1. Dr. Klime Poposki Alma Qamo Motor Insurance Conference Istanbul, March 2013 MTPL Insurance Market Liberalization Challenges Macedonian Case Setting MTPL Market Standards Towards Profitability

2. Contents I.Macedonian Insurance market overview II.Benefits of a sound MTPL market liberalization III.Positive developments and challenges of MTPL insurance market in Macedonia IV.Setting up sound market practices in MTPL insurance market – Actuarial Risk Pricing standards – Reserving Standards and compliance benchmarks – Reinsurance Standards – MTPL Data Quality and effective Information Systems 2Istanbul, March 2013Motor Insurance Conference

3. I. Macedonian Insurance market overview 3 Istanbul, March 2013Motor Insurance Conference

4. Insurance market in Macedonia 4 15 Insurance Undertakings 11 Non-life Insurance Undertakings 4 Life Insurance Undertakings 23 Insurance brokerage companies 9 Insurance agencies 742 Insurance agents Istanbul, March 2013Motor Insurance Conference

5. Structure of the Gross Written Premium 5 Istanbul, March 2013Motor Insurance Conference

6. Gross written premiums – relative change, MTPL 6 Balkan countries Macedonia m EUR Istanbul, March 2013Motor Insurance Conference

7. Claims ratio, MI 7Istanbul, March 2013 Motor Insurance Conference

8. Channel distribution, MTPL 8 Istanbul, March 2013 Motor Insurance Conference

9. II. Benefits of a sound MTPL market liberalization 9Istanbul, March 2013 Motor Insurance Conference

10. Best price for consumers, based on risk characteristics; Level-playing field / fair competition for market players; Advantageous to more technically sound players; Faster and better payment of claims to consumers. Brings market stability, growth and confidence Benefits of a Sound MTPL Market Liberalization 10Istanbul, March 2013 Motor Insurance Conference

11. Is Macedonian MTPL market ready for liberalization? Pros and Cons... 11Istanbul, March 2013 Motor Insurance Conference

12. Positive developments in recent years Good ground for MTPL liberalization Establishment of Insurance Supervision Agency, increased supervisory capacities and leading role in promoting insurance market development in Macedonia. Law on Compulsory Motor TPL insurance in line with EU requirements; Insurance Information Centre administered by the NIBM collecting market data and information useful for premium setting, reserving, detection of uninsured, fraud, etc. Enhanced regulations and supervisory filing supported by web-based supervisory reporting system; Combination of local expertise with practices of international groups with long insurance experience. 12Istanbul, March 2013 Motor Insurance Conference

13. Market challenges Reduced Claims Paying Capacity Increased number of vehicles and insurance policies Increased number of claims reported to insurers Increased domestic inflation and costs of auto repairs Increased cost of living and medical expenses BUT 13 Istanbul, March 2013 Motor Insurance Conference

14. Market challenges Increasingly Inefficient and Non Profitable Business Considerable income goes to high commissions and other expenses 14Istanbul, March 2013 Motor Insurance Conference

15. Insufficient claims payments and reserves from some MTPL insurers Companies with large share of MTPL business in their portfolio pay and reserve less claims. Companies with lower share of MTPL business pay and /or reserve more claims 15Istanbul, March 2013 Motor Insurance Conference

16. Uninsured vehicles 1.Decreasing tendency of uninsured claims number relative to insured, but still considerable 2.Severity of uninsured claims substantially higher compared to insured claims (uninsured claims comprise 6% in number and 12% in amounts of claims paid) 16Istanbul, March 2013 Motor Insurance Conference

17. Questionable from under estimation of reserves! Can be higher! Overall effectiveness and profitability picture < 4 3 4 17Istanbul, March 2013 Motor Insurance Conference 1

18. Driven by level of industry development Highly developed markets High level of insurance expertise Markets driven by experienced insurers and risk-based practices Liberalization usually followed by immediate increase of premium rates (previously regulated) driven by actuarial risk analysis towards positive financial results Step-by-step process in some countries to control effect of immediate premium increase on consumers. Less developed markets Inadequate level of insurance expertise and lack of risk-based standards Inadequate capacity and improper practices of claims payment and reserving by some market players Unfair illegal premium discounts from insurers, discriminating prudent players and distorting market standards and competition Further legal decrease of premium rates may occur immediately after liberalization with major deterioration in claims paying capacity and solvency for insurers and market Reaction of Market post Liberalization 18 Istanbul, March 2013 Motor Insurance Conference

19. Less responsible, but more aggressive insurers can potentially dominate the MTPL market through improper business practices: Drawbacks of a Premature Liberalization - Insufficient premiums; - Insufficient technical provisions; - Improper reinsurance coverage. - Reduced claims paying capacity; - Deteriorated claims payment record; - Questionable profitability and solvency. Competition without cost constraints due to inadequate market practices is likely to create market uncertainty: Disadvantages from premature liberalization can outweigh the benefits. 19Istanbul, March 2013 Motor Insurance Conference

20. Given the current stage of MTPL market development: Immediate and unprepared liberalization is likely to lead to market instability, reduced claims paying capacity and profitability and may have a negative social and economic impact. Is the Market ready to liberalize NOW? ProsCons 20Istanbul, March 2013 Motor Insurance Conference

21. Towards a profitable MTPL market in Macedonia ISA Initiative Joint Project with World Bank OBJECTIVES Enhance market standards and develop technical and supervision capacities for actuarially sound setting of premium rates, technical reserves and proper risk management in MTPL insurance Ensure compliance of the MTPL insurance market with – EU MPTL insurance legislation – Best international practices 21Istanbul, March 2013 Motor Insurance Conference

22. Building blocks for a sound MTPL market liberalization Claims paying capacity Enhanced solvency ProfitabilityConfidence 22Istanbul, March 2013 Motor Insurance Conference Proper claims payment and reserving standards Risk based actuarial pricing Proper risk control and transfer Proper information and DATA processing

23. Roadmap towards a sound and profitable MTPL market 23Istanbul, March 2013 Motor Insurance Conference Premiums fixed by MTPL insurance commission Develop and consolidate Risk Based Supervision Minimum Claims Reserving Benchmarks Risk Based Actuarially Set Premium Benchmarks Risk control and transfer requirements Premiums set by Insurers Proper risk reserves Proper risk control and transfer Market Profitability and Solvency CURRENT Transitional TARGET

24. User friendly interactive actuarial tools developed Simple Pricing screen Actuarial Risk Pricing Tool 24 Istanbul, March 2013 Motor Insurance Conference Extensive background actuarial risk analysis involved

25. User friendly interactive actuarial tools developed Actuarial Risk Pricing Tool 1. Simple claims data input 25Istanbul, March 2013 Motor Insurance Conference 2. Claims reserves assessed Extensive background actuarial risk analysis involved with option to make choice on method based on pattern!

26. Thank you! 26Istanbul, March 2013 Motor Insurance Conference