Yet, in the current crisis context, there are factors that are slowing its growth.
Overall, insurers have been less directly exposed to the international financial crisis, due to conservative investment policies, provisions and restrictions imposed by the Romanian legislation on the investment of assets, portfolio diversification, the interdiction or limitation of alternative investment instruments. The profitability of insurance business decreased due to the crisis, mainly in life insurance sector, by a poor performance of the investments due to falling of the stock market indices and financial market volatility.
The reasons are largely related to the lack or the inadequacy of fiscal incentives, lack of financial resources, bad understanding of the need for insurance policies, lack of tradition in life insurance system plus motivations related to the economic crisis and the worsening economic activities, to the high debt accumulated by the population along the pre-crisis years, the negative growth of the credit institution, low income levels and uncertainty about financial security and even a decreasing level of trust in the insurance concept.
The downfall of the Romanian insurance market was also triggered by the decrease of the corporate sector spending. The straight focused effects of the crisis on companies have also been influenced by the financial statement of the clients. The decreasing of incomes, thus of disposable reserves dedicated to achieving insurance products and the changes in financial priorities contributed to a significant negative growth of sales. Besides the facts listed above, the uncertain political environment, as well as the situation in the Euro Zone, also contributed to a reluctance of companies and individuals towards acquiring a life insurance.
However, there were also short- term positive effects of the crisis on the insurance business as the companies learned to survive and continue their business. The offer of insurance products has kept on growing; the insurers have launched new products meant to exploit their opportunities for expansion, offsetting the poor demand for traditional insurance products with a fast development of more flexible and less costly products for their clients. The diversification of the distribution channels, more focused on on-line sales, communication and higher quality services for clients with lower costs and increased flexibility are therefore positive effects of the crisis.
Acquisitions and mergers have started, and it is possible to continue in the coming years, leading to a higher consolidation of the market. As I mentioned before, there is a high potential for the growth of the life insurance industry on the Romanian market. The level of insurance penetration for Romania is under 2% compared with an 8% average at European level. Last year, the entire Romanian insurance market was about 1.7 mld EUR with less than 20% life insurance. I anticipate a stagnation on the overall market for the next year mainly because of the global economic environment, Euro crisis, lower investment level and, because of the low level of the direct foreign investments. These influencing factors, as well as the very low degree of absorption of European funds add up to those already mentioned earlier.
“In the next years, the Romanian insurance market targets the increase of efficiency and performance, the review of distribution channels and the more frequent use of bancassurance, as an insurance distribution channel.”