Claims paid in the first quarter of 2013 dropped by 17.7 percent compared to the first quarter of 2012 when the insurance market registered a 15.7 percent shrink year-on-year on a 43 percent increase in paid claims
TIRANA, April 30 – Driven by a sharp increase in the compulsory MTPL car insurance, the insurance market grew by 12 percent year-on-year in the first quarter of 2013, according to data published by the Albanian Financial Supervisory Authority. However, claims paid in the first quarter of 2013 dropped by 17.7 percent compared to the first quarter of 2012 when the insurance market registered a 15.7 percent shrink year-on-year on a 43 percent increase in claims. The market continued remaining non-life oriented with 87 percent of total premiums while voluntary insurance slightly dominates over the compulsory one with 50.62 percent of total premiums.
Data show insurance premiums in the first quarter of 2013 reached 2 billion lek, up 12 percent compared to the same period a year ago while paid claims dropped by 17.7 percent to 593 million lek.
The compulsory insurance premiums, known as the DMTPL, rose by 41.7 percent to around 763 billion lek at the end of the March 2013, accounting for around 42 percent of the market share compared to 37 percent during the same period a year ago.
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.
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.
Risk-based pricing
Two years after the liberalization of the compulsory car insurance market, the Albanian Financial Supervisory Authority says it has concluded a project 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.
The introduction of the concept of risk-based-pricing is the key element in the new project. This includes increasing drivers’ responsibility – drivers who cause accidents should pay a higher premium-different risks require different price; drivers with small size engine cars should be paying lower premiums compared to large engine cars; and encouraging young males, who have a higher tendency of speed driving, to drive smaller cars through premium incentives, according to the World Bank project.
Turbulent prices to continue
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 cost of insurance is related to the frequency of accidents. If the latter will be reduced, then over time the price of insurance will decline.
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 stake holders on the potential value of the risk based principle, and improving legal framework regarding a transparent compensation system and approving and implementing of draft law on Law on Compulsory Insurance within the transport sector.
