The Competition Authority demands the immediate implementation of the Bonus-Malus system under which drivers with a clear driving record will pay less. The new scheme takes into consideration the cars’ age and engine capacity, but also the geographical area.
TIRANA, Aug. 6 – In a bid to promote competition, Albania’s Competition Authority has warned insurance companies operating in Albania to introduce risk-based pricing on auto insurance by next October otherwise they risk being fined up to 10 percent of their annual turnover. The decision was made last week after a thorough investigation into the insurance market over alleged price fixing in the compulsory motor insurance policies, accounting for 40 percent of the market.
The Authority demands the immediate implementation of the Bonus-Malus system under which drivers with a clear driving record will pay less. The new scheme takes into consideration the cars’ age and engine capacity, but also the geographical area.
The Authority also requests that the nine insurance companies operating in Albania must respect the legal deadline on the payment of claims and eliminate deals with a single broker.
In early 2014, monitoring carried out by the Competition Authority showed all agents traded insurance policies in an online system called MSHM which was managed by a single broker. “Data from one agent’ system at a given time did not offer all companies licensed to trade the respective product, but a limited number of 4 to 5 companies. The number and the display of available companies on the system remains unclear because in another agent, all companies were available to offer motor insurance policies,” said the Authority.
Insurance companies say they have already started testing the new risk-based system.
Risk-based pricing
More than two years after the liberalization of the compulsory car insurance market, the Albanian Financial Supervisory Authority says it has concluded a project with the World Bank targeting efficient tariffs based on risk and the implementation of a Bonus-Malus system under which drivers with a clear driving record will pay less. The new scheme takes into consideration the cars’ age and engine capacity, but also driving record and geographical area.
Recent price movements have been very turbulent and this turbulence will continue in the short term, warns the World Bank. “The main causes of this turbulence appear to be the prioritizing of market share regardless of the true cost of the exposure assumed. This is common feature of a newly liberalized market. Equipping the marked with a modern statistical methodology and database will contribute to offering insurance products that are priced on a stable basis.”
The World Bank says three key challenges lie ahead at the completion of the project and at the start of implementation of its recommendations. They include improvement of data availability and quality, increasing awareness of all stakeholders on the potential value of the risk based principle, improving the legal framework regarding a transparent compensation system and approving and implementing a law on compulsory insurance in transport sector.
Albania’s insurance market registered a sharp 35 percent increase in the first half of this year boosted by higher motor insurance rates and a slight decline in paid claims, according to data published by the country’s Financial Supervisory Authority.
The compulsory domestic auto MTPL insurance which has increased its market share by 11 percent to 47 percent in the first half of 2014 was the key driver of the insurance market mainly due to insurance rates having more than doubled compared to early 2013.
The Albanian insurance market, dominated by two Austrian insurance groups, is overwhelmingly non-life oriented with around 87.7 percent while voluntary insurance accounts for 54.2 percent of total insurance premiums.
In its latest financial system stability assessment, the IMF describes Albania’s insurance market as one of the smallest in Europe, with assets of around 1.5 percent of total financial system assets. “Its development has been hindered by several factors, including lax insurance regulation, low disposable incomes, and a poor record of claims performance,” says the Fund.
