​Fearing excessive increases in RCA prices, the Government wants to freeze RCA prices for a further 6 months at the level of their own premium rates applied by each RCA insurer on 28 February 2023, subject to a maximum adjustment of 6.8%, which is in line with the forecast annual inflation rate of the end of the second quarter of 2024, published by the BNR, according to the draft, which is being analyzed on the table of the executive power on Thursday.

• SEE DRAFT HG AND KEYNOTE

How the price freeze is motivated: Approximately 3.5 million RCA policies expire in the first 6 months

The Government recalls that on 5 April (not on the basis of the bankruptcy of Euroins) it was decided to cap RCA prices at the level of own premiums applied by each RCA insurer on 28 February 2023.

The measure, originally for 6 months, until October 10, was later extended until December 31, 2023, but the imbalance in the RCA market is estimated to continue into the first months of 2024.

• “As close to 900,000 RCA contracts were legally terminated in December 2023, putting pressure on the RCA insurance market, the supply and demand mechanism has been affected and it is estimated that this crisis situation, supply-demand imbalance and market dysfunction will persist and manifest inertial after January 1, 2024, given that only 6 companies authorized in Romania and two branches created on the basis of the right of incorporation are currently carrying out RCA insurance activities, and the data shows that in the first 6 months of 2024 alone, around 50% (approximately 3.5 million) of current RCA contracts.
• This situation is caused by the fact that RCA insurers had to insure a larger number of policyholders during this period than would normally be the case in a normal year in which the previously described situation does not occur, so it is estimated that there will be a further imbalance between supply and demand at the market level. (…)
• Such a situation may cause negative consequences in the form of additional pressure on prices after January 1, 2024.” shown in the justification of the project of the GD.

The Government’s decision: prices are frozen for another 6 months, but taking into account the level of inflation

In view of all this, the Government’s decision is to temporarily freeze for 6 months the premium rates charged by RCA insurers under RCA contracts entered into after the entry into force of this regulatory act, at the level of their own premium rates, which they calculate and charge. February 28, 2023, which can be adjusted by a maximum of 6.8%, which corresponds to the forecast of the annual inflation rate at the end of the second quarter of 2024, published by the National Bank of Romania.

• “By applying this measure, we are fighting against excessive price increases that may suddenly arise against the background of the above-described imbalances, and the gradual stabilization of the RCA insurance market in order to avoid the spread of negative effects to other sectors of the national economy.” “, the document states.

Also, to help consumers, the distribution fee reflected in the final RCA policy value they will pay will be capped at a maximum of 8% of the net distribution cost premium.

In the same sense, the draft also regulates the fact that the compensation provided by RCA insurers on the basis of contracts concluded during this period should cover the costs of temporary replacement of the damaged vehicle only in a situation where it can no longer be used from a technical point of view .

Insurers and brokers have asked the government not to continue capping RCA prices in 2024: this would increase the risk of other players exiting the market

In the midst of the ASF’s management change, insurers and insurance brokers have asked the government not to extend the RCA price cap in 2024, warning that such a move would put enormous pressure on insurers in the market, increasing the risk of other players exiting, following the bankruptcy of Euroins.

• “An exceptional situation was used to freeze premium rates as a result of bankruptcies and the need for other insurance companies to take over a significant portfolio of clients. Having made considerable efforts, the insurance market managed to absorb this shock. But for this, insurance companies needed capital, either by consuming from what was available, or by demanding money from shareholders.
• The continuation of the restriction puts enormous pressure on insurers in the market, which increases the risk of other players leaving the market, which still only has 6 authorized and regulated companies in Romania and another 2 operating on the basis of the European passport.
• Therefore, it is clear that any potential exit from the market will put additional pressure on the remaining players, creating a domino effect.” This was announced on December 19 by UNSAR Director General Aleksandru Chukan.

A similar reaction came from the National Union of Insurance Brokers (UNSICAR), which warned that maintaining the RCA price cap would further limit competition and delay the entry of new players into the market.

Insurance brokers note that RCA rates have been capped for more than 9 months and say that the niche market has managed to absorb the shock caused by the withdrawal of Euroins Romania’s operating permit.

• “The fundamental problem of the local RCA insurance market is the small number of profile players and, indirectly, the lack of competition in this market segment, which is also evidenced by the ASF’s annual report on the insurance industry for 2022, which states that the three leading companies in the RCA market had a combined a share of 72%”, said Dorel Duce, President of UNSICAR.

He reminds that in 2022 brokerage brokerage companies accounted for almost 76% of the volume of premiums signed by insurers and that more than 15 years ago in the RCA market in Romania there were more than 15 profile companies, while at the end of 2022 there were only 9 active players , two of which are not abroad.