MTPL overview for Non-EU markets including the transition from statutory to liberalised motor tariffs

- the case of Western Balkan countries -

Klime Poposki

Insurance Supervision Agency

Republic of Macedonia

Moldova Insurance Conference – Threats and opportunities for the MTPL market,

2 October 2018, Chisinau

Lessons learned

Regulated tariff

Liberalization of the MTPL tariff

EU entering

Continuous harmonization with MI Directives

Peter Braumüller

FMA, Austria

Structure

• MTPL Market data of Western Balkan countries

• Supervisory processes and activities of ISA– World Bank, FIRST Initiative funding project for MTPL Liberalization

– What we have done

– Future challenges

• Serbia• Bosnia and Herzegovina

• Macedonia• Albania• Kosovo

• Montenegro

Insurance market overview

2017 SR BiH MK AL KS ME

Insurance penetration (total) 2.12% 2.16% 1.44% 1.04% 1.34% 2.15%

Insurance penetration (MTPL) 0.72% 1.09% 0.64% 0.80% 0.70% 0.83%

Insurance density (MTPL) 38.00 € 49.91 € 30.45 € 26.05 € 25.16 € 55.90 €

No. of insurance comp. 9 25 11 8 12 5

Population (millions) 7.02 3,85 2.07 2.89 1.78 0.62

Vehicles per 1000 citizens 320 246 219 194 178 333

MTPL share 34% 50% 44% 62% 51% 43%

Regulatory environment

MK ME SR BiH AL KS

MTPL liberalization? no YES no no YES no

In force: aug.2017 aug.2011

Plan for MTPL liberalization? YES YES YES YES YES

Bonus-Malus system for the MTPL? YES YES YES YES no YES

Centralized system for MTPL insurance policies and claims?

YES YES YES no YES YES

Harmonization with min Sum Insured (MID)? no no no no no no

Green card - single premium? YES no no no YES YES

Regulated commission fees? no YES YES YES no YES

Online sale of MTPL policies? YES no no no YES no

Premium and claims - MTPL

Average annual GWP growth 2011-2017:

3,7%

7,1%

2,5%

18,7%

6,3%

2,8%

Number of contracts and claims - MTPL

Average annual No. of contracts growth 2011-2017:

4,2% 2,3%

6,1%

4,3%

5,0%

3,3%2012-2017:

Average GWP & GCP - MTPL

Average GWP Average GCP Average GWP Average GCP

2017

Gross claims paid - MTPL

Ratios - MTPL

2015 2016 2017 2015 2016 2017

MK 46% 45% 46% MK 48% 48% 48%

ME 48% 42% 36% ME 34% 34% 43%

SR 41% 41% 39% SR 26% 25% 26%

FBiH 40% 40% 48% FBiH 46% 48% 43%

RS 33% 33% 31% RS 39% 38% 38%

AL 30% 34% 27% AL 62% 67% 65%

KS 55% 92% 41% KS 51% 61% 54%

2015 2016 2017

MK 95% 94% 95%

ME 82% 76% 79%

SR 67% 66% 65%

FBiH 85% 88% 82%

RS 73% 71% 68%

AL 92% 101% 92%

KS 106% 153% 95%

Claim ratio Expense ratio

Combined ratio

Distribution channels - MTPL

2017

Supervisory processes and activities of ISA

• World Bank, FIRST Initiative funding project for MTPL Liberalization

• Conducted in 2012

• Findings

• Recommendations

• What we have done

• Technical provision

• Reinsurance

• Premiums

• Future challenges

• Risk based supervision

• Liberalization of MTPL tariffs

MTPL Project Findings

Companies with lower share of MTPL business pay and/or reserve more

claims

Companies with large share of MTPL business in their portfolio

pay and reserve less claims

MTPL Project Findings, cont.

Preliminary field work points to formidable challenges faced by the market today. Inter alia, these include:

High commissions & premium discounts

Policyholder’s lost trust & reduced

sales

Undermining paying capacity

Reducing necessary financial

resources

Improper technical reserves

High competition & high MTPL

reliance

Lack of proper regulatory requirements to reinsurance of unlimited green card liabilities

Insufficient & inaccurate industry data

High level of uninsured vehicles

Lack of standardized approach by courts to bodily injury claims awards

On top of that:

Technical provisions

Reinsurance

Premiums

What we have done

Technical provisions

In the period 1.1.2012 to 31.12.2017:- the total gross claims reserves for MTPL, for the total market, increased by 49% or over 15 million

euros.- run off result for 31.12.2011 is -7.3 million euros or -24% in relative terms- run off result for 31.12.2011 for the 6 companies with highest MTPL share in their portfolio is -5.5

millions euros or -53% in relative terms

Ca

New Bylaw on the adequacy of the reinsurance coverage, the method of calculation of the maximum coverage and method of calculation of the maximum possible loss

The NIBM bought an unlimited reinsurance coverage for green card claims caused by unregistered and unknown vehicles.

Orders for elimination of irregularities are issued due to inadequate reinsurance coverage for domestic MTPL policies

Reinsurance

Starting from 1.1.2013, ISA issued many settlements for payments of fines, orders for elimination of irregularities and settlement for elimination of the consequences, are issued due to breach of the MTPL tariff;

The National Insurance bureau of Macedonia, started the process of improving the software for collecting data on MTPL;

ISA through the regular on-site supervisions constantly influence on the quality of the data from the companies;

New Bylaw on the manner and procedures for collection and transfer of premium by insurance brokerage companies

Premiums

Risk – based supervision

Liberalization of MTPL market

Future challenges

Risk based supervision

Although part of Solvency 1 regime - focused on rule based supervision, the ISA undertook following steps towards more prudential supervision:

➢ When preparing the Annual on-site supervisory plan ➢ 19 quantitative indicators are analyzed per company, in comparison with the average of the industry

and the historical trends in order to identify the risky area per company➢ Sensitive analyses for major risks of the company by the external auditors are carefully analyzed➢ Targeted (partial) supervisions are planned

➢ Companies are challenged about risks identified by supervisors

➢ Risks are tabulated and companies are requested to self assess the risk identified by supervisors and to propose measures to cope with them

➢ Using the results in evaluating the Corporate government of companies

Liberalization of MTPL market

Step 1: Ensuring proper calculation of technical provision

Step 2: Ensuring quality data bases for proper pricing through the centralized information system of the national insurance bureau of Macedonia

Step 3: Ensuring the financial capacity and the fit and proper of the key functions in the companies by usage of risk based techniques

Thank you

Klime PoposkiEmail: klime.poposki@aso.mk

www.aso.mk