Банкеръ Weekly



A wise man once said that economy and finances may be often explained in physical interrelations. The main law of the physics is the one for energy preservation, i.e. the energy of a closed system is constant in relation to the time. In other words, energy may change forms, but cannot be created or destroyed. Transposed to the current market situation, the above dependence should be a kind of proof that the enormous amount of money some people lost must have gone in the pockets of somebody else. It is not only about the trained profiteers, who otherwise may be named the main driving force for the current crisis. The idea is that the circumstances made people think of the risk and ways for its avoiding, which represents huge potential for improving of the business of financial insurances and other entities helping to cope with these problems.
Insurers come at first place. Even in Bulgaria, where everybody believes that the crisis will not have the same intensity as it already has in more developed economies, experts still expect a boom in credit insurances and insurances against financial risks. At present, these products comprise only a minute portion of the insurers' revenue. At the end of August, the premiums in the general insurance sector came to BGN954MN, only BGN30MN of which were from financial insurances, which gives the latter a share of merely 3.13% in the insurance companies' portfolio.
The responsibility insurers have undertaken against these policies comes to several billions of Bulgarian levs. Although all credit institutions have raised their interests on funds they provide, the debtors still don't show decreased solvency rate, Stefan Sofiyanski, executive director of Lev Ins insurance company, said. The company managed by him presently holds a 45% stake in the financial insurance market.
The most popular is the insurance against various financial losses. The premiums collected from this kind of policy come to BGN21MN. The revenue from credit insurances reached BGN6.8MN. The remaining BGN2MN came from the 'Guarantees' product, he added.
According to experts, the interest of leasing companies into these products have been rather low in the past several years. The chairman of the Bulgarian Leasing Association, Teodor Marinov, told BANKER that in fact such policies are additional expenditure for those who provide the leasing services, and, having in mind the increasing pressure on their profit margins, it is practically superfluous. Banks and financial institutions assess the risk and do this probably better than an insurance company can. According to Mr. Sofiyanski, though, the leasing companies are reviewing these policy and at present the demand for such financial product is increasing.
The bad news is that insurers have a deplorable experience in offering products with huge potential. Of course, we are speaking here of the obligatory Civil Responsibility insurance which, due to the price war between the companies, has caused them damages for millions of Bulgraian levs at mid-year. Let's hope that they have learned their lesson and instead of artificially reducing the prices of financial policies, they take into account the real value of the risk. According to Mr. Sofiyanski, the companies have not saved themselves the battle for market share and have already undertaken responsibility to cover huge risks against minimum premiums.
Insurers are now a lot more careful. Their pricing is much more precise. Some companies even reject entering into this business at all, Lev Ins chairman said. If, however, this is not true, the sector may well just turn out to be another product to eat from the resource of the market players retaining a potential only for future bankruptcy. Not because of the crisis, but because of their hunger for larger market share.

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