The growth of the local insurance sector depends on an increased awareness of risk, says Lino Ferris, Malta Insurance Association president.
How has the local insurance sector developed in recent years?
Until a decade ago, the local insurance industry was predominantly represented by foreign principals who had been operating in Malta for long years. One may safely argue that our accession to the EU in 2004 had no direct influence over the decision that a substantial number of foreign insurers, who had been writing local business through an agency set-up, had decided to withdraw their operations from our island. Was this a coincidence? It is very difficult to confirm or otherwise.
This development fuelled the formation of indigenous insurers through local shareholding and investment. As a matter of fact more than 50 per cent of the current members of the Malta Insurance Association are Maltese insurers writing a substantial portion of local risks.
The presence of foreign principals who operate through an agency is equally important. Competition is extremely healthy as it allows the consumer a better choice of product. However, we always suggest caution as underwriting, based on past experience, trends and projections should form the basis of each company’s strategy with a long-term vision.
According to the latest figures issued by the Malta Financial Services Authority, the Maltese insurance sector consists of 58 insurance undertakings authorised to carry out general or long-term business across all EU member states and other international markets. MFSA authorised five new insurance undertakings in 2012 to carry out general business. In 2012, there were 42 insurance undertakings authorised to carry out general business, seven long-term insurance undertakings, two composite and another seven reinsurance undertakings. Of the 58 authorised insurance undertakings, there are 11 affiliated insurance undertakings and eight protected cell companies. The gross premiums written by companies domiciled in Malta writing general business reached €1.31bn.
Based on the last available statistics in 2012, the insurance sector including the international business showed continued exceptional growth, whereas figures produced by members of the Malta Insurance Association showed that domestic business decreased by 10.8 per cent. In 2012 the non-life sector grew marginally by two per cent over 2011. On the other hand, the life sector effectively shrunk by 19 per cent.
Earlier this year, the period of political uncertainty leading to a general election affected the first quarter. The economy and our insurance industry look forward to further enhance the relationship with the new legislature to provide the necessary platform for growth and confidence that will maintain financial stability. A number of meetings organised with various ministers have paved the way for further dialogue with a view to finding solutions and moving ahead with progress.
Are the educational institutions supporting this sector’s growth?
The development of the financial sector in Malta, including the insurance sector, continued to grow as Malta’s reputation for innovative financial services and products increased substantially over recent years. We have locally qualified and competent staffs who are encouraged to further their studies. Local insurers have been instrumental to encourage personnel to further their studies and obtain the relevant degrees, both locally through the University of Malta and through the internationally acclaimed Chartered Insurance Institute in the UK.
Some years ago, in a move to address a potential shortfall of skills, the Malta Insurance Association joined forces with the University of Malta to organise and sponsor the first course in insurance offered by the Faculty of Economics, Management and Accountancy leading to an internationally recognised insurance degree. Ironically, the continuous growth of the insurance sector in Malta had been instrumental for staff movement within the local industry. Against a background of substantial growth in insurance business, the industry’s challenge was to ensure that Malta remains an attractive environment from which to operate.
The sector is confident that newly qualified students coupled with experienced personnel will continue to fill the temporary vacuum that has been created following the expansion of the insurance industry in Malta.
What contribution does the insurance sector give to the local economy?
The insurance penetration rate, expressed as the premiums volume with respect to risks and commitments situated in Malta as a share of the GDP declined from 5.19 per cent in 2011 to 4.5 per cent in 2012 compared with an EU average of 7.6 per cent in 2011.
Unfortunately, the Maltese public is not as insurance minded as certain developed countries within the EU. The insurance penetration rate in Malta compared to that of each of the eurozone and other European countries remains low. In respect of general insurance business the penetration rate in 2011 stood at two per cent when compared to 3.1 per cent in the EU. Premium derived from life insurance products amounted to 3.19 per cent of GDP in 2011. This compares negatively to a penetration rate of 4.5 per cent in the same year in the EU.
The insurance premium per capita in Malta decreased from €813 in 2011 to €726 in 2012. The EU average per capita in 2011 stands at €1,816. A per capita average of €320 was spent on general business in Malta during 2012. Approximately 50 per cent of this amount has been derived from motor insurance which is of course compulsory.
According to figures published by MFSA for 2011, 79 per cent of gross premium income was earned by Maltese insurance companies whereas these local insurers represented 76 per cent of gross claim payments. About 81 per cent of general premium income was intermediated in almost equal proportions between agents and brokers whereas brokers intermediated only three per cent in respect of life business. More than 2000 people are employed directly or indirectly within the local insurance industry. There are as many as 500 tied insurance intermediaries acting on behalf of a local insurance company of agency.
The insurance penetration rate in Malta compared to that of each of the eurozone and other European countries remains low
We have all heard of calamities around the world and Malta has not been spared. In September 2011, more than €10m in claims were settled following the storm that hit our islands. In January 2013, about €2m in claims were incurred following the extraordinary hailstorm. Local insurers cover their exposure by organising catastrophe treaties with reinsurers of international repute. The percentage of private properties insured locally is extremely low, mostly being covered in view of a loan taken out with a bank. SMEs are predominantly insured and likewise the local industry take out adequate insurance cover, including what is defined as acts of God. Could the local economy sustain a catastrophe of certain magnitude?
Recently we have seen the introduction of compulsory insurance in various sectors of the economy. It is very strange that an act drafted out about 25 years ago to regulate employers’ liability has remained shelved. An employer may be condemned to settle damages, if found liable, but may render the company or employer in financial strains. The Malta Insurance Association has been advocating the introduction of this law for many years, as this should alleviate the burden imposed on employers following an unfortunate accident at work for which the employer is found liable, and which after all could jeopardise the livelihood of a number of employees.
How does the Malta Insurance Association promote a professional code of conduct in the insurance industry?
The Malta Insurance Association is formed by indigenous insurers and agents representing foreign principals. It also embraces observers operating within the insurance industry and welcomes foreign insurers domiciled in Malta and writing insurance risks situated elsewhere. The main bodies of the association are the general assembly and the main council. The association has a permanent compliment of nine staff members led by director general Adrian Galea and is organised into five main sector groups, namely, motor, general, health, life and finance. Each insurer involved in the respective class of business shares ideas and discusses problematic issues. The sector groups meet regularly to deliberate on topics of common interest pertaining to the activity generated by each sector.
The statute of the Malta Insurance Association also requires the council to appoint a councillor on the Malta Green Card Bureau, the Motor Insurers Bureau, and the Motor Insurance Pool, which are all administered by the Malta Insurance Association. The running of the Bus Pool which handled the insurance of buses prior to the introduction of the service by Arriva is in run off and is now handling the settlement of outstanding claims.
Through the Motor Insurance Bureau, the Malta Insurance Association handles uninsured motor losses and indemnifies innocent victims on behalf of licensed motor insurers. The Malta Green Card Bureau handles claims relating to foreign registered vehicles in Malta and motor accidents involving local policyholders while driving in Europe. We are currently in discussions with government to administer the handling of insurance claims involving motor vehicles belonging to the state.
The public perception of the insurance sector is frequently negative, fuelled by the fact that people perceive insurance as paying for an intangible service. How does the Malta Insurance Association assist its members in dispelling this perception?
The Malta Insurance Association promotes dialogue between the members and ensures that the players provide the highest ethos in the conduct of their business. Through its website, the Malta Insurance Association has issued a standard reference fault chart which local insurers are using to determine issues of fault, relating to vehicle collision claims.
This fault chart is an experience-based reckoner designed especially for easy reference by the public and insured clients. It is not meant to replace legislation but merely to supplement the public’s knowledge of local insurance practice.
This may avoid unnecessary costly and lengthy litigation to the detriment of the public, as cases tend to be settled fast. We encourage dialogue between claims handlers and invite the public to lodge complaints with the Malta Insurance Association with a view to explain the facts both from a legal point of view and also adopting hands on attitude by suggesting alternative ways of resolving disputes. Members are encouraged to take immediate action if a complaint is referred to the local regulator.
Periodically, the Malta Insurance Association organises the issue of a Vehicle Value Guidebook to indicate the correct market value of a vehicle. Motor premium in Malta is based on three major factors, namely age of the youngest driver, cubic capacity and value. In the event of a total loss, many disputes arise which are related to the actual market value. It is advisable to seek assistance and determine the value of a vehicle before concluding the insurance contract.
Unfortunately, some of the public’s perception of the insurance sector is negative but I firmly believe that with good will from all parties concerned, this opinion could be improved.
Has the local insurance sector adopted new practices and technology to limit its exposure to false claims in all areas?
It is a known fact that a considerable portion of claims lodged are dubious and could be fraudulent. This phenomenon is a major concern, not only in Malta but in every civilised country. To prevent and mitigate this abuse, the law stipulates heavy penalties and possible imprisonment. The local insurance industry, spearheaded by the Malta Insurance Association and with close cooperation with the police, has organised a fraud platform through the implementation of special software imported from a foreign software company and which is widely used in Europe. Common and frequent claimants are identified and cases are investigated by the police fraud squad.
A considerable portion of claims lodged are dubious
We are governed by the Data Protection Act and claimants are reminded that when signing a proposal form and lodging a claim they are effectively giving consent to the processing of data submitted for detecting, preventing and suppressing fraud. It is not fair that such fraudulent claims are sponsored indirectly by honest paying citizens which ultimately could affect the level of premium being charged.
The Malta Insurance Association will soon be holding an Extraordinary General Assembly – what main issues will be discussed?
The main council within the Malta Insurance Association holds meeting on a regular monthly basis. The introduction within the EU of a new regime known as Solvency II is high on the agenda, and it has now been suggested that it will come into force in January 2016. Some of the interim requirements will be adopted earlier to pave the way for a smooth transition. We have been discussing and holding seminars on the interim measures that have been proposed. Solvency II remains the highest priority on legislative changes. MFSA will ensure that local insurers will meet the required solvency. This may pose some problems with insurance companies within the EU, and could be a matter of concern. We are glad that locally, we have a very effective and methodical regulator, ultimately to protect the general consumer.
We have relaunched what was known as MIRE – Motor Insurers Repairs Efficiency. With the advent of vast technological development within the motor industry, local repairers need to study and implement modern techniques in repairing sophisticated vehicles. We are currently in discussion with the local authorities to grade repairers accordingly and ensuring that they are equipped with the appropriate tools and equipment to carry out repairs. This will affect the safety aspect of repaired motor vehicles. The scrap age scheme proposed by government is also being discussed and how will this impact the local motor industry. Close liaison exists with Transport Malta on certain key issues effecting procedures within the department that will also affect insurance procedures and transactions.
The Malta Insurance Association’s involvement within Insurance Europe has now evolved to the extent that we have been selected to host the Insurance Europe Annual General Assembly and International Conference which is being held in June 2014.