While the government wants to cap RCA prices, parliament wants to quickly change the law to raise money for the Insurance Guarantee Fund (FGA), which has to pay hundreds of millions of euros after two major bankruptcies in 2 years: City Insurance and Euroins, a company with millions of customers RCA.

The bankruptcy of Euroins, an insurer with nearly 2.8 million RCA policyholders that began this year, is putting a tough test on the Insurance Guaranty Fund (FGA), which was supposed to somehow manage the payment of compensation to victims of City Insurance, another former RCA leader last year.

Although the government wants to cap RCA prices, legislative changes could be quickly passed in parliament to increase the funds available to the FGA to pay compensation to customers and victims of the two insurers.

In this sense, deputies from the Budget and Finance Committee recently made amendments to the draft law on the approval of the Government’s emergency resolution No. 102/2021 on amendments and additions to Law No. 213/2015 on the Policyholder Guarantee Fund and to amend other legislation.

• SEE THE PROPOSED CHANGES TO THE FGA HERE

The draft passed the senate and is now urgently discussed in the Chamber of Deputies, which is the decision-making body.

RCA insurers will temporarily pay a special contribution which will later be reimbursed by the FGA

One of the main changes is that RCA insurers have to contribute even more to the Policyholder Guarantee Fund through a special contribution in the form of a loan, which they will repay in full when the FGA has the money.

“A special contribution will be charged to policyholders if the Fund manages insolvency situations, according to which sums exceeding the Fund’s availability will be calculated,” says the amendment adopted by the deputies.

The proposal was made last year by Deputy Julius Marian Firczak (minority) in the context of the bankruptcy of City Insurance, but until recently the project remained blocked in the Chamber of Deputies.

• “Now with the bankruptcy of Euroins it is more relevant than then. FGA needs to be capitalized quickly so people don’t have to wait long for their claims. I hope that everyone involved in the RCA market will understand the need for these amendments and allow the project to become law, rather than blocking it with dubious amendments.” HotNews.ro reported this to deputy Julius Marian Firczak.

This proposal can be found in the current bill and was also cited as a decision by the Financial Supervisory Service (ASF) chiefs at the Euroins bankruptcy hearing.

ASF vice-president Christian Rosu said at the time about this special contribution that it would be like “a loan that the insurance companies will give to the FGA, and after the liquidation of the current bankruptcies, they will return their loan”.

How much will the special contribution be and how will the money be returned

The decision to withdraw Euroins’ authorization was published in the Official Gazette on March 17, 2023, and the FGA will be able to make the first payments to customers and injured parties of this insurer only 60 days from that date.

The assessment of the amounts owed to the FGA for an insolvent insurer is carried out after the insurer submits to the Fund a list of insurance contracts in effect on the date of notification of the aforementioned decision, a complete list of claims, as well as technical operational and accounting records related to these contracts and files.

In addition to the amendment regarding the establishment of a special contribution, the same deputy proposed another amendment that establishes how the amount of this contribution will be determined:

• “The percentage share of special contributions is approved by the decision of the financial supervision board at the request of the board of the Fund.
• (..) special contributions due and credited to the Fund’s account will be returned to insurers when the Fund’s availability is sufficient to cover the amounts due to insurance creditors and to the extent that the Fund is provided with financial resources provided by this law.
• The fund does not owe interest on collected special contributions.”

Will we pay more in the RCA if insurers are also required to pay a special contribution?

The question is whether the introduction of this additional fee will be reflected in the final price we pay at RCA.

In justifying his proposal, the deputy claims that this should not be the case.

• “The proposed amendment provides for the regulation of a separate source of income for the Fund, namely the establishment of special contributions paid by policyholders, in exceptional cases, contributions of a temporary nature collected by the Fund as a loan and subject to reimbursement. to the extent of providing the Fund with the financial resources provided for by this Law.
• In this sense, it is possible to avoid a possible increase in insurers’ contributions and a possible damage to their heritage, thus protecting the uninterrupted course of insurance activity in Romania and implicitly the interests of the insured, by establishing a special contribution that is fully refundable.” it is stated in the justification of the amendment regarding the special contribution.

PSD-PNL amendment: the state can guarantee FGA loans

Another important amendment, recently introduced by the PSD-PNL deputies, is aimed at “diversifying the types of loans to which the Fund can apply if necessary to fulfill the obligations imposed by law.”

Thus, the financial resources of the FSA will also be able to come from:

• “loans from credit institutions, with or without a state guarantee, treasury loans or compulsory loans through the issuance of the Fund’s securities.”

Other amendments aim to establish an obligation to contribute to the FGA for European insurers (authorised in other Member States, but carrying out insurance activities in Romanian territory on the basis of the right of establishment) through branches, in order to strengthen the protection of Romanian consumers. .

How quickly these changes can be adopted

This entire report with the specified amendments is currently sent to the Committee on Economic Policy of the Chamber of Deputies, which is due to provide an additional joint report to this bill on Tuesday, April 4.

The bill is being considered as an emergency.

• SEE THE AGENDA OF THE COMMISSION ON ECONOMIC POLICY

If it also passes this Commission, the project will be submitted to the plenary session of the Chamber of Deputies for approval, and then to the President for promulgation.

Insurers’ contributions to the FGA continue to increase and this is reflected in RCA’s final prices

In order to manage the bankruptcy of City Insurance, as well as the other major bankruptcies of Astra and Carpatica, the Financial Supervisory Authority (ASF) decided to increase the fees that insurance companies pay to the FGA for managing insurance bankruptcies.

• “The year 2022 was marked by an increase in the general insurance contribution rate collected by the FGA from insurance companies from 1% to 2.5%, resulting in the collection of an average monthly contribution of 24.8 million lei.
• The current year brought a new increase in the premium rate for general insurance from 2.5% to 4%, which leads to an average monthly increase in revenue to a projected level of 46 million lei.” The Insurance Guarantee Fund (FGA) announced in January this year.

All these successive increases in premiums paid by insurers to the FGA will be reflected in the final RCA prices paid by policyholders.

The FGA pays more than the RCA’s estimated dues receipts each month

The FGA paid out more than €156 million for just 80,000 files out of 255,000 payment claims in last year’s City Insurance bankruptcy, which is now joined by Euroins, where the ASF expects to pay out more than €250 million, according to the latest figures. sent by FGA at the request of HotNews.ro.

“Every month, the FSA makes payments in the amount of approx. 60 million lei. The FGA estimate for contributions from 2023 is an average of 46.1 million lei per month,” say FGA representatives.

• Read more: Does the FSA need money from the Government in the event of Euroins bankruptcy? The fund pays more than the RCA’s estimated dues each month

Photo source: Aaron M / Dreamstime.com