All insurance companies were forced to reduce prices last weekend in order to maintain their market shares after state-owned INSIG cut rates by around 20 percent to 16,000 lek (Euro 112)
TIRANA, Feb. 17 – Government intervention in the insurance market through state-owned INSIG insurer which holds a minority market share has somehow stabilized motor insurance rates after a sudden overnight hike by all companies sparked price-fixing allegations. The drop in insurance policy rates came after the Finance Ministry fired the director of the only state-owned insurer over his unilateral price increase without consulting the company’s supervisory board.
Tomorr Kalaja was fired on Feb. 12 only one day after the sudden price hike in compulsory motor insurance rates in what seemed a price-fixing deal.
All insurance companies were forced to reduce prices last weekend in order to maintain their market shares after INSIG cut rates by around 20 percent to 16,000 lek (Euro 112). INSIG’s market share in the compulsory motor insurance dropped to 6.14 percent in 2013, down from 7.41 percent in 2012, according to the Financial Supervisory Authority.
On Feb. 11, compulsory motor insurance policies, known as Motor Third Party Liability (MTPL) and accounting for around 40 percent of the insurance market rose by 6,000 lek (Euro 42) to an average of 20,000 to 21,000 lek (Euro 140 to 147) by all nine companies operating on the market including state-owned INSIG insurer. Compared to the same period last year when they traded at 5,500 to 6,000 lek, motor insurance rates have trebled.
The increase by almost one-third in a single day irritated citizens who described the new tariffs unaffordable at a time when fuel prices stand at a record high under new tax increases ranking Albania with the highest diesel and petrol prices in the region.
In a meeting with representatives of the association of insurance companies this week, Prime Minster Edi Rama asked Economy Minister Arben Ahmetaj to hold consultations with the association so that a strategic plan is prepared for this sector.
“The insurance sector is a great development potential for Albania and as a result a full strategy is needed for the future so that the continuous modifications made to this sector come to an end,” said Rama.
In a reaction to the price increase, the Financial Supervisory Authority which oversees the market, said it did not have the power to intervene in the companies’ tariff policies in a market which has been liberalized since August 2011.
The Supervisory Authority says it considered the liberalization of the compulsory insurance segment as premature and was against the way it was carried out while its suggestions were not taken into consideration either by the executive or lawmakers.
The Authority, which has often expressed its concern over low policy rates unable to meet claims, says a dangerous situation would be in case prices fall below the current level.
Socialist Party MP Erjon Bra襬 who chairs the parliamentary economy and finance committee, had earlier demanded immediate explanations and an investigation by state authorities.
In a letter to the Financial Supervisory Authority, the Competition Authority and the Finance Ministry, Bra襠described the situation as a repeated cartel-like situation among market stakeholders.
The price increase came after the Competition Authority has already launched an enquiry into the insurance market over an alleged price-fixing deal which is believed to have limited competition in the compulsory motor insurance policies.
The market shrink in 2013 seems the reason behind the increase in motor insurance rates in early 2014. Affected by a double-digit decline in compulsory motor insurance, the insurance market shrank by 4.6 percent in 2013, registering the first decline in the past five global crisis years.
Data published by the Financial Supervisory Authority show insurance premiums in 2013 dropped by 4.63 percent to 8.5 billion lek (Euro 60 million), affected by a 15.5 percent decline in compulsory motor insurance premiums, which account for around 40 percent of the market share.
Paid claims in 2013 also dropped by 3.3 percent to 2.7 billion lek (Euro 19 million).
The market share of compulsory motor insurance premiums dropped to 36.5 percent in 2013, down from 42 percent in 2012.
Albania’s insurance market rose by 7.8 percent in 2012, by 1.8 percent in 2011, 4.17 percent in 2010 and by 11.3 percent in 2009 soon after the outbreak of the global financial crisis.
Some nine insurance companies operate in Albania, of which only INSIG remains wholly state-owned following unsuccessful privatization attempts.
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.
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.
