Jorgovanka Tabaković: Current situation and challenges in
supervision of the domestic insurance market
Introductory address by Dr Jorgovanka Tabaković, Governor of the National Bank of Serbia, at
the Insurance Gathering "Serbian Insurance Days", Aranđelovac, 29 November 2017.
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Dear ladies and gentlemen, esteemed representatives of the insurance industry, state
institutions, corporate sector and university, dear international guests,
I have the pleasure of introductory address at this gathering, the first large-scale event fully
dedicated to insurance business. First of all, I would like to extend my full support to the
organisers' idea to contribute, by this event, to putting insurance business in its rightful place, not
only in the country's financial system, but also in the lives of each one of us, as citizens and
beneficiaries. This important and yet unjustifiably neglected activity, managed to remain healthy
in its core and to continue its slow, but still unstoppable development. Though the pace of that
development is not what we, workers in the financial sector, would like it to be, insurance is
definitely looking at a bright future. As the Governor of the National Bank of Serbia, the insurance
supervisor for already thirteen years, I will briefly recapitulate for you today our vision of insurance
business, issues that are topical and pending, and desirable ways to address them, as well as
other aspects and challenges of our supervisory work.
Insurance business in Serbia has seen some drastic changes and improvements since the
National Bank of Serbia assumed the role of its supervisor. This business is still constantly
changing and aligning with the European standards. All entities that failed to meet the criteria of
such alignment left the insurance business, making room for new market players, mostly as
subsidiaries of internationally recognised insurance undertakings. Therefore, in the last decade
the insurance business was very dynamic also in terms of foreign direct investment. Insurance
undertakings founded by foreign owners started from very high pecuniary founder's stakes, and
with the growth of their business, became also serious investors in government bonds and other
financial instruments; not so rarely they even founded their own subsidiaries and invested in real
estate construction. Today, the Serbian insurance market comprises seventeen insurance
undertakings and four reinsurance undertakings. Six undertakings are engaged in both life and
non-life insurance, while four are exclusive life insurers and seven exclusive non-life insurers. In
addition to insurance and reinsurance undertakings, the market consists of nineteen banks,
seven lessors and one public postal operator, which are licensed for insurance agency. There
are also eighty six legal persons engaged in insurance brokerage/agency and ninety four
entrepreneurs - insurance agents.
Financial indicators are still modest, if observed in absolute amounts, but it is certainly
commendable that all of them have recorded stable growth for a number of years. Thus, total
insurance premium in the first half of 2017 equalled RSD 48.8 billion (or EUR 404 million), up by
8.1% relative to the same period last year. The share of non-life insurance in the structure of the
premium was 77.5%, while life insurance accounted for 22.5%. Of individual insurance types, the
largest share in the total premium was that of motor liability insurance (32%), followed by life
insurance (22.5%), property insurance (20.9%) and full coverage motor vehicle insurance
(8.5%). The balance sheet total of insurance undertakings increased to RSD 230.9 billion (or
EUR 1.9 billion) in mid-2017, up by 10.3% relative to the end of the second quarter a year earlier.
Debt securities available for sale made up 44.1% of assets of insurance undertakings, debt
securities with fixed income 14.5%, property, plant and equipment 8%, receivables 7.6%, cash
and short-term deposits 6%, while debt securities recognised at fair value through profit and loss
account made up 3.7%. The liabilities were composed of technical provisions (70.3%) and
capital and reserves (20.7%). Insurance undertakings meet the capital adequacy criteria, as
stipulated by valid regulations, and are solvent and liquid. In this sense, the insurance market is
stable and capable of servicing liabilities to policyholders, insurance beneficiaries and injured
parties.
The regulatory framework for the insurance industry was thoroughly reformed, modernised and
upgraded in 2014/15. Since then, the National Bank of Serbia has introduced an entirely new
dimension in its supervisory activities given that we prepared the insurance legislation in its
entirety, whereby we rounded up the supervision process. Having become aware of such
possibilities, as well as of the need to improve insurance regulations and supervision, I personally
set up and led a working group that prepared the reform Law on Insurance in 2014, which was
adopted by the Serbian Parliament by end-2014 at our proposal. Back then we also received
positive opinions on proposed solutions from all relevant stakeholders - the Serbian Government,
the European Commission, insurance sector representatives, companies and science workers,
and we were even more bound by that to continue on this path. This we did the very following
year by adopting a set of bylaws to the Law on Insurance. During the two and a half years of
implementation, these regulations yielded numerous positive effects which have been spoken of
a good deal, but I would like to use this opportunity to underline that our expectations have been
fulfilled, namely that we now have a regulatory framework which has resolved a number of
disputable issues, defined mechanisms enabling better protection of users, stimulated
investment and the development of new insurance products, raised and accurately defined the
capital adequacy criteria, modernised insurance administration systems, as well as ensured
better transparency of work, i.e. more fair business conditions in this sector. Everything we have
achieved in this manner allows us not only to have a better insurance sector now, but also to
build on those foundations and continue with modernisation and alignment with contemporary
European standards.
Insurance supervision conducted in the past two and a half years essentially differs from the
same activity performed in some earlier periods. This is why I will use this opportunity and
present to all of you some specific results of our work, as well as positions on certain issues
which have arisen while performing that activity. Above all, we invested effort into reforming the
regular financial reporting system of insurance undertakings as well as the system of their
reporting to us, as the supervisor. In this way we obtained concise and reliable information on the
grounds of which it is possible to identify potential problems fast and easy. We delivered a clear
message to this industry's representatives, at times including through unpopular measures, that
neither manipulations in the financial statements, nor major errors in them would be tolerated.
This enabled us to reduce by far the level of supervisory intervention in on-site inspections of
reliability of business books and financial statements, giving us the opportunity to devote our
resources and time to new topics, introduced by the challenges of the contemporary
environment. Therefore, in our supervisory activities today we address business planning,
market behaviour, and many other areas of business operation of insurance undertakings,
seeking, as supervisors, to guide those operations towards good and useful business practice.
Business plans, for example, were for years prepared only as a matter of form, while today we
invest joint efforts into producing quality documents useful both for insurance undertakings
themselves, helping them in their business organisation and also serving their supervisor to keep
track of the defined business models and objectives. The dissemination of information to
insurance policy holders is a new obligation, which insurance undertakings continue to perceive
with certain resistance, but luckily this is rarer and rarer, as acting jointly we understand the
importance of the issue and how much it contributes not only to better consumer protection but
also to rising quality and credibility of insurance industry. Additional costs of pre-contractual
information, which many market participants tried to avoid, must in fact be perceived as
investment in consumers, whose personal satisfaction will make them more loyal in the future,
and that is the most important resource of any business entity in the contemporary environment.
The NBS on-site supervisions are more efficient today, with very clearly defined objectives and
outcomes. Special attention is devoted to the sale of insurance, as we believe it is the reflection
of this industry in front of citizens. That is why any form of unauthorised operation, false
presentation or non-adjusting of insurance products to the real consumer needs must not be
allowed. Only sound growth based on a satisfied consumer is desirable. The principle of
voluntary insurance, apart from exceptional cases defined by the state, is guaranteed. No one
has the right to breach these principles for the sake of quick profit, as such breach would
jeopardise the reputation of the entire industry. In that sense we endorse actions of the
Association of Serbian Insurers, but we also expect them to be more intensified in the future.
Insurance promotion, by means of pointing to the benefits for citizens, is the right path for the
development of this industry. Also, internal mechanisms of the professional association may
deter all those who breach the proclaimed values. The supervisor's objective is not insurance
promotion nor is it our intention to delve in it. However, everything which makes the industry, with
appropriate and noble motives, will receive our support. The sales method is a crucial element in
life insurance development as it is a kind of substitute to long-term savings, while in case of
property insurance one needs to pay special attention to compensation claims, which, in fact, are
the best promotion before the citizens. Naturally, we must never forget about the injured parties
who, without the status of insured persons, find themselves, with no fault of their own, in a
property or life threatening situation. The compensation right of these persons is and must
remain inviolable, which is why this aspect will remain to be intensely present in our on-site
supervisions.
Off-site insurance supervision of the National Bank of Serbia is a high-quality innovation which
surely marked this year. Our goal was to find some specific aspects of business of insurance
undertakings, which are not of particular interest in standard supervision, but are nonetheless
very important for citizens. In that way, we tried to provide better protection to, for instance,
students of primary and secondary schools, hotel guests, citizens paying for public utilities,
public transport commuters and other persons that are or can be in the role of the insured.
Through such supervision, we first learned about the business of the insurance undertakings
selected as representative in those segments, after which we established the standards of good
business practices, which we then recommended to the entire market with the aim of improving
it. I particularly wish to emphasise that insurance undertakings have recognised this intention of
ours, to which they not only responded appropriately, but even chose to voluntarily take part in the
proliferation and promotion of such practices. In this way, we managed to together create better
work conditions for all market participants, which should in the first place be working based on
uniform principles, and to which their supervisor should apply the same standards and criteria.
We are very pleased with the achieved results. Some poor practices have been entirely done
away with, others have been improved, while some brand new, good and desirable practices are
becoming the standard for doing business. Off-site insurance supervision has thus greatly
stepped out of the mould of a passive collector of various reports and data, bringing the scope of
its activity to the level the modern insurance market requires and deserves.
Perspectives of insurance supervision are inextricably bound to Serbia's path towards Europe.
The National Bank of Serbia particularly supports the commitment of the Serbian Government to
European integration and acts as an active participant in this process, through negotiations,
mainly in the area of financial services, but also through a wide array of other activities aimed at
harmonising regulations and creating an economic environment that is more favourable and
secure for both companies and citizens. It is already well known that the regulatory objective of
the Serbian insurance sector and its supervision is the Solvency II regulatory framework.
Countries in the European Union already started implementing it last year, whereas we, as a
country aspiring to access the Union, have another fresh challenge before us. We are profoundly
aware of this fact, which has been taken into utmost consideration in all our activities to this day.
The Insurance Law that we have today has already integrated some elements of the Solvency II
regulatory framework, and we have established a strategy for the path to full harmonisation. In
view of the new deadlines to complete the national legal framework entirely built on European
standards, our plan is to prepare new regulations by 2020 or 2021 to meet this objective. What
remains until then is for us to prepare well and also to prepare the market under our supervision.
For this reason, we have already conducted a preliminary stress test, and plan on implementing
a number of quantitative impact studies and defining an optimal model of legal amendments and
secondary legislation, which will implement the Solvency II framework by the stated deadline. The
question, however, is when they will be applied. A number of future provisions is also expected to
have a delayed effect. What lies before us is certainly a complex task of meeting European
standards, all the while maintaining the stability of the domestic insurance market.
At the moment, perhaps the largest challenge is improving regulations concerning compulsory
traffic insurance. This is a task undertaken by the Ministry of Finance, though with the
wholehearted help and coordination of other public institutions, including the National Bank of
Serbia. At our initiative, the insurance sector was directly involved in this task through the
Association of Serbian Insurers. Therefore, it is very good to have all the relevant parties
gathered here today, where one of the central topics for further discussion will, in fact, be
compulsory traffic insurance. My close associate will also take part in these discussions, but
something I wish to tell you personally is that market participants must reach a consensus about
sensitive matters, for this is the only way that we can ultimately get regulations that are
applicable in practice. The lack of such applicability is precisely the greatest drawback of a large
number of provisions under the current Law on Compulsory Traffic Insurance. Once that job is
done, we will have a well-rounded and high-quality regulatory framework for insurance, paving the
way for further improvements of regulations, which have already been mentioned.
In addition to all what has been said, the National Bank of Serbia makes effort, within its main
competences, to have a continuous influence on the business and investment climate in Serbia,
as well as overall price and financial stability. Bearing this in mind, my today's address would be
incomplete without at least several words about the results that we have achieved in this field.
Starting from this year, the inflation target has been reduced to 3%±1.5 percentage points, and
inflation is successfully maintained within its bounds. Low and stable inflation that Serbia has
today and has had for the past several years, is imperative for the preservation of the real value
of wages and pensions, and the creation of predictable terms of business for all market
participants. By continuously lowering the key policy rate since May 2013, we have opened room
for the recovery of lending activity and for further economic growth. Falling interest rates are one
of the factors of acceleration of economic growth, while at the same ensuring considerable
saving for the economy, citizens and the state. Economic growth is also propped up by net
foreign direct investment in Serbia which, as I have already mentioned, has been exceptionally
important for the insurance industry. By making these efforts, we have managed to strengthen
credibility among all stakeholders that consider the avenues for investment in Serbia. Adding to
this anchored inflation expectations, a relatively stable exchange rate, a stable and resilient
financial system, growing confidence in the domestic currency along with a rise in dinar
household borrowing and elevated dinar savings, we certainly have the results that we can be
proud of. We have achieved all this owing to our own commitment, bravely facing the challenges
of the international environment and global financial trends. That this is not only our opinion is
confirmed by concrete and publicly available information, as well as increasingly better
assessments of credit agencies and relevant international institutions. We have reduced the
budget deficit, met all the criteria set before us by the International Monetary Fund, and have
recently completed the last, eighth review of the current arrangement with this institution.
Finally, I wish to emphasise the good cooperation that the National Bank of Serbia fosters with
the Association of Serbian Insurers, which we will continue to streamline towards the
development and modernisation of domestic insurance. May this conference be a step towards
that goal, but also a step towards much broader cooperation involving other institutions of our
country, as well as countries of the region and the European Union. The exchange of ideas,
experiences and knowledge is always a process that brings multiple benefits to both sides.
Therefore, today, by proclaiming this conference open, I wish that it should become a traditional
event, contributing in the best way to enhancing the quality of insurance in Serbia - first and
foremost to the benefit of all our citizens and economic entities related to insurance, either as
employees or business partners, or as beneficiaries of its services. The National Bank of Serbia
will remain an unbiased, quality and reliable supervisor of the insurance business.
Thank you.