Tumico: Bulgaria must fix laws to create a fairer insurance landscape
Bulgaria's government and regulators have created obstacles to growing the insurance business, say Tumico executives
The Bulgarian financial sector is undergoing dramatic transformations. Georgi Borisov and Venelin Georgiev from Tumico discuss the legislative and regulatory challenges that insurance companies face in Bulgaria, and the benefits that EIOPA’s Solvency II directive will bring to Bulgarian insurance.
World Finance: The Bulgarian financial sector is undergoing dramatic transformations. Here to shed light on these changes: Georgi Borisov and Venelin Georgiev.
Now first, tell me about the challenges in your local sector.
Georgi Borisov: The national legal framework allows us to do business only in the field of long term life insurance.
We’re deprived of contact with the short term life insurance contracts, which is the main sector of life insurance in Bulgaria.
For example, the company can grow significantly, even in production volume, if some unfair legal texts are just removed from the legislation. And this is one of our main goals for the future.
Some examples can be given. First, pensions that are paid from premium pension funds are not subject to taxation, whereas insurance savings are taxed.
Second, payments of premiums to pension funds is regulated and smooth, while insurance payments to insurance companies often depend on the mood of the employer of the applicant for insurance.
Third, tax authorities and the government violate regulations and directives of the European Union. There is a lack of dialogue between the government and business. The opinion of Mr Tony Thompson, who is the representative of the World Bank for Bulgaria, is that government is a partner and regulator to be avoided by business.
World Finance: We’ve just heard from Georgi some of the issues that your industry has faced; tell me about your company, and how it’s been able to transcend these problems and build a long term growth strategy.
Venelin Georgiev: Many managers advise their companies to change and rethink their goals. We at Tumico however defend the opposite idea. Because of the restrictive legal framework, we defend product simplicity and universality.
The form of simplify and repeat is received very well by the market. That is why in our practice we constantly develop more clearly defined target groups of people – also add limiting characteristics that are placed on all our papers and advertisements. Combined with altruistic product content, which says that with us it’s easy, and we hold it is so.
Georgi Borisov: I would also add that simplicity is a useful tool against the growing complexity of corporate structures. To manage with globalisation, companies are beginning to use complex metric systems of management. This is a hidden killer of the current type of business.
To avoid this, we strive for simplicity: but only simplicity is not enough. Along with it, Tumico has the following business practices: rejuvenation of staff, education of our own talent, concentration of our resources and market action, and solving complex administrative tasks by small groups of highly qualified specialists.
World Finance: Venelin, what are your clients asking for mostly? Is it corporate or private insurance?
Venelin Georgiev: We have different types of clients, but we have focused on the hardest segment: this is product at the expense of the insured.
The reason for sincere price is that through all those years, we managed to stop the turnover of our members. It should be noted that when Tumico was founded, this was a significant problem. Of all 662 people who founded the insurance company, today only three of them are still members. But in the last year, 2014, just 14 of our 30,000 members ended their membership. So you can see that fighting turnover is a very small component of our work.
World Finance: Fascinating; so tell me Georgi about how you’re preparing for Solvency II. We know that it’s coming, what’s the industry responding with?
Georgi Borisov: We understood the full meaning of Solvency II when we made our own forward-looking assessment of own risk – formally known as ORSA, Own Risk and Solvency Assessment. Solvency II looks forward in time and estimates a larger volume of factors that affect solvency, while the Solvency I directive was focused on the past and present.
But there is also a hidden effect. Questions set by EIOPA in Solvency II were a huge exchange of experience between European insurers. So this was a most pleasant surprise.
World Finance: Georgi, your company in particular, let’s talk about some of the changes that are coming.
Georgi Borisov: Corporation membership in AMICE, the Association of Mutual Insurance and Insurance Cooperatives in Europe, where Tumico was accepted and welcomed as a full member, turned out to be very useful. This is the main reason, according to us, that we are in step with EIOPA’s and the local regulator’s requirements.
World Finance: OK. So finally Venelin, what does the future hold for the Bulgarian insurance industry?
Venelin Georgiev: Gear and depth of insurance penetration will grow with the increase of peoples’ wellbeing and care. In social insurance, the obligations and rights of the business should be aligned with those of the state to its citizens, at least.
In Bulgaria there’s a difficult process of the separation of the state from its social activities, because of the structure of our country’s debt. It is still the largest employer, and its own structures provide the population with healthcare and pensions.
This must be changed so that the market advantages can become available for citizens.