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MTPL liberalisation
Boštjan Vovk, Deputy Director and Head of Department of
Supervision
Insurance Supervision Agency
MTPL MARKETS AND THE REGION
Introduction
Mandatory MTPL basics
First introduced in
1918 in Denmark
Matter of Public
interest
Highly regulated
INSURANCE COVERAGE
Green card system
Protection of the victims
Experience in the Region
AUSTRIA
•deregulation in 1980s
SLOVENIA
•deregulation in 1997
CROATIA
•deregulation in 2013
Other markets are regulated
• (ATM)
The Region
Diversity of Situations (2015)
Insurance Penetration (P&C)
• from less than 100 EUR to 700 EUR
Insurance Density
• from less than 1,5% to 3,5%
Shares of MTPL in P&C GWP
• from 15% to more than 60%
MTPL combined ratios (S&P 2016)
• from 85% to more than 130%
MTPL Market in Moldova
• about 50%
• about 73%
• just short of 1%
• less than 20 EUR
Insurance Penetration
(P&C)
Insurance Density
Shares of MTPL in
P&C GWP
MTPL loss ratio in
2016
THE CHALLENGE
MTPL Insurance Market Liberalisation:
• Why,
• What,
• When and
• How
…TO REGULATE or
not to REGULATE…
The contents of the insurance agreement are regulated
Premiums may or may not be regulated
EU position: competition
• (i.e. deregulation of MTPL premiums)
Case for Regulation
This line of business is in
public interest
All the vehicles must
be insured
If coverage is regulated, premium
should also be regulated
Political decision
What is Regulation of
MTPL Market?
SAME PRODUCT?
(price, conditions, benefits,…)
CONTROL OVER PRICE?
CONTROL OVER CLAIMS
PAYMENT?
LEVEL PLAYGROUND!
adequacy of technical
provisions and assets covering
technical provisions
Competetition
Deregulation works only if it is replaced by competition.
Questions:
What is a competitive advantage in the MTPL market?
Does competitive market need regulation?
What kind of regulation?
Sustainability
Regulator must ensure that markets operate on sustainable levels. How?
No single answer, but the toolkit is proposed:
• that can point to problems;
• that can help structure the debate;
• that can lead to solution.
The Toolkit
In development as joint IAIS/IAA
project
Already used in the supervisory
capacity building programme
sponsored by ADB
Applied on MTPL liberalisation
example
THE ANALYSIS
MTPL Insurance Market Liberalisation:
• Prerequisites,
• Obstacles and
• Pitfalls
Case of too LOW premiums (1)
REGULATED PREMIUM:
•Extremely bad result
•MTPL premium as a macro economical tool
•Cherry picking by new entrants
•Poor technical provisions
Case of too LOW premiums (2)
• Agreement to make business sustainable
• Gaining actuarial expertise
• Role of the supervisor
TRANSITION:
• Good technical result
• Healthy competition based on segmentation
• Good level of technical provisions
LIBERALISATION:
Typical pre-liberalisation
State of Insurance Market
Low insurance penetration and density
Inadequate pricing/reserving expertise
•On industry level
•At supervisory authority level
Regulated commission levels
Motor insurance accounts for the
significant share of insurance market
... and contributes significant share of
technical result
Prerequisites for the Functioning of Insurance
Market
Adequate level of expertise on both levels
• Industry
• Supervisory authority
Transparent “technical
premium” levels
Adequate data acqusition & processing
systems in place
Adequate level of reserving
Solid solvency position of most participating insurance companies
• ... if properly reserved
Obstacles
• Actuarial
• Supervisory/regulatoryLack of expertise
Lack of proper IT support
• High concentration
• Generally undeveloped market (share of motor too high)Market ill structured
Solvency levels low/financially unsound qualified shareholders
Pitfalls
Race for market share/liquidity
at any cost
Convergence towards highly concentrated
market
Reduced claims settlement standards
Major solvency problems
Decreased reputation of
insurance sector
Stagnating development of
insurance sector
THE LIBERALISATION PROCESS
MTPL Insurance Market Liberalisation:
• Apply the toolkit
• Locate the problems
• Propose the solutions
Analyse the situation
Prudential actuarial risk assessment
Actuarial capability assessment
Business Risk assessment
Supervisory Risk assessment
Product Risk assessment
Provider Risk assessment
Supervisor capability assessment
Consumer capability assessment
Marketplace Risk assessment
The building block
Apply the Tool
Prudential actuarial risk assessment
Actuarial capability assessment
Business Risk assessment
Supervisory Risk assessment
Product Risk assessment
Provider Risk assessment
Supervisor capability assessment
Consumer capability assessment
Marketplace Risk assessment
Input to Overall assessment
Risk Appetite
The Process (1)
Chose appropriate risk heat map(s)
Set a risk appetite
Apply the process and assess the components of
prudential risk to generate a
summary risk assessment
Apply judgment to asses if the
process outcome is adequate and
adjust it if appropriate
The Process (2)
Compare risk assessment with risk
appetite
Consider recommendations for adjustments to
reduce the prudential risk
assessment to within the risk appetite
Apply judgment to asses if the process
outcome is adequate and adjust it if
appropriate
Provide a recommendation
and proposed adjustments with
supporting reasons
Steps to take (in this order)
Build-up (outsource/leverage) expertise
Improve reserving standardsRemove commissioning
regulation
Introduce transparency/Improve
reporting
Audit data acqusition & processing
Check/test
•actual profitability of MTPL
•solvency positions
•market structure (concentration, share of motor)
•financial strength of qualified shareholders
Liberalise MTPL at increased reporting depth/frequency
Normalize reporting frequency
Thank you!
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