ルーマニアのMTPL市場における現在および将来期待される進展
概要
ルーマニアの自動車対人賠償責任保険（motor third-party liability、MTPL）市場は変わり続けています。これは、価格制限およびベンチマークタリフの導入、大手保険会社の破綻、また新たなMTPL規則を含め、過去数年の間に大きな変更による影響を受けているためです。
ルーマニア金融監督機関（Romanian Financial Supervisory Authority、ASF）は今年、2018年EU侵害訴訟をきっかけに、技術的プライシングを自由化するための規則案を公開協議の場に載せました。本訴訟は、複数の非遵守条項の特定に基づくものです。特に、「ルーマニアの現在の国家規則では、保険料の意図的変更について事前通知義務を定め、保険会社の保険料計算手順に複数の制約を課している」ことを特定し、欧州委員会（European Commission）は、これらの義務はソルベンシーII指令書（Solvency II Directive）および自動車指令書（Motor Directive）に反するという見解です。
将来の潜在的な規制変更がMTPL市場の成長を意味すると考えており、既存の保険会社にとっても新規参入者にとっても機会となるはずです。
Recent and expected future developments in the Romanian MTPL market
Overview
The motor third-party liability (MTPL) market in Romania has been dynamic, having been affected by significant changes over the past several years, including the introduction of price caps and benchmark tariffs, major insurance company bankruptcies and new MTPL regulations.
Draft regulations to liberalise technical pricing have been in public consultation this year by the Romanian Financial Supervisory Authority (ASF), initiated due to the 2018 EU infringement procedure. This procedure is based on the finding of noncompliance of some provisions. In particular, the European Commission found that “Romania's current national rules require a prior notification obligation of any intended modification of premiums and impose several limitations on the modalities of calculation by insurers of their premiums” and took the view that these obligations are contrary to the Solvency II Directive and the Motor Directive.
We believe future potential regulatory changes are meant to allow the MTPL market to grow and should present opportunities for both existing players and new entrants.
Historical view
The Romanian non-life insurance market has enjoyed significant growth in recent years. Both total non-life and MTPL premiums have shown consistent growth patterns. Gross written premium (GWP) for MTPL, as a proportion of the total non-life insurance GWP, has increased since 2011, peaking during 2011 at 52%, and remaining above 40% through 2020. Romania’s gross domestic product (GDP) has also shown a consistently increasing pattern through 2019, with a slight decrease in 2020.
Figure 1: GDP and Insurance Premiums
Source: ASF, INSSE (National Institute of Statistics)
Changes in the market
During the period between 2015 and 2017, the overall insurance market in Romania underwent several important changes. First, in order to test insurance sector stability, Romanian authorities launched a comprehensive Balance Sheet Review (BSR) exercise and stress test which took place during 2015. It included the involvement of Milliman and international audit firms specialising in insurance and actuarial analyses, who provided advice to the regulator.
The BSR exercise revealed negative capital of approximately RON 2 billion in total for three significant MTPL players. The consequential follow-up measures included not only capital increases, in order to restore financial strength of insolvent insurers, but also two bankruptcies, namely Astra and Carpatica. The bankruptcies of the two major MTPL players (whose MTPL market share based on premium was 15% and 18% in 2014, respectively) coincided with a 23.1% increase in average premiums for MTPL in Romania between 2015 and 2016. Combined loss ratios stayed above 120% throughout the 2011-2015 period (peaking in 2015 at 139.1%), and were still high in 2016, as seen in Figure 2, which shows the lack of profitability in this market segment.
The 2011-2015 period is also marked by decreases in the number of active insurance companies in the MTPL market. Over a longer time horizon, i.e., 2005 to 2015, there has been a constant decrease in the number of insurers participating in the Romanian MTPL market, driven by loss-making market conditions.
Since 2016, there was both a decrease in the MTPL GWP as a proportion of total non-life GWP and another increase in combined loss ratios. As shown in Figure 2, the average premium has generally decreased through 2020.
Figure 2: Premiums and Loss Ratios, 2016-2020
Post-2016 statistics reveal that average prices were lower than the 2016 level. Combined loss ratios have exceeded 100% since 2017. Thus, the market has remained loss-making.
Currently, there are 10 MTPL insurance companies operating in the market. There were also 10 companies operating in 2015, but since that time there have been two bankruptcies and two new entrants. The companies in the market can be categorised by their international status, type of establishment—permanent versus operating under freedom of service (FOS) or freedom of establishment (FOE) rules—and tenure in the market. Eight companies are locally established, owned by international groups, one is a locally-based company and one is a cross-border company.
According to the 2020 ASF report, all nine companies authorised by the ASF to issue MTPL policies and for which data is available recorded combined loss ratios above 100%. In other words, none of the MTPL insurers issuing MTPL policies made a profit from this line of business during 2020.
In 2016, MTPL legislation was introduced requiring maximum tariff imposition, essentially de-liberalising the MTPL market. In 2017, MTPL regulation was published providing benchmark tariffs calculation clauses and capping of expense levels to 25% for pricing purposes.
The application of a benchmark tariff had the effect of limiting and prescribing the segmentation for purposes of pricing (limited to the benchmark tariff calculation), which can mean that not all of the variability in the losses was explained by the pricing variables allowed. This can result in cross-subsidization between risks, imperfect pricing with inequitable rates for some market participants, possibly compounding adverse selection and causing further profitability issues, which are also affected by the capping of expenses for pricing purposes.
The 2017 regulation, also defines high-risk clients, representing the segment for which at least three insurers charge a tariff that is 36% greater than the benchmark tariff. High-risk clients are to be distributed to an insurer by the Office of the Romanian Motor Insurers (BAAR) for which BAAR would make a premium offer starting from the benchmark tariff.
In addition to this regulation, another change was introduced stipulating that independent actuaries certify that the tariffs are calculated according to professional actuarial standards every time such tariffs are changed by insurers. A ramification of these changes is that MTPL pricing was undertaken according to a prescribed segmentation similar to the one used in the benchmark tariff calculation.
Following the initiation of the EU infringement procedure in 2018, draft regulation was introduced in August 2021 for public consultation, revising current legislation whilst adding some measures meant to reverse some of the previous restrictions.
The requirement to notify the ASF 60 days prior to changing the tariff is hence removed. The requirement to provide an independent actuary report 30 days prior to implementing the tariff is changed to providing the independent actuary report within 20 days of tariff implementation, in essence transforming the rate filing requirement from file-and-use to use-and-file, which is a more relaxed requirement.
The key change in the draft regulation is nevertheless removing requirements to use prescribed segments in pricing (from the reference tariff) or to ask for approval for a different segmentation.
The draft regulation also adds another element, which effectively allows tariffs to vary by distribution channel. The text of the proposed regulation states that, regardless of the distribution channel used, the MTPL insurer offers the same net of distribution expenses insurance premium, established on the basis of the specific criteria of an insured. Thus tariffs are allowed to vary by channel, more appropriately accounting for materially different distribution expenses.
Several market organisations have commented on the potential regulation change, which included both positive and negative reactions. For example, the reaction of the Romanian Insurance and Reinsurance Brokerage Patronage was to criticise the draft regulation, specifically the clause allowing price differentiation; in essence saying that confusion will be introduced among the insurance consumers, increasing the distrust in one product or another, regardless of the channel through which the insurance offer is obtained.
The ASF has replied to these criticisms by saying that the decision to diversify prices according to the distribution channel was an older initiative supported by the Competition Council (a Romanian state administrative body aimed at protecting competition and consumers’ interests) and the ASF after some proposals from insurers less active in the MTPL area. According to the market press, the legislative initiative to modify the current regulations is also driven by the concentration of the MTPL market, given that until recently the two leading players have a combined market share of about 76% due to low prices and high brokerage commissions. There have even been attempts in the past to cap the commission, but this may not be allowed by the European Commission.
In the absence of a legislation change, the exit from the market of a leading player, which is underway, may cause current customers of the bankrupted company, possibly still interested in the lowest price, to migrate towards known companies with similar models, thus potentially perpetuating the low tariffs and high brokerage commissions model described by the ASF.
Introducing regulatory changes and having a differentiated price based on channel can mean not only lower prices for some (like the direct channel), but also potentially introduce disruption with respect of the model of low-priced sales and high brokerage commissions through the brokerage channel, which have been shown to be commonly under-priced.
The Romanian National Union of Insurance Companies (UNSAR), or the Association of Romanian Insurers, welcomed the decision to change the MTPL regulations and added that another solution that could bring about positive change for millions of drivers would be the introduction of an indicative reference price for assessing compensation, both in terms of repairs and ancillary benefits (e.g., rent-a-car). This instrument would not be a copayment and would not impose a cap on the rates charged in the car repair business, but would act as an informational element.
This year, the ASF has another regulation submitted for public opinion. It involves the modification of the MTPL regulation through emergency government ordinance to include obligatory direct compensation for accidents including physical damage occurring in Romania. According to the draft regulation, subsequent to policyholder compensation insurers would seek compensation (subrogation) from the insurer of the party at fault and receive subrogation in less than 10 days or face a 0.2% daily penalty applied to the claim or outstanding amount. The rationale, as described by the ASF, for introduction of this change was in the context of large concentration risk and the need to motivate customers to consider factors other than price when choosing MTPL.
One consequence of introducing obligatory direct compensation may be increasing the trust of customers, building long-term relationships with them. Additionally, insurers may consider that companies with poor payment histories may not pay the subrogation amounts in time or at all, especially if they face insolvency risk, and so good insurers may be subject to counterparty risk, and as a consequence they may consider adjusting their tariffs.
Looking towards the future
Several forward-looking elements have the power to modify the current market status quo and possibly create opportunities for new entrants as well as current players.
Although the Romanian market is not very large, it can be expected to grow strongly in the medium to long term. The Romanian economy is vibrant, being part of the EU, it is quickly developing and Romania is the second-largest country in terms of population in Central and Eastern Europe (CEE).
The Romanian National Commission for Strategy and Prognosis foresees growth of real GDP in the 2022-2024 period for several reasons. They include economic evolution from the year 2020 onwards, which has been above expectations, growth of investments, efficient absorption of EU funds and opening of economic activities in all sectors in accordance with the vaccination strategies and relaxation of restrictions. Thus, a prudent estimation of the average annual rate of growth of GDP is foreseen to be 4.9%, which is above the average prognosis for the EU for 2022 of 3.9%, made by the European Commission.
Additionally, GDP per capita has increased in recent years and is expected to further increase in the future by about 3% to 4% according to International Monetary Fund data and prognoses, which means that the wealth of the society will grow and people will be able to afford better and newer cars.
Furthermore, for the first two quarters of 2021, new car registrations in Romania increased by approximately 10% compared to the similar period of 2020 (but still did not reach the levels from first two quarters of 2018 and 2019). Increase of the number of cars on the road increases the pool of customers available and adds the possibility for insurer growth with the potential for profitability, if pricing is designed appropriately.
By introducing price differentiation by distribution channel and removing requirements leading to a prescribed segmentation, while depending on company strategy and level of expenses, companies could be able to both improve profitability and achieve growth.
Improved profitability can be obtained from using better and more advanced actuarial techniques for pricing and using a refined segmentation, as well as opportunities for favourable selection, i.e., identification by insurers of pools of lower-risk customers, and through proper segmentation and pricing, attracting them and generating profit.
Companies can achieve growth targets by looking at customer elasticity for new and renewal customers and using multivariate techniques to estimate the impact of rate changes on customer retention in various channels (like the direct channel which may have lower prices) to determine the impact on profit and growth. Thus, companies can consider optimised pricing in this context, i.e., using predictive analytics. Combining knowledge of claim costs with customer demand and retention rates in various channels to develop such tariffs will meet both objectives of the company, to increase volume as well as profitability.
In the current legislative environment, the Romanian MTPL market is problematic, with high loss ratios, but the new proposed regulation introducing changes towards liberalisation of the market is likely a growth enabler and should allow improved profitability, which can be attractive to market players, particularly in the light of the exit of a leading player.
How Milliman can help
Our consultants have been involved in advising our clients on MTPL strategy for many years. We have a specialist Romanian insurance consulting team and an excellent knowledge of the local market from over 15 years of operation in Romania. The specialist actuarial consulting firm in Romania has a knowledge second to none of the issues involved from our experience in a number of key assignments with leading market players on a variety of work, including pricing, reserving, Solvency II compliance etc.
Some of these assignments include:
- Deep knowledge and extensive experience of international best practice in respect of pricing and portfolio optimisation of MTPL business and of the practical difficulties involved. We have applied international best practices in challenging markets where various local factors introduce constraints which prevent "technically perfect pricing."
- Additionally, we have participated in projects where we used innovative techniques like machine learning and telematics to improve MTPL profitability.
- Milliman also supports companies with regulatory requirements in various actuarial fields, including certification of MTPL tariffs as per Norma ASF 20/2017.
- We have experience with independent MTPL tariff certification in Italy, which is governed by regulations similar to those imposed by the new Romanian norms.
- We have undertaken sophisticated technical motor pricing analyses for a number of companies in Central and Eastern Europe.
- We have undertaken several MTPL pricing tasks in Romania including:
- Participation in MTPL projects involving the assessment of the current tariffs against the most recent claim experience for a variety of different segmentations of the portfolios
- Participation in motor pricing review (including Bonus-Malus for a Romanian insurer)
- Multiple MTPL reviews as independent actuary