The insurance industry in Bulgaria is going through a shake up due to a number of new regulatory changes. These changes are guaranteed to have a significant impact on domestic firms such as Armeec Insurance, as well as the wider industry as a whole. One regulatory change, Armeec feels, will put undue pressure on the industry due to the speed with which it requires companies to comply with the new rules, although the firm itself feels confident it is ahead of the curb and will overcome this challenge, as it has many times in the past. World Finance spoke to Tsvetanka Krumova, CEO of Armeec, about the need for an increased awareness of the positive role of insurance, the spill over from Greece’s economic crisis and the importance of technology.
What are the main challenges posed by the transposition of the Solvency II Directive?
The transposition of the Solvency II Directive aims to make the market more predictable and transparent. Introducing a risk-based approach to insurance supervision should reduce any unnecessary administrative burden and increase control in the high-risk areas and activities. The challenge is to change the attitudes of insurers, insurance intermediaries and customers. The directive sets some very-high demands on the quality of information, which will require the commitment of significant additional resources in order to bring information systems in line with the accordance.
Based on the freedom of establishment and freedom of services, the insurance market in Europe has no longer been restricted by national borders
How does Armeec Insurance plan to overcome these tough challenges?
Unlike other companies on the insurance market in Bulgaria, Armeec relies entirely on its expertise, specialists and resources. That’s why we started preparation and readjustments to our business much earlier than our competitors. This process allowed us to carry out a comprehensive review of every detail of the business. It was a chance for further optimisation and improvement, which subsequently should prove to be our competitive advantage.
Specifically, we have had to prepare our information systems, develop and improve programmes and procedures, and increase investment in software and hardware to ensure the quality of information. We have also used the experience of consultants from other member states of the EU, which have implemented the directive much earlier. We have updated our internal rules, procedures and regulations, bringing our practices into conformity with the requirements of the directive.
What are the main challenges posed by the major changes to the insurance code?
The Ministry of Finance’s draft of the new insurance code is due to a need to transpose the provisions of Directive 2009/138/EC on the introduction and performance of the insurance and reinsurance business (Solvency II). In this section the changes are necessary and supported by us. However, the main challenge is the provisions concerning the insurance contract. These represent a fundamental reform in insurance contractual law. It takes years to prepare such a reform.
The new regulation for insurance contracts will be implemented in the coming years – meaning that the time for consideration and evaluation of the impact of these changes will have on the insurance services market is not enough. Such a change requires a very detailed discussion between all interested parties. In the light of the considerable resources that the insurers will have to spend on bringing their activities into compliance with the new regulation under Directive 2009/138/EC, the proposed change in the contractual insurance law should be postponed.
Again, how do you plan to overcome these challenges?
During our company’s 19 years of operating, we have overcome many challenges, making us more resilient and flexible. We will approach this change in the same way, analysing the effects of the changes on the company and the market and deciding the appropriate steps to undertake. This will include changes in our structure, rules and procedures, as well as in the information systems. However, before the final adoption of the new code, we cannot state that we are fully prepared for what lies ahead.
The state will only grant aid to those who are “socially weak” in case of a flood or major disaster. Who does this include?
The exact requirements needed to be entitled to compensation in the case of disasters are unclear for now. However, the question is, whether the focus shall be on income or on ownership, and whether only a certain level of income is a precondition for providing support of any kind. The question of illegal buildings also remains unanswered as such buildings are most often affected by catastrophic events and in no way such property could be insured.
What impact will this have on the insurance sector?
The introduction of compulsory insurance would negatively affect the market. It will lead to a minimum level of coverage, which will inevitably result in lower benefits for consumers. Moreover, it does not support the change in customer attitude and awareness of the need for insurance. The draft amendment to the law on protection in emergency situations and disasters stipulates that citizens have the obligation to take care of their property and to take measures to limit the consequences of disasters. This is a good occasion to explain to the public that insurance is an important part of these measures. We also think that building a knowledge of risk management must be embedded into the high-school curriculum.
How has the ongoing crisis in Greece impacted the insurance sector in Bulgaria?
As a result of the ongoing financial crisis in Greece, in Bulgaria there is increased supply of Greek assets at low cost. Greek insurance brokers for many years have been entering the Bulgarian market with proposals for joint activities in Greece, given the lower prices of insurance services in Bulgaria. Some insurers have acquired Greek assets, but the deals are not yet finalised. Ultimately, the entry of more players on the Bulgarian market will increase competition and improve the quality of service.
From Armeec’s perspective, how would you like to see the Greek crisis resolved?
It is good that the European banking system in its basic parameters is stable and as we have seen, through dialogue and compromise, an agreement has been reached with Greece. The situation about the bankruptcy of the country is formally settled. Greece is part of the EU and it should remain so. Based on the freedom of establishment and freedom of services, the insurance market in Europe has no longer been restricted by
national borders.
What are the strengths of Armeec’s current market position?
The main advantage is the fact that the company has the opportunity to influence consumer attitudes towards insurance business as a whole. Insurance is often present in the media as the anti-hero in the news, with stories of dissatisfied customers and declined claims. Positive news is present only in the insurance companies’ own advertising. Therefore the ambition of Armeec has always upheld a good standard of practices and ensured a high level of customer satisfaction.
Where is the potential for upgrading and developing Armeec’s market position?
Sustainable development has always been a goal and fundamental strategy for us. We think the prospects of Armeec are very good, based on the data at the end of the first half of 2015, the targets for the year and the plans for long-term development of the company. We expect this year to report a steady growth in premium income, improving the structure of the portfolio and reducing the level of risk.
What trends have you seen emerge in 2015?
Since the beginning of 2015, the general insurance market has steadily grown, peaking midyear at 6.67 percent. We expect the growth to continue throughout the rest of year, given the positive economic trends that have affected the insurance market. The most sensitive indicator of the overall economic progress is the insurance of cargo goods, which has had a noticeable growth of six percent. Following the revival in sales of new cars and easier credit availability, there has been an increase in motor insurance demand. The growth rates in property insurance still remain below the desired levels. The low growth rates of the insurance of private property once again demonstrate the need for a broader educational and public awareness campaign.
What does the future hold for Armeec and the Bulgarian insurance industry overall?
The future of insurance belongs to technology. The progress in communications and innovation has made consumers more aware, and shortened the distance and the time for serving a customer. Insurers must meet the new demand of customers. Today we are witnessing a new boom in mergers and acquisitions between insurance companies, driven, in part, by technological advantages. Moreover, there is increased consolidation between insurance and technological companies, showing that innovations will be crucial for the future of our business.
