Boosted by economic recovery, Romania’s life insurance market is expected to rise from RON 1.56bn in 2014 to RON 1.84bn in 2019, in terms of gross written premium, according to Timetric research.
The report, Life Insurance in Romania, Key Trends and Opportunities to 2019, which is available at Timetric’s Insurance Intelligence Center, highlights a low penetration rate, economic recovery and rising life expectancy as the key drivers for the Romanian life insurance sector.
Romanian life insurance penetration stood at 0.23% of the GDP in 2014, lower than Poland (1.6%), Hungary (1.4%) and Bulgaria (0.35%) in the eastern European region.
Low penetration rate indicates a large untapped market. Furthermore, an increase in consumer awareness of insurance is expected to support the growth of Romanian life insurance segment between 2014 and 2019.
Economic recovery in Romania is also expected to generate demand for life insurance. The Romanian unemployment rate fell from 7.3% of the total labour force in 2010 to 6.9% in 2015, and is expected to reach 6.5% in 2019.
The decline is primarily supported by an economic revival after the European debt crisis during 2010-2012. Industrial growth, low inflation, increased employment and disposable incomes significantly supported economic growth, setting a trend that is projected to continue between 2014 and 2019.
The recovery comes after poor economic growth, a high budget deficit, and falls in consumer demand and interest rates were the primary reasons for the decline in the gross written premium, in Romania’s life insurance sector from RON1.63bn in 2010 to RON1.56bn in 2014.
Life insurance density also fell, at a CAGR of -0.8% during 2010-2014.
Rising life expectancy
Rising life expectancy was a key growth driver in the Romanian life segment during 2010-2014 and is projected to increase further with improvements in health measures. Life expectancy is expected to reach 75.8 by 2019, compared to 73.7 years in 2010.
This will contribute to the growth of retirement-related products such as pension, annuity and superannuation cover.
Finally, the National Committee for Macroprudential Supervision (NCMS) is expected to be established in 2016, comprising representatives of the National Bank of Romania, the ASF and the Ministry of Public Finance. This is also set to be a major growth driver the country’s life insurance market.
The committee will be responsible for identifying risks to the country’s financial stability, and various banking and non-banking institutions such as insurers.
The committee will help financial businesses, including insurers, by giving remedial directions, and monitoring their adherence.
It will also oversee the management of financial crises, and determine measures to prevent risks from becoming endemic. For instance, it will monitor the financial position of an insurer, and its management of capital and claims. This is expected to benefit the Romanian insurance industry as insurers will seek help from the NCMS to maintain financial strength and compliance.
Romania is part of a declining demographic trend in the EU. The Romanian population decreased from 23.2m in 1990 to 19.9 million in 2015.
During the 2010-2014, the population decreased at a CAGR of -0.4%. According to World Health Organization (WHO) estimates, the country’s population will fall to 16.8m in 2050.
Meanwhile, the old-age dependency ratio is expected to rise from 21.7% in 2015 to 49.6% in 2050, lower than the projected EU average of 52%.
There are also challenges facing the Romanian life insurance market. In the first place, Romania has a three-pillar pension system, of which the first pillar is the compulsory public pension system, the second pillar is a privately managed compulsory pension, while the third pillar comprises voluntary occupational pensions.
As contributions to the first and second pillars are compulsory, it limits the ability of an employee or self-employed individual to spare resources for to invest in voluntary pension products or life insurance.
Romanian life insurers are in the process of diversifying distribution channels, according to the Timetric report.
With limited reach and narrow profit margins, insurers are inclined to strengthen the direct marketing, bancassurance and ecommerce channels.
Bancassurance has become a key distribution channel as a result of its reach and stable client base. In 2014, for example, Groupama Asigur?ri SA established a bancassurance link with Banca Transilvania to distribute its products.
Romanian insurers are also focusing on online sales and support by developing mobile applications and websites, which provides deeper reach with relatively low investment.
NN Asigur?ri de Via?? SA launched a new website, Pensiopedia, in March 2015, to promote pension products. In 2015, BCR Asigurari de Viata Vienna Insurance Group launched a mobile app for iPhone and iPad users to promote products and provide support services.
Regulatory fast facts
– The Romanian insurance industry is regulated by the Financial Supervisory Authority (ASF).
– Foreign direct investment up to 100% is permitted in the Romanian insurance industry.
– Non-admitted insurance is not permitted in Romanian insurance industry. However, insurers from EU and EEA member states are permitted to operate in the country without a license.
– Nuclear liability insurance, motor third-party liability insurance and insurance of dwellings against natural perils are compulsory insurance classes in Romania. Source: Timetric analysis