The global financial and economic crisis is felt in almost all the companies that operate on the European financial and insurance markets. The European insurance and re-insurance industry would register a significant decrease of the investments and a redulife insurance market, non-life insurances, financial-economic crisis

Cristina Ciumas

Ecaterina Cumpanasu

Ioan Nistor

Viorela-Ligia Vaidean

English

Research Papers in Economics

126 
 
THE ROMANIAN INSURANCE MARKET AND THE POTENTIAL EFFECTS OF THE 
CRISIS UPON IT 
 
Ciumaş Cristina 
“Babeş-Bolyai” University Faculty of Economics and Business Administration Teodor Mihali 
Street,  No.  58-60,  400591,  Cluj-Napoca  cristina.ciumaş@econ.ubbcluj.ro  Tel:  40  +  0264-
41.86.52/3/4/5 
Nistor Ioan 
“Babeş-Bolyai” University Faculty of Economics and Business Administration Teodor Mihali 
Street,  No.  58-60,  400591,  Cluj-Napoca  ioan.nistor@econ.ubbcluj.ro  Tel:  40  +  0264-
41.86.52/3/4/5 
Cumpănaşu Ecaterina 
Casa  Jude eană  de  Asigurări  de  Sănătate  Hunedoara  1  Decembrie  Street,  No.16,  Deva 
direc@cjashd.ro Tel. 0254/219280, 0254/218921 
Văidean Viorela-Ligia 
“Babeş-Bolyai” University Faculty of Economics and Business Administration Teodor Mihali 
Street,  No.  58-60,  400591,  Cluj-Napoca  viorela.vaidean@econ.ubbcluj.ro  Tel:  40  +  0264-
41.86.52/3/4/5 
 
The global financial and economic crisis is felt in almost all the companies that operate on the European 
financial and insurance markets. The European insurance and re-insurance industry would register a 
significant  decrease  of  the  investments  and  a  reduction  of  certain  insurance  lines’  weight  within  the 
portfolio. For the 2009 year, the previous years’ increase of the insurance market would be drastically 
slowed down, the profile industry needing to be characterized by simplicity of the insurance products and a 
greater transparency. The purpose of this paper is to analyze the strategic facts and the future hypothesis 
for the crisis’ effects upon the Romanian insurance market. 
 
Key-words: life insurance market, non-life insurances, financial-economic crisis 
 
JEL Code: G01, G22 
 
It is a well-acknowledged fact that the economic sector which is mostly affected by the present 
financial and economic crisis, and facing serious problems, besides the banking sector, is the 
insurance  market  sector.  In  Romania  the  contributions  to  the  insurance  companies  are  not 
guaranteed  in  case  of  financial  problems  as  it  happens  with  deposits  (through  the  fund  of 
guaranteed  deposits  of  the  banking  system).  The  Romanian  insurance  companies  are  mainly 
owned by the major heavily involved insurers of the worldwide global financial markets that 
presently find themselves in acute crisis period. Even if their Romanian subsidiaries still work 
well,  in  case  of  occurring  problems  at  the  parent  company,  its  subsidiaries  will  be  affected 
automatically. Unlike for the banking system, in the field of insurance, the  liquidation of an 
insurance policy is a more complex and ponderous process than the liquidation of a bank account. 
Considering  these  circumstances,  many  people  waive  their  insurance  contracts  and  further 
withdraw  money  with  the  rigor  losses  and  place  them  into  a  bank  deposit,  which,  at  least 
theoretically, is a safer option than pitching them within an insurance contract. 
 
The Life Insurance Market and the Crisis’ Impact 
The 2007 growth pace of gross subscribed premiums for life insurances is greater than the growth 
trend of non-life insurances which is due to the entry of new foreign capital on the life insurance 
market,  the  diversification  of  insurance  products  related  to  the  demand  of  the  sector,  the 
authorization for companies to engage in the voluntary pension funds (which positively affected 
the life insurance activity), and the use of modern distribution channels. 127 
 
 
Table 1. The evolution of gross subscribed premiums for life insurances 
                     
Year  Gross  subscribed 
premiums  for  life 
insurances (million lei) 
Increase  compared  to  the 
previous year (%) 
2003  619,93  - 
2004  746,02  20,34 
2005  1.037,99  39,14 
2006  1.138,28    9,66 
2007  1.449,03  27,30 
2008
96  1.750,94  20,83 
 
Source: Authors’ processing 
 
During the last six-year period, according to table 1, we may notice that that gross subscribed 
premiums for life and non-life insurances had an increasing tendency, of about 25% on average 
from one year to another, except for 2008 where it may already be noticed a decreasing tendency 
due to the effect of the financial-economic crisis. This effect started to be felt within the last 
quarter  of  the  year,  and  it’ll  be  validated  by  the  upcoming  annual  report  of  the  Insurance 
Supervising Commission (ISC). 
 
Table 2. Dynamics of gross subscribed premiums for non-life insurance 
Year  Gross  subscribed 
premiums  for  life 
insurances (million lei) 
Increase  compared  to  the 
previous year (%) 
2003  2.053,88  - 
2004  2.730,51  32,94 
2005  3.379,17  23,76 
2006  4.591,00  35,86 
2007  5.726,75  24,73 
2008  7.099,14  23,96 
Source: Authors’ processing 
 
A slightly decreasing trend of the non-life insurance market may be observed from table 2, and 
it’s confirmed by the evolution of the total subscribed premiums from table 3. The market will 
probably continue to grow in 2009 as well, but at a slower pace than the previous years. 
Table 3. Dynamics of gross subscribed premiums for life and non-life insurances 
Year  Gross  subscribed 
premiums  for  life 
insurances (million lei) 
Increase  compared  to  the 
previous year (%) 
2003  2.673,81  - 
2004  3.476,54  30,02 
2005  4.417,16  27,07 
2006  5.729,28  29,70 
2007  7.175,78  25,25 
2008  8.850,08  23,33 
                                                       
96 Preliminary results for the 2008 year, published by Insurance Profile, March 2009, year VII – issue 1/2009 (22). 128 
 
Source: Authors’ processing 
Still, the life insurance market in Romania is underdeveloped, so this area needs a solid law 
package, but also a series of tax incentives. The Romanian insurance market is not up to the real 
needs of the economy, because there are no incentives to encourage the development of this area. 
However,  it  is  strongly  recommended  for  operators  on  the  insurance  market  to  implement 
effective support strategies, especially under crisis conditions.  
The  biggest  potential  danger  occurs  in  the  case  of  the  life  insurance  segment,  since  many 
contracts have already reached maturity. Pensions’ market is safe from, because the second pillar 
of mandatory retirement is ensured by the state and the voluntary pension values are too small. 
The psychological impact of the crisis was felt starting with October and November 2008, as a 
total of 14.577 life policies were surrendered, that represents 0.2% of the total issued valid life 
policies  up  to  September  2008.  The  surrender  values  paid  by  the  insurance  companies  last 
October sum up to the amount of 26.6 million lei, that is with 80% more than the average for the 
first nine months of 2008 and with 56% more compared to the similar period in 2007. On the 
long term, this emotional decision of insured individuals that have decided to surrender their unit-
linked policies while in crisis and low yields, might prove to be more expensive than by the 
contracted maturity time. 
The crisis is affecting the profit margins of insurers and hits the life insurance sector, which could 
only be supported by the state by introducing the deductibility of premiums. In Romania, the 
premiums paid for life insurances are not deductible from taxes, compared with other countries 
that have benefited from such deductibilities for several years. Although life insurances have 
existed on the Romanian market for over ten years, so far insurance companies have not managed 
to obtain tax deductibility of premiums. In contrast, contributions to voluntary private pensions, 
launched a year and a half ago, have since the very start been deductible from the employee's 
income tax, and from the employer's profit tax. Starting next year, the deductible sum would 
double, to reach 400 euros for the employee and the same amount for the employer. Although life 
insurance is a similarly strong saving instrument to voluntary private pensions, it is still not 
deductible. The Ministry of Finance, the institution that could change this situation, says the 
Romanian fiscal system does not allow the introduction of such incentives.  
The life insurance market depends upon a large extent of the  credit policies, as long as the 
mortgage loans come with the requirement for clients to subscribe life insurances, but insurers 
also must find new strategies to support business in these circumstances. The Romanian bank 
credit market has been blocked since last October, and it continues to be blocked for individuals 
for the first semester of 2009. Still, the un-blocking of credits for legal entities, to be realized in 
the near future, would confer assurances for the rectifying of the economy. 
For the current crisis, whose effects will be felt upon the entire level of the insurance market, the 
concerns for people’s financial safety and the saving and investment tendencies might shadow 
the life insurances without the full understanding of the benefits of these products.  During a 
financial crisis, the risks related to the individual’s life conditions do not decrease, but on the 
contrary, it is compulsory required to get an increased financial effort for the same degree of 
incidence. The main purpose of an insurance policy is to cover a risk, therefore the life insurances 
preserve their usefulness, and more, it’s even increased. The life insurance policy is signed on the 
long term (between 10 and 30 years, maybe more), therefore, its benefits are quantifiable on the 
long term as well. It is even more important under crisis period for people to sign life insurance 
policies in order to shelter them and their loved ones. 
 
The Crisis’ Impact upon Non-life Insurances 
By analysing the losses’ frequency evolution for the last period, a constantly increasing trend of it 
may  be  noticed.  A  50-60%  losses’  frequency  in  the  automobile  insurance  portfolio  of  the 
Romanian insurance market is mainly caused by the insufficient infrastructure, the great number 129 
 
of  cars  and  the  road  indiscipline.    Despite  this,  for  the  current  year  it’s  possible  to  have  a 
reduction in the weight of automobile insurances’ subscription, mainly due to the substantial 
reduction of sales for new automobiles. Moreover, the decrease of automobile insurances may 
also be caused by the decrease of the number of cars bought through leasing or credit. So the 
insurers should probably focus upon renewals and fidelities for the existing customers, in order 
not to register great losses upon this segment. 
We  studied  the  evolution  of  the  Romanian  insurance  market  for  the  cars’  segment,  and  we 
observe a continuous growth pace of it – the cumulated percentages it represented are as follows: 
67.4% of the non-life insurances in 2006, 71.6% in 2007 and 76.3% for the first nine months of 
2008. Still, the predictions for 2009 consider only a 70% weight within the non-life insurances.  
Altogether, the cars’ insurance market registered a 14% increase within the first nine months of 
2008, and it’s expected to increase with 10% in 2009, taking into account the actual conditions of 
the economy. The depreciation of the national currency also affects the business of the insurance 
companies because the prices of spare parts and the costs of damages are calculated in euros. 
Actually all the costs that contribute to damages are more or less related to the euro currency. 
Despite this, the Romanian insurance market has been dominated by automobile insurances and 
it’ll most likely continue the same trend. It’ll still be the most prevalent insurance form mainly 
because of the cars’ vulnerability.  
The law on compulsory house insurance was recently postponed from entering towards the half 
of  this  year.  Officials  of  the  ISC  have  declared  that  the  norms  for  the  compulsory  house 
insurances are being worked upon. The next step would be to consult the insurers for making up 
The Insurance Pole against Disasters. The compulsory insurance will help people in case of 
calamities, but this must be supplemented by optional insurances.  So, besides the effects of the 
worldwide  financial  crisis,  the  numerous  Romanian  laws’  modifications  for  the  non-life 
insurance  domain  (The  Compulsory  House  Insurance  Law,  the  friendly  agreements,  the 
electronic issuance of Motor Third Part Liability Insurance policies, etc.) will adjust the evolution 
of the market.  
 
Conclusions/ critical points 
Regarding  the evolution  of  future  sales  of the insurance  market  and  particularly  for the  life 
insurance segment, in the context of current economic turmoil, there are some different opinions: 
-there are supporters of an extreme assumption that anticipates a spectacular evolution if not a 
boom of sales in this industry, from the population’s increasing need for safety. It’s considered 
that this period is adequate for investments of this type, and people will continue to buy such 
products. Despite the potential regress of the profile industry, four new profile companies applied 
for  authorization  from  ISC  (BRD  Asigurări  de  Via ă,  Credit  Europe  Life  Asigurări,  Ergo 
Asigurări de Via ă şi Uniqa Asigurări de Via ă), and currently are waiting to start operating in the 
life insurance domain.  
-at the other extreme there are the supporters of the idea that the evolution of sales within the 
industry  will  drop  drastically,  because  of  the customers’  lack  of trust  in  insurance  products, 
mistrust manifested by the recent major surrenders of policies. 
Our opinion is that the insurance policies’ sales will maintain a growing trend in 2009, but a 
lower  one  compared  to  the  previous  growth  paces.  The  insurers’  orientation  towards  the 
corporate potential clients will no longer be an advantage for the following period because their 
budgets are under strong restraints. For a sustainable growth, the actors of the insurance market 
will have to generate new business through creating products that are adapted to the actual needs, 
still focusing upon the existing portfolio, mainly on traditional life-insurance products, and not 
unit-linked ones. The insurance companies should focus to maintaining their existing customers 
and would only be able to attract new ones by adopting a more flexible policy in fixing the 130 
 
premiums, the relationship with customers and by creating products that adapt to the real needs of 
their clients. 
Another management strategy for minimising the crisis’ impact upon the insurance domain could 
be  to  maintain  a  transparent  relationship  with  the  client  in  order  for  him  to  have  the  clear 
financial picture of the effort made and of the safety benefit gained during the insurance covered 
period. For the financial crisis’ management of insurers, the profit and staff management are 
crucial, as well as the transition from extensive growth to optimal management. 
 
Bibliography 
1.  Handbook  of  International  Insurance  –  European  Insurance  Market  Recent  Trends  and  2. 
Future Regulatory Developments, Huebner International Series on Risk, Insurance and Economic 
Security, 2007 
3.  EU  Accession  —Financial  Sector  Opportunities  and  Challenges  for  Southeast  Europe, 
Springer Berlin Heidelberg, 2005 
4. www.1asig.ro 
5. www.dailybusiness.ro 
6. www.wall-street.ro 

Financial Sector Opportunities and Challenges for Southeast Europe,

Insurance – European Insurance Market Recent Trends and 2. Future Regulatory Developments,

THE ROMANIAN INSURANCE MARKET AND THE POTENTIAL EFFECTS OF THE CRISIS UPON IT

http://steconomice.uoradea.ro/anale/volume/2009/v3-finances-banks-and-accountancy/20.pdf

THE ROMANIAN INSURANCE MARKET AND THE POTENTIAL EFFECTS OF THE CRISIS UPON IT

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