TIRANA, Aug. 30 – The sale of the sole state-run insurer, INSIG, has triggered a 20 percent price hike in compulsory motor insurance policies, sparking allegations of a price-fixing deal among by the nine privately-owned companies operating in the Albanian insurance market.
Annual compulsory motor insurance rates for common five-seaters increased by an average of 20 percent up to 19,200 lek (Euro 137) starting August 23, in a unanimous hike by all companies which heavily rely on compulsory insurance.
The country’s Financial Supervisory Authority says it is monitoring the situation and analyzing the price determination procedure followed by the companies but warns it cannot do much in a liberalized market.
Albania’s Competition Authority which has often probed the market says implementing the bonus-malus system, a risk-based pricing under which drivers with a clear driving record will pay less, is the solution to the frequent controversial price hikes. The new system, which is about to be implemented next year, also takes into consideration the cars’ age, the engine capacity and the geographical area.
“The Competition’s Authority stance has been consistent since late 2014 when we investigated into this market. We impose fines but they are invalidated by courts. The Financial Supervisory Authority must implement the World Bank’s bonus-malus system,” says Lindita Lati, the head of the competition watchdog.
In early 2014, monitoring carried out by the Competition Authority showed all agents traded insurance policies in an online system called MSHM which was managed by a single broker.
In October 2012, 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, but the companies appealed the decision to court and it is not known whether the fines have been collected yet.
Insurance companies have justified the price increase with the tax hike on insurance premiums which in January 2016 increased to 10 percent, up from a previous 3 percent and higher costs on paid claims and administrative expenses.
The price increase also comes after the insurance market grew by only 3 percent in the first seven months of this year while paid claims rose by 37 percent apparently due to hike in car accidents.
Albania’s non-life and compulsory insurance oriented insurance market has grown by double-digits in the past couple of years after a 4.6 percent annual decline in 2013.
Insurance premiums rose by 21.2 percent to 14 billion lek (€101 mln) in 2015, according to the Financial Supervisory Authority.
The hike has also worried the Konfindustria business association which condemned failure to act by state institutions over what it describes as an oligopoly situation and possible state capture by the private insurers.
“The latest simultaneous price increase on compulsory car insurance by all companies clearly portrays the oligopoly condition of the insurance market with severe consequences for businesses, households and the national economy. The situation becomes more concerning when in a period of less than 2 years, insurance rates have increased almost 300 percent for more than 500,000 vehicles owned by businesses and households under the ‘fait accompli’ practice,” Konfindustria said in a statement.
The recent sale of state-owned INSIG insurer could have also made the suspected price-fixing deal easier.
Earlier this year, the Albanian government sold INSIG insurer to Eurosig for €15.8 million in a deal which increased the Albanian-owned private insurer market share to 20 percent.
Back in 2014, the director of INSIG state insurer was fired because of his decision to increase motor insurance rates without an analysis and consultation, following the trend of eight private insurers which were alleged to have been involved in a price-fixing deal.
Once the holder of a monopoly of the Albanian insurance market, INSIG, which also operates in neighbouring Kosovo and Macedonia, had been losing considerable market share in recent years due to the market liberalization and tough competition from private players.
The Albanian insurance market, dominated by two Austrian insurance groups, is overwhelmingly non-life oriented with around 91 percent while compulsory motor vehicle insurance accounts for 60 percent of total insurance premiums.
Some nine insurance companies operate in Albania, including recently privatized INSIG operator.
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 International Monetary Fund.
Albania increased its per capita spending on insurance products by 37 percent in 2014, but still lag behinds regional countries, according to a report published by the country’s Financial Supervisory Authority. Albanians spent an average of 4,009 lek (Euro 28.2) on compulsory and voluntary insurance of vehicles, as well as property and life insurance in 2014, up from 2,929 lek (Euro 20.6) in 2013.
While insurance rates may be lower compared to regional countries, Albania has one of Europe’s highest fuel prices due to the high tax burden.
