Insurance Market in the Western Balkan Countries:
Challenges and Perspectives
Dr. Klime Poposki
President of the Council of Experts, Insurance Supervision Agency, Republic of Macedonia
Klime Poposki hopes for a fast EU accession and calls for common efforts
Over the past 15 years the Western Balkan Countries (WBC) have undergone a major economic transformation. They have adapted to market economy conditions and have opened up to global trade by a rapid transformation process. Banking, insurance and pension systems have been built up literally from the scratch in some cases. At the 15. Talk of Insurance and Regulation organized by the International Center for Insurance Regulation (ICIR) Klime Poposki gave an overview of the economic developments of the WBC and outlined the prospects and challenges of the insurance market. Poposki is President of the Council of Experts, the management body of the Insurance Supervision Agency of the Republic of Macedonia.
Poposki emphasized the importance of the European integration process for the reforms in the WBC and pointed out the progress which has been achieved so far. The WBC include Albania and the countries of former Yugoslavia Serbia, Bosnia-Hercegovina, Macedonia, Montenegro and Kosovo. Aspirations to become part of the EU family had facilitated economic recovery and boosted institutional reforms, Poposki stated. Due to the Free Trade Agreement with the EU the economy of the WBC had become increasingly export-oriented. Also, regulations had been dismantled, as a result the importance of the private sector has increased. “The result of these efforts shows in robust economic growth, a significant rise in incomes and enhanced macroeconomic and financial stability.” At the beginning of this year the EU Commission had offered the prospect of EU accession to Serbia and Montenegro by the year 2025 under the condition that respective progress in reforms was achieved. Further WBC are expected to follow soon. The prospect of the forthcoming EU accession was perceived by those countries as an important positive sign, Poposki stated.
Yet, until then there is a long way to go: Compared to the EU the financial system in the West-Balkan region is underdeveloped. This holds in particular for the insurance sector. The region still struggles with the legacy of the Balkan Wars in the 1990s. Bilateral sentiments among the former combatants hamper the economic development. Though living standards have improved within the WBC it may take many decades to reach full convergence with EU living standards. Especially social risks still form a big impediment for a fast-track EU accession. Despite some improvements in the labor markets long-term unemployment and unemployment of young people are still major challenges. Also, due to a high concentration of low wage earners, wage inequality is rather high.
After illustrating the economic developments Poposki gave an overview of the insurance market. According to Poposki the insurance market in the WBC is underdeveloped compared to a European level due to a low insurance penetration and density rate. However, the long-term prospect seems promising. During the past seven years the average growth rate of gross written premiums increased exceeding the average growth rate of gross written premiums in the EU.
The insurance market in the Western Balkan region is dominated by foreign insurers, covering more than half of the total premiums of local markets. In Montenegro and Macedonia for example foreign insurers cover more than 90 percent of the premiums. Insurance products are mainly distributed by traditional sales channels such as direct sale, agents, brokers and recently from banks.
The sale of life insurances in the WBC started only after the end of the communist era. Therefore, insurers of non-life insurances, of which motor insurances make the major part, dominate the market. However, life insurances show the most dynamic growth rate.
For Poposki the creation of the national supervisory authorities was one of the most important driving factors for growth acceleration in the insurance sector. Due to liberalization, deregulation and access to foreign capital the number of active insurance companies increased and created a more competitive market.
Poposki reminded the audience that the WBC needed a reliable regulatory and credible supervisory framework to build confidence in the insurance industry. Thus, regulatory and supervisory authorities needed proper staffing and funding, he claimed. “The creation of independent, effective and professional insurance supervisory authorities has to be our priority”, he stated. The EU requires a strong commitment of all aspirant states to implement gradually EU insurance directives into national legislation and to harmonize with the international insurance core principles. According to Poposki the introduction of Solvency II and the respective implementation of fundamental legal, institutional and corporate governance standards, are an important step towards EU accession.
To further strengthen the level of competence the implementation of best-practices was needed, Poposki explained. Therefore, the WBC seek for technical support from EU countries in the form of EU twining projects, especially for the implementation of Solvency II.
“The Western Balkan is region with high potential. We need a multi-stakeholder engagement to create an environment in which insurers can operate effectively and efficiently”, Poposki concluded.