Experts say the key reason behind the move is the poor financial performance insurance companies had for 2011 when their revenues rose by a mere 1.8 percent despite the number of insurance policies rising by 77 percent
TIRANA, Feb. 14 – Starting from Feb. 1 2012, rates for compulsory motor vehicle insurance have more than doubled in a sudden unexpected move following a sharp drop after the market was liberalized in mid-2011. What’s more, the new insurance rates are almost at the same levels in all eight companies operating in Albania, casting doubt of a secret deal among them. While the Financial Supervisory Authority has described the increased fees as normal “because of not reflecting the real market situation and the cost of the product,” the Competition Authority could soon launch an enquiry into the market which since Aug. 2011 is no longer regulated by government. Locally known as domestic MTPL, the compulsory motor insurance fees rose from an average of 5,000 to 6,000 lek (Euro 36 to 43) to 14,000 lek (Euro 1000) for common cars with a 1,600 cm3 engine and above. Annual insurance policies for mini-buses, lorries and busies vary from 20,000 lek to 44,000 lek.
Local companies say the increase in rates was applied after the Committee of Actuaries assessed the current insurance rates for motor vehicles as not meeting costs and putting payment of claims at risk at a time when the number of uninsured cars in Albania is estimated at 30 percent.
However, the key reason behind the move is the poor financial performance insurance companies had for 2011 when their revenues rose by a mere 1.8 percent despite the number of insurance policies rising by 77 percent.
Data by the Financial Supervisory Authority show insurance companies’ revenues from domestic MTPL, which holds the majority 30 percent share in the non-life market shrank by 24.5 percent to 2.2 billion in 2011. Paid claims in this category for 2011 also rose by 17 percent to around 970 million lek for 2011.
While legally, insurance holders are supposed to address insurance companies in case of road accidents, they do so only when they don’t settle disputes by mutual consent. Long procedures to win a claim and low amounts of compensation have been an ongoing problem in Albania.
In a statement, the Financial Supervisory Authority described the downward trend in Albanian insurance market rates after the liberalization process as contrary to similar experience in other countries.
“The insurance rates experience in other European countries shows that the application of rates under market rules is the only way urging insurance companies to lower insurance costs in the long-term, despite the fact that historically in the first years following liberalization, insurance rates underwent considerable increases even in these countries,” says the watchdog.
Albanian experts had correctly predicted the liberalization would lower insurance premiums in the short term but raise them in the long term as companies move to improve services. The liberalization is expected to introduce varying insurance fees for car owners based on personal damage records, driving experience, and car age.
The latest 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.
The 2011 growth was stimulated by a boom in health insurance policies following the visa liberalization in mid-Dec. 2010 and less paid claims. Gross paid claims, 78 percent of which belong to compulsory motor insurance, reached around 2.2 billion lek for 2011, down 4.3 percent compared to 2010.
The market continued remaining non-life oriented with around 87 percent of the total premiums, leaving life insurance with a 12.75 percent share and reinsurance with 0.22 percent.
At present there are eight companies operating in the Albanian insurance market.
The region of Tirana, where around one-third of the country’s 3.2 million population lives and most businesses operate, accounts for more than 60 percent of the insurance market in Albania, according to a 2010 report published by the Financial Supervisory Authority. The report on Albania’s insurance geography shows the region of Tirana, which includes the districts of Tirana and Kavaja constitutes 61.17 percent of the insurance market.
Second comes the region of Durres with 7.89 percent followed by the southern regions of Fier with 5.23 percent and Korca at 5.19 percent. Insurance market share in the remaining regions varies from 0.59 percent in Kukes to 4.12 percent in Gjirokastra.
However, Albania’s per capita consumption of insurance at around 2,550 lek (25 US dollars) is considered one of the lowest. Albanians pay on average 25 dollars annually for compulsory and voluntary insurance of vehicles, as well as property and life insurance, a small amount compared to other European countries.
Some 427,000 motor vehicles are registered in Albania. The number of cars in Albania currently at 121 per 1000 inhabitants is the lowest in the region compared to Serbia, Macedonia, and Bosnia and Herzegovina, according to a study by Open Data portal.
Konfindustria
Albania’s business community represented by the Konfinduatria Association has described the latest development in the insurance market as state capture and proposed voluntary car insurance and the facilitation of licensing procedures for new operators.
“It is completely meaningless and illegal that the state’s legal regulatory role is limited to the compulsory insurance of customers (individuals and businesses) for a group of businesses at the expense of public interest. The latest price-fixing in the car insurance policy rates, which comprises the majority share in the insurance market, has caused an increase of dozens of millions of Euros at the expense of the Albanians,” says Konfindustria in a statement.
