T H E I N T E R N A T I O N A L I N S U R A N C E F O R U M , I I F 2 0 1 4A P R I L 6 - 7 2 0 1 4 , I S T A N B U L , T U R K E Y

PROS AND CONS FOR THE MTPL TARIFFS LIBERALIZATION IN THE CHALLENGING ENVIRONMENT OF A SOFT PRICING AND

HIGHLY COMPETITIVE MARKET

Mr. Klime Poposki

Republic of Macedonia

MTPL market in Non EU SEE countries

Share of MTPL premium in total GWP

Macedonia 46.97%Montenegro 45.52%Serbia 31.45%Bosnia and Herzegovina 48.39%Albania 45.29%

• Macedonia• Serbia

• Montenegro• Bosnia and Herzegovina

• Kosovo• Albania

Macedonia Montenegro Serbia BiH Albania0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

200,000,000 Gross Written Premium

2013

2012

2011

In E

UR

• MTPL regulation is at different levels in compliance with the EU MID

• Continually increasing of the minimum insurance sum limits

MTPL market in Macedonia

2009 2010 2011 2012 2013Average premium 95 114 90 90 88Average Claim paid 1.826 1.598 1.081 1.077 1.160

• Population of 2.06 million• 155 motor vehicles per 1000

people• HHI 981.85• Intermediation in sales 55,37%

• Regulated tariff for MTPL• Bonus-Malus implemented in

2006• Single premium for green card

2009 2010 2011 2012 20130%

20%

40%

60%

80%

100%

120%

58.50%54.70% 54.80% 52.50%

40.10%

42.00% 49.10%50.20%

51.70%

98.60% 96.70%103.90%

97.20%

104.20%Macedonia MTPL ratios

Claims ratio Expense ratio Combined ratio

MTPL market in Montenegro

2011 2012 2013Average premium 114 123 122Average Claim paid 2.059 1.978 1.496

2011 2012 20130%

20%

40%

60%

80%

100%

120%

47.00%

34.00% 35.00%53.00%

51.00%50.00%

100.00%85.00% 85.00%

Montenegro MTPL ratios

Claims ratio Expense ratio Combined ratio

• Population of 0.62 million• 309 motor vehicles per 1000

people• HHI 2634.86• Intermediation in sales 54.93%

• Regulated tariff for MTPL• No Bonus-Malus implemented

MTPL market in BiH

2009 2010 2011 2012 2013Average premium 131 133 133 134 133Average Claim paid 1.356 1.307 1.217 1.217 1.207

2009 2010 2011 20120%

10%20%30%40%50%60%70%80%90%

100%

45.00%

35.00% 32.00%45.00%

48.00%49.00%

46.00%

90.00%83.00% 81.00%

76.00%

BiH (R.Srpska) MTPL ratios

Claims ratio Expense ratio Combined ratio

• Population of 3.88 million• 132 motor vehicles per 1000

people• HHI 643.90• Intermediation in sales N/A

• Regulated tariff for MTPL• Inappropriately implemented

Bonus-Malus

MTPL market in Albania

2009 2010 2011 2012 2013Average premium 80 75 60 70 55Average Claim paid 1.140 1.381 1.348 1.916 2.300

• Population of 3.2 million• 120 motor vehicles per 1000

people• HHI 1348.13• Intermediation in sales 50.9%

• Liberalized tariff for MTPL• Single premium for green card

2009 2010 2011 2012 20130%

20%

40%

60%

80%

100%

120%

140%

160%

32.70% 35.30%

48.67%59.40%65.76%

60.57% 72.09%

54.22%

78.80%

98.46% 95.87%

120.76%

93.70%

138.20%Albania MTPL ratios

Claims ratio Expense ratio Combined ratio

MTPL market in Serbia

2009 2010 2011 2012Average premium 95 87 89 79Average Claim paid 1.724 1.473 1.522 1.574

2011 20120%

20%

40%

60%

80%

100%

120%

59.45% 67.19%

38.50%

43.90%

97.95%111.09%Serbia MTPL ratios

Claims ratio Expense ratio Combined ratio

• Population of 7.43 million• 252 motor vehicles per 1000

people• HHI 1705.37• Intermediation in sales N/A

• Regulated tariff for MTPL• Bonus-Malus implemented

Major challenges of the MTPL insurance market

Reserving

• Inadequate claims payment and reserving practices among a sizeable part of insurance companies• Undermine these companies’ claims paying capacity and solvency• May, upon their potentially insolvency, transfer the costs to better market players

Pricing

• MTPL tariff setting system that does not provide for actuarial risk pricing• Conducive for concealing unsustainably high insurers’ expenses• Premium discounts and high intermediary commissions through non-transparent accounting practices

Reinsurance

• Lack of proper regulatory requirements to reinsurance of unlimited green card liabilities• May inflict large financial losses on the insurance market• Can adversely affect the standing of the NIBM as a member of the Council of Bureaus

Other

• Insufficient & inaccurate industry data• High level of uninsured vehicles• Lack of standardized approach by courts to bodily injury claims awards• Limited control by insurance companies over their production costs due to unfair price competition

MTPL premium tariff system

Nine main tariff groups: (i) Passenger vehicles, (ii) Goods vehicles; (iii) Buses, (iv) Towing vehicles, (v) Special vehicles, (vi) Motorcycles, (vii) Trailers, (viii) vehicles with foreign registration, and (ix) Operating vehicles.

Four age groups for vehicle owners;

Type of vehicle use (e.g. taxi, rent-a-car, transportation of hazardous goods, etc.);

Claims history: a bonus-malus system comprising eighteen classes;

Period of coverage: normally one year. Less than one year periods can apply to specific conditions;

Limits: Minimum country limits as set by the Law;

Vehicle fleets.

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.

IS THE MARKET READY TO LIBERALIZE NOW?

Pros Cons

10Istanbul, March 2013 Motor Insurance Conference

Goal of the liberalization of MTPL tariff

MTPL tariffs liberalization

Allowing insurers to price MTPL insurance coverage based on the underlying risk characteristics of local drivers and their vehicles rather than setting premium rates by administrative fiat

Bringing the Macedonian insurance market in compliance with the EU Directive

Roadmap for MTPL tariff liberalization

Claims

paying

capacity

Enhanced

solvenc

y

Profitability

Confiden

ce

Proper claims payment and

reserving standards

Risk based actuarial pricing

Proper risk control and

transfer

Proper information and DATA processing

Main phases of MTPL market liberalization

Current situation

Regulated TariffsISA Rulebook

(insufficient actuarial input)

Inadequate claims reserving from some insurers and

Guarantee Fund. Insufficient supervision of reserves under

lack of market benchmarks

Potential high risk under lack of Green card reinsurance criteria

Transitional period

Regulated tariffs based on actuarial risk prices developed by

the project

Proper actuarial standards on claims reserving based on

actuarial methodologies for insurers and Guarantee Fund

Minimum criteria for Green Card reinsurance

Liberalized!

Liberalized Premium RatesInsurers price MTPL risk

individually Actuarial pricing guidelines

available for insurers

Maintain Minimum requirements (benchmarks) on

claims reserving based on actuarial methodologies for

insurers and Guarantee Fund

Maintain minimum criteria for Green card reinsurance/ Impose

minimum criteria for MTPL reinsurance if country limits

increase further

Statutory requirements for Green Card Reinsurance

Amount of Reinsurance Coverage

Accepted Quality of

Reinsurance Cover

Maximum net retained

exposure from

Insurer

Set up maximum threshold for net insurer’s exposure

Ensures proper and timely payment of loses from

reinsurers

Maintains insurer’s and market financial stability

THANK YOU!

Klime PoposkiThe President of the Council of Experts

Insurance Supervision Agency of the Republic of MacedoniaEmail: klime.poposki@aso.mk

www.aso.mk