ACADEMY OF ECONOMIC STUDIES BUCHAREST

BUSINESS ADMINISTRATION FACULTY

ENGLISH PROFILE



INSURANCE BROKERS IN ROMANIA
HYSTORY FOR 5 YEARS
TYPES OF SERVICES




Professor Laura Elly Naghi
Students
Doica Valentin
Ene Andreea Maria
Ghinea Irina Stefana
Group 136

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Table of contents


I. Introduction
II. Legal environment
III. The brokers activity on the Romanian insurance market
IV. Conclusions
V. References















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I. Introduction
Distribution of insurance is handled in a number of ways. The most common is through
the use of insurance intermediaries. Insurance intermediaries facilitate the placement and
purchase of insurance, and provide services to insurance companies and consumers that
complement the insurance placement process. We should emphasize on the intermediary not
being and not having to become a party in the insurance contract.
Traditionally, insurance intermediaries have been categorized as either insurance agents
or insurance brokers. The distinction between the two categories relates to the manner in which
they function in the market. Insurance agents are, in general, licensed to conduct business on
behalf of insurance companies. Agents represent the insurer in the insurance process and usually
operate under the terms of an agency agreement with the insurer. The insurance broker is a
specialized intermediary whose main activity consists in offering services based on a reasonable
standard of experience and professional abilities. Brokers assist clients in the choice of their
insurance by presenting them alternatives in terms of insurers and products. Acting as "agent" for
the buyer, brokers usually work with multiple companies to place coverage for their clients. The
broker offers advice and he normally signs the insurance contract as the insureds agent, but he
usually gets a part of the fee to by the insurance company. A broker acting on consolidating
insurance markets is more often asked to inform and protect the client during the process of
insurance contracts negotiation. Brokers act for the insureds interests by actually placing the
risks to an insurer.

II. Legal environment
The insurance brokerage market in Romania was initially regulated by Law 47/1991,
which gave the right of existence to these intermediaries category but has many regulatory gaps,
and later by Law 32/2000, which followed a first harmonization with the EU requirements. After
Romania was accepted as candidate country to EU, the National legislation begins the
harmonization with the provisions of the community acquis in the field. Thus, a first effect of
Romanias acceptance as a candidate was the creation of the Insurance Supervisory Commission
as an autonomous body responsible for drafting the secondary legislation in the field of insurance
and supervising this market.
Emergency Governmental Decision no. 210/2005 altering the law no. 32/2000 has articulated
and defined the brokerage assistants and the brokerage mandate. Meanwhile a couple of
arrangements have been made in order to stimulate a better intermediation activity. Some of
these arrangements referred to:
requiring an integrated education and training system;
laying down the compulsoriness of providing a minimal information set to the clients;
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setting up special bank accounts for insurance premiums or damages and protecting these
sums against creditors;
stating the brokers insolvency when the broker does not bring the insurance premiums to
the insurer within 30 days later than the date settled by contract terms and the possibility
that CSA initiate the procedure of bankruptcy and legal reorganization;
accomplishing professional training standards of the brokers employees;
the existence of a Journal of brokerage assistants;
arrangements made in order to avoid the existence of more brokerage mandates issued by
the same client for the same objective;
the procedure of requesting mutual understanding or of brokerage mandate reversion at
clients initiative.
Another opportunity for developing brokerage businesses has occurred due to Emergency
Governmental Decision no. 87/2006 which granted the right of insurance / reinsurance brokers to
intermediate facultative pensions, according to the specific law in force. The National Union of
Consultancy and Insurance Intermediation Companies in Romania (UNSICAR) was set up by a
group of 12 consultancy and insurance intermediation companies as a non-profit organization in
September 2000 and this was another essential element for the development of Romanian
insurance brokerage. The main purpose of the Union was to support its members to get the
public recognition of the insurance consultants and mediators activity.
Brokers Ethical Code has been drawn up by UNSICAR in 2001, stating the professional
standards and the principles any broker member of the Union has to comply with in his
interaction with clients, insurers and other mediators. Another document drawn up by the Union
was the Cooperation Protocol between UNSICAR and the National Union of Insurance
Reinsurance Companies. The Protocol defines the minimal principles based on which brokers
and insurers affiliated to these professional associations will cooperate and it aims to a better
collaboration between the two professional categories on the insurance market for clients
benefit. Supporting professional training of insurance intermediaries is another concern of
UNSICAR
As far as the importance of insurance brokerage at EU level is concerned, the European
Directive concerning insurance intermediation, which came into force on 15 January 2005,
highlights this. The fundamental objectives of this directive refer to enabling insurance
intermediaries to operate freely throughout the European Union and to enhance the consumer
protection. It set up principle of single license based upon notification, but general good
requirements and extra information requirements in host country remain applicable.






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III. The brokers activity on the Romanian insurance market

A quantitative evaluation of Romanian insurance brokerage market is considered below.
Thus, the insurance brokers number evolution between 2001 and 2007 is shown in table no. 1.

Table no.1.
Insurance brokers number in Romania between 2001 and 2007
Year

2001 2002 2003 2004 2005 2006 2007
Number of
brokers
87 150 204 266 317 344 397
UNISCARs
members
18 23 24 28 41 47 73
Source: 2002-2006 Insurance Surveillance Commissions reports; Media Xprimm 2008


A significant decrease in the brokers number due to Law 32/2000 application has to be
noticed. When Law 32/2000 came into force there were 817 active so-called brokers, but after
the law being put into force, the number of brokers has severely reduced to 87. As their presence
on the market was important, the brokers number increased during 2001 and 2007, meaning a
four times growth compared to the first year after the law enforcement. UNISCAR has now 73
members, meaning less than 20% of the total number of active brokers on the market, but they
concentrate almost 67% of the incomes registered on the brokerage market in 2007. In the
perspective of the share of intermediated insurance premiums, the situation is quite similar as
UNISCAR brokers registering premiums intermediation evaluated at more than 66% of
insurance brokerage.
Regarding the analysis of the Romanian insurance brokerage market, it highlights the
significant progress registered after 2000, when this activity was regulated more appropriately. In
2008-2010 the activity of insurance brokers experienced the effects of the financial and
economic crisis affecting the entire insurance market.
Table no. 2 shows the evolution of the gross premiums subscribed by brokers compared
with the evolution of the gross premiums subscribed by insurers for both the overall market and
for the two main categories of insurance: general, and life insurance.








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Table no.2
The brokers activity on the Romanian insurance market
Indicators 2008 2009 2010
Total subscribed gross
premiums, including (mil. lei):
8936,28 8869,75 8305,4
- general insurance (mil.lei) 7068,17 7241,58 6639,73
- life insurance (mil. lei) 1868,11 1628,16 1665,67
Total gross premiums subscribed
by brokers, including
(mil.lei):
2704,6 3211,37 3199,71

- general insurance (mil.lei) 2553,04 3114,3 3111,84
- life insurance (mil.lei) 153,75 97,07 87,88
The share of brokers on the
insurance market - %
30,27 36,21 38,53
The share of brokers on the
general insurance market - %
36,12 43,01 46,87
The share of brokers on the life
insurance market - %
8,23 5,96 5,28

It must be noted that on the period of 2008-2010, the evolution of insurance market was
descending, as effect of the reduced activity in constructions, of decreasing of the industrial
investments and of the credit transactions, of the renegotiations of insurance conditions by the
clients to reduce paid premiums and of the renunciation of covering some of the risks by the
clients. Also, some companies give up the insurances for the employees. In this context, the
insurance brokerage market (in nominal terms) grew up in 2009 and remains about the same
level in 2010. Putting together these facts, we can see that, as the effect of crises on insurance
market, an important share of clients moved from direct insurers to brokers.
In terms of its share in the insurance activity, the evolution of brokerage activity on the
Romanian insurance market has experienced a continuous growth. Thus, we see that Romania is
among the countries where the share of brokerage is significant, this share being over 30% in all
three analyzed years and the growing trend was constant. On the other hand, the importance of
brokerage on general insurance market is much greater (especially for auto and buildings
insurance), the discrepancy between the size of the brokerage for general insurance and life
insurance being very significant (5,28% for life insurance, 46,87% for general insurance in
2010), with a divergent evolution trend growth for general insurance, reduction for life
insurance.
Table no. 3 which highlights the decrease of life insurances in the brokerage companies
portfolio and of the first 20 brokerage companies, but also the almost insignificant increase in the
share of gross premiums subscribed from life insurances in the portfolio of the first 10 brokers.
Additional, it should be noted that the share of life insurances in the portfolio of the 10,
respectively 20 brokers in 2010 is identical suggesting the absence from top 20 of the brokers
specialized in life insurance.
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Regarding the structure of the gross intermediated premiums we need to particularly
stress on the importance of auto insurance brokerage because, according to data provided by the
specialized publication Insurance Profile, in 2009, they represented 45% of the CASCO
insurance portfolio and 32% MTPL insurance, and in 2010 79% (CASCO and MTPL).
Another important insurance category in the brokers activity is represented by the fire insurance
9% in 2009, respectively 10% in 2010. As a consequence of this market structure, the leader of
the brokerage market is the same brokerage company occupying the first position on the auto
insurance market.

Table no.3
The structure of the insurance brokerage market
Indicators 2008 2009 2010
Total gross premiums subscribed by
the first 10 brokers,
including:
100% 100% 100%
- general insurance 99,55% 99,42% 99,29%
- life insurance 0,45% 0,56% 0,71%
Total gross premiums subscribed by
the first 20 brokers,
including:
100% 100% 100%

- general insurance (mil.lei) 95,61% 98,25% 99,29%
- life insurance (mil.lei) 4,39% 1,75% 0,71%
Total gross premiums subscribed by
brokers, including:
100% 100% 100%
- general insurance 94,39% 96,98% 97,25%
- life insurance 5,68% 3,02% 2,75%

In terms of the role insurance brokers have on the Romanian market, it is especially
reflected in finding the best deals for policyholders. This is also reflected by the structure of the
brokers incomes within which those resulting from insurance contracts negotiations are very
important; the incomes resulting from other activities (commissioner of damage, risk inspections,
damage adjustments, etc.) occupy a minor place in the structure of the incomes of these
companies, as shown in table 4.
Table no. 4
The structure of Romanian brokers incomes during 2008-2010

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In terms of the efficiency of brokerage activity, we can see that on the whole brokerage
market, the result was positive in all three analyzed years, but the tendency was to reduce its size
as it shown by the data in table no. 4.
As for the analysis of public perception on the insurance brokerage activity and on the
insurers brokers importance, we will highlight some data from a study conducted in early 2011
by Romanian Institute for Valuation and Strategy (RIVS) on a sample of 864 persons aged
between 18 and 55 years in urban areas. This study showed that in urban areas the brokers are
known by 78% of the population, 56% of the population associating them with the field of
insurance. According to the study, 89% of the population questioned considers that insurance
consultancy is needed and 72% of population thinks that there is necessary to be intermediaries
between insurers and clients. Although 69% of the respondents have a good impression about the
insurance brokers, 52% of population has poor information about brokers. As a result, the public
perception of brokers still shows negative aspects, namely 58% of the questioned population said
that the existence of brokers leads to an increase of insurance costs, the effect of this perception
being that only 38% of the respondents would opt for consultancy provided by brokers, while
over 50% would purchase insurance products from insurance agents. These perceptions show
that clients of the Romanian insurance brokerage market is more preoccupied by the price of the
insurance products and after that on the quality.
The results of this study show that on the Romanian market there is an insufficient
education in the field of insurance. Therefore, a key aspect that could lead to a consolidation or
even growth of the market is that of brokers involvement in insurance education campaigns
through which they bring awareness to potential clients about the benefits of concluding
insurance policies through brokers. But these campaigns must be accompanied by the continuous
improvement of brokers agents qualification.
Another negative perception of the population regarding the insurance brokers activity
reflect the so called brokers opportunism. So, 51% of the persons think that the brokers are
more interested in own profit than in the well being of the client.

IV. Conclusions

Based on the presented and analyzed data we can see the increased importance insurance
brokers have on the Romanian insurance market.
Faced with the economic crisis, the insurance brokers were able to adapt themselves to
new conditions quicker than the insurance companies, therefore the evolution of gross
intermediated premiums registered a more favorable trend than the evolution of the gross
premiums subscribed on the insurance market. This result was also obtained as a consequence of
a more significant presence in the territory, which led to making insurance consumers aware of
the role the insurance broker has providing consultancy for identifying the most suitable
product in terms or coverage/price. Thus, in the context of the financial and economic crisis the
tendency of the clients is to choose cheaper and less comprehensive products so that brokers play
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an important role in getting for clients products that have an adequate protection at competitive
prices as a result of their knowledge and higher negotiation power. In addition, the use of brokers
for insurance subscription led to the highlighting, yet smaller, of their role as partners of the
client, offering its post-sales services regarding the indemnity.
Another opportunity offered by crisis for insurance brokers is the awareness of the
people regarding the importance of having insurance for properties, for accidents, for liabilities
and, according to the RIVS study mentioned before, the perception of brokers as specialists that
offer adequate solutions to the consumers needs so the trend of the insurance brokerage could
grow in the future.
Another challenge for insurance brokers is given by the need for training of those
working in this field. In our opinion, the introduction of this requirement will result in a higher
professionalization of the market as an outcome of additional training and of elimination from
the market of those who will not do this. The most important qualities that the brokers agents
must have are to have good information and to be competent. So, under the circumstance of a
favorable evolution of the economy, this can lead to an increase of the degree of insurances
penetration as a result of increased consumer confidence in the quality of advice provided by
insurance brokers.























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V. References

1. Dnuleiu D., Dnuleiu A., 2008. Insurance Brokerage In Romania, the Annals of
University of Oradea, economic sciences, 2008, pp. 728-733;
2. Dnuleiu D., Dnuleiu A., 2011. Trends and challenges of Romanian brokerage
insurance market, the Annals of University of Oradea, economic sciences, 2011, pp. 419-
431;
3. Romanian Insurance Supervising Commission Reports for the years 2008-2010;
4. http://www.csa-isc.ro/
5. Eckardt M., 2002. Agent and Broker Intermediaries in Insurance Markets - An Empirical
Analysis of Market Outcomes, Thnen-Series of Applied Economic Theory Working Paper, no.
34, Rostock, Rostock University, available online at
http://static.twoday.net/fitzsimons/files/Text6.pdf
6. Romanian Institute for Valuation and Strategy, Perceptions regarding insurance
brokerage, available online at http://www.kundenbroker.ro/node/3