Dr. Klime Poposki Alma Qamo Motor Insurance Conference Istanbul, March 2013 MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability
Feb 25, 2016
Dr. Klime Poposki
Alma Qamo
Motor Insurance ConferenceIstanbul, March 2013
MTPL Insurance Market Liberalization Challenges
Macedonian CaseSetting MTPL Market Standards Towards Profitability
Contents
I. Macedonian Insurance market overview
II. Benefits of a sound MTPL market liberalization
III. Positive developments and challenges of MTPL insurance market in Macedonia
IV. Setting up sound market practices in MTPL insurance market – Actuarial Risk Pricing standards– Reserving Standards and compliance benchmarks– Reinsurance Standards– MTPL Data Quality and effective Information Systems
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I.Macedonian Insurance market overview
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Insurance market in Macedonia
4
15 Insurance Undertakings
11 Non-life Insurance Undertakings
4Life Insurance Undertakings
23Insurance brokerage companies
9Insurance agencies
742Insurance agents
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Structure of the Gross Written Premium
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Gross written premiums – relative change, MTPL
6
Balkan countries
Macedonia
2008 2009 2010 2011 201240,00042,00044,00046,00048,00050,00052,00054,00056,000
-15%
-10%
-5%
0%
5%
10%
15%
51,532 45,739 49,80153,089
53,363
-11.2%
8.9% 6.6%
0.5%
MTPL premium Relative change of the gross written premium
m EUR
Montenegro Serbia BIH Kosovo Albania Bulgaria Croatia Slovenia0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
1.18%
-0.03%
2.96%
12.76%
-12.07%
-8.21%
-0.46%
-6.43%
2009 2010 2011 Relative change 11/10
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Claims ratio, MI
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2008 2009 2010 2011Slovenia 67,3% 70,8% 65,4% 62,1%Macedonia 60,5% 61,5% 58,1% 57,4%Bulgaria 46,8% 56,9% 57,6% 57,3%Croatia 70,5% 62,5% 56,0% 49,8%Albania 27,2% 31,6% 39,8% 39,3%
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Channel distribution, MTPL
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40.3%
26.2%
3.5%
29.9%
2011
direct sales
insurance brokerage companies
insurance agencies
insurance agents
banks
cardiler stores
44.7%
26.3%
4.2%
24.9%
2012
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II.Benefits of a sound MTPL market liberalization
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• Best price for consumers, based on risk characteristics;• Level-playing field / fair competition for market players;• Advantageous to more technically sound players;• Faster and better payment of claims to consumers.
Brings market stability, growth and confidence
Benefits of a Sound MTPL Market Liberalization
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Is Macedonian MTPL market ready for liberalization?
Pros and Cons...11Istanbul, March 2013 Motor Insurance Conference
Positive developments in recent years Good ground for MTPL liberalization
• Establishment of Insurance Supervision Agency, increased supervisory capacities and leading role in promoting insurance market development in Macedonia.
• Law on Compulsory Motor TPL insurance in line with EU requirements;
• Insurance Information Centre administered by the NIBM collecting market data and information useful for premium setting, reserving, detection of uninsured, fraud, etc.
• Enhanced regulations and supervisory filing supported by web-based supervisory reporting system;
• Combination of local expertise with practices of international groups with long insurance experience.
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Market challengesReduced Claims Paying Capacity
Increased number of vehicles and insurance policiesIncreased number of claims reported to insurers
Increased domestic inflation and costs of auto repairsIncreased cost of living and medical expenses
BUT
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Market challengesIncreasingly Inefficient and Non Profitable Business
Considerable income goes to high commissions and other expenses
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Insufficient claims payments and reserves from some MTPL insurers
Company
Company
Company
Company
Company
Company
Company
Company
Company
Company
Company
0%
20%
40%
60%
80%
100%
120%
13%
101%
Correlation of companies' share of MTPL business in their portfolios with behaviour of claims payments and reserving
Share of Domestic MTPL in company's business
Claims paid / premiums
Claims reserve/premiums
Companies with large share of MTPL business in their portfolio pay and reserve less claims.
Companies with lower share of MTPL business pay and /or reserve more claims
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Uninsured vehicles
9% 7% 6%
15%
11% 12%
0%
5%
10%
15%
20%
25%
2008 2009 2010
Amounts of uninsured claims paid to market premiums and paid claims
Uninsured claims paid to market claims
Claims paid vs market premiums
2,063
1,6111,212
9771,116
18%
12%
8%6%
6%
0%2%4%6%8%10%12%14%16%18%20%
0
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011
Number of uninsured claims reportedNumber of uninsured claims
% to total market reported claims
1. Decreasing tendency of uninsured claims number relative to insured , but still considerable 2. Severity of uninsured claims substantially higher compared to insured claims (uninsured claims
comprise 6% in number and 12% in amounts of claims paid)
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Questionable from under estimation of
reserves! Can be higher!
Overall effectiveness and profitability picture
<
4
3
4
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Driven by level of industry development
Highly developed markets• High level of insurance expertise
• Markets driven by experienced insurers and risk-based practices
• Liberalization usually followed by immediate increase of premium rates (previously regulated) driven by actuarial risk analysis towards positive financial results
• Step-by-step process in some countries to control effect of immediate premium increase on consumers.
Less developed markets• Inadequate level of insurance expertise and lack of risk-based standards
• Inadequate capacity and improper practices of claims payment and reserving by some market players • Unfair “illegal” premium discounts from insurers, discriminating prudent players and distorting market
standards and competition
• Further “legal” decrease of premium rates may occur immediately after liberalization with major deterioration in claims paying capacity and solvency for insurers and market
Reaction of Market post Liberalization
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Given the current stage of MTPL market development:
Immediate and unprepared liberalization is likely to lead to market instability, reduced claims paying capacity and
profitability and may have a negative social and economic impact.
Is the Market ready to liberalize NOW?
Pros Cons
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Towards a profitable MTPL market in MacedoniaISA Initiative
Joint Project with World Bank
OBJECTIVES• Enhance market standards and develop technical and supervision
capacities for actuarially sound setting of premium rates, technical reserves and proper risk management in MTPL insurance
• Ensure compliance of the MTPL insurance market with – EU MPTL insurance legislation– Best international practices
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Building blocks for a sound MTPL market liberalization
Claims paying capacity
Enhanced solvency Profitability Confidence
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Proper claims payment and reserving standards
Risk based actuarial pricing
Proper risk control and transfer
Proper information and DATA processing
Roadmap towards a sound and profitable MTPL market
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Premiums fixed by MTPL insurance commission
Develop and consolidate Risk Based Supervision
Minimum Claims Reserving BenchmarksRisk Based Actuarially Set Premium Benchmarks
Risk control and transfer requirements
Premiums set by InsurersProper risk reserves
Proper risk control and transferMarket Profitability and Solvency
CURRENT
Transitional
TARGET
User friendly interactive actuarial tools developed
Simple Pricing screen
Actuarial Risk Pricing Tool
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Extensive background actuarial risk analysis involved
User friendly interactive actuarial tools developedActuarial Risk Pricing Tool
1. Simple claims data input
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2. Claims reserves assessed
Extensive background actuarial risk analysis involved with option to make choice on method based on pattern!
Thank you!
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