Investigations have revealed cartel-like behavior, as mandatory auto insurance rates have tripled in the past year
By ERVIN LISAKU / TCJE.org
After Albania’s nine insurance companies raised their auto insurance in unison by more than 40 percent, prompting accusations of illegal price-fixing, the government has intervened, forcing the state-owned insurance company to lower its rates for mandatory vehicle insurance policies.
The Ministry of Finance also fired the director of Insig, the state-owned insurer, over his decision to increase motor insurance rates without consulting the company’s supervisory board.
Insig holds only a minority stake in the Albanian market, but all the other companies quickly followed suit and cut their rates by about 20 percent to Lek 16,000 (Euro 112) per year in order to maintain their market shares.
On Feb. 11, compulsory annual motor insurance policies, known as Motor Third Party Liability, and accounting for around 40 percent of the insurance market, rose by Lek 6,000 (Euro 42) to an average of Lek 20,000 to 21,000 (Euro 140 to 147) by all nine companies operating on the market.
The mandatory insurance rates have gone in a roller-coaster ride in Albania, tripling over the past year, as insurance companies said the lower price did not reflect the full amount of damages they were paying out in accidents.
The latest increase irritated drivers, who see the new premiums as not affordable.
In a reaction to the price increase, the Financial Supervisory Authority which oversees the market, said it did not have the power to intervene in the companies’ tariff policies in a market which has been liberalized since August 2011.
Socialist Party MP Erjon Braçe, who chairs the parliamentary economy and finance committee, had earlier demanded an immediate explanation and an investigation by state authorities.
In a letter to the Financial Supervisory Authority, the Competition Authority and the Finance Ministry, Braçe described the situation as an “ongoing cartel” with the participation of all companies.
“What’s more concerning, the state insurer, Insig, is part of this coordinated action,” Braçe wrote. “The compulsory motor third part liability has quadrupled since February 2013.” He added he wanted an immediate reaction from the state institutions.
Before getting sacked, Kalaja, the director of state-own insurer, said the new tariffs reflect the real insurance costs.
“This will enable companies to pay off obligations to consumers in time, and to the Albanian Insurance Bureau. I don’t believe there is a real deal, but there is kind of agreement in silence or a common opinion that this is the only the way out of this vicious cycle,” he told local media.
The price increase came after the Competition Authority had already launched an inquiry into the insurance market over an alleged price-fixing deal which is believed to have hampered free market competition in the compulsory motor insurance policies.
Monitoring carried out by the Competition Authority shows all agents traded insurance policies on the same online system managed by a single broker.
The Competition Authority says the preliminary investigation it started in November 2013 will determine whether the behavior of the insurance companies has limited competition.
In October 2012, eight insurance companies then operating in Albania were fined a total of Lek 89 million (Euro 625,000) after the Competition Authority uncovered a price-fixing deal in compulsory motor insurance policies. The deal was made in February 2012 when all companies fixed motor insurance prices in an agreement, severely damaging competition, according to authorities.
Risk-based pricing to be introduced
More than two years after the liberalization of the compulsory car insurance market, the Albanian Financial Supervisory Authority says it has concluded a project with the World Bank targeting efficient tariffs based on risk and the implementation of a Bonus-Malus system under which drivers with a clear driving record will pay less. The new scheme takes into consideration the vehicle age and engine capacity, but also driving record and geographical area.
Recent price movements have been very turbulent and this turbulence will continue in the short term, warns the World Bank.
“The main causes of this turbulence appear to be the prioritizing of market share regardless of the true cost of the exposure assumed. This is common feature of a newly liberalized market,” according to the World Bank report. “Equipping the market with a modern statistical methodology and database will contribute to offering insurance products that are priced on a stable basis.”
Insurance market shrinking
Affected by a double-digit decline in compulsory motor insurance, the insurance market shrank by 4.6 percent in 2013, registering the first decline in the past five years. Data published by the Financial Supervisory Authority show much of that general decline is tied to the 15.5 percent decline in compulsory motor insurance premiums alone. Claims paid by companies in 2013 also dropped by 3.3 percent to Lek 2.7 billion lek (Euro 19 million).
The Albanian insurance market, dominated by two Austria-based insurance groups, is overwhelmingly non-life oriented with around 87.7 percent, while voluntary insurance accounts for 54.2 percent of total insurance premiums.