Paid claims at a standstill despite 44% market boost

TIRANA, Paid claims in the Albanian insurance market continue remaining at negative growth rates despite the market having registered a record 44 percent growth in the first ten months of this year, , unveiling the low level of consumer protection.
Data published by the Albanian Supervisory Authority show the eight insurance companies operating in the country paid around 2.2 billion lek (Euro 15.5 million) while insurance premiums rose to 9.5 billion lek (Euro 66.6 million) mainly as a result of the sharp rise in compulsory auto insurance which accounts for around 50 percent of the market.
In its new 2015 fiscal package, government says that starting from next January it will also lift the 20 percent VAT on compulsory non-life products dominated by auto insurance but impose a 3 percent tax on gross insurance premiums.
The market boost was fuelled by a sharp 96 percent increase in the compulsory auto insurance market which accounts for around half of Albania’s small non-life and compulsory oriented insurance market.
The compulsory auto insurance known as the Motor Third Party Liability (MTPL) increased its market share to around 49 percent in terms of income in the first ten months of this year, up from 45 percent during the same period last year.
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 otherwise they risk being fined up to 10 percent of their annual turnover. 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.
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.”