%
57,4%
57,3%
49,8%
39,3%
7
Channel distribution, MTPL
direct sales
24.9%
29.9%
40.3%
2011
insurance brokerage
companies
insurance agencies
2012
44.7%
4.2%
3.5%
26.2%
Istanbul, March 2013
insurance agents
Motor Insurance Conference
26.3%
8
II.
Benefits of a sound MTPL market liberalization
Istanbul, March 2013
Motor Insurance Conference
9
Benefits of a Sound MTPL Market Liberalization
•
•
•
•
Best price for consumers, based on risk characteristics;
Level-playing field / fair competition for market players;
Advantageous to more technically sound players;
Faster and better payment of claims to consumers.
Brings market stability, growth and confidence
Istanbul, March 2013
Motor Insurance Conference
10
Is Macedonian MTPL market ready for liberalization?
Pros and Cons...
Istanbul, March 2013
Motor Insurance Conference
11
Positive developments in recent years
Good ground for MTPL liberalization
•
Establishment of Insurance Supervision Agency, increased supervisory
capacities and leading role in promoting insurance market development in
Macedonia.
•
Law on Compulsory Motor TPL insurance in line with EU requirements;
•
Insurance Information Centre administered by the NIBM collecting market
data and information useful for premium setting, reserving, detection of
uninsured, fraud, etc.
•
Enhanced regulations and supervisory filing supported by web-based
supervisory reporting system;
•
Combination of local expertise with practices of international groups with
long insurance experience.
Istanbul, March 2013
Motor Insurance Conference
12
Market challenges
Reduced Claims Paying Capacity
Increased number of vehicles and insurance policies
Increased number of claims reported to insurers
Increased domestic inflation and costs of auto repairs
Increased cost of living and medical expenses
BUT
Istanbul, March 2013
Motor Insurance Conference
13
Market challenges
Increasingly Inefficient and Non Profitable Business
Considerable income goes to high commissions and other expenses
Istanbul, March 2013
Motor Insurance Conference
14
Insufficient claims payments and reserves
from some MTPL insurers
Correlation of companies' share of MTPL business in their portfolios with
behaviour of claims payments and reserving
Share of Domestic MTPL in company's
business
120%
Claims paid / premiums
100%
101%
Claims reserve/premiums
Companies with lower share of
MTPL business pay and /or
reserve more claims
80%
60%
40%
20%
13%
0%
Company
Company
Company
Company
Company
Company
Company
Company
Company
Company
Company
Companies with large share of
MTPL business in their portfolio
pay and reserve less claims.
Istanbul, March 2013
Motor Insurance Conference
15
Uninsured vehicles
Amounts of uninsured claims paid to market premiums
and paid claims
Number of uninsured claims reported
Number of uninsured claims
2,500
% to total market reported claims
18%
2,000
12%
1,500
8%
2,063
1,000
6%
6%
1,611
1,212
500
977
1,116
0
2007
2.
2008
2009
2010
2011
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Uninsured claims paid to market claims
Claims paid vs market premiums
25%
20%
15%
15%
11%
12%
7%
6%
10%
5%
9%
0%
2008
2009
2010
1. Decreasing tendency of uninsured claims number relative to insured , but still considerable
Severity of uninsured claims substantially higher compared to insured claims (uninsured claims comprise
6% in number and 12% in amounts of claims paid)
Istanbul, March 2013
Motor Insurance Conference
16
Overall effectiveness and profitability picture
Questionable from
under estimation of
reserves! Can be higher!
1
3
4
4
<
Istanbul, March 2013
Motor Insurance Conference
17
Reaction of Market post Liberalization
Driven by level of industry development
Highly developed markets
•
High level of insurance expertise
•
Markets driven by experienced insurers and risk-based practices
•
Liberalization usually followed by immediate increase of premium rates (previously regulated) driven by
actuarial risk analysis towards positive financial results
•
Step-by-step process in some countries to control effect of immediate premium increase on consumers.
Less developed markets
•
Inadequate level of insurance expertise and lack of risk-based standards
•
•
Inadequate capacity and improper practices of claims payment and reserving by some market players
Unfair “illegal” premium discounts from insurers, discriminating prudent players and distorting market
standards and competition
•
Further “legal” decrease of premium rates may occur immediately after liberalization with major
deterioration in claims paying capacity and solvency for insurers and market
Istanbul, March 2013
Motor Insurance Conference
18
Is the Market ready to liberalize NOW?
Given the current stage of MTPL market development:
Pros
Cons
Immediate and unprepared liberalization is likely to lead to
market instability, reduced claims paying capacity and
profitability and may have a negative social and economic
impact.
Istanbul, March 2013
Motor Insurance Conference
20
Towards a profitable MTPL market in Macedonia
ISA Initiative
Joint Project with World Bank
OBJECTIVES
• Enhance market standards and develop technical and supervision
capacities for actuarially sound setting of premium rates, technical
reserves and proper risk management in MTPL insurance
• Ensure compliance of the MTPL insurance market with
– EU MPTL insurance legislation
– Best international practices
Istanbul, March 2013
Motor Insurance Conference
21
Building blocks for a sound MTPL market liberalization
Proper claims payment
and reserving standards
Risk based actuarial
pricing
Proper risk control and
transfer
Proper information and DATA processing
Claims
paying
capacity
Istanbul, March 2013
Enhanced
solvency
Profitability
Motor Insurance Conference
Confidence
22
Roadmap towards a sound and profitable MTPL market
TARGET
Transitional
Develop and consolidate Risk Based
Supervision
Minimum Claims Reserving Benchmarks
Risk Based Actuarially Set Premium Benchmarks
Risk control and transfer requirements
Premiums fixed by MTPL
insurance commission
Istanbul, March 2013
Premiums set by Insurers
Proper risk reserves
Proper risk control and transfer
Market Profitability and Solvency
CURRENT
Motor Insurance Conference
23
User friendly interactive actuarial tools developed
Actuarial Risk Pricing Tool
Simple Pricing screen
Extensive background actuarial risk analysis involved
Istanbul, March 2013
Motor Insurance Conference
24
User friendly interactive actuarial tools developed
Actuarial Risk Pricing Tool
1. Simple claims data input
2. Claims reserves assessed
Extensive background actuarial risk analysis involved with option to
make choice on method based on pattern!
Istanbul, March 2013
Motor Insurance Conference
25
Thank you!
Istanbul, March 2013
Motor Insurance Conference
26