Elena.butusina Licenta

7/31/2019 Elena.butusina Licenta

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1. CHAPTER I:General Characteristics of Insurance

Since early years people have been concerned on protecting their possessions, their health and of

course their life. The oldest forms of insurance were funeral insurance and the grants. Both first

appeared in the Mediterranean area, in Ancient Rome and Ancient Greece and were related with

religious group. In the Middle Ages the need for security was meet by the guilds which provided

mutual assistance to their members in case of death, illness, capture by pirates, the burning of

ones house etc. Although the risk transfer element is present, the help offered by the guild

members was only an organized system of charity and not a guarantee of aid or an indemnity.

Towards by the end of the 17th century, when Londons growing importance as a trading center

also led to the emergence of a real demand for insurance (i.e. maritime insurance). In late 1680,

Edward Lloyd opened a coffee shop that after a little while it became the most popular among

local vessel owners, merchants and vessel captains as well as an important source of information

in the field. This was the meeting place for parties wishing to insure ships and those willing to

underwrite. Today, Lloyd's of London is, structurally, the market leader in maritime insurance

and other types specialized, but the activity is quite different from the most common insurance

segment.

Insurance, as it is perceived today, has appeared as a consequence of the Great Fire of London in

1666, when 13,200 homes were destroyed. Following this disaster, Nicholas Barbon opened an

office to insure buildings. In 1680, the Englishman founded the first fire insurance company in

England called The Fire Office. In the United States, the first insurance company started its

activity also through fire insurance, located in Charles Town (the city Charleston of today, South

Carolina), in 1732. Benjamin Franklin helped to popularize and standardize the practice of

insurance, especially for fire insurance. In 1752, he founded the Philadelphia Contribution ship

for the Insurance of Houses from Loss by Fire, the first company that collected contributions for

fire prevention.1

1Vcrel, I., Bercea, F., Asigurri i reasigurri, Ed. Expert, Bucureti, 2004


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The existence of different risks determined people to discover and apply various means of

protection against potential damage generators that were exposed their activities or themselves.

These methods are based on prevention, assistance and provision. Prevention represents the best

means of protection, but is not always possible, especially if the risks are generated by forces of

nature unleashed. Assistance is an action seeking the compensation of damages. It is uncertain

and not always sufficient, unable to repair the damage, only partially and temporarily. Provision

involves the anticipated accumulation of resources for future needs. The best and most effective

form of provision has proved to be the insurance.

1.1. The Need of Insurance in a SocietyIn the context of the market economy, insurance is one branch of activity, a sector of services,

with multiple valences. The development of the insurance industry has complex economic

connotations, involving not only the insured, but the whole society. The extent of risks of all

kinds, affects a growing number of individuals or legal persons, demands as strictly necessary to

increase the business of insurance in the insurance industry.

The weight of certain phenomena or events may cause material losses, interfering with economic

activity, to endanger the life or physical integrity of people. So, human are subject to multiple

and varied threats caused by natural forces, the use of technology, economical, or social factors.

Hazards and risks to which human beings are subject are generating possible risks and, therefore,

they must know to protect against the effects and to act contrary to them. Therefore every

economic activity is subject to the occurrence of a possible risk element.1

The most important social and economic benefits that insurance brings are: indemnification of

loss, less worry and fear, source of investment fund, loss prevention, enhancement of credit. In

the case of the indemnification of loss it contributes significantly to both individuals and

1Bistriceanu, Gh. D.,Asigurri i Reasigurri, Ed. Universitar, Bucureti, 2006


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business stability and therefore is one of the most important social and economic benefit of

insurance. Also in the case of worry and fear are considerably reduced after a loss occurs,

because the insured persons know they have an insurance that will pay for the loss. 1

The most important feature of the insurance as a source of investments funds is that usually the

funds are invested in order to increase the societys stock of capital goods, and promote

economic growth and full employment. The insurance companies are actively involved in

different loss-prevention programs, therefore loss-prevention activities reduce both direct and

indirect or consequential, losses. The society benefits, since both types of losses are reduced. The

final benefit is that the insurance enhances a persons credit, by making a borrower a better credit

risk because it guarantees the value of the borrowers collateral or it gives greater assurance that

the loan will be repaid. Therefore prevention appears as the best mean of protection, if it allowsthe suppression of risks. In reality it appeared that rarely has a radical effect, especially when

risks are caused by forces of nature.

1.2. The Importance of Insurance as a Method of Handling RiskOver the time, the economic agents have sought to discover and apply various means of

protection against risks generating possible damages that exposed their activities of production

and trading, and persons exercising such activities. Nowadays the number of possible risks hasconsiderable increased due to continuous improvement of equipment and technology, creation of

urban areas, increasing transportation and other factors related to the evolution of the society.

Insurance is based on the principle of reciprocity, according to which each insured contributes

with the insurance premiums to the creation of the insurance fund that supports the value of the

insured damages. So, in return for relatively little money, the insured will be guaranteed the

protection against the potential risks, and the insurer has the role to manage the fund.2

Even though there is no single definition of insurance, it is a topic that can be defined andanalyzed from different viewpoints of several disciplines, such as law, economic, actuarial,

1Badea, Gh. D.,Insurance & Reinsurance, Ed. Economic, Bucureti, 2003

2Badea, Gh. D.,Manualul agentului de asigurare.Ed. Economic, Bucureti, 2008


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science, risk theory and sociology. The common elements of the insurance plan were defined by

the Commission on Insurance Terminology of the American Risk and Insurance Association as it

follows: Insurance is the pooling of fortuitous losses by transfer of such risks to insurers. Who

agree to indemnify insureds for such losses, to provide other pecuniary benefits on their

occurrence, or to render services connected with the risk.1

Therefore, were developed various means of defense against the hazards of any kind. These

methods are based on prevention, assistance and provision. The purpose of the insurance is the

financial protection of the financial rehabilitation of the insured namely the patrimonial situation

existing before the disaster, and not making a profit or enrichment of the insured person.

However, the fund may prove to be not enough to cover completely the damages caused.

Therefore, insurers need to increase funds by investing such amounts.

Until then, the destination of these sums is related only to the interests of the insured until the

end of the contract. In particular, in life insurance, but also to other types of insurances, the

money is entrusted by the insured, to the insurers that have the obligation to administer the funds

so that they can have at any time the necessary liquidity to meet the payment obligations

that derive from the insurance contract. The insurer thus appears as an administrator of the

insurance fund.In most of the countries there are laws and strict prudential regulation on how to

invest the amounts available (types of investments allowed, the proportion of these and others) toavoid insolvency or bankruptcy of the insurers. So, the essence of insurance lies in risk despair.

The insured person transfers the risk of financial loss to another person caused by an event. The

insurance distributes the damage caused to certain individuals among many policy holders, so

that no person (or organization) may not support claim. Insurance reduce fears of the insured

person, offering safety. It gives confidence and releases the policy holder of the potential

financial loss.

1 Badea, Gh. D.,Insurance & Reinsurance, Ed. Economic, Bucureti, 2003


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1.3. Introduction to Life Insurance. Perspective for AnalysisLife insurance, as it is known today, did not exist since ancient or medieval times, although even

at that era practices having similar features of insurance existed. From an individuals

perspective the most important characteristic of insurance is the partial or total release of a

financial loss, known as risk transfer. When compared with property and liability insurance1, the

structure of most life insurance policies would appear fairly uncomplicated. In general, the event

triggering the payment of benefits is well-defined, such as the death of the insured person. Also,

the amount of the benefit usually is fixed by contract. The typical life insurance policy does not

call for an analysis of possibly complex contract provisions, such as duplicate coverage

provisions, deductibles, and coinsurance clauses, often found in property and liability coverage.

Instead, the key to understanding life insurance is recognizing the motives leading to thepurchase of coverage.

This paper emphasizes the main reasons leading to the purchase of life insurance. Because many

types of life insurance contracts incorporate investment features, possible investment reasons for

the applicants for holding the coverage must be considered. Analysis of investment features

represents a significant departure from the patterns of analysis developed in this paper. With few

exceptions, explicit consideration of investment reasons is not required for the analysis of

property and liability insurance coverage. For many types of life insurance, in contrast,investment motives can be the dominant factor leading to the purchase of coverage. 2

The reasons for holding life insurance can be contrasted with the reasons leading to the purchase

of property and liability insurance. Property and liability exposures usually are fairly obvious;

most individuals are aware of the value of objects they own or their exposure to potential

liability. The difficult part of property and liability contract analysis is understanding the

structure of the coverage and the effect of provisions that may appear obscure or complex. In

1 Liability insurance is any type of insurance policy that protects an individual or business from the risk that theymay be sued and held legally liable for something such as malpractice, injury or negligence. Liability insurancepolicies cover both legal costs and any legal payouts for which the insured would be responsible if found legallyliable. Intentional damage and contractual liabilities are typically not covered in these types of policies.2Constantinescu , A. D.,Istoria asigurrilor n Romnia, Colecia Naional, 1stVolume, Bucureti, 2002


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contrast, the analysis of life insurance almost requires the perspective to be reversed. In life

insurance, the structure of the coverage itself tends to be relatively simple, the difficult part is

identifying and evaluating motives leading to the purchase of coverage.1

Most demands for life insurance spring from individuals or families as isolated units, notcollectively as a result of being members of organizations. Individual employees and their

families bear most of the direct consequences of the event covered by a typical life insurance

contract. The absence of a direct effect on the organization might seem to distance the analysis of

life insurance coverage from the concerns of an organizations risk manager, especially in large

organizations with diverse ownership interests.

However valid reasons exist for risk managers to be concerned with human resource loss

exposures faced by employees. As a result of this concern, organizations often provide coverage

that employees could purchase for themselves. An understanding of motives that could lead

employees to purchase life insurance coverage is essential to design an effective program of

benefits for employees. In addition, organizations often provide their employees access to

individual coverage through group-purchasing arrangements, so the risk manager may be asked

to evaluate a proposal to offer coverage in this manner. An understanding of life insurance

coverage and the motives it serves is essential to fulfill in this part of a risk managers responsi-

bilities. Further, life insurance may be used to finance a risk facing the organization itself, as anexample we could consider life insurance used to fund a business-purchase agreement for a

closely held firm.

After describing the basic issues related to the structure of life insurance coverage, this paper

shows how the typical life insurance policy is a two-part contract comprised of term insurance

and an investment. The investment feature of life insurance arises from the way the coverage is

financed (i.e. the schedule of premium payments). A two-part contract requires two distinct

types of motives to be considered in the analysis of coverage. The investment element requiresthe analyst to consider motives leading organizations or individuals to hold investments. At the



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same time, the insurance element implies that motives leading to the purchase of insurance (e.g.,

protection against large unforeseen loss) should be considered.1

1.4. Basic Concepts Related to the Structure of Coverage of LifeInsurance

Life insurance is included into a more general category of people insurance, which aims to

protect the life and the individuals health. The criterion underlying the classification consists of

the risk covered by the main component of the product: the main risk covered by the life

insurance is death, and the insurance of persons other than life, the main risk that is covered is

the individual body integrity, human health. Life insurance itself has a long history, with a more

consistent presence into the ancient the Mediterranean area. The most utilized form of insurance

was then related to funds that had to provide financial support to cover funeral expenses. More

precisely, the death of a member, the group, and community raises money to pay the costs to be

supported by the family.

The analysis of life insurance coverage can begin using the same framework used for property

and liability coverage: determining the events covered and the resulting amount of recovery.

Under life insurance coverage, the covered events are the contingencies leading to the payment

of the benefit. While the contingency leading to benefit payment may be complex, in terminsurance contracts it is simple, the payment is done when the death of the person whose life is

insured occurs. Term insurance2 contracts require that the death occur during the period of

coverage (the term) for the benefit to be payable. Under term insurance, death is the singular

covered event. Other types of contracts provide narrower coverage, such as death resulting only

from specified causes such as accidents. Certain policies, to be identified shortly as whole life

insurance, provide benefits under a broad range of circumstances, including events other than

death.


2Most individual life insurance coverage contains a suicide exclusion denying full benefits for death resulting from

suicide during a stated period (by law, not to exceed two years) following the issuance of the contract


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Annuity contracts1, by way of comparison, provide a benefit for survival, a straight life annuity,

for example, provides a periodic income benefit as long as the covered individual survives.

Annuity contracts commonly provide additional guarantees. A life annuity with period certain

guarantees that benefits will continue for the lifetime of the annuitant, but under no

circumstances for a shorter time than a period certain, such as 10 or 20 years. A refund annuity

guarantees that benefits will continue for the lifetime of the annuitant, but under no

circumstances will the benefits total less the purchase price.

The refund guarantee can take two forms. The amount of recovery under life insurance is stated

as part of the contract making life insurance an example of a valued contract2. For some

contracts, the benefit amount depends on covered event, such as an increased benefit if death

results from an accident. Even when the benefit amount varies across circumstances, however,

life insurance still is a valued contract. The occurrence of the covered event triggers the payment

of a benefit whose amount does not depend on the size of the loss. In some contracts, the benefit

amount is not stated in a specific amount of money, as in a variable life insurance 3 coverage or

variable annuity4. In these contracts, the benefit may be stated as a share of an investment fund

whose amount of money, that has to be paid to the insured person, value changes daily.

Many types of life insurance coverage can be analyzed as consisting of two parts: term insurance

and an investment. Normally, this type of contract provides a benefit payable under any set ofcircumstances, with a larger benefit payable if the covered event has occurred. For example, a

whole life insurance policy provides a stated benefit when the insured person dies, with a smaller

benefit if the insured person is living when the benefit is paid. This smaller benefit, called the

1If the annuitant dies prior to receiving the guaranteed amount, an installment refund annuity continues the periodic

installments until the purchase price is refunded a cash refund annuity pays the difference as a lump sum deathbenefit2An insurance policy requiring the insurer to pay the insured the full face value of the policy in the event of total

loss, regardless of the actual value of the lost occurred3This type of insurance is generally the most expensive type of cash-value insurance because it allows you to

allocate a portion of your premium dollars to a separate account comprised of various instruments and investmentfunds within the insurance company's portfolio such stocks, bonds, equity funds, money market funds and bondfunds.4 An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a

minimum payment. The remaining income payments can vary depending on the performance of the managedportfolio.


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cash surrender value, is the amount the holder of the policy can elect to receive by surrendering

the contract to the insurer while the insured person is alive.

Policies also offer a set of options for payment of the cash surrender value, called no forfeiture

options. These no forfeiture options have a value equivalent to the cash surrender value, butdiffer in form of payment (e.g. an annual income may be provided in lieu of a single payment).

Hence, the holder of the policy is not necessarily required to take the surrender value as cash.

Optional forms benefit payments are also offered through settlement options stating ways in

which death benefits may be paid. The structure of these no forfeiture options and of other policy

options. In essence, the holder of the contract has a set of options: surrender the contract for its

cash surrenders value or a benefit of equivalent value, or continues holding the contract in

anticipation of a larger benefit when the insured person dies.1

If a life insurance policy is a participating contract, the holder of the policy is entitled to

dividends when they become payable. The dividends arise from favorable experience of the

insurer, such as low mortality rates or high earnings from investments. The dividends also may

be used to purchase other benefits offered under the policy. When the provision for dividends is

absent, the contract is nonparticipating.2

1.5.

Persons with an Economic or Legal Interest Identified in the LifeInsurance Contract

Three persons can affect or be affected by a life insurance contract: the insured, the beneficiary,

and the owner. These persons may be living individuals or legal entities, such as a corporation or

an individual's estate. The distinctions between these three persons can have important legal and

tax implications. The brief discussion below, regarding these persons and their rights with

respect to a life insurance policy provides an introduction.

1When the contract has an endowment feature, the death benefit and surrender value are identified at the end of the

period of coverage. Under most whole life insurance policies, for example, the totalvalue of the policy is payable ifthe insured survives to age 100.2Ownership in a share of production, paid to an owner who does not share in the right to explore or develop a lease,

or receive bonus or rental payments. It is free of the cost of production, and is deducted from the royalty interest.


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In a policy providing a death benefit, the insured is the individual upon whose death the benefit

is paid. More generally, the insured can be defined as the status upon which the payment of the

policy benefit is contingent. For example, the periodic income benefit payable under a straight

life annuity contract continues during the lifetime of the insured individual, who usually is re-

ferred to as the annuitant. In this straight life annuity, the status being insured is the

continued lifetime of the annuitant. In some contracts, the insured status is defined with respect

to more than one life. For example, a joint life policy insuring two individuals' lives provides a

stated death benefit when the first of the two individuals dies. A joint and survivor annuity

provides a periodic income benefit as long as either one of two individuals (or the survivor) is

living, with the benefit amount possibly decreasing at the first death (the end ing of their joint

life).1

The beneficiary is the person or organization to whom the benefit is paid. In the economic sense

of the term, the beneficiary is the one whose interest is insured, similar to the insured in a

property insurance contract. A primary beneficiary is the one who, if living at the time of the

insureds death, receives the death benefit. A contingent beneficiary is the one to whom the death

benefit is paid if the primary beneficiary is no longer living at the time of the insureds death. A

beneficiary designation in a life insurance policy can specify an order of succession: a primary

beneficiary, a secondary beneficiary, a tertiary beneficiary, and so on. The owner is the one who

controls the policy, the person or organization in which the rights of ownership are vested. Prior

to the death of the insured (or termination of the insured status) , the owner has the right to assign or

transfer the policy, to change the beneficiary, and to exercise other rights and options provided

by the policy. Upon the death of the insured, ownership rights become vested in the beneficiary.

With respect to legal and tax issues, ownership is a key concept. The owner can exercise every

right provided by the policy unless he or she has agreed to a restriction. For example, the owner

can change the beneficiary unless this right has been given up, in which case, the beneficiary

designation is said to be irrevocable. Also, any tax liability with respect to the policy generally

1Solomon, M., Bamossy, G. and Askegaard, S., Consumer Behaviour A European Perspective , 2nd edition ,

Financial Times:Prentice Hall, Londra, 2002


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accrues to the owner; if the owner of the policy is the individual whose life is insured, for ex-

ample, the policy proceeds are considered part of deceased owner's estate for purposes of estate

taxation.

1.6. The Investment Element in Life InsuranceFor life insurance coverage that is a two-part contract comprised of a term insurance element and

an investment (e.g., whole life insurance) the investment element arises from the way the contract

is financed. This conclusion becomes apparent, by considering two aspects of a life insurance

policy: its benefit provision and its premium payment, or financing provision. The benefit

provision of the policy is what the insurer promises to do: the circumstances under which a ben-

efit is paid and the amount payable under these circumstances. 1

The analytical framework outlined on the previous pages events covered and amount of

recovery addresses the benefit provision only. The other aspect of the policy the premium

payment provision is the method for funding the benefits promised under the policy. The

premium payment provision states the schedule of premium payments required for the insurer to

provide the benefits promised under the policy. 2

The distinction between the benefit provision and premium payment provision is important to

understand how an investment element arises in a life insurance policy. A given benefit may be

financed in several different ways, for example, it is possible to purchase a whole life insurance

policy with a single premium payment, although such a financing provision is not chosen

commonly.3

This contract, which is said to be paid-up at issuance is called single premium insurance. More

commonly, whole life-insurance is financed using installment premiums payable as long as the

1Constantinescu, A. D.,Management n asigurri, Colecia Naional, Bucureti, 2000

2http://www.consultantasigurari.ro

3 http://www.consultantasigurari.ro/carteaasigurarilor/istoric.html


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insured is living. The latter contract often is called straight or ordinary 1 life insurance, especially

if the required installment premium stays level during the insured's life. Whole life insurance

contracts with premium payment provisions falling between these two extremes are called

limited-pay contracts, such as 20-pay or 40-pay contracts. Often these limited-pay contracts are

identified by stating the age at which the final premium payment is due, such as life paid-up at

age 65 or at age 95. All these contracts are whole life insurance, so they provide the same death

benefit using different financing provisions. If the insured dies prior to the time the policy be-

comes paid-up, the death benefit is not affected, the premium is set at a level that contemplates

some insureds dying prior to the policy becoming paid-up.

Annually renewable term insurance may be considered yet another type of financing

arrangement. ART2 is term insurance, but if ART were renewable for life the insurance coverage

would resemble whole life. Under an ART contract, the insurer promises to pay a stated death

benefit if the insured dies during the year, with an additional guarantee of the right to renew the

contract at the end of the year. Typically, the right to renew expires at an advanced age such as

age 70, although contracts renewable beyond age 90 are offered.

Because ART is term insurance, it does not provide a cash surrender value. The financing

provision in ART does not allow the development of surrender values, while the financing

provision in whole life does. Under level-premium whole life insurance, the amount of theinstallment payments begins at a higher level than ART providing the same amount of coverage

but remains at a lower level during the payment period. Under ART, the annual premium begins

at a lower level but increases with each renewal. The increasing premium reflects mortality rates

increasing with age and the tendency of healthier-than-average individuals to discontinue (or

lapse) the coverage.

1 This use of the term ordinary is misleading. As a class of life insurance, ordinary insurance en compassescoverage as diverse as whole life insurance, endowments, and term insurance whose period of coverage exceeds 10years2Annually renewable term insurance (ART)


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1.7. The Particularities of Life Insurance IndustryThe insurance activity, held according to the contractual conditions, conducted in a specialized

framework, called life insurance market is the place where demand meets supply. Insurance

demand comes from the insurable need of individuals and legal entities, willing to enter various

types of insurance, while the supply is represented by certain specialized organizations which are

authorized and able to conduct such activity. According to the author, the term of market is valid

for the countries where are operating more life insurance organizations and those in which the

there is a single such organization that operates it is as a monopolistic market.1Another problem

relates to the insurance market size. A crucial element that defines the size of such markets is the

demand for insurance.2

Insurance demand is influenced by population characteristics, namely age, education, gender,

monthly income, marital status, and their conviction of the need to complete a life insurance

policy. Life insurance demand comes from individuals who want to conclude contracts of

insurance to protect themselves and their families in case of accident, illness, disability or death,

the economic units concerned to provide security for their employees. On the life insurance

market there are two types of applications: a potential demand and actual demand. Potential

demand is much higher, being represented by a countrys total population, however, actual

demand is low, being influenced by its economic potential and make their beliefs about theusefulness of life insurance. Many individuals who have a low level of culture related to the

domain of life insurance they consider concluding a life insurance useless, showing a higher

interest to other types of insurance such as insurance for the personal vehicle, home insurance,

etc.3

The size of the insurance market is expressed by several indicators:

number of contracts concluded during the reference period; number of active policies;1

Badea, Gh. D.,Insurance & Reinsurance, Ed. Economic, Bucureti, 2003, pp. 1432Vcrel, I., Bercea, F., Asigurri i reasigurri, Ed. Expert, Bucureti, 2004,pp. 92

3 Cristea, M., Drcea, R., Mitu, E. N.,Asigurri de via i fonduri de pensii , Ed. Universitaria, Craiova, 2007, pp.116


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the annual insurance premiums1; sums insured amount during the reporting period; the total value of commitments undertaken of insurance companies at a certain time.2The offer of insurance is represented by the private companies of insurance, public or mixed,

mutual organization. Insurance companies undertake the risks of the individuals and businesses,

in exchange of a premium, providing certainty regarding a future financial security.3

Mutual type insurance organizations are those that conduct insurance operations for their

members on the principle of mutuality and are not intended to gain profit, but helping their

members. 4

On the life insurance market, the link between demand and supply carriers can be achieved in

two ways, namely:

directly through insurance personnel companies or mutual-type organizations; indirectly, by means of intermediate agents, insurance professionals, who are called brokers;The insurance agent is the authorized representative of an insurance company and provides to

potential clients, its insurance policies therefore the insurance companies products.5The

insurance broker is a legal person (a company that has full legal rights and responsibilities

according to the law), Romanian or foreign mutual company or authorized by law, which, for its

clients, negotiate or conclude insurance contracts and provides other services related to the

protection against risks or damage adjustment.

On the life insurance market there are specialized companies that provide related services of

insurance / reinsurance: risk inspectors, risk managers, inspectors of damage, damage evaluators,

1 The specified amount of payment required periodically by an insurer to provide coverage under a given insuranceplan for a defined period of time.2 Badea, Gh. D.,Insurance & Reinsurance, Ed. Economic, Bucureti, 2003, pp. 1443Constantinescu, A. D., Dobrin, M., Galea, M., Bejenaru, M., Nstase, A., Managementul societilor de asigurare,Ed. Bren, Bucureti, 1998, pp. 174http://www.portaldeasigurari.ro/traditie/trad_org.php

5Petrescu, E. C.,Marketing n asigurri, Ed. Uranus, Bucureti, 2005, pp. 24


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liquid damage, etc..1 Important players on this market are supervising the work of bodies and

professional organizations.

In Romania, the body which oversees and regulates the insurance activity is the Insurance

Supervisory Commission (CSA2), and one of the most important professional organizations isthe National Association of Insurance and Reinsurance (UNSAR)3.

Assuming that the life insurance market is a market with perfect competition would result in a

number of features: atomicity of the participants, market fluidity, and perfect mobility of the

factors of production, market transparency and product homogeneity.4 Atomicity of the

participants reflects the market situation activates a large number of bidders and applicants so

that none of the participants can influence in a sensible manner the operations.5

CHAPTER II: Characteristics of the Life Insurance Industry in Romania

The Romanian life insurance market depends largely on the degree of economic development of

the country, of the revenues it produces and that are willing to sacrifice individuals to protect

life, physical integrity, and family. Romanias population is a population with a relatively poor

cultural, in terms of life insurance, people walking on the principle that anything bad will not

happen to them, even though they saw the accident happen. It is said that a rule to sell life

insurance is to sell the future, but a pessimistic future, this technique can be applied on the

Romanian market.

1 Petrescu, E. C.,Marketing n asigurri , Ed. Uranus, Bucureti, 2005, pp. 752 CSA- the Romanian Insurance Supervisory Commission is a self-regulating, specialized administrative authoritywith separate legal personality, having its headquarter in Bucharest. In accordance with the provisions of the Law,CSA is an integral self-financed authority. The source of its revenues consists of the contributions owed by theinsurance undertakings and intermediaries.3 UNSAR- the National Association of Insurance and Reinsurance Companies from Romania is a professional, non-governmental, non-political, independent, non-lucrative organization established in 1994 to collaborate and co-operate with similar national and international professional unions and associations.4Vcrel, I., Bercea, F., Asigurri i reasigurri, Ed. Expert, Bucureti, 2004., pp. 965 Badea, Gh. D.,Insurance & Reinsurance, Ed. Economic, Bucureti, 2003, pp.144


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2.1. Life Insurance in Romania (as a European Union Member State) - legal

framework, evolution, characteristics

Life insurance represented a necessity within a society from ancient times. In Romania, the life

insurance sector has experienced a favorable development, especially after the First World War.

Along with the economic development and the life insurance industry was expressed the idea of

free movement of services and capital, the European Single Market1 in insurance. According to

the European Union regulatory authorities, the development of the financial services sector is a

source of economic growth and a way of developing new jobs, considers Mirela Cristea.2

By establishing the European Economic Community3 was also established the fundamental

freedom that ensures the free movement of services and capital, a field that covers also the

insurance activity.4Romania has taken over the provisions of the European regulations,

transposing them to the insurance legislation.

The merit of its proximity to the European requirements is first and foremost because of the Law

32/2000, governing the establishment, organization and functioning of the insurance supervisory

body called the Insurance Supervisory Commission (CSA) and the establishment, organization

and operation of insurance companies in Romania. (Law no. 32/2000 published in the Romanian

Official Monitor no. 148 on 10th of April 2000)

The European Council5 was empowered to issue directives intended to coordinate laws,

regulations and administrative provisions of Member States which intended to ensure the

1In June 1985, the Commission, under its then President, Jacques Delors, was the enabling instrument for the singlemarket was the Single European Act, which came into force in July 1987.2Cristea, M.,Asigurri internaionale, Tipografia Universitii din Craiova, Craiova, 2002, pp. 227

3 On 25 March 1957 with the Treaty of Rome, to build a European Economic Community (EEC) based on a widercommon market covering a whole range of goods and services.4Lctu, D. V.,Asigurri de via fundamente teoretice i practice, Ed. AlmaMater, Cluj-Napoca, 2003, pp. 37

5The European Council was created in 1974 with the intention of establishing an informal forum for discussion

between Heads of State or Government.
http://europa.eu/pol/singl/overview_en.htmhttp://europa.eu/pol/singl/overview_en.htmhttp://europa.eu/legislation_summaries/institutional_affairs/treaties/treaties_eec_en.htmhttp://europa.eu/legislation_summaries/institutional_affairs/treaties/treaties_eec_en.htmhttp://europa.eu/pol/singl/overview_en.htmhttp://europa.eu/pol/singl/overview_en.htm


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establishment and functioning within the European Union.1 In the life insurance domain were

adopted three generations of the Community directives.

In the first generation of Community directives were elaborated two specific regulations:2

The directive for life insurance no. 73/267/CEE containing uniform rules with regard tolife insurance and providing free establishment of companies or subsidiaries of insurance

companies from a country into another member country and providing free life insurance

services.

The directive on the establishment and operation of companies providing life insuranceno. 77/92/EEC. This directive was issued in 1979 and aims to harmonize the prudential

supervision by introducing the solvency margin3 and minimum guarantee fund. The

directive was intended to resolve also the divergence arising from the conflict existing

between Member States regarding insurance companies composite, life and non-life.

Argument against composites was that the beneficiaries of life insurance policies would

be part of the same financial group as those who have non-life insurance policies, which

are considered to be less consistent.4

The second generation of Community directives represents a sequel of efforts regarding the

freedom to provide insurance services. With this directive, consumer protection in insurance was

made by performing the subtle distinction between the free active service5 and free passive

service6performance, in which case, active freedom to be audited for that was released,

passive freedom.

The third generation of directives is more than a simple establishment and freedom framework

providing security services, based on extensive technical provisions, financial, trade, cooperation

1Lctu, D. V.,Asigurri de via fundamente teoretice i practice, Ed. AlmaMater, Cluj-Napoca, 20032 http://europa.eu/abc/12lessons/lesson_6/index_en.htm3a business liquid assets that exceed the amount required to meet its liabilities

4Cristea, M., Drcea, R., Mitu, E. N., Asigurri de via i fonduri de pensii , Ed. Universitaria, Craiova, 2007, pp.

505 when the insurance company from the origin office, takes the initiatives in contracting a candidate for insurancefrom a different Member State;6 in which an insurance candidate has the initiative of contracting an insurer from a Member State
http://europa.eu/abc/12lessons/lesson_6/index_en.htmhttp://europa.eu/abc/12lessons/lesson_6/index_en.htm


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and distribution, while the consumer has become an essential component in the European

approach .Therefore the third approach focuses on customers rights.1

The European Single Market has been achieved through the completion of the liberalization

established of the directives of the third generation who have imposed a European passport of theinsurance market with single license regime. European passport or single insurance passport

means that once an insurer has been authorized in a Member State, the state of origin which has

its headquarters, it is free to offer for sale the products in any Member State, therefore an

accepted State. The authorization of the insurance companies is based on acceptance by the

supervisory authority of the country of origin that should evaluate the following:2

The business plan; The components of the minimum guaranteed fund; The excellence of the shareholders; Reputation and professional experience;The financial supervision is the sole responsibility of the supervisory authority in the country

which issued the administrative authorization for the operation. It is done by inspecting the

annual financial statements and bookkeeping, solvency portfolio transfers and acquisitions of the

company. To establish a branch or a subsidiary of an insurance company into another European

Unions country, it is necessary to inform the supervisory authority on the following aspects: the

country where the operations intend to start, the program of the activity and the authorized agent

of the delegate.

2.2. The evolution of Life Insurance in Romania

Although most sources indicate that insurances in Romania started in the late 19 th century, prior

to their forms, such as protection performed on a mutual basis, have appeared in the fourth

1Cristea, M., Drcea, R., Mitu, E. N., Asigurri de via i fonduri de pensii , Ed. Universitaria, Craiova, 2007.,

pp.522Cristea, M., Drcea, R., Mitu, E. N., Asigurri de via i fonduri de pensii , Ed. Universitaria, Craiova, 2007,

pp.53


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century in Transylvania, being organized as mutual associations and mutual assistance. The

guilds of artisans in Transylvania organized in mutual association for fire and life insurance.1The

author Mirela Cristea argues that the earliest forms of life insurance arising from ancient times

are the death indemnities for funeral expenses and life annuity insurance.2

On July 24, 1844 was established, the General Institute of Pension in Brasov the first insurance

company itself and covering the life insurance.3 The establishment and evolution of the insurance

companies in Romania took place on the background of centralization phenomenon, migration

and expansion of capital in insurance. In 1871, when arose the first insurance company in the old

Romania, called Dacia, with a capital of 3 million lei, the interest raised among the population

was particularly high. Enthusiastically supported by V. Boerescu, Minister of Foreign Affairs,

board member of the first management company, Dacia made a great contribution to the

modernization process of Romania.

In 1930, when they began to practice all types of insurance, through Law no. 216 of insurances

was founded the Office for supervision of private companies that were concluding insurance and

reinsurance, office that worked with the Ministry of Industry and Commerce.4

ADAS (State Insurance Administration) was founded in 1952, a company with integral

Romanian capital, specialized in insurance operations, reinsurance and damage commissariat.

This company had a monopoly on the Romanian insurance market until 1990, when the

Government 1279/1990 was dissolved, and its assets and liabilities were taken over by

Asigurarea Romneasc SA (ASIROM), of ASTRA SA and SA CAROM .5 A predominant form

of institutionalization was the insurance activities of mutual associations of tontines6 or of

1Petrescu, E. C.,Marketing n asigurri, Ed. Uranus, Bucureti, 2005, pp. 23

2Cristea, M.,Asigurri internaionale , Ed. Reprograph, Craiova, 2003, pp. 1323Lctu, D. V.,Asigurri de via fundamente teoretice i practice, Ed. AlmaMater, Cluj-Napoca, 2003

4Bistriceanu, Gh. D.,Asigurri i Reasigurri, Ed. Universitar, Bucureti, 2006, pp. 201

5 Bistriceanu, Gh. D.,Asigurri i Reasigurri, Ed. Universitar, Bucureti, 20066 Tontines - these associations are constituted for a period of time, during which the association members depositinto the commun fund an annual fee which varies depending on the age. The deadline in respect of which wasestablished the fee amount resulting from capitalization over the years is divided between the surviving members.Similar associations are organized for cases of death.


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survival, so that modern insurances against risk of death have penetrated relatively hard in all the

layers of the Romanian society.1

Currently, there is an increasing need of life insurance, among which more frequent on the

national and international level, are: providing financial protection of the family or of those dependent in case of death; the payment of debts of a person in case of death, in this case the insurance is consider a loan

guarantee;

survivors allowance; old age allowance; saving for possible future expenses; costs of hospitalization, medical care, or a compensation paid in the case of illness or

temporary invalidity;

investments and more;Therefore, life insurance in Romania was practiced since ancient times, in incipient forms, and is

developing along with the Romanian society, with the needs and expectations of the customers.2

2.3. Description of the OfferAs any market consists of supply and demand, on the life insurance market there are, of course,

customers and suppliers. Regarding life insurance, in recent years, Romania constituted a great

opportunity for many companies, entering the latter has positive effects on the market

materialized in: diversification of the offer, increase of products quality offered by insurance

companies, raising the professional staff the insurance industry, the introduction into practice of

new methods and techniques of marketing.3 In Romania, the most used channel for sales of life

1 Constantinescu, D. A.,Istoria asigurrilor n Romnia, Colecia Naional, 1st Volume, Bucureti,2002, pp. 1132Cristea, M., Drcea, R., Mitu, E. N., Asigurri de via i fonduri de pensii , Ed. Universitaria, Craiova, 2007, pp.243Petrescu, C. E., Ioncic, M. and Petrescu, M., Activitatea de marketing n contextul noilor tendine de pe piaa

asigurrilor, Revista de Marketing Online, vol. 1, nr. 4, Bucureti, 2007 , pp. 10


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insurance is through the sales agents of each company. For example in late 2007, life insurance

sold only 10% through brokers.1

The degree of concentration of the life insurance market in 2011 remained at the same high level

as in 2010, the rate of 94.53% being the gross premiums underwritten by the top 10 companies.The Romanian life insurance market is a competitive market, because every organization

operating in this sector is concerned to gain a larger segment of the market.

2.4. Description of the Demand

The need to conclude a life insurance contract comes from an absolute need of each other to

provide financial protection for their families, dependents or loved ones in case of death, along

with other benefits that insurers can offer: savings, retirement and investment plans. Theconclusion of an insurance contract covering the risk of death is a problem that every individual

should consider, in order to avoid creating an imbalance in the financial situation of dependent

descendants. Therefore, life insurance meets basic human needs: protection, safety, located on

the second step needs in Abraham Maslow's hierarchy.2

Life insurance demand on the Romanian market has no uniformity regarding the geographical

distribution, being concentrated in geographic areas with a high economic potential and among

the population with income over the average. Awareness and expression of the need for

protection of everyone, as the decision to buy insurance are determined by two main factors:3

objective factors: economic, financial, social, familial, educational; subjective factors: previous experience, knowledge of benefits and protection offered by

insurance;

1Care-i cel mai bun canal de vnzare, Ziarul Financiar, Noiembrie, 2007, p. 30

2Petrescu, C. E., Ioncic, M. and Petrescu, M., Activitatea de marketing n contextul noilor tendine de pe piaa

asigurrilor, Revista de Marketing Online, vol. 1, nr. 4, Bucureti, 2007,pp. 71 3Ciurel, V., Asigurri i reasigurri: abordri teoretice i practice internaionale, Ed. All Beck, Bucureti, 2007,

pp. 17


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In the conditions where household income and the extent of the population are low, life

insurance demand remains also low. The decision to buy an insurance policy is also influenced

by the populations age. The third age population is statistically growing, representing a

vulnerable social group with specific problems from other social segments. Securing the elderly

population for a decent living must cover a wide range of concerns, not only on an economic

level but also on a social and psychosocial one. Therefore, this aging process will lead to the

point of the impossibility of maintaining the inactive state of the population and thus becomes

essential t conclusion of a life insurance to provide financial protection of the descendants in the

case of death, and ensuring a peaceful life in retirement.

Fig.1.1. The structure of Gross Written Premiums (GWP) on the Romanian Life insurance

Market in 2011

Profile companies operating on the Romanian market have established a customer profile. For

example, most ING insurance consumers aged 35-39 years (20.6%), followed by the 30-34 years

category (17.8%) and 40-44 years (16.6%). Also 45% of customers have university degrees and

28% secondary education and 53.1% are men. The customer profile of Generali Life Insurance is


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a person with medium to high income, well informed and realizes the importance of the

conclusion a insurance policy in time, for both himself and his family.1

Life insurance density is less than 0.5% this is the main reason why Romania has the greatest

potential in the region on the life insurance segment. The life insurance market is by nature ahomogenous market, consisting of consumers who have specific cultural and economic features.

There are many issues that govern the life insurance market: the legislative issues that operate as

carriers and demand issues. Many claim that insurers face several difficulties arising from the

extremely reduced rate of insurance premiums agreed of policyholders.2

Insurance companies seek to improve the sector, but must assume the role of educator of the

conscience of Romanians into the transfer of financial risks associated with accidents, illness or

loss of life, from family to specialized management-insurers. It would help increase the

enrollment in the Romanian insurance market and increase of insurance penetration of total

GDP3. One advantage attributed to the life insurance is the orientation of the population referring

to the investment prospects through banking institutions or securities, traditional to the life

insurance and mutual funds advantage in itself, being the investment component. The population

investment into life insurance and mutual funds are an alternative of long-term savings,

providing further financial protection, that other products do not include.4

Therefore, Romanias population is attracted of investment products in addition to the

component, include also a protective component (such as unit-linked products). Its obvious the

preference for the financial market investments, bank deposits and government securities, and

this is not because of the need for immediate cash, but because the Romanian market does not

offer too many investment opportunities.5

1http://www.1asig.ro/Doar-profit-pentru-primele-20-de-grupuri

2Tudoran, G.,Sistemul asigurrilor din Romnia Prezent i perspective, Universitatea Petre Andrei,Iai, 2006, pp.2953 GDP- Gross Domestic Products is the monetary value of all the finished goods and services produced within acountry's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all ofprivate and public consumption, government outlays, investments and exports less imports that occur within adefined territory.4Tudoran, G., Sistemul asigurrilor din Romnia Prezent i perspective, Universitatea Petre Andrei, Iai, 2006

5Constantinescu,D. A.,Management n asigurri, Colecia Naional, Bucureti, 2000, pp. 54


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Life insurance is characterized in the light of Romanians attitude, towards this product as:

Difficult to understand, is associated with a complex product; Irrelevant (the beneficiary not being the payer) or useful only to those with risky occupations

(only them would have something to gain);

Mandatory product required by banks to request a loan; Luxury product that can afford it only those with financial possibilities and wanted only by

those with Western mentality;

Disadvantage due to: higher insurance premiums, the insured person does not receive thesum insured itself, lose-lose situation, limited liquidity / cash deposits, fixed sum insured -

without the possibility of additional benefits;

Experts unanimously agree to characterize the mentality of most Romanians as a balcanic type,namely My destiny is into the hands of Lord. Romanias population has no confidence in life

insurance products, considering them detrimental, irrelevant, not having enough money to

complete their life insurance policies or their families. For this sector, Romanians should be

aware of the importance of concluding a life insurance policy, which involves both benefits in

terms of investment and in terms of protection provided against the inherent risks that threaten

life and individual integrity.


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CHAPTER III: Modern Selling Methods in Insurance

Case Study: ING Asigurri de Via S.A. and BCR Asigurri de Via

VIG

It is important for all the companies that activate in life insurance industry especially in this crisis

period, in order to remain competitive to be innovative and to adapt their products and selling

methods according to the customers and market demands. The economic crisis translated into the

insurance market through repeated annual declines and even deeper with each year, banks have

become a major selling channel for life insurance, about one quarter of these policies are

currently closed to bank offices. Also, without selling through banks, life insurance market

would not have registered a positive trend lately. Thus, for the main players in the market, thebancassurance channel was an engine of business success, this was due to a better understanding

of the changes that have occurred in recent years in customer behavior and needs, so the products

developed were in accordance with certain real needs.

Another important method utilized by the most competitive companies on the life insurance

market is represented by Unit-Linked products. Unit-linked plans are also known as universal

life insurance and variable life insurance. In Unit-Linked insurance it is encountered a separate

identification concerning the costs and the expenditure of mortality and interest value account.Both selling methods will be analyzed in this chapter.

3.1. Description of the Companies: ING Asigurri de Via S.A. and

BCR Asigurri de Via VIG

The company ING was the first financial institution that entered into the Romanian market in

1994, after the year 1989 and it was the sole supplier of incorporated financial services in

Romania, considered to be a pioneering mixture of insurance, banking and assets management

services. An important branch of the company, ING Bankis also the leader on the Romanian

banking market with the third largest balance sheet, operating wholesale and retail banking

activities, including services such as Private Wealth Management.


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ING Asigurri de Via is the leader of the Romanian insurance market, with 33% market share1.

The life insurance company provides retail and group life insurance services in more than 60

cities around the country, with 2000 professional consultants. One of the reasons that the

company had become a leader on the Romanian market, both in the insurance and bank industry,

were its high qualitative products. ING Asigurri de Via has been since the beginning of its

activity, a promoter of education and information for the market, as well as for the market and

the customers of life insurance and pensions in Romania, through the majority of its action and

the processes that has developed over the time.

On a global level, ING started the campaign Plant a Tree with a dual purpose, both of

educating in order to protect the environment and conserving its resources and as well as to

support those communities. ING Asigurri de Via, with the support of More Green

Association2, started off its first corporate social responsibility project, affiliated with the global

program of the Group. ING Foundation A better world that was created in 2005, had as the

main purpose to give hope to those less fortunate during the whole year, and not just for Easter

or Christmas holidays. ING Foundation A better world is built on the faith and belief that

everyone should have the opportunity to live to its full potential.

ING Romania intends to offer its customers, both individuals and businesses, a wide range of

financial services. ING Asigurri de Via commitment to its clients is a long term relationshipand focuses its efforts on providing modern products and high quality services, efficient and

flexible to meet the various needs of its customers. The organizations mission is to allow and to

provide easy access to information, and to offer personalized experience. ING Asigurri de Via

establishes standards to help customers in managing financial future, to continue to support the

development of the Romanian insurance market and provide value to customers, shareholders

and employees.

1 The market share computed for 2011.2 More Green Association- MaiMultVerde is an organization entirely financed from the budgets of socialresponsibility of the Romanian companies


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ING is guidedby the following four mottos: ING is a company that collaborates easily, ING

treats their customers fairly and honestly, ING keeps its promises , and ING activities are

focusing on the customers. The highest priorities for ING Asigurri de Via are to offer as

much as possible more detailed information to millions of potential customers about the services

and benefits of the products and services that ING Asigurri de Via offers. The main concern

of ING Asigurri de Via consultants is to provide financial solutions tailored exclusively for

each client. It is also assumed that financial planning is the key to achieve their long term

financial goals. Therefore, the entire business is based on the values of professionalism, integrity,

quality and open communication.

With a registered capital of 63,042,794 RON, ING Asigurri de Via is the strongest capitalized

company on the insurance market and in terms of attracting new customers are occupying the

first place. Along with the implementation of the reform of pensions, ING Asigurri de Via has

added to its portfolio two pension funds: ING Clasic and ING Optim. As for optional pension

segment, ING has a market share of 33% (in terms of assets, on 31 st December 2011, according

to CSSPP1).The available solvency margin of ING Asigurri de Via was 143% higher than the

minimum required by law in late September 2011, liquid assets 500% higher than the minimum

required, confirming the companys financial soundness.

The main channel of sale of ING Asigurri de Via it is represented by its own network ofprofessional consultants. But lately both banks and brokers have also gained an important role in

selling life insurance and pension funds. The products offered by ING Asigurri de Via are:

Protection plans: Prudent, Marathon and Smart, designed to offer to the clients family adecent financial future, if the client will not be able to do it;

Health insurance; Saving plans for children: GenT for children is a financial plan claiming to cover the

needs related to child development: education, health, financial support to start in life and

1 Private Pension System Supervisory Commission(CSSPP) is the specialized, independent, autonomous and selffinanced public authority dedicated to supervise and regulate the functioning of the private pension system, undercontrol of Romanian Parliament, founded through the Emergency Ordinance no.50, from the 9 th of June 2005,approved by the Law no. 313 from the 10 th of November 2005.


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Academica a product that helps to save the amount that will be needed when the child

becomes 18 years old, it is also a sum that will cover college costs, to achieve a car or to

start a business;

Savings plans: Regal, a 2 in 1 product recommended for those who want bothinsurance and long-term savings;

Insurance plan with retirement component: the financial plan in addition to the pensionconsists of extra money plus the amount of the pension that the customer already

has(state pension, the compulsory versus voluntary);

Investment plan: Capital is a product focused on investment and risk protection andcovering the losses resulted from accidental death, anywhere in the world and GenT a

product for investment the protection component covers the risk of death from any cause,

anywhere in the world.

S.C. BCR ASIGURARI S.A. was founded and recorded on the date of 19 th December 2001, the

length of the company, according to the Articles of Association, being of 89 years. The company

is a Romanian legal person, established as a joint stock company integral subscriptions and

simultaneously social capital of the shareholders, individuals and legal persons, having as main

object of activity - the activity of insurance, in accordance with art. 2 of the Law no. 32/2000,

designates primarily offer, negotiation and conclusion of insurance and reinsurance contracts,

premium collection, liquidated damages, activity of decline and recovery, and equity investment

or fructification of their own funds attracted through the activity performed.

BCR Asigurri de Via was founded in October 2005 and intended to introduce in its portfolio

products and services of life insurance and financial services integrated into the offer of the

group BCR. In September 2008, BCR Asigurri de Via started a partnership with Vienna

Insurance Group1, who became the major shareholder of the company. BCR Asigurri de Via

products are one of the most competitive on the insurance market of Romania, due to the

marketing and sales strategies of the company that are continuously raising the sales charts. BCR

1 Vienna Insurance Group - the roots of the insurance group date back to 1824, when the oldest of the three

insurance groups that today form the Wiener Stdtische sterreich, and out of which the Vienna Insurance Groupemerged, was founded.


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Asigurri de Via is recognized for its high quality services, characterized by a high degree of

professionalism and being able to provide the most valuable bancassurance1 products at the most

competitive rates. The companys mission related to its customers is to provide the best services

and insurance products for family protection, increasing the value of assets, solving the major

priorities throughout life insurance and maintain living standards at retirement age.

The combination of the insurance products, the distribution channels and selling force together

with the basis of reliable services combined with a marketing and sales strategy well founded,

makes the company very competitive on the local Romanian market. Choosing the right life

insurance is an important decision for anyone. For BCR Asigurri de Via, each client is unique.

The attention paid for the analysis of needs, the attitude toward savings, and the unique financial

profile of each client represents the companys expertise key. The portfolio of products and

services, along with the possibility to offer individualized solutions helps its customers to make

the fair decision for their financial future.

The portfolio of life insurance products of BCR Asigurri de Via is including the necessary

expertise for its clients and financial planning objectives of protection benefiting from a

comprehensive portfolio of products:

Bancassurance products; Savings and protection plans; Saving plans for children; Saving for retirement plans; Unit-linked investment programs; Insurance programs for groups of employees; Health Insurance;

1A French term referring to the selling of insurance through a bank's established distribution channels, known as a

Bancassurer.


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BCR Asigurri de Via Vienna Insurance Group underwrite in 2011 gross premiums worth 336

million lei, up 13.68% compared to the same period of 2010.1

ING Asigurri de Via and BCR Asigurri de Via are the only companie in Romania that

stood in 2011, in the Central and Eastern Europe Region, in the top 50 companies in the field.Thus, the volume of underwritings of about 80 million euro, BCR Asigurri de Via VIG2 was

ranked 43, while ING Asigurri de Via was ranked 27.3

3.2. SWOT Analysis of the CompaniesIn order to be competitive, the first step for every company in the life insurance industry must be

to conduct a SWOT4 analysis of the Romanian market in order to examine and understand it.

The managers involved into the process should be focused on the evidence of the current statusof the life insurance industry and to adapt their products and services according to the customer

demand and needs.

The starting point will be making the SWOT analysis for the company ING Asigurri de Via

S.A.:

1. Strong Points: ING Asigurri de Via has managed to tailor its products and services inorder to meet the customer demands. Also, the company offers a range of various types oflife insurance products, from the pure protection of the term life insurance to the flexibility

and growth potential of general and variable life insurance policies. One of the companys

strong points is the flexibility of their products and services. One good example in this sense

is Smart, the first package of protection without medical evaluation. This package is designed

to provide protection at both individual and family level, covering the risk of injury or death

1 Table 1.1.2VIG - Vienna Insurance Group

3http://www.1asig.ro/

4 SWOT -Albert Humphrey developed an analytical tool to evaluate the strategic plans and find out whyorganizational planning failed, while working on a research project at the Stanford University sometime around1960s to 1970s.


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from any cause, hospitalization and surgery of the accident. ING Asigurri de Via follows a

customer centric approach while designing its products.

The companys product portfolio offers products that provide solutions to every financial

requirement, at all life stages. Another important strong point of the company is the highstandard of professional behavior that are able to provide for the companys customers

professional advice, by treating customers impartially, a quality that stands for the companys

culture and act with fulfillment. The life insurance market that the company runs the business

in refers to improving the portfolio retention, orientation and sale of traditional products for

children, supporting and strengthening distribution channels, communication with the

customer and market education. In terms of distribution, the channels of distribution will be

the same, the companys sales agents remain the main channel, but the company has to focus

on the development of other channels, targeting on the partnerships with several banks and

new collaboration with brokers.

2. Weaknesses: The improvement of the health system will increase the efficiency through along term commitment that will take risks and will tie up capital to ensure financial solvency

and customer safety. The insurance industry in Romania is still dependent on the automotive

population lack of financial education and, in this context, the practice by the insurer to lower

rates cannot maintain a high quality for their long-term services.

3. Opportunities: The opportunities are represented by the events with positive impact on thelife insurance industry, that UNSAR talks about, but also with the Government

representatives over the introduction of tax deductibility of life insurance segment has

already resulted in the discharge from the payment of social security contributions for

premium insurance paid by the employer for the employees. This provision results in a

significant decrease in costs for the employers who decide to offer this type of benefit wages.

Certainly this will allow a greater number of Romanians to enjoy the protection provided bylife insurances. Extremely small share of life insurance in the GDP (about 0.4%) protection

due to the huge deficit of the Romanians, 308 billion lei in 2010, according to calculations

ING Asigurri de Via. Then, life insurance leads to a higher level of financial security of


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the population, and may even reduce welfare costs and increase sustainability of social

security system.

ING Asigurri de Via closes the year with a market share of 33%. A clear evidence is the

market evolution of life insurance, which grew in the first semester of the year with almost4% over the same period of 2010, while the class of general insurance decreased over 10% in

the same period. An important contribution to this trend had, undoubtedly, increased efforts

to inform and educate players coming from the life insurance market, efforts that need to

continue also in the future. Another important aspect is that the insurance market in Romania

is a solid and structurally reinforced with strong and fair players, that will bring benefits for

both customers and insurance companies by creating competition and even higher qualitative

products. Another important issue for the life insurance market, 2011 was a period of

intensification of efforts to increase transparency with customers. Finally, accelerated

development of life insurance market, as a consequence of the tax incentives would

contribute to economic development through a greater volume of investment through more

efficient allocation of capital, boosting long-term savings, and a faster development of

financial markets1.

4. Threats: High competitiveness in the industry, new entries in this field of activity ofcompanies with great potential. Four elements of context are the main threats to the field: anunstable political and economic environment, currency depreciation, blocking the crediting

and unemployment growth.

The SWOT Analysis compiled for BCR Asigurri de Via is the following:

1. Strong Points: One of the most important strong points that the company has is its currentstrategy to diversify its services, as well as in terms of technology, in order to meet the needs

of its customers and to follow the current trends of the market development. In this sense

BCR Asigurri de Via is the first Romanian company that facilitates life insurance clients

to have quickly access to info about its products and services, directly on their Smartphone or

1 Table 1.1.


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tablets. The application was designed to provide facilities both for the companys customers

and anyone interested in life insurance. The company also has a diversified portfolio in order

to cover all the possible needs and demands of the customers, therefore BCR Asigurri de

Via provides expertise to achieve the objectives of financial planning and protection

featuring a portfolio of products: bancassurance, savings and protection plans, savings plans

for children, their retirement savings plans, unit-linked investment programs and index

linked1, health insurance, life insurance programs for groups of employees.

The company performance is based on a proactive attitude, which proves to be efficient, the

capacity to deal with the social economic realities in an innovative manner, and also its

ability to provide customized solutions tailored for their clients. The life insurance company

has an advantage at a strategy level being a member of Erste Bank Group 2. BCR Asigurri de

Via, as part of Erste Bank Group, has adopted practically the same strategy in regards with

the customer, a very well-defined strategy, using the customer segmentation in order to

develop as better as possible the products and services.BCR Asigurri de Via has two main

advantages: an excellent partnership with BCR , the number one bank in Romania and a

membership of the leading insurance group in Central and Eastern European market, the

Vienna Insurance Group.

2. Weaknesses: Also for BCR Asigurri de Via the improvement of the health systemefficiency through a long term commitment that will take risks and will tie up capital to

ensure financial solvency and customer safety. The practice utilized of lowering rates, during

periods of economic crisis when the market requires it, cannot maintain high quality long-

term services.

3. Opportunities: The main opportunity for every business that is providing financial services itis represented by the increase of 5% of the life insurance market in Romania, that could be

confirmed and even exceeded, and if this year will be an increase in pensions and salaries,

1 Index linked - payment of income on the principal is related to a specific price index, often the Consumer PriceIndex. This feature provides protection to investors by shielding them from changes in the underlying index.2Erste Bank Groupwas founded in 1819 as the first Austrian savings bank ( Erste oesterreichische Spar-Casse ).


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the growth estimated this year could reach 6%. Pessimistic estimate indicates an increase of

3-5% in 2012. The estimates for the year 2012 starts with the expectations of economic

growth. Expectations for growth are moderate the prediction of the economic growth should

be less than 1%. On the other hand, hopes about the life insurance market are optimistic.

Trust of the population increased and the financial education so that the estimate is that we

will see an increase of about 6-7% of the of life Insurance market this year. If the GDP

increases by 1.5%, the life insurance market will grow from about 3% to 3.5%. This event

will lead to an increase in the segment of investments and insurance savings that come to

support customers need of saving. The tendency to go to universities abroad, a trend that can

be very beneficial for insurance companies, and anytime a product of this type may also

support the goals of a child in a family of middle-income.

4. Threats: It is very important for the company to be innovative and to think that the futurecustomers are already highly educated, at least in comparison with mature generations that

the company has dealt with, during the previous years. The main reason being the rapidity of

how the population is evolving and starts to use and understand sophisticated products. The

company is forced to burn stages and to evolve quickly, without having the time to go

through a step by step accumulation, periods that other countries have passed through. High

competitiveness in the industry, new entries in this field of activity of companies with great

potential, represents also a threat of BCR Asigurri de Via.

3.3. Selling Techniques in Life Insurance Applied by theCompanies

Life insurance is something abstract, intangible, and unfamiliar to the client. Therefore, in order

to sell such a service the agent first needs to make the customer to understand how life insurance

can help him in the future. Secondly, selling a life insurance is based on a relationship of trustbetween the agent and the client. So before the agent sells a product or a service it is required to

win the customer confidence. Thirdly, the sale of life insurance is based on the clients financial


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needs, so the agent needs to make an analysis that highlights the potential customer needs and its

financial possibilities.1

Regardless of the field examined, the sale requires the existence of a process of sale and

purchase. Depending on the product or service sold, the selling process is different, specific salestechniques used by product, but according to the company that promotes the product. The same

thing happens in life insurance. The sale of insurance, although not fundamentally different, has

some features from one company to another. All the professionals agree with the idea that selling

life insurance is a process where each step is extremely important and generates the next stage.

Each day we are involved in the selling process: in the family, at work, with friends, we want to

conquer someone, at an interview for a job, etc. The selling of a life insurance begins with the

market research and continues with contacting the prospects in order to establish an appointment

in which it has to be identified the client needs so that subsequently based on these to be

developed the solutions and should be recommended the insurance product that can cover the

customer needs. It follows the appointment in which it has to be presented to the client and the

recommended insurance benefits, and then, to be completed the sale. Subsequently, clients need

these services, so that providing consultancy to the customers will continue even after the sale.2

Therefore, both companies have managed to be competitive and to cement their leader position

on the market, through their sales agents. The human resource, in the life insurance industry, and

not only, represent the most valuable asset. The companies invest a lot of time and money in the

training programs of their, future or present, employees. It is a market that develops very fast and

as the demands are continuously change and in order to be successful, the companies have to

invest also in their personnel, not only in their products and services.

Prospecting is the first selling technique utilized because exploration remains for sales what

seeds are for a garden. As we plant more seeds we will have more flowers. Without potentialcustomers we will not have customers to whom to establish long term relationships. This is what

1Badea, Gh. D.,Manualul agentului de asigurari, Ed. Economic , Bucureti, 2008, pp.143

2Badea, Gh. D.,Manualul agentului de asigurari, Ed. Economic , Bucureti, 2008


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is decisive for the success of exploration consultants. Exploration is the conscious activity, direct

and continuous of search, observation and classification of people. Exploration is a cornerstone

in the sales activity.

One method is to select potential customers in the following categories: Business people; Recently divorced; Newly married, engaged; People who change jobs; Home owners; People who have limited assets and liabilities;The results of prospecting are:

Obtaining references: names of persons and relevant information about them; Establishing the centers of influence; Determining sources of information for the database, creating and updating the customer

database;

Classifying the potential clients according to the temperature of the relationship;

If it is conducted properly, the prospecting process lasts between 50 and 80% of the timeallocated for the whole sales process. So, it can be assumed that prospecting is determining:

For the hole selling process; For the selling results; Finally, for the survival of the professional selling activity of life insurance;The prospecting process is conducted taking into consideration the following steps:

List: a list of names of persons known. Without thinking if they want an insurance or not, ifthey are or not available. The agent passes these names exactly in the remember order.

Qualify: it must be decided if the person is qualified or not, in terms of including in the list ofpotential clients.


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A well done prospect means: Character, Health, Income, Need and Approachability. The persons

that pass over these stages are, all of them, potential customers. The consultants will have to

contact all of them, but previously, there has to be obtained information about the clients.1

The approach is the first contact with the potential clients, this is the starting point of theprofessional relationship with the client. Approaching the client can be done in several ways: by

phone or through correspondence. Regardless of how it is the approach the goal is the same,

namely the establishment of meetings with potential customers. The purpose of the approach is

not an insurance sale, but an appointment in which to identify the potential client financial needs.

There are two factors that can determine a potential client to accept an appointment with a life

insurance agent: recommendation, which is that transfer of trust from a person known towards

the potential client to the agent, and the importance of this meeting for the client, meaning what

benefits the client will have when meeting with the agent.

Whether the approach is made by telephone, directly or by correspondence, training is required

before the approach is done. The main reason of an unsuccessful approach is poor preparation of

the approach

Informative meeting:using questions is important because in this way the insurable needs are

discovered. By asking questions the agent finds out the current circumstances or features of the

client or of its business, the threats that may affect the goods, the clients properties, the

implications of these threats especially of the financial ones, but not only, and the current

insurable needs.

The agents ability of asking questions and of discovering the insurable needs of the potential

client represents the key of the selling process success. It is very important how the agent

manages to put these questions, so that the final result of such a communication process

embodies the clients agreement that there is a real need of insurance and its engagement to do

something in this sense.2

1Badea, Gh. D,Manualul agentului

Elena.butusina Licenta

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