MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability

Dr. Klime Poposki

Alma Qamo

Motor Insurance ConferenceIstanbul, March 2013

MTPL Insurance Market Liberalization Challenges

Macedonian CaseSetting MTPL Market Standards Towards Profitability

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

2Istanbul, March 2013 Motor Insurance Conference

3

I.Macedonian Insurance market overview

Istanbul, March 2013 Motor Insurance Conference

Insurance market in Macedonia

4

15 Insurance Undertakings

11 Non-life Insurance Undertakings

4Life Insurance Undertakings

23Insurance brokerage companies

9Insurance agencies

742Insurance agents


Structure of the Gross Written Premium


Gross written premiums – relative change, MTPL

6

Balkan countries

Macedonia

2008 2009 2010 2011 201240,00042,00044,00046,00048,00050,00052,00054,00056,000

-15%

-10%

-5%

0%

5%

10%

15%

51,532 45,739 49,80153,089

53,363

-11.2%

8.9% 6.6%

0.5%

MTPL premium Relative change of the gross written premium

m EUR

Montenegro Serbia BIH Kosovo Albania Bulgaria Croatia Slovenia0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

1.18%

-0.03%

2.96%

12.76%

-12.07%

-8.21%

-0.46%

-6.43%

2009 2010 2011 Relative change 11/10


Claims ratio, MI

7

2008 2009 2010 2011Slovenia 67,3% 70,8% 65,4% 62,1%Macedonia 60,5% 61,5% 58,1% 57,4%Bulgaria 46,8% 56,9% 57,6% 57,3%Croatia 70,5% 62,5% 56,0% 49,8%Albania 27,2% 31,6% 39,8% 39,3%


Channel distribution, MTPL

8

40.3%

26.2%

3.5%

29.9%

2011

direct sales

insurance brokerage companies

insurance agencies

insurance agents

banks

cardiler stores

44.7%

26.3%

4.2%

24.9%

2012


II.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

Benefits of a Sound MTPL Market Liberalization


Is Macedonian MTPL market ready for liberalization?

Pros and Cons...11Istanbul, March 2013 Motor Insurance Conference

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.


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=_fj3uD9vsmaGSM&tbnid=GUpk9_lGyg1P9M:&ved=0CAUQjRw&url=http://www.123rf.com/photo_4404654_smiley-face.html&ei=o60nUe78M8XesgbIuYB4&bvm=bv.42768644,d.Yms&psig=AFQjCNFaPycUnpgJRvXLkPphp9oX7PBP9Q&ust=1361641233453594

Market challengesReduced Claims Paying Capacity

Increased number of vehicles and insurance policiesIncreased number of claims reported to insurers

Increased domestic inflation and costs of auto repairsIncreased cost of living and medical expenses

BUT


Market challengesIncreasingly Inefficient and Non Profitable Business

Considerable income goes to high commissions and other expenses


Insufficient claims payments and reserves from some MTPL insurers

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

0%

20%

40%

60%

80%

100%

120%

13%

101%

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

Claims paid / premiums

Claims reserve/premiums

Companies with large share of MTPL business in their portfolio pay and reserve less claims.

Companies with lower share of MTPL business pay and /or reserve more claims


Uninsured vehicles

9% 7% 6%

15%

11% 12%

0%

5%

10%

15%

20%

25%

2008 2009 2010

Amounts of uninsured claims paid to market premiums and paid claims

Uninsured claims paid to market claims

Claims paid vs market premiums

2,063

1,6111,212

9771,116

18%

12%

8%6%

6%

0%2%4%6%8%10%12%14%16%18%20%

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011

Number of uninsured claims reportedNumber of uninsured claims

% to total market reported claims

1. Decreasing tendency of uninsured claims number relative to insured , but still considerable 2. Severity of uninsured claims substantially higher compared to insured claims (uninsured claims

comprise 6% in number and 12% in amounts of claims paid)


Questionable from under estimation of

reserves! Can be higher!

Overall effectiveness and profitability picture

<

4

3

4


1

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

Reaction of Market post Liberalization


Given the current stage of MTPL market development:

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.

Is the Market ready to liberalize NOW?

Pros Cons


Towards a profitable MTPL market in MacedoniaISA 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


Building blocks for a sound MTPL market liberalization

Claims paying capacity

Enhanced solvency Profitability Confidence


Proper claims payment and reserving standards

Risk based actuarial pricing

Proper risk control and transfer

Proper information and DATA processing

Roadmap towards a sound and profitable MTPL market


Premiums fixed by MTPL insurance commission

Develop and consolidate Risk Based Supervision

Minimum Claims Reserving BenchmarksRisk Based Actuarially Set Premium Benchmarks

Risk control and transfer requirements

Premiums set by InsurersProper risk reserves

Proper risk control and transferMarket Profitability and Solvency

CURRENT

Transitional

TARGET

User friendly interactive actuarial tools developed

Simple Pricing screen

Actuarial Risk Pricing Tool


Extensive background actuarial risk analysis involved

User friendly interactive actuarial tools developedActuarial 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!

Thank you!


Documents

MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability