a. motor third liability insurance, which offers payment for damage resulting from car accidents, including the transporter s responsibility (MPTL);

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DănuleŃiu Dan-Constantin

„1 Decembrie 1918” University of Alba Iulia, e-mail: danuletiu.dan@gmail.com

The existence of third party liability insurance allows the third party who was damaged to get the right compensation and, on the other hand, the patrimony of the person who damage to third party remains untouched. Under these circumstances, insurers designed a various products of liability insurance, one of them mandatory, other non-mandatory. The paper presents some indicators that emphasize that the motor third liability insurance is the most important one in Romania. Also, there are presented in brief the European directives in the domain of motor third liability insurance and the evolution of Romanian settlements in this domain in order to harmonize the national legislation with those of European Union. The paper presents the evolution of the main indicators relevant for the two components of the motor third liability insurance between 2001 and 2005. The conclusion of analysis is that high paid claims ratio for motor third liability insurance remains one of the main concerns of insurance companies. Under the circumstances of Romania’s joining EU and the growing up the competition, insurers have to redesign their products in order to conduct their activity in a context of financial stability and gain good profit.

Keywords: insurance, third party liability, motor insurance

Liability insurance is designed to offer specific protection against third party claims. The existence of third party liability insurance allows the third party who was damaged to get the right compensation and, on the other hand, the patrimony of the person who damage to third party remains untouched (2). The liability may be the result of a court decision, of statutory provisions or of a violation of contract provisions.

In this category of insurance, payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract.

From a juridical point of view, there are two main categories of liability insurance: − mandatory motor third party liability insurance;

− non-mandatory insurances.

The second category also comprises a series of liability insurances that are mandatory for the insured (lawyer, notary public, accountant, insurance broker etc.), but are not mandatory for the insurer.

Depending on which provisions have been violated, there are two categories of civil liability insurance: one for legal responsibility and the other for professional responsibility.

The Romanian legislation that regulates the activity of insurance companies has classified civil liability insurances in four categories:

a.

motor third liability insurance, which offers payment for damage resulting from car accidents, including the transporter’s responsibility (MPTL);

b.

third party liability insurance for air travel, which offers payment for damage resulting from plane accidents, including the transporter’s responsibility;

c.

third party liability insurance for sea travel, which offers payment for damage resulting from shipwrecks including the transporter’s responsibility;

d.

general third party liability insurance, which offers payment to third parties for damage not included in the previous three categories.

The importance of civil liability insurance on the Romanian insurance market is illustrated by the weight of the gross written premiums of third party liability insurance in the total gross premiums (for 2001- cashed gross premiums).

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Table no. 1. Weight of gross written premiums of the third party liability insurance in total gross premiums

year

indicator 2001 2002 2003 2004 2005

% third party liability insurance 24,31 19,59 21,76 22,82 23,78

% third party liability insurance (without MPTL) 1,76 1,49 1,48 1,96 1,93

% MPTL 22,55 18,10 20,28 20,86 21,10

The number of insurers involved in liability insurance in Romania is presented in table no. 2:

Table no. 2. Number of insurers involved in liability insurance in Romania (2001-2005)

2001 2002 2003 2004 2005

Motor third party liability insurance 15 18 15 15 18

Third party liability insurance for air travel 3 4 6 5 6

Third party liability insurance for sea travel 1 3 3 3 4

General third party liability insurance 32 34 31 31 30

Source: Insurance Supervisory Commissions’ reports (2001-2005)

The data in Table 1 indicate that most important civil liability insurance is motor third party liability insurance. The same fact is strongly confirmed by Table 2, which gives information on the level of gross premiums according to each category of civil liability insurance.

Table no. 3. Written gross premiums in liability insurances

- mil. lei (ROL)-

2001* 2002 2003 2004 2005

Motor third party

liability insurance 2257874,53 3591871,297 5540886,659 7580490,885 9652404,1 Civil third party

liability insurance for air travel

10790,2 26714,229 30755,184 45286,008 142326,67

Civil third party liability insurance for sea travel

4518,16 30828,287 43580,954 41078,683 45208,64

General third party

liability insurance 160419,62 256031,14 402520,352 681510,331 665972,57

Total 2433602,51 3905444,953 6017743,149 8348365,907 10505911,98

*cashed gross premium

Source: Insurance Supervisory Commissions’ reports (2001-2005)

The weight of gross written premiums of third party liability insurance in the total gross premiums is illustrated in figure no. 1.

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The data indicate that motor third party liability insurance covered more than 90% of the total civil insurance in Romania between 2001 and 2005. Besides, motor third party liability insurance represented more than one fourth of the total general insurances in Romania duri

One explanation for this situation is to be found in the fact motor third party liability insurance is mandatory. Not only in Romania is this kind of insurance compulsory, but in all European Union

countries of the world. This is shown in a study conducted by the Working Group for Motor Insurance of the International Association of Insurance Law, in which was mentioned that 193 states have a mandatory MTPL insurance.

The system of compulsory motor third party lia

enhancing road safety(1). In the same time, an operational system reduces the burden of compensatory payments from the State budget for disability and work incapacitation, while allowing victim

fair compensation.

European Union has issued five directives concerning motor insurances.

insurance represent a fundamental element in making the free movement of vehicles in the European pos The first three directives were the basis for creating the single motor insurance market, making it mandatory for all motor vehicles in the European Community to have coverage through third party liability insurance for damages caused as a result of a car accident. Therefore, the community bodies focused on perfecting a more efficient compensation mechanism for local victims of accidents caused by vehicles registered in other countries. Directive no. 4 completed the system with an efficient claim set

accident takes place outside the victim’s country of residence. Directive no. 5, which has to be implemented by June 2007, modernizes the system established through the implementation of the previous Directives and confers an enhanced attention to victim protection.(1)

In order to harmonize the national legislation with those of European Union, the measures of the Romanian authorities were guided in two main directions: first

those insurances, to provide a better protection of the defenders’ rights and those that have the insurance and a higher degree for subscribing to the RCA polices. In this way they looked for the access of the damaged sides, the company that released the insurance, the Supervision Committee of insurance

Office and the road Police to information regarding cars involved in road events and giving centralized data about cars from Romania and about their insurances; second

insurance that responds not only to the internal market of insurances, but also to the international standards. Through norms emitted latter in 2004, Insurance Supervisory Commission liberated partially the insurance premiums for 2005 and 2006, established a total free market after our adhesion to EU and a schedule of increasing the limits for damage payments as a result of car accidents.

In 2006 it becomes functional also CEDAM, a database which record all the motor thi Romania.

The main changes in the domain of motor third party liability insurance in Romania are shown in table no. 4.

Table no. 4. Romanian motor third party liability’s evolution during 2002

Insurance period 86% 88% 90% 92% 94% 96% 98% 100% 2001 percent

Fig no.1 - Weight of MPTL in total third party liability insurance

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that motor third party liability insurance covered more than 90% of the total civil insurance in Romania between 2001 and 2005. Besides, motor third party liability insurance represented more than one fourth of the total general insurances in Romania during the same period.

One explanation for this situation is to be found in the fact motor third party liability insurance is mandatory. Not only in Romania is this kind of insurance compulsory, but in all European Union’s countries and in most he world. This is shown in a study conducted by the Working Group for Motor Insurance of the International Association of Insurance Law, in which was mentioned that 193 states have a mandatory MTPL

system of compulsory motor third party liability insurance represents one of the most important means of enhancing road safety(1). In the same time, an operational system reduces the burden of compensatory payments from the State budget for disability and work incapacitation, while allowing victims of car accidents to receive a

European Union has issued five directives concerning motor insurances. The European directives on motor insurance represent a fundamental element in making the free movement of vehicles in the European pos The first three directives were the basis for creating the single motor insurance market, making it mandatory for all motor vehicles in the European Community to have coverage through third party liability insurance for a car accident. Therefore, the community bodies focused on perfecting a more efficient compensation mechanism for local victims of accidents caused by vehicles registered in other countries. Directive no. 4 completed the system with an efficient claim settlement mechanism in case the accident takes place outside the victim’s country of residence. Directive no. 5, which has to be implemented by June 2007, modernizes the system established through the implementation of the previous Directives and

enhanced attention to victim protection.(1)

In order to harmonize the national legislation with those of European Union, the measures of the Romanian authorities were guided in two main directions: first - making a database that allows a better administrat those insurances, to provide a better protection of the defenders’ rights and those that have the insurance and a higher degree for subscribing to the RCA polices. In this way they looked for the access of the damaged sides, d the insurance, the Supervision Committee of insurance, the Romanian Green Card Office and the road Police to information regarding cars involved in road events and giving centralized data about cars from Romania and about their insurances; second - to draw up a nominative act regarding the insurance that responds not only to the internal market of insurances, but also to the international standards. Through norms emitted latter in 2004, Insurance Supervisory Commission liberated partially the insurance

emiums for 2005 and 2006, established a total free market after our adhesion to EU and a schedule of increasing the limits for damage payments as a result of car accidents.

In 2006 it becomes functional also CEDAM, a database which record all the motor third party liability issued in

The main changes in the domain of motor third party liability insurance in Romania are shown in table no. 4.

Romanian motor third party liability’s evolution during 2002

2002 2007

Year 1, 6 or 12 month

2001 2002 2003 2004 2005 year

Weight of MPTL in total third party liability insurance

general third party liability insurance

Civil third party liability insurance for sea travel

Civil third party liability insurance for air travel

MTPL

that motor third party liability insurance covered more than 90% of the total civil insurance in Romania between 2001 and 2005. Besides, motor third party liability insurance represented more than one

One explanation for this situation is to be found in the fact motor third party liability insurance is mandatory. s countries and in most he world. This is shown in a study conducted by the Working Group for Motor Insurance of the International Association of Insurance Law, in which was mentioned that 193 states have a mandatory MTPL

bility insurance represents one of the most important means of enhancing road safety(1). In the same time, an operational system reduces the burden of compensatory payments s of car accidents to receive a

The European directives on motor insurance represent a fundamental element in making the free movement of vehicles in the European possible. The first three directives were the basis for creating the single motor insurance market, making it mandatory for all motor vehicles in the European Community to have coverage through third party liability insurance for a car accident. Therefore, the community bodies focused on perfecting a more efficient compensation mechanism for local victims of accidents caused by vehicles registered in other tlement mechanism in case the accident takes place outside the victim’s country of residence. Directive no. 5, which has to be implemented by June 2007, modernizes the system established through the implementation of the previous Directives and

In order to harmonize the national legislation with those of European Union, the measures of the Romanian making a database that allows a better administration of those insurances, to provide a better protection of the defenders’ rights and those that have the insurance and a higher degree for subscribing to the RCA polices. In this way they looked for the access of the damaged sides, , the Romanian Green Card Office and the road Police to information regarding cars involved in road events and giving centralized data aw up a nominative act regarding the insurance that responds not only to the internal market of insurances, but also to the international standards. Through norms emitted latter in 2004, Insurance Supervisory Commission liberated partially the insurance

emiums for 2005 and 2006, established a total free market after our adhesion to EU and a schedule of

rd party liability issued in

The main changes in the domain of motor third party liability insurance in Romania are shown in table no. 4.

Romanian motor third party liability’s evolution during 2002-2007 2007 1, 6 or 12 month

general third party liability

Civil third party liability insurance for sea travel

Civil third party liability insurance for air travel

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Insurance premium Fixed (established by ISC) Total free market

(+20%/-10% comparing to CSA - in 2006;

(+10%/-10% comparing to CSA - in 2005)

Coverage National European Union

Limits for damages payments

Max. EUR 12800(damages) Max. EUR 16000(injuries)

Max. EUR 100000(damages) Max. 350000 EUR/pers (injuries) Checking elements Police’s routine control

Vignette emitted by the insurers

CEDAM base

Vignette is the same for all insurers Source: PRIMM Magazine, no. 1/2006, p. 72.

During the above-mentioned period, the civil motor insurance covered two aspects: − civil motor insurance for liability resulted from car accidents within the country − civil motor insurance for Green Card cars

Since 2007, after our joining EU, Green Card insurance is only necessary for non-EU member states. For EU member states, the Green Card insurance is included in the mandatory insurance.

Table no. 5 illustrates the evolution of the main indicators relevant for the two components of the motor third liability insurance between 2001 and 2005.

Table no. 5. The evolution of the main indicators for motor third liability insurance

- mii lei(RON)-

2001 2002 2003 2004 2005

Mandatory motor third party liability insurance

Cashed gross premiums 199938 261725 387086 541449 761858

a) from persons 1 149373 212190 290395 375752

Index of cashed premium from persons

- 129,86 % 142,05% 136,86% 129,39%

b) from firms 1 112352 174896 251054 386106

Index of cashed premium from firms

- 132,31% 155,67% 143,54% 153,79%

Total contracts 3632935 3450286 4245678 4475512 4815593

a) persons 1 2617507 3219242 3464991 3586886

Index of contracts for persons - - 122,99% 107,63% 103,52%

b) firms 1 832779 1026436 1010521 1228707

Index of contracts for firms - - 123,25% 98,45% 121,59%

Paid claims 100055 107792 193265 303858 402441

Paid claims ratio (%) 50,04 41,19 49,93 56,12 52,28

Green Card

Cashed gross premiums 45373 84356 152832 171022 170072

Paid claims 15098 19058 39497 46484 52558

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268 1- data not found in CSA reports

The indicators in Table no. 4 allow us to highlight some important aspects concerning the evolution of civil insurances between 2001 and 2005.

With respect to the mandatory civil insurance, we can notice that growth rate of the amount of cashed gross premiums is larger than the number of insurance contracts. The explanation is to be found in the fact that, during this period, the insurance tariffs increased constantly. On the other hand, we can notice that the paid claims ratio remained high (about 50% for RCA and 30% for Green Cards), but damages rates were even higher.

The high paid claims ratio for motor third liability insurance remains one of the main concerns of insurance companies. As the beneficiary of motor insurances that we discuss is a third party, the main factor in contracting this type of insurance is the cost. Since the insurers are interested in obtaining as high a market share as possible, situations have occurred in which the cashed premiums are not enough to cover the damages incurred. Under the circumstances, some insurance companies have introduced differentiated premiums, according to whether or not the driver contracting the insurance had been involved in road accidents. Therefore, the premiums have been increased for the drivers who had been involved in car crashes and decreased for the other. In this way, insurance companies attempt to correlate the level of insurance premiums with the degree of risk undertook by the insurer and to restructure the customer portfolio so that insurance profitableness will increase without the market rate being affected.

Since 2007, as a result of Romania’s joining EU, many new insurance companies and brokers from EU have entered the Romanian insurance market. Under the circumstances, the evolution of the motor third liability insurance market will be influenced by the necessity to offer moderately priced services, as well as by the insurers’ desire and need to conduct their activity in a context of financial stability and gain good profit.

References:

1. GheŃu D., - „MTPL”, in PRIMM Insurance Magazine, Editor Media XPRIMM, no.1/2006(40), p.66-68 2. Văcărel I., Bercea F., - „Asigurări şi reasigurări”, Editura Expert, Bucureşti, 1998, p. 371

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