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7th February 2008 What will the introduction of a new Pension regime in Romania mean for the Financial Services industry in the next five years? by David Truman Currently working in Bucharest, Nash Singh, Technical Manager for Airas Intersoft is well placed to comment on the challenges of Life Assurers in emerging markets who need to meet aspirations for an all encompassing IT solution whilst matching IT costs to revenues with a policy based commercial offer.Romania has one of the largest populations of the recent entrants to the EU and combined with the compulsory Pillar II Pension schemes introduced in the last 6 months, this new market opportunity would appear to be a boon for the Financial Services industry there. The country is typical of many of the new EU entrants in having:
The significant capital inflows and established presence of multi-national Insurers would all point to a readiness in the Financial Services Industry to increase their customer base significantly by taking advantage of the high profile of the Pillar II launch. However product diversification is often accompanied by financial pressures as broadening the portfolio increases the cost base on the short term as revenues build over the medium to long term. Consequently, the market is likely to see further consolidation as was seen in Hungary (approx 50%) and Poland (approx 30%) with significant reductions in the numbers of Administrators offering Pension products in a matter of years. Consolidation is being further driven by the demands on the Insurer and Bank product providers not only to extend their product portfolio but also to support a wide range of financial products including Medical, Life Assurance, Investment Funds and now Pensions necessary to gain market share and importantly, protect their existing customer base – with limited fiscal incentives available for most products. The introduction of significant tax benefits have typically been a driver in the growth of such products in markets with similar conditions as Romania but this is unlikely to be the case there. Mr. Aurel Gubandru, President of the Committee for Budget, Finance and Banks of the Chamber of Deputies acknowledged the importance of new and improved tax incentives for Life products but emphasised this was unlikely to happen in Romania in the next 5-6 years. Premiums for Life Assurance currently form less than 20% of total Insurance premiums in Romania, far lower than the norm in more developed markets. Although there is an expectation that there will be continued high levels of nominal growth and the proportion of Life to Non-Life premiums will change, the starting base is low. Furthermore the ‘competition’ from other financial products for the disposable income of the population means that this is going to be a long road. (Demonstrated by the slow-down in sales of Life products during the 4 month sign-up of Pillar II Pension members and the fact that data recently released by the Supervisory Commission of Private Pension Schemes shows that assets under the management of voluntary pension funds have only just reached 1 million Euro.) Competition for disposable income will be further intensified as compulsory household Insurance is expected to come into effect in 2008. For product providers this means an increasing need to improve their operational efficiency and IT systems consolidation – or at least effective interfacing. Singh, points to three critical points and their impacts when carrying out IT health checks for Insurers faced with challenges of rapid growth and the need for controlled costs in emerging economies.
Singh has a wealth of experience with Airas Intersoft and clients in Romania over the last two years, and in Central & Eastern Europe over the last 10 years implementing IT systems that assist new and incumbent Insurers launch new products quickly and at low cost. According to Singh, the need for careful planning and an IT strategy that encompasses a total solution for Life, Pension, Medical and Investment products is increasingly important.
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