Sharing a small cake - Why does Serbia's insurance market require consolidation and are "quick" acquisitions possible?

As many as 28 insurance companies fought last year for a premium of hardly half a billion euros in the Serbian market, which is very small when compared to a premium of 1 billion euros in Croatia and nearly 2 billion euros in Slovenia.

On the other hand, there are only few companies that haven`t announced ambitious plans and expressed a wish to grow their business in 2013. The cake is small, but is the market saturated? In the situation where everybody wants a piece of this cake, is there really a room for competition and where?

Maybe the premium could and must be bigger, but consolidation, which is about to take place in the Serbian banking sector, is also necessary for the insurance market, it was concluded at the round table "Future of Insurance: Country`s Role and Citizens` Interests" that was recently held on the premises of the Serbian Chamber of Commerce (SCC).

Who will buy and who will sell? Bankers started talking publicly about ownership changes a long time ago, and now the first stories about the need for mergers and acquisitions in the insurance market have emerged.

The public has recently got intrigued by an announcement made by the world`s largest insurance company - AXA Group, which expects to take one of the top five positions in Serbia within the next five years. Although the new director of that group in Serbia, Adamantios Hadzistilis, explained that their original intention was to achieve an organic growth, it is well known that acquisitions are deemed the "soul" of the AXA Group, which has always used them to expand its business. Hadzistilis himself did not rule out the possibility of them taking over one of the competitors.

- We always consider the room for acquisitions and seek good opportunities. Although this is not our primary goal in Serbia, I cannot rule out the possibility of an acquisition taking place if the market shows it would be a good move.

Tightening the rules

The round table at the Serbian Chamber of Commerce gathered the representatives of the most important insurance companies in Serbia, the Ministry of Finance, the National Bank of Serbia and the SCC. The government and all players in the market agree that the premium should grow and that the market should get organized, but they do not share the same opinion on how to achieve this.

A country with 28 insurance companies and a premium of EUR 0.5 billion simply cannot be competitive, says Andrea Simoncelli, president and CEO of Delta Generali Osiguranje. Aside from the fact that the premium must be bigger, the rules of the market game in Serbia need to be tightened, Simoncelli points out.

- With current rules, there is no real indication that consolidation can happen. I have no information that any insurance company wants to leave Serbia or sell its business in this country. It is necessary to consider stricter solvency criteria to make the situation crystal clear - who can and who cannot engage in this business - says Simoncelli.

Same target, tough competition

It is clear that Serbia lacks a number of products that have been long available in European markets. Healthcare, agriculture and automobile liability insurance are only some of the sectors with a big free space. According to the data provided by the SCC, as many as 60 percent of small and medium-sized enterprises in Serbia have no property insurance. There is also room for fight.

- I do not believe that there is no competition in Serbia. The need for consolidation in the insurance market does not necessarily mean that the competition is insufficient - says Franz Veler, chairman of the Executive Board of Uniqa Osiguranje.

And still, in a country with low GDP, where insurance is still considered an unnecessary expense, the most common strategy of insurance companies involves dumping and stealing customers.

(at the round table)

- Instead of having everybody bring something new to the market, we attack each other – says Marko Culibrk, acting director general of Dunav Osiguranje.

New tax reliefs are definitely something that could help the premium grow bigger. Incentives for employers paying voluntary insurance premiums would bring more money to insurance companies, which could then be used for investment in the local market, says Vladimir Medan, chairman of the Executive Board of Basler Osiguranje. And not only that - it would also reduce the pressure on the state pension fund. For the state, this could be a win-win model.

There is much room for insurance growth in Serbia, but insurance companies themselves must work on solutions, in the same way banks operating in the domestic market do that, says NBS Vice Governor Djordje Jeftic.

Adamantios Hadzistilis

- Primarily, they must work to improve their marketing and increase recognition in the market - says Jeftic.

He points out that a draft of new insurance law is still in preparation and is being eagerly awaited.

The new law, which the NBS announced could come into effect by the year's end, is expected to clear up numerous uncertainties in the relationship between composite companies and specialized life and non-life insurance companies, which often lead to unfair competition due to different business conditions.

M.S.