The Growth of the Insurance Market in Romania

Niculaescu Corina-Elena

Ursu Simona-Andreea

Popa Andreea-Ligia

FABBV English

Group 1517

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for
payment. It is a form of risk management primarily used to hedge against the risk of a
contingent, uncertain loss.

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give
rise to claims are known as perils. An insurance policy will set out in detail which perils are
covered by the policy and which are not. Given this definition there are multiple types of
insurance such as: life, auto, property, health, burial, liability and other kinds of insurances.

The Romanian insurance market has seen an interesting development following contradictory
developments it has incurred and her ensemble economy.

The history of insurance in Romania started before 1871 with the help of different
manifestations of protection on mutual bases.

The first establishment of this kind was set up in 1744 in Brasov, CASA DE INCENDIU, as
result of the merger between mutual associations. After almost 100 years, in 1848, the General
Institute of Pensions was founded. This organization appeared also in Brasov and it was a mutual
association that insured to its members an annual pension.

The year 1871 is an important year for the insurance industry because in March, the first
Romanian insurance company was founded by a royal law. Its name was DACIA and it had a
capital of 3 millions ROL.
The second Romanian insurance company called ROMANIA with a capital of 2 millions ROL
was created in 1873.

In 1881, those two insurance companies merged and they created a new insurance company
called DACIA-ROMANIA. Later on, this company became a very strong one.
A year later, also with the help of some important members of the Romanian social community
an insurance company named NATIONALA was set up. This company had a social capital of 3
millions ROL.
Following the creation of these companies and following the development of local insurance
market, many foreign companies gave up their business in Romania giving their portfolios to
Romanian companies.

Another insurance company named AGRICOLA was set up in 1906. AGRICOLA did mainly
agricultural insurance but also other types of insurance. This company merged in 1930 with the
insurance company FONCIERA from Cluj resulting a new company named AGRICOLA
FONCIERA.

The types of insurances sold by the insurance companies until the beginning of the First World
War were fire insurance and life insurance, the transport insurance being only for the fluvial
transport. The hail insurance was not sold very much and also not for a long period of time.

After the Second World War another 22 insurance companies appeared. Some of them were the
successors of international insurance companies: STEAUA ROMANIEI that took over the
portfolio of MUNCHENER, PRIMA ARDELEANA that took over the portfolio of ERSTE
UNGARISCHE and ADRIATICA (Italian insurance company). After 1927, the Romanian
government authorized the establishing of the foreign insurance companies, namely: NORWICH,
PHONIX, STANDARD and SUN.

In the 30s the economy and the insurance activity knew the biggest development of all types of
insurance done on international markets. The number of the insurance companies was between
20 and 24.

After the war, in 1945, in Romania were in business only 13 Romanian insurance companies
(GENERALA, DACIA-ROMANIA, ASIGURAREA ROMANEASCA, STEAUA
ROMANEASCA) and 5 branches of foreign insurance companies. The Romanian companies
collaborated with the foreign companies, branches and agencies of foreign companies form Italy,
UK or Germany.

Once with the appearance in 1942 of a new law, The Insurance House of the Ministry of Internal
Affaires had been transformed in REGIA AUTONOMA A ASIGURARILOR DE STAT
(R.A.A.S.) This establishment did all types of insurance and held the monopole of stat and local
property insurance. Taking into account that R.A.A.S. was stated owned, it was doing only
public services and had no profit. The insurance premiums were below the levels of those written
by private insurance companies.

In the same period the soviet capital appeared in many fields of Romanian economy. In insurance
activity it appeared by setting up an insurance company named SOVROM ASIGURARE.

The Administration of State Insurance ADAS having 100% Romanian capital, was created in
1952. This was an institution specialized in insurance, reinsurance and loss adjustment activity.
ADAS carried on the activity under the general management of Ministry of Finance upon special
laws.

In 1991 the insurance company ASIGURAREA ROMANEASCA S.A. took over the assets and
related liabilities for the following types of insurance: life insurance, compulsory insurance,
facultative motor insurance and other.

The ASTA S.A. insurance company took over the assets and liabilities related to mixed foreign
companies (ex ADAS joint-venture) and to all insurance and reinsurance operations between
ADAS and foreign companies.

The CAROM S.A. took over the activity concerning the loss adjustments and the indemnity
payments for the losses produced in Romania.

By the Government Executive Order no. 1356 from 28 December 1990 the Export Import Bank
of Romania S.A. EXIMBANK, a bank 100% state owned, was set up. This bank started
effectively its activity in April 1992.

By the Government Executive Order no. 574 from 23 august 1991 regarding the attributions of
the Supervisory Office of Insurance and Reinsurance Activity OSAAR was established the
supervisory committee of the Romanian insurance market as a department within the Ministry of
Finance.

So, in September 1990 the first insurance company 100% private from Romania, S.C. UNITA
S.R.L., with its headquarters in Timisoara, was set up. UNITA S.A. activity started in January
1991 by selling mixed life insurance with capital accumulation. In 2000 the controlling interests
(majority block stock) was bought by the Wienner Staedtische from Austria.

After 1990, many insurance companies were funded and on the Romanian insurance market,
appeared many companies intermediary companies in insurance (in 2000 being more than 800
companies) that acted also as agents and brokers in insurance The word broker was introduced
by Law no. 32/2000 regarding the insurance companies and the insurance supervision. At the
beginning of the year 2002, 105 insurance brokers companies were licensed to function, some of
them being important international insurance brokers as: MARSH, AON, GRAS SAVOYE, etc.
Following the issuing of the Law 32 from 2000 the Insurance Supervisory Commission was
formed. It is an independent organization, self-governing, financed by the insurance companies
having the objective to regulate, control and supervise the insurance market.

The members of the Insurance Supervisory Commission Board are appointed from the common
list proposed by the Commissions for Budget, Finance and Banking of the Senate and the
Chamber of Deputies and they are nominated for 5 years for president, 4 years for vice president
and 3, 2 and respectively 1 year for the members. The first members of the Insurance
Supervisory Commission Board were nominated in July 2001.

To summarize, it can be shown that the growth and diversification economic activity and hence
the value of international trade led to the creation and development of lead markets and
competing insurance and reinsurance. Insurance and reinsurance in Romania are characterized by
a high degree of heterogeneity caused by the existence of a wide range of types and categories of
business. Is why there is no single market for insurance or reinsurance, but insurance and
reinsurance markets, each of which can be individualized by the predominance of certain types
of transactions. We can say that the Romanian insurance market is a competitive market,
although not in the mature stage of this view. Romania is a special case, given that it is a country
with a long tradition in the field of insurance, as they are designed and applied in developed
countries.

Despite its evolution, the insurance market in Romania is one of the lowest in the EU, both as
level premiums and the insurance density and penetration. The year 2012, in Romania have
worked 41 insurance companies, including: 22 insurers were conducted only insurance activity;
11 insurers to perform activities of life insurance; 18 insurers were held both insurance. This top
of profits that the first 10 insurance companies make in Romania is a relevant detail for
describing the way insurance companies have evolved here.

PROFIT
Uniqa Asigurari 321,764,296 lei
Generali Romania 341,475,208 lei
Euroins 341,533,532 lei
ASIROM VIG 425,775,793 lei
PROFIT
Carpatica Asigurari 430,171,572 lei
ING Asigurari de Viata 449,378,051 lei
Groupama Asigurari 505,439,602 lei
Astra Asigurari 579,040,544 lei
Omniasig VIG 581,163,317 lei
Allianz-Tiriac Asigurari 723,791,956 lei
0 lei 500,000,000 lei 1,000,000,000 lei
In the past 10 years, the aggregate subscribed capital increased approximately tenfold, from
387,917,000 lei at the end of 2002 to 4,038,239,446 RON at the end of 2011. This was due to the
licensing of new companies entering insurance and insurance groups internationally renowned
companies in the Romanian market ownership.

Over the last 10 years, foreign investors have made large capital infusions to strengthen the
financial capacity of the insurance companies held so that at the end of 2011, the share of foreign
capital in the total share capital of insurance companies increased by 41.03 percentage points,
from 50.19% in 2002 to 91.22% in 2011.
Taking into consideration the above-mentioned data, I strongly believe that Romanians should
learn how to protect their lives and property.

Firstly, Romania is prone to earthquakes and floods, due to a diverse number of reasons and
when those natural calamities happened in the past a lot of people, especially from the rural side
lost their homes, because they did not have any kind of insurance.

Secondly, the Romanian public health system is not very well organized and there have been
cases of people suffering or even dieing because of insurance burocracy and utter lack of
information.

Lastly, because of the lack of education in the insurance domain, unlike in western countries,
many Romanians have a negative attitude towards insurance policies, behavior which can
endanger their lives or properties.

Therefore, I believe that for all of those reasons people should be provided with more
information about insurance and if not, seek it on their own, in order to reach the level of safety
they deserve.

Given all those current issues Romanias public health system has, I believe that private health
insurance is the future, because those companies work to make a profit, hence they have all the
motivation required to fully satisfy their customers.

However, a downside to this alternative is the price of such insurances. The problem of certain
people not being able to afford it may arise, but as the public system is not working at its full
potential at the moment, I believe that private insurances are the future, despite their
disadvantages.

The insurance industry is facing an unprecedented number of business challenges brought on by

a volatile economy, diminishing investment returns, increasing claims fraud and greater agent
expectations.

Intense competition and declining loyalty are continually eroding insurers profitability. In this
turbulent world, it is essential for insurance companies to acquire new customers and retain
existing ones. But that alone wont be enough. Insurers must consider customer lifetime value
(CLV) when seeking to attract or retain customers.

Attracting new customers may mean taking more aggressive approaches, using digital innovation
to offer customers better prices, more relevant services, or both. Price or, more accurately,
value for money is a key element.

This type of approach can work for people in urban areas, whereas people in rural areas might be
more difficult to reach, because of lack of technology and access to information.

Therefore, I believe that in order to reach the rural population, insurance companies should use a
more personal and direct approach. For instance, hand out flyers or hold short, informative
seminaries on the topic of insurance. Also, using the media more aggressively can be an useful
tool, as the information will spread by word of mouth.

In conclusion, as it has been shown by previous facts and numbers, there is still great potential
of growth on the Romanian insurance market, starting with companies attracting more clients
and making the public aware of the need for insurance in order to keep themselves and their
assets safe. This fact itself is a possible development for the future. Also, improving the public
insurance system and perhaps create a collaboration between it and the private sector, is a
possibility that should be taken into consideration.