Insurance companies pay out less in claims

TIRANA, Sept. 2 – Albania’s insurance companies continued paying out less in claims in the first seven months of this year despite insurance premiums registering a sharp 37 percent increase, says the Financial Supervisory Authority.
Data shows the nine insurance companies operating in Albania paid out 1.57 billion lek (Euro 11 million) in claims during the first seven months of this year, down 1.27 percent compared to the same period last year. Around 83 percent of claims go to motor insurance, which accounts for around 60 percent of the small Albanian insurance market.
Insurance premiums in the first seven months of this year rose by 36.6 percent to around 6.4 billion lek (Euro 45 million) fuelled by a sharp increase in compulsory motor insurance rates which have doubled compared to the same period last year.
In a recent report on Albania, the World Bank says performance of non-life insurance sector has not been good in the last six years, despite the fact that the market claims ratio was only 45 percent. “While theoretically plausible, such a low claims ratio is more likely to indicate a poor claims performance by most insurers and a low level of consumer protection. Around 70 percent of premiums went to cover insurers’ operational expenses, which are well above the levels observed in other insurance markets of the region.”
The compulsory domestic auto MTPL insurance which has increased its market share by 11 percent to 47 percent in the first seven months 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.
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 after a thorough investigation into the insurance market over alleged price fixing in the compulsory motor insurance policies.
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.
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 market 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.