Romanian truckers' protest reveals crisis in insurance market

Romanian truckers' protest reveals crisis in insurance market
By Iulian Ernst in Bucharest August 22, 2016

Members of the UNTRR association, which represents Romanian road transporters, started almost a month of planned protests against recent hikes in fees for compulsory third party insurance contracts on August 19. Drivers will travel at low speed on national highways for one hour every day until September 15 when a large-scale protest is scheduled.

Within the last week, both the truckers’ protests and the collapse of tour operator Genius Travel have revealed the poor functioning of the insurance market. Transporters claim the country’s insurance market has turned into a “Wild West”. Though, just like the Wild West, the market remains full of opportunities for new entrants as the incumbent players face the cost of wrong decisions taken in the past.

UNTRR claims that the prices of the mandatory insurance for vehicles used for passenger and freight transportation have increased by six times since 2014 and four times since 2015. For example, the fee for a tractor classified at neutral risk class B0 hit RON22,000 (€4,900) per year, up from RON4,000 in 2014. The antitrust body should step in and regulate the fees temporarily, UNTRR said.

The insurers are covering their excessive operating costs by hiking fees, particularly for mandatory contracts, UNTRR claimed.

In a separate development, Genius Travel, a medium-sized Romanian travel agency, announced on August 17 it was unable to continue operations and would file for insolvency, leaving hundreds of its customers stranded in foreign resorts without accommodation.

Officials from market regulator ANT said the $10,000 insurance held by the operator would cover only a very small part of the losses incurred by customers. Insurers have shown no interest in insuring tour operators, head of the tour operators’ association ANAT, Alin Burcea claimed. Instead, the market has been driven for decades by mandatory insurance contracts for cars, homes or life insurance.

The problems of the Romanian insurance sector date back to the years immediately after the collapse of communism. Insurers failed to build robust credibility from the very beginning. Puzzled by the combined investment-insurance products sold by the insurance firms in the first years after the fall of communism, which failed to deliver the promised yields, local households have remained sceptical about the benefits of insurance products.

In addition, insurers have not developed the market but picked the lowest-hanging fruit. The compulsory segments - for cars (third party insurance for any car, voluntary insurance for cars under leasing contracts), for homes subject to mortgage contracts and more recently for all homes (mandatory insurance) - have been invaded by investors willing to gain market share in areas seen as safe. However, some of the leaders of these segments have already gone bankrupt (Astra, Carpatica), or are subject to restructuring.

New entrants have an opportunity to capitalise on this since the market is more price-driven than brand-driven. German insurance group Ergo has entered the Romanian market by taking over the insurance arm of Credit Europe group, Credit Europe Asigurari, reported on July 19.

Separately, Vienna Insurance Group (VIG), the main shareholder of three Romanian insurance firms, Asirom, Omniasig and BCR Asigurari de Viata, has reached an agreement to take over the Romanian branch of AXA insurance group, reported on August 2, quoting unofficial sources. AXA entered the Romanian market in 1997 by taking over the life insurance branch of VIG. Despite investments worth tens of millions of euros, AXA Romania has constantly incurred losses. During 2010-2015, it incurred cumulated losses of RON235mn (€52mn).

However, the combined net loss of Romanian insurers widened 7.5 times last year to RON267.8mn (€59.9mn), financial markets regulator the ASF announced on July 20. It was the tenth year in the red for the Romanian insurers. Half of the 10 insurers authorised to provide mandatory car insurance (RCA), Asirom, Astra, Carpatica Asig, City Insurance and Euroins, posted a combined loss of RON586.5mn, representing around 80% of the total market loss.

The increase in the loss came despite a revival of the insurance market, with gross written premiums going up 8.2% on the year to RON8.75bn in 2015. The rise in 2015, driven by the third-party mandatory car insurance segment, reversed the downward trend seen in 2013-2014. The market expanded by a preliminary 5.4% on the year to around RON2.35bn (€520.4mn) in the first quarter of 2016, the ASF said on June 2. However, the financial results of some insurers remained under pressure due to their high dependence on car insurance and the high damage rates.