Trends in the local insurance market have been recording a steady growth, even though they have been losing pace due to the depleted economy; but, unlike in other industries, they haven’t stopped. Statistical data for the first six months of this year indicate that compulsory vehicle insurance has the largest market share, somewhere in the range of 70%. However, the last five-year period has seen progress in the area of market regulation, change in the premium income structure, while insurance companie.

By: Senka Trivić

The Insurance Agency of the Republika Srpska’s semi-annual report stresses that life insurance has maintained a dynamic growth, while the structure of non-life insurance is gradually improving towards a larger share of optional insurance..

Namely, the gradual but constant growth of optional insurance has continued in 2013, too. For instance, the share of all optional insurance types amounted to 19% in 2006, but today it has reached 30%. In 2006, the compulsory automobile liability insurance share in the non-life insurance structure was 85%; nowadays the share is 64%. In the first half of 2013 the premium income grew by 5% compared to the same period last year.
‘All insurance companies meet the capital adequacy requirements. Technical reserves are calculated against actuarial standards of practice and have a tendency to grow faster than premium income. Exactly because of the portfolio structure, the economic and financial crisis hasn’t had a severe immediate effect on the insurance sector in the Republika Srpska, primarily premium income,’ says Božana Šljivar, Director of the Insurance Agency of the Republika Srpska.

Eleven insurance companies (seven local and four foreign) operate on the insurance market of the Republika Srpska. Insurance activities are also conducted by nine affiliates of insurance companies from the Federation of BiH, whilst five insurance companies from the Republika Srpska are permitted to conduct insurance activities via an affiliate in the Federation of BiH. The insurance sector employs the total of 1,939 people, most of them holding high school diplomas or university degrees.

Brane Stupar, Director of Mikrofin insurance company, says that, compared to the same period last year, the first half of 2013 saw a considerable increase of insurance premiums in the amount of BAM 3 mil. Mikrofin insurance recorded a 20% premium growth; the most significant growth was recorded in other property insurance – thus showing, according to Mr Stupar, the change in people’s mindset and their opting for this kind of protection. ‘Comprehensive car insurance has recorded an ostensible decline in insurance premiums, yet in smaller amounts. Insurance companies are very cautious about taking up risks because this type of insurance is prone to frauds in the form of false car insurance claims.’
Ms Šljivar points out that all insurance companies that have been operating in the Republika Srpska over the last years have survived, which is a good indicator of stability: ‘On the market, there’s room for new products, tailored to fit our situation.’

Flexibility and innovations – business imperative

In order to maintain and improve the current growth trend, it is necessary to adjust, along with the legislation, insurance companies to the requirements of dynamic business. Ms Šljivar says that the new law on compulsory traffic insurance, incorporating Directive 2009/103/EC, is being drafted. The new law will provide for the gradual liberalisation of compulsory automobile liability insurance, which will, she adds, provide a new boost to the market.

Amendments to the Insurance Companies Act are also expected in the forthcoming period. Capital requirements will be increased and new requirements for insurance companies, in line with European standards, will be introduced. The aim is to achieve a long-term market stability and to provide a higher level of protection for insured persons and third injured parties. ‘We are gradually preparing ourselves for the harmonisation with Solvency II Directive. Following the example of most European countries, the Government of the Republika Srpska announced the merger of all regulatory agencies in the financial sector, which would provide better economic and efficient supervision. Local insurance companies, along with the regulator and the Ministry of Finance, should make additional efforts in the future to educate and improve the financial literacy of all population categories: citizens should be aware of the multiple benefits which insurance provides, especially of the benefits derived by life insurance in the current crisis of the existing pension system,’ says Ms Šljivar.

Liberalisation of any market, including the insurance market, results in increased competitiveness, which for our local companies means putting in additional efforts to create good quality products. Mr Stupar of Mikrofin points out that insurance companies have been trying to place customer tailored products on the market and that that is the most important aspect of the industry: the customer can insure their property and receive insurance protection they need. ‘Lately, we have invested heavily in the insurance agents’ training, because skilful staff make the most important segment of insurance sale,’ says Mr Stupar and adds that his company plans to include life insurance in their product portfolio.
Also, local insurance companies need to increase business flexibility. Faster development pace is needed to shift the focus, explore new product lines and market positions, renew resources and improve organisation. The success of any individual insurance company in the future will depend on the competitiveness and readiness to change, that is inevitable as we get closer and closer to the EU and become a part of the global insurance market. s’ assets and capital have increased.