Applicants RCA City Insurance and Euroins collected more than 630 million lei this year alone from the Insurers’ Guarantee Fund (FGA), a body that pays compensation in the event of an insurer’s bankruptcy, up to 500,000 lei per insurance contract. This limit will soon be lifted by the government under an EU Directive, but the legislative changes will only apply to future bankruptcies.

Recently, the Ministry of Finance submitted a bill for public discussion, which will significantly change Law 213/2015 on the Guarantee Fund of Insured Persons.

• SEE THE BILL AND THE EXPLANATORY STATEMENT

The main change is the cancellation of the current upper limit of 500,000 lei, in the case of RCA victims, payments that the Fund must make within the limit of the guarantee ceiling, which is determined by the level of the maximum liability limit of the insurer that concluded the RCA contract, i.e. the greater value between the liability limit provided by law , applicable to the place of occurrence of the road accident, and what is stipulated in the RCA contract.

The changes should enter into force by December 23, 2023

As a reminder, under RCA legislation, the insurer of the driver who caused the accident is currently liable to pay compensation of more than €6.07 million for bodily injury and death, while the limit for property damage is €1.22 million .

If the RCA insurer goes bankrupt, the Insurers’ Guarantee Fund (FGA) takes over the payment of losses, but within the limit of 500,000 lei according to the insurance contract.

The FGA, as an insurance guarantee scheme, was created in 2015, but is not an obligation of EU directives.

• “Romania is the only member country of the European Economic Area where the insurance guarantee fund offers protection for all types of insurance (general or life, optional or mandatory) and for any insurance creditor, regardless of whether it is an individual or a legal entity.
• Among the Member States, roughly similar funds still exist in Latvia, Malta and Spain, but they also do not offer full protection, certain types of insurance or corporate creditor insurance are excluded from coverage.
• In all the other 15 Member States where certain insurance guarantee schemes still exist, they cover exclusively, usually life insurance or certain types of life insurance, health insurance, work accident insurance, motor vehicle liability insurance or other . forms of compulsory insurance.” it is stated in the motivation of the draft law.

The new EU Directive (2021/2118) for the first time at the European level introduces the obligation of each member state to create bodies for the protection of affected persons in that state by directly introducing compensation under the RCA treaties. payment in the event of the liquidation or insolvency of an insurer that has taken over the liability of the person responsible for the accident, regardless of the Member State in which the insurer was authorized.

This EU directive must be transposed into national law by 23 December 2023, as the Financial Supervisory Authority (ASF) warned in another legislative initiative in parliament, which aimed to increase by 10 times the upper limit of 500,000 lei paid by the FGA in case bankruptcy of RCA.

• SEE DETAILS ABOUT ASF HERE

Will the FGA contribution increase if the 500,000 lei ceiling is lifted? What does the Foundation respond to?

Given that FGA is managing several bankruptcies, two of which are large and recent – City Insurance and Euroins, indemnification above the 500,000 lei limit would mean huge costs, so HotNews.ro asked the Fund to clarify whether it has the necessary resources and how it will be affected by new legislative changes.

The FGA appears calm on the matter, stressing that the legislative changes will target future insurance bankruptcies.

Here are the FGA specs:

• “By means of a draft regulation transposing the European directive, the legislator abolishes the current limit of 500,000 lei in the case of insurance creditors whose losses are the result of RCA-type insurance contracts.
• According to the European regulation, which will be transposed into Romanian law, each member state must require that the minimum sum insured for which RCA is obliged to insure bodily injury is at least €6,450,000 per accident, regardless of number of prejudiced people.
• In case of material damages, the minimum compensation limit will be 1,300,000 euros per road accident, regardless of the number of victims.
• We clarify that the guarantee limit of 500,000 per insurance payment is canceled only for RCA insurance policies and will only apply to bankruptcy procedures opened after the entry into force of the amendments to Law No. 213/2015.
• Administrative procedures administered by the Insurers’ Guarantee Fund for the settlement of claims for the payment of sums to insurance creditors of insurers in respect of which bankruptcy proceedings were previously opened remain subject to the law applicable at the date of their commencement, regardless of the time of submission of payment requests (eg: City Insurance SA , Euroins SA).
• In this legislative context, in which the maximum guarantee amount of 500,000 lei per insurance indemnity is applied at the date of availability, an increase in contributions paid by insurers to the FGA is not considered.”, FGA representatives informed HotNews.ro about this.

What resources does the FGA have? More than 630 million lei – payments to the account of the city and Euroins this year

According to information provided by HotNews.ro, the remaining availability of FGA as of November 3, 2023 was approx. 156.2 million lei. The fund emphasizes that the balance sheet is dynamic, changes every month, in relation to the monthly situation of receipts and payments made in favor of insurance creditors.

The total amount of payments made this year by FGA until 31.10.2023 is approximately 663.3 million lei for the following companies:

• Astra: 9 million lei
• Carpathians: 20.6 million lei
• Certificate: 957,000 lei
• City Insurance: 526 million lei
• Euroins: 106.7 million lei

What are the monthly FGA amounts on premiums paid by insurers?

In response to this question, the Fund’s officials clarified for HotNews.ro that the total amount collected from insurers (for the period January – September 2023) related to contributions owed by the FGA is about 623 million lei.

The average monthly amount of premiums paid by insurers for the period mentioned above is 69.2 million lei.

Recent legislative changes have introduced a new type of contribution, namely a special one, the legal status of which is provided by insurers to the Fund, without interest.

At the same time, in 2023 the interest related to regular and special contributions that policyholders have to pay to the FGA has been increased to 7% for general insurance, of which 2% is regular contributions and 5% is special contributions.

The increased quota has been kept at the level of 2024.

Thus, in 2024, the percentages are as follows:

• a) permanent contribution:
  (i) 4% for general insurance;
  (ii) 0.4% for life insurance;
• b) special contribution for general insurance 3%.

The increase in contribution quotas was supposed to ensure the availability of funds necessary for the payment of compensations.

• “At the same time, we note the fact that, following legislative changes (Article 3, Paragraph 2 of the updated Law 2013/2015), European insurers currently pay contributions to the FGA for insurance activities carried out on the territory of Romania through branches established in Romania, only for that part of the affiliates’ business for which the guarantee schemes in their Member States do not protect creditors from insolvency insurance (FOE).
• Thus, thanks to the increase in contribution rates, as well as the expansion of the base of taxpayers in the FZU, the Fund managed to increase not only the activity of the analysis of payment claims, but also the monthly payment amount for insurance of creditors of bankruptcy insurance. company.”, says FGA.

How much has the FGA collected from the special contribution from insurers introduced this year?

By October 31, 2023, the amount of the collected special contribution is approx. 212.3 million lei (the amount is included in the total revenues presented above), FGA representatives told HotNews.ro.

The Fund assumes that it will return to policyholders the special contributions due and transferred to its account, when, as a result of the analysis of the Fund’s financial resources, it will be sufficient to cover the amounts due to insurance creditors, as well as those resulting from administrative and operational expenses.

In this regard, the Fund has an Instruction on the procedure for returning the debt of FGA policyholders for special contributions, which defines the conditions under which this return will be made, for public consultation.