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2nd International Insurance Forum Azerbaijan Insurers Association

2nd International Insurance Forum Azerbaijan Insurers Association. A BRIGHT LOOK AT THE PRESENT AND WHAT THE FUTURE HOLDS JULY 07, 2011 Tomas SINICKI, Nexum INsurance technologies. NEW MTPL ERA. EXCITING TIMES. NEW MTPL ERA. Key novelties

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2nd International Insurance Forum Azerbaijan Insurers Association

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  1. 2nd International Insurance Forum Azerbaijan Insurers Association A BRIGHT LOOK AT THE PRESENT AND WHAT THE FUTURE HOLDSJULY 07, 2011Tomas SINICKI, Nexum INsurance technologies

  2. NEW MTPL ERA EXCITING TIMES

  3. NEW MTPL ERA Key novelties • New law aimed at increasing awareness of importance of insurance through stricter adoption of compulsory insurance • Compulsory insurance Bureau organization • Implementation of regulations related to compulsory insurance • Market facilitator (not regulator) • Common MTPL database • Exchange of information among stakeholders • Fraud prevention/detection

  4. NEW MTPL ERA Great expectations • Greater penetration => increase in the number of insureds • Greater insurance awareness => boost in sales of voluntary insurance products • Greater premium • Greater claims

  5. NEW MTPL ERA Example: acceleration of Russian MTPL market • Compulsory MTPL in Russia since 2003 • People perceiving CMTPL as a State imposed tax dropped from 40% in 2005 to 30.4% in 2006 • CMTPL was a catalyst, which significantly raised insurance awareness of population and encouraged purchasing other types of insurance Source: Rogozin, 2006

  6. NEW MTPL ERA Example: acceleration of Lithuanian non-life insurance market • Number of non-life policies nearly doubled (95.4%) • Premium went up substantially (65.2%) • Claims were quick to catch up (63.8%) Source: Lithuanian Insurance Supervision Authority

  7. NEW MTPL ERA Example: acceleration of the Lithuanian MTPL market (key events)

  8. NEW MTPL ERA Example: acceleration of Lithuanian non-life insurance (second jump) • Second wave of growth after joining EU • More focus on cost control • Loss ratio remains stable • Combined ratio goes down due to decreasing cost ratio Source: Lithuanian Insurance Supervision Authority

  9. NEW MTPL ERA Implications for business acquisition management • Balancing portfolio away from dependence on Motor is very challenging in many markets • Example: in Poland Motor business acquisition costs have been growing steadily over the last decade Source: Kwiecien & Poprawska, 2011

  10. NEW MTPL ERA Implications for operations management • Increase in the volume of business leads to greater administrative challenges • Keeping acceptably low MTPL loss ratio in the long run is extremely difficult • Cost control will become the most important management component • Expect greater focus on process efficiency • Increase in the number of claims leads to challenges on the client service side and concerns over efficiency improvement • Typically ignored at the outset of the industry; often recalled too late • Expect greater focus on process efficiency • Poor systems not only cost too much but also leave you without data useful for fraud detection • More investment in information technologies • Efficiency in business acquisition and claims handling will be pivotal • Aim at becoming less human intensive than your peers from the start

  11. CHANNELS WHAT ELSE HAS WORKED FOR US

  12. BANCASSURANCE • Insurance market in the Baltic States benefitted enormously from bancassurance • Non-life insurance intermediation was seen by a bank as a profit center • First home/car purchases were financed by loans in 2001-2004 • Adoption of compulsory MTPL law coincided with very loose credit policies by Scandinavian banks • Development of insurance market cannot be attributed solely to adoption of compulsory MTPL law • Cross/up-selling was much easier in times of prosperity • Conclusion • Vital channel, not only for life but also (increasingly) non-life insurance • Work on persuading banks to get involved early

  13. ALTERNATIVE CHANNELS • Internet • In the Baltic, real take-off in 2007 • Today, over 50% of MTPL policies are bought online • Mobassurance • Distribution of policies using mobile operators’ infrastructure and network • In the Baltic started in September 2010 in Estonia • A significant competitor to all major traditional distributors of insurance

  14. CONCLUSIONS SO WHAT

  15. CONCLUSIONS • Based on experience in other markets, one can say that given appropriate legal circumstances, market acceleration can be very fast • We should expect gains but also prepare for investment in efficiency because pressure on managing costs will increase significantly • Balancing portfolio will be an important challenge and is sure to be forgotten • Getting banks involved early on may help balance portfolios with less effort than otherwise required

  16. CONCLUSIONS • Putting alternative channels to use may come sooner than in most European markets and that would be beneficial to both consumers and insurers • In the long run, closer cooperation among market participants will create more discipline and help challenge fraud issues • Starting slightly later provides certain advantages; the key is using them properly

  17. THANK YOU

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