The new scheme, drafted under World Bank assistance, takes into consideration the cars’ age and engine but also driving record and geographical area and is expected to be applied by the end of this year
TIRANA, March 14 – The Financial Supervisory Authority announced this week it is working on introducing a new scheme to calculate the compulsory motor insurance policies which following a drop after the liberalization in mid-2011 have doubled during the past two months. The new scheme introduced this week by the Authority’s head, Ekelejda Shehi, takes into consideration the cars’ age and engine capacity, but also driving record and geographical area.
The new scheme introduced by Shehi while presenting the annual report at the parliamentary economy committee is being drafted under World Bank assistance.
“All risk components will be taken into consideration, starting from the geographical area, the age of insured cars, engine capacity, and driving record, providing a fair price,” said Shehi, adding that the project’s implementation is expected to start by the end of this year.
Asked about the sudden double of insurance policy rates last February, the head of the Financial Supervisory Authority described the situation as normal and showing that the market is operational.
“The double of the insurance rates is nothing more than prices coming to the same levels before liberalization. The Authority considers this normal because under previous rates the payment of claims was risked and there would be discrepancies about reserve funds.”
In its 2011 report, the Supervisory Authority said low penetration rate and the low claim-premium ratio remained challenges for the insurance market to increase consumer confidence and improve services. Insurance penetration (premiums as a proportion of GDP) was at 0.67 percent in 2011. The claims ratios. i.e claims payable as a percentage of premium income was at 31 percent for the first nine months of 2011.
The high number of uninsured cars is another issue for insurance companies operating in Albania, increasing their costs.
Poor performance in 2011 and a further deterioration in January 2012 is the reason behind insurance companies doubling compulsory insurance rates for motor vehicles. 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. 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 to 2,400 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.
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.
