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MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability

MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability. Dr. Klime Poposki Alma Qamo Motor Insurance Conference Istanbul, March 2013. Contents. Macedonian Insurance market overview Benefits of a sound MTPL market liberalization

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MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability

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  1. MTPL Insurance Market Liberalization ChallengesMacedonian CaseSetting MTPL Market Standards Towards Profitability Dr. Klime Poposki Alma Qamo Motor Insurance Conference Istanbul, March 2013

  2. Contents • Macedonian Insurance market overview • Benefits of a sound MTPL market liberalization • Positive developments and challenges of MTPL insurance market in Macedonia • Setting up sound market practices in MTPL insurance market • Actuarial Risk Pricing standards • Reserving Standards and compliance benchmarks • Reinsurance Standards • MTPL Data Quality and effective Information Systems Motor Insurance Conference

  3. I. Macedonian Insurance market overview Motor Insurance Conference

  4. Insurance market in Macedonia 15 Insurance Undertakings 4 Life Insurance Undertakings 11 Non-life Insurance Undertakings 23 Insurance brokerage companies 9 Insurance agencies 742 Insurance agents Motor Insurance Conference

  5. Structure of the Gross Written Premium Motor Insurance Conference

  6. Gross written premiums – relative change, MTPL m EUR Balkan countries Macedonia Motor Insurance Conference

  7. Claims ratio, MI Motor Insurance Conference

  8. Channel distribution, MTPL Motor Insurance Conference

  9. II. Benefits of a sound MTPL market liberalization Motor Insurance Conference 9

  10. Benefits of a Sound MTPL Market Liberalization • Best price for consumers, based on risk characteristics; • Level-playing field / fair competition for market players; • Advantageous to more technically sound players; • Faster and better payment of claims to consumers. Brings market stability, growth and confidence Motor Insurance Conference 10

  11. Is Macedonian MTPL market ready for liberalization? Pros and Cons... Motor Insurance Conference 11

  12. Positive developments in recent years Good ground for MTPL liberalization • Establishment of Insurance Supervision Agency, increased supervisory capacities and leading role in promoting insurance market development in Macedonia. • Law on Compulsory Motor TPL insurance in line with EU requirements; • Insurance Information Centre administered by the NIBM collecting market data and information useful for premium setting, reserving, detection of uninsured, fraud, etc. • Enhanced regulations and supervisory filing supported by web-based supervisory reporting system; • Combination of local expertise with practices of international groups with long insurance experience. Motor Insurance Conference 12

  13. Market challengesReduced Claims Paying Capacity • Increased number of vehicles and insurance policies • Increased number of claims reported to insurers • Increased domestic inflation and costs of auto repairs • Increased cost of living and medical expenses BUT 13 Motor Insurance Conference

  14. Market challengesIncreasingly Inefficient and Non Profitable Business Considerable income goes to high commissions and other expenses Motor Insurance Conference 14

  15. Insufficient claims payments and reserves from some MTPL insurers Companies with lower share of MTPL business pay and /or reserve more claims Companies with large share of MTPL business in their portfoliopay and reserve less claims. Motor Insurance Conference 15

  16. Uninsured vehicles • Decreasing tendency of uninsured claims number relative to insured , but still considerable • Severity of uninsured claims substantially higher compared to insured claims (uninsured claims comprise 6% in number and 12% in amounts of claims paid) Motor Insurance Conference 16

  17. Overall effectiveness and profitability picture Questionable from under estimation of reserves! Can be higher! 1 3 4 4 < Motor Insurance Conference 17

  18. Reaction of Market post Liberalization Driven by level of industry development Highly developed markets • High level of insurance expertise • Markets driven by experienced insurers and risk-based practices • Liberalization usually followed by immediate increase of premium rates (previously regulated) driven by actuarial risk analysis towards positive financial results • Step-by-step process in some countries to control effect of immediate premium increase on consumers. Less developed markets • Inadequate level of insurance expertise and lack of risk-based standards • Inadequate capacity and improper practices of claims payment and reserving by some market players • Unfair “illegal” premium discounts from insurers, discriminating prudent players and distorting market standards and competition • Further “legal” decrease of premium rates may occur immediately after liberalization with major deterioration in claims paying capacity and solvency for insurers and market Motor Insurance Conference 18 18

  19. Is the Market ready to liberalize NOW? Given the current stage of MTPL market development: Immediate and unprepared liberalization is likely to lead to market instability, reduced claims paying capacity and profitability and may have a negative social and economic impact. Motor Insurance Conference 20

  20. Towards a profitable MTPL market in MacedoniaISA Initiative Joint Project with World Bank OBJECTIVES • Enhance market standards and develop technical and supervision capacities for actuarially sound setting of premium rates, technical reserves and proper risk management in MTPL insurance • Ensure compliance of the MTPL insurance market with • EU MPTL insurance legislation • Best international practices Motor Insurance Conference 21

  21. Building blocks for a sound MTPL market liberalization Proper information and DATA processing Motor Insurance Conference 22

  22. Roadmap towards a sound and profitable MTPL market Premiums set by Insurers Proper risk reserves Proper risk control and transfer Market Profitability and Solvency TARGET • Develop and consolidate Risk Based Supervision • Minimum Claims Reserving Benchmarks • Risk Based Actuarially Set Premium Benchmarks • Risk control and transfer requirements Transitional • Premiums fixed by MTPL insurance commission CURRENT Motor Insurance Conference 23

  23. User friendly interactive actuarial tools developed Actuarial Risk Pricing Tool Simple Pricing screen Extensive background actuarial risk analysis involved Motor Insurance Conference 24

  24. User friendly interactive actuarial tools developedActuarial Risk Pricing Tool 1. Simple claims data input 2. Claims reserves assessed Extensive background actuarial risk analysis involved with option to make choice on method based on pattern! Motor Insurance Conference 25

  25. Thank you! Motor Insurance Conference 26

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