Enkeleda Shehi, the head of the Supervisory Authority described the liberalization of the market as hurried, concluding that the companies had focused on prices and market shares rather than the quality of services
TIRANA, March 11 – The Financial Supervisory Authority has called on Parliament to review the law on the liberalization of compulsory motor insurance, warning that price floors are needed for the well-functioning of the market. Introducing the annual report at the parliamentary economy committee this week, Enkeleda Shehi, the head of the Supervisory Authority described the liberalization of the market as hurried, concluding that the companies had focused on prices and market shares rather than the quality of services. “The liberalization law was rather hurried because insurance companies were not ready to welcome or implement it. It has been a very difficult year with continuous increases and drops in prices. The role of the authority at this point is to monitor the risk premium and money set aside to pay claims,” said Shehi.
Under a decision made in late 2012, the Financial Supervisory Authority determined the 9,600 lek as the price floor for the compulsory insurance of motor vehicles with a capacity of 1,600 cc and 14,000 lek for vehicles with a larger capacity, but the ruling has been neglected by all operators.
“This is a price floor below which there is no sense and I am asking your support so that it is implemented. After this, competition among companies will focus on the product,” Shehi told MPs.
The efficient regulation of compulsory motor insurance market is one of the key challenges the Authority is facing under conditions when the fixed tariff regime has been scrapped.
Since late 2012, the market has been characterized by sharp fluctuations of insurance tariffs
In a recent meeting with directors of the nine insurance companies operating in Albania, Enekeleda Shehi, the director of the Supervisory Authority warned the companies’ efforts to offer low rates not covering risks are short-term goals which could bring negative impacts on their financial stability in the long-term. She called on company officials to show more professionalism in determining insurance rates and claims.
“Insurance companies must be led by long-term goals in order to preserve their financial stability, otherwise if this situation remains unchanged even in the coming months, the Authority will undertake all necessary measures to change and stabilize the situation,” said Shehi.
Currently, compulsory motor insurance rates have dropped to 6,000 to 7,500 lek annually, almost twice less compared to a couple of months ago.
Lindita Lati, the head of the Competition Authority which in late 2012 fined insurance companies over a banned deal, says the Authority has no power to investigate into insurance premiums.
“We have no power to probe insurance premiums because the market is liberalized.” It is the Financial Supervisory Authority which determines the risk premiums
Fuelled by an increase in compulsory car insurance rates, Albania’s insurance market rose by a moderate 7.4 percent in 2012, registering the biggest increase in the past three years. Data show insurance premiums in the domestic MTPL compulsory car insurance grew by 53 percent despite the number of insurance policies growing by only 3.7 percent compared to 2011. The MTPL market share rose to 42 percent in 2012 down from 30 percent in 2011.
Back in 2011, the liberalization of compulsory insurance market considerably affected revenues for companies operating in Albania with competition bringing lower fees. Data published by the Financial Supervisory Authority show new insurance premiums in 2011 reached 8.3 billion lek, up only 1.8 percent compared to 2010 despite the number of insurance policies registering a sharp 77 percent increase to 1.3 million. Back in 2010, the insurance market grew by 4.17 percent despite the number of policies dropping by 2.5 percent.
Last October, eight insurance companies operating in Albania were fined a total of 89 million lek (Euro 625,000) after the Competition Authority uncovered a price-fixing deal in compulsory motor insurance policy. The deal was made in February 2012 when all companies fixed motor insurance prices in a banned deal severely damaging competition.
The MTPL car insurance is a liberalized market regulated by the Financial Supervisory Authority only to determine the risk premium. The final prices of the product are individually set by the companies.
