The future of credit insurance looks dim, after having been a thriving business for insurers for many years. Players expect the market to stall, just like last year, or contract, whilst it doubled each year from 2002 through 2006.
"Because of rising interest rates, loan repayment declined, meaning rising claims for insurers. These policies are loss making, given the very low premium levels. To survive on the market, one must have a reinsurance policy, but reinsurers are also avoiding these policies because of losses," states Dumitru Ceraceanu, general manager of Asiban, one of the biggest players on the credit insurance market.
Credit insurance is bought by banks and other financial institutions to cover re-payment risks.
In case this risk materialises, the insurer has to pay the sum the client of the bank owes and subsequently recoup the sum from the client. However, the process is a lengthy one and is not always successful.
Last year, gross underwritten premiums on this segment registered a slight decline in RON, to 389.4 million RON, from 395.9 million RON in 2006, according to the data provided by the Insurance Supervision Commission.
In euros, though, because of foreign exchange differences, the market went up by 4 percent, to 116.7 million euros.
"This year, the market will continue to go down and claims will follow the same upward trend," says Ceraceanu.
Insurance companies state credit insurance policies have become at least as loss-making as car insurance ones, in the case of some companies gross underwritten premiums being overshot by settled claims.
It is not only insurance companies that have started to avoid this type of business, but also banks. Whereas until several years ago banks used to buy credit insurance policies, particularly from companies in the group they are part of, at present some prefer setting provisions for potential losses, while others put together teams of debt collection agents.
Insurers state most current claims are generated by policies that were bought several years ago. They come from customers who contracted a loan they were able to pay back until now, but on RON decline and the successive interest hikes instalment payment has now become difficult, considering most loans contracted by the population are euro-denominated.
As a matter of fact, NBR analysts also note in the recently published Report on financial stability that losses related to credit policies could become an instability factor for the market. "(...) Loss values are low, but their persistence or growth could be an instability factor," reads the report.
Pentru alte știri, analize, articole și informații din business în timp real urmărește Ziarul Financiar pe WhatsApp Channels
