ARTICLE
Changes to the insurance sector Island poised to apply Solvency II framework and new Directive for insurance products distribution
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he development of a sector in the economy, sush as the insurance sector, is linked directly with the economy’s robustness and the prospects of the economy in general. A sector cannot develop piecemeal and outside its operational framework. Today, three years after the peak of an unprecedented crisis faced by our country and economy, we can, realistically, look forward to better days and development in all the major productivity sectors of the economy. Everybody understands that following such a deep and extended period of recession and the contraction of the economy, the effects and consequences, are still being felt and that much still need to be done. The government’s orientation is exactly this. We will continue in our attempts, with the same commitment and the same intensity, because no one has the right to be complacent. It should not escape our attention that this second chance has been achieved through sacrifice and the efforts of our citizens, and we have an obligation to manage it responsibly. It is, therefore, our duty to refrain from irresponsible attitudes, to learn from our mistakes and not to repeat them. We must understand that the preservation of a competitive advantage and a viable development of an economy depend on continuous reforms and prudent management of public finances. For example, the imposition of various structural changes which will upgrade the public sector and further stabilise public finances must at last be implemented through the contribution of all the political parties. The insurance sector, which finds itself at the crossroads of implementing the framework of Solvency II, is called to operate in this new economic environment. This new framework introduces obligations for insurance firms with regards to their capital adequacy based on risk assessment, introduces valuation techniques and governance standards and to supply information to the relevant supervisory authorities and to consumers.
I have been informed that the insurance firms have been working intensely, in cooperation with the Insurance Companies Control Service, and are today at a very good level of preparedness without any significant problems with regards to implementing the new framework. This, I must add, is the way to secure development and prospects: with planning and an effort from both the private and public sector, within the framework of an effective and beneficial cooperation. Additional changes, in the process of being implemented at a European level, will further change the factors and obligations affecting the insurance sector and its professionals. The implementation of the European Directive for the distribution of insurance products will further regulate the operations of insurance mediators, insurance firms and their employees. The new Directive specifies, amongst other things, transparency regulations and professional standards, so as to avoid a conflict of interests, by introducing detailed and effective information to consumers regarding insurance products, including the overall cost associated with their purchase. Despite the challenges which inevitably accompany these changes, I believe the implementation of the new European Directive will upgrade insurance products and the training of professionals, as well as enhance public confidence and contribute to the development of the sector. The Insurance Institute of Cyprus will play a major role in the training of the sector’s professionals. Some important government initiatives are included within this framework. Despite the efforts that will be required for their implementation, they constitute the best practices that will contribute decisively to the credibility and development of the industry. I refer specifically to the recent decision taken by the Cabinet on September 13, 2016, which calls for the initiation of procedures to unify the supervision of professional pension funds and insurance firms under a new, modern and independent supervisory authority.
By Harris Georgiades, Minister of Finance
Rules for transparency and professional standards for avoiding a conf lict of interest Consolidation of the supervision of professional pension funds and insurance firms
NOVEMBER 2016
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INTERVIEW
BY YIANNIS ANTONIOU
STEPHI DRAKOU: The insurance industry
on course for further change
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he insurance industry in Cyprus is on an upward trend and statistics for 2016 are especially encouraging, showing that - barring the unexpected - the year will close on a relatively better note than last year. This shows the sector has overcome the effects of the shock felt by the financial sector in 2013. And according to the Director General of the Insurance Association of Cyprus (SAEK), Stephie Drakou, the insurance firms in Cyprus have responded to the challenge and implemented the changes provided by the Directive, Solvency II. Here it is worth noting that, as regards the medical branch, not only did it not shrink, but today finds itself on an upward trend with an increase of 17%. “We believe the trust shown by Cypriots towards medical insurance has increased dramatically over the last few years, a fact which worries us because the state tends to ignore this,” stresses Drakou, referring to the state’s decision in favour of a singlepayer insurance system, as opposed to a multi-payer insurance system. What is the assessment on the first year of application of Directive Solvency II? As you may know, the implementation of the European Directive Solvency II started gradually as of January 1, 2015, overseen by the Supervisory Authority which monitors the progress achieved. The House passed the harmonisation legislation which was implemented as of April 11, 2016. At this point, the insurance sector operates within the Solvency II framework. The Supervisory Authority is the most competent body to offer an opinion regarding the results from the first year of its application. As an Association, we can say our members undertook all
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Multiple insurance policies offer choices and serve patients better, stresses the Director General of the Insurance Association of Cyprus
The Director General of the Insurance Association of Cyprus, Stephie Drakou
the necessary measures to respond to the challenges posed by Solvency II. The insurance firms invested a lot of time before the implementation of Solvency II to take the necessary measures so as to respond positively to the demands of the new Directive.
To what extent was the insurance industry affected by the changes brought upon the banking system by the new state of affairs created after March 2013? Do you believe it created an upheaval in the insurance market?
Have any gaps been detected in the implementation of the Directive? Have companies operating in Cyprus adapted to it?
Like many sectors of the economy, the insurance sector was affected by the tragic events of March 2013. And despite the fact that they did not contribute to what happened to the banking sector, insurance companies’ performance was unfavourably affected over 2013-2015, as they are at the heart of the economy and cannot escape the general consequences. We are, however, satisfied that, thanks to coordinated steps and remedial actions, the insurance industry recovered in 2015, with two sectors steadily noting small but positive rates of growth. We can mention that, based on the results of 2015, total insurance policies went
The companies are responsible for implementing the law, something which we believe they have done in the best possible way. The implementation of the Directive is under strict supervision and we are certain the Supervisory Authority - to which the law provides a lot of power (so as to take preventative measures to avoid gaps) - will act within the framework of its authority wherever an infringement of the law is detected to impose the appropriate penalties.
up by 1.5% reaching €763 million, as opposed to €752 million in 2014. Wi t h regards to possible rearrangements in the insurance market, we must reiterate that we operate in a free market, posing opportunities and challenges which, operationally speaking, each company assesses differently. Generally, we can say that rearrangement conditions exist for the purposes of mergers and acquisitions, and for new companies to enter the market. What is the insurance sector’s performance like for 2016? Are there signs of stability? Which area shows improvement (regarding life, health and general policies)? There have been signs of stability in our sector since the beginning of 2015. The life and general insurance sectors have shown improvement. Based on new information for
The health sector leads in increases – the plague of iconic accidents and fraudulent claims the first half of 2016, the positive rates of development have not only been maintained, but have actually improved, so we can say with certainty that, barring the unexpected, we should by the end of the year see an improvement in relation to last year. It’s also worth noting that, over the first six months of 2016, motor insurance, which is the largest in terms of production, saw an increase of 2.4%, while last year’s corresponding period had recorded a 0.1% loss. At the same time, the medical sector has produced a major increase of 17% and is the second largest sector in terms of production
size. The life insurance sector has not marked any significant change apart from the fact that redeemed policies have been further reduced from €69 million per six months in 2015 to €57 million in 2016. Despite the recovery, we still have a long way to go before we return to pre-crisis levels. What’s the picture regarding the health sector beyond the group health plans available to professionals? The health sector was the only sector that didn’t contract during the crisis. To the contrary, it maintained its levels of production while indicating upward trends. In 2016, the health sector finds itself on an intensified upward trend of 17%. We believe the trust shown by Cypriots towards medical insurance has increased dramatically over the last few years, a fact which worries us because the state tends to ignore this.
NOVEMBER 2016
5
INTERVIEW - STEPHI DRAKOU
‘The state-centralised NHS won’t work’ With regards to the NHS (National Health Service), the government has announced that it has decided to adopt a single-payer insurance system. Your Association’s opposition to this measure is well-known. What’s your reaction to this development? Unfortunately, the decisions that were taken point to a statecentralised system, which, we are afraid, will maintain the weaknesses presently found in the state hospitals. In our opinion, we shouldn’t dismantle a health system that has functioned successfully in the private sector for decades, replacing it with another system that poses many dangers that could lead us to a dead end. On the contrary, we should support and improve on it by cooperating with the public sector for the benefit of all citizens. The private health insurance institution currently serves over 200,000 citizens, and successfully contributes to maintaining households and businesses while supporting the health sector. At the same time, it supports the public and the general market with insurance compensation and benefits which, during the years of the crisis, numbered over €3 billion, while managing investments exceeding €2.3 billion, positively contributing to the labour market and the economy. SAEK will continue its bid to convince the state to see the realities and to take correct measures for the good of the public health system, the insured, as well as the economy. We will try to convince the state not to allow preconceived ideologies to hold sway, thereby denying the public an NHS that would offer the opportunity to enjoy the long-awaited service which private insurance has proven it has the ability to provide. The public hear the terms singlepayer insurance and multi-
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payer insurance and it’s obvious they don’t understand what they mean. What’s the difference between the two? It’s difficult to attempt a detailed comparison between the two in the space provided, but I will list the many advantages of a multi-payer insurance system. I will, however, concentrate on one important advantage which concerns the level of service received by the patient - the factor that loses out today. I refer to the distortions of today’s public system: the long queues, the unacceptable phenomenon with the little envelopes, the poor service and the ignorance with regards patients’ rights and whose opinion doesn’t count. Is it possible for the public to react to these phenomena? Obviously not! By contrast, the multi-payer system, as we experience it in the private sector, does not have these phenomena. There are no queues, no little envelopes. Patients have access to care at whatever time needed and
however they choose. This is because the multi-payer system provides the patient with the right of choice and change. If patients are not attended to, if the insurance organisation does not respond according to their expectations, they go somewhere else without effects and consequences. Patients even have a contract, the policy which highlights their rights provided by the law. Behind the policy, there are people they know, whom they can consult for help when faced with a problem. If their rights are violated and they are ignored, they can take legal action or, alternatively, they can apply to an extrajudicial mechanism, e.g. the Commissioner for Financial settlement. In other words, the system itself obliges the insurance companies to place their clients and the settlement of their needs at the centre of their efforts, because success and failure is determined by the decisions of the clients. This mechanism which empowers the multi-payer system is not present in single-payer insurance systems.
ARTICLE
Strategic consequences arising from the implementation of Solvency II Management cost increases attributed to framework compliance will pose major challenges for companies
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By Marios Lazarou
he last few years have proven very interesting for managing an insurance company (although not half as interesting as managing a bank). The official implementation of Solvency II in Cyprus and the rest of Europe at the beginning of the year, has been taking place in an environment of reduced interest rates, relentless competition between companies over product prices and a Cypriot economy attempting to rediscover its lost glamour since the 2013 banking crisis. The Directive’s framework has not resulted in company integration in Cyprus, something which was expected at international level, mainly due to three factors:
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Insurance companies in Cyprus began the framework’s Quantitative Impact Studies in 2008. The result being that firms’ management were aware (long before official implementation) of the consequences concerning capital adequacy, and took the appropriate measures.
ii. The generally conservative investment policies (especially of companies in the general sector) of depositing available c apital in banks, while avoiding investments in shares and other financial instruments with a larger risk market (though some were affected by the events of 2013). Marios Lazarou is Board Member and Head of the Financial Risk Management Department of KPMG Limited
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iii. The lack of incentives to sell for shareholders, who, in most cases, were owners of the companies – generally identif ied as family businesses. The incentive lack stems from the fact that, at an early stage (e.g. 2010), most companies saw they could comply with the capital requirements imposed by the framework. However, in spite of this, it would be naïve
to say the Solvency II framework did not enter the lives of the insurance companies without consequence and cost. Governance framework and internal control system The framework of company governance has improved, despite the fact that there is a fair way to go before we reach satisfactory levels. Management Boards meet on a regular basis to discuss important subjects, including capital issues. The organisational structure has been enhanced with second and third lines of defence units, including Internal Audit, Risk Management, and Actuarial Compliance. Of course, in many cases, taking into account the rule of proportionality, some of these units have been merged into one or delegated to external associates. Additionally, companies have developed policies and procedures for risk management like insurance, credit and investment, etc. However, the complete implementation of these policies will, in many cases, require time before completion. Balance sheet structure The balance sheet structure has changed to some degree. Aiming at improving the Solvency indicator, many companies have changed their investment policy. A significant change is the channelling of capital into a large number of banks (locally and abroad) as opposed to the past where deposits were limited to one or two banks. Business model Applying pressure on defaulting clients as well as agents has increased, due to the higher demands for capital reserves. In many cases, companies have rationalised their associates and, in some cases,
THEME
Risk assessment and cost concerns The premium and terms of an insurance policy are based on assessing the level of risk undertaken by the insurance company
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he process of calculating the risk associated with an insured person is called risk assessment. The premium and terms of an insurance policy are based on assessing the level of risk undertaken by the insurance company. Each person or entity wishing to get insured places, in varying degrees, a burden on the company – for example, a house made of wood poses a greater fire hazard than a house made of bricks. Insurance companies consider a number of factors in assessing the level of risk, in an effort to ensure every insured person pays a fair premium. In general, the higher the risk, the higher the premium. The risk assessment process will vary from company to company, depending on the level of risk each is prepared to take. Terms and conditions can be included in policies to achieve a greater standardisation of risk by excluding certain acts and circumstances from the list obliging the insurance company to pay compensation. The terms and conditions are also important in reducing moral hazard and adverse selection effects. Risk assessment is cost effective, as it allows the price of insurance coverage to reflect the cost of supply. While risk assessment ought to comply with the law, any restriction on the freedoms of insurance companies in insuring and pricing, according to the risk they are undertaking, would lead, most likely, to raised premiums. Consequently, this would bring about less availability and affordability, as well as fewer choices for consumers. The role of the regulatory framework will be explained in more detail below. Are there other advantages in pricing being based on risk? Yes. Risk-based pricing of insurance encourages firms to innovate so that they can compete more effectively, both in terms of price as well as on insurance products and services. The development of new or more elaborate risk factors may allow insurance companies to offer more competitive rates or insure against risks that were uninsurable in the past. As insurance companies delve into matters, such as diagnosing and treating certain diseases, it becomes possible to provide insurance coverage for diseases that could not be covered in the past. Similarly, the development of improved risk models associated with floods could allow the insuring of houses that
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were uninsurable in the past. Pricing based on risk assessment can also have a positive influence on the behaviour of individuals. What is moral hazard? Moral hazard is the risk brought about when the behaviour of insured persons changes after obtaining insurance coverage. The change in behaviour may indeed lead to the actual manifestation of the event against which an insurance policy was taken. For example, a vehicle owner could start driving less carefully after signing an insurance contract, knowing that the risk of damage to the vehicle has been passed on to the insurance company. Moral hazard can lead to increased demands on the insurer compared to what the company would expect based on risk assessment, and this could lead to higher premiums for all insured customers if the situation is not managed effectively. This is why it is important that terms and conditions in the text of insurance policies be formulated clearly and without room for interpretation. What is adverse selection? Adverse selection is a condition in which highrisk individuals will have an incentive to obtain insurance coverage. One of the objectives of risk assessment is to avoid such a case by identifying associated risk factors and adopting such premiums that correspond correctly to the risks. For example, if smokers and non-smokers alike are offered life insurance at the same cost (based on the average life expectancy of the two groups), the premium for smokers will be more favourable, since their group is expected to have a higher mortality rate on average. As a result, there will be more incentive for smokers to obtain insurance than non-smokers. The insurance company would then end up with a customer base that has a higher-than-average mortality rate (and, thus, higher cost in claims) than insurance products and services previously calculated. Such a development would have an adverse effect on the cash reserves of the company or the premiums it charges. However, if the fact that a client smoked were taken into account during the risk assessment process conducted by the insurer, then insurance companies could offer lower life insurance premiums to non-smokers compared to smokers.
OUR MANAGEMENT TEAM
Tasos Anastasi was appointed Member of the Board in 2015 after joining Ancoria Insurance as Chief Executive Officer. He has extensive experience in the financial services sector after holding several positions in the United Kingdom, Greece and Cyprus, mainly in the Wealth Management Industry, since 1999. His most recent role was Head of the Business Development Unit for the Wealth Management Division for Eurobank (Cyprus). Tasos has a Masters Degree in Finance from the London Business School and a BSc in Accounting & Finance from the London School of Economics and Political Science.
Eleni Constantinou joined Ancoria Insurance in 2014 and currently holds the position of Product and Institutional Sales Manager. Eleni comes from a solid banking and investments background as, before joining Ancoria, she headed the Group Institutional Wealth Management and Treasury Markets for Bank of Cyprus Public Co Ltd. Eleni is a CFA charter holder. She has a Masters Degree in Financial Mathematics and a BSc (Honours) in Mathematics from the University of Warwick.
Christis Michaelides joined Ancoria Insurance in 2015 as Business Development Manager. He has a diverse professional background and has worked in the United States as a qualified Financial Adviser. He has held various managerial positions in Cyprus within financial services, international corporate and fiduciary, as well as the telecommunications sectors. Christis holds a Masters Degree in Marketing and is a member of the Chartered Institute of Marketing. He is currently on the Board of Directors and the VP for Sweden of the Cyprus Nordic Countries Business Association.
Maria Konomou Tzirtzipi was appointed Member of the Board in 2015 and has been with Ancoria Insurance since 1996. She has held the position of Chief Financial Officer since 2007 and has been the Vice President since 2012. Previously, Maria was Assistant to the Audit Manager at Damianou & Co, BKR International, for four years. She is a Certified Public Accountant, and a member of both the American Institute of Certified Public Accountants (AICPA) and the Institute of Certified Public Accountants of Cyprus (ICPAC). She has a BBA in Accounting from Baruch College (The City University of New York).
Minas Mettas joined Ancoria Insurance in 2015 and currently holds the position of Sales Manager. Minas has worked in the financial services industry throughout his career and held various positions in Private Banking, Asset Management and Investment Banking both in the UK and Cyprus. Prior to joining Ancoria, Minas was a Senior Financial Advisor in Private Banking at Eurobank (Cyprus). Minas holds an MBA from London Business School with a concentration in Finance and an M.Eng (First Class) in Information Systems Engineering from Imperial College London. Minas is also a holder of the Advanced Certificate of the Cyprus Securities and Exchange Commission.
Antonis Vlachos is IT Manager and has been with Ancoria Insurance since 1999. Antonis’ previous employment includes working as a Senior Project Engineer for General Motors Corp. in the United States. Antonis holds a BSc in Electrical and Computer Engineering from Wayne State University in Detroit, Michigan.
NOVEMBER 2016
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COSMOS INSURANCE COMPANY PUBLIC LTD
A dynamic, 35-year presence in the Cyprus market The motor vehicle industry is the backbone of the company
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Cosmos Insurance was founded in 1981 by Kyriakos M. Tyllis. Following the passing of its founder in 1996, management of the company was taken over by his two sons, Andreas and Michael Tyllis. In 2000, the company was listed on the Cyprus Stock Exchange and, with this new-found liquidity, the small family business, which used to focus solely on the insurance of motor vehicles, evolved into one of the biggest general insurance companies in Cyprus, providing a wide range of insurance products. To date, the company is active nationwide, with offices in Nicosia, Limassol and Paphos, while retaining 81 qualified employees as well as enjoying cooperation with a network of 140 insurance agents throughout the island.
Products At present, Cosmos Insurance offers - via its sales network as well as service centres – almost every type of general branch insurance scheme with specialised contracts. Some of its products include the Insurance of Motor Vehicles, which is compulsory by law (Third Party Liability Cover), as well as extension of basic coverage to cover damage to the vehicle itself (Full Comprehensive). Additionally, the company offers Housholder’s Insurance Cover, Shop Owner’s Insurance, Property Insurance, Liability Insurance for all kinds of liabilities, Goods in Transit Insurance, Marine Cargo Insurance, Personal Accident Insurance, Employer’s Liability Insurance, Yacht Insurance, Director & Officers Liability (D&O), Professional Indemnity, Medical Insurance Plans, Insurance for Foreign
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Employees, Pet Insurance, Travel Insurance and Business Interruption Insurance.
Payment of claims Over the years, the company has set up long-term relationships and has been in agreement with the largest
European Reinsurance companies, having, in this way, signif icant reinsurance coverage, as well as the capability of offering the public innovative products and direct payment of claims. In 2015, the total income of the company amounted to EUR 18 million, while paying nearly 30,000 claims worth EUR 11 million.
INNOVATIVE CONTRACTS Monitoring trends At Royal Crown, we are closely observing new insurance trends. Apart from the “classics”, such as motor, home, business, marine, liability policies among others, new contemporary insurance needs have developed, some compulsory by law, regulations or professional associations’ internal guidelines, others because of a sense of responsibility or vigilance on the part of professionals and businesspeople. The company has created specialised Professional Indemnity Insurance Policies for various professions. We offer Professional Indemnity Insurance Policies for lawyers, accountants, engineers, architects, property valuers, real estate agents, all ΕΤΕΚ professional members, insolvency consultants, designers, writers, speech therapists, occupational therapists, pharmacists and others. All terms, conditions, exclusions, limits of liability and extensions may be configured according to the specificities of each profession separately. We aim for each of our policies that any professional has in their hands, to be in accordance with any legislative or regulatory provisions regarding their insurance, and their own personal desires regarding their absolute protection against the possibility of a claim against them in relation to a negligent act or omission. The shifting social and economic landscape in Cyprus,
and constantly developing technology, impose new contemporary approaches to insurance needs. Royal Crown has formed a comprehensive insurance policy for environmental liability that is of interest to companies whose operations may cause environmental damage, contamination or pollution. In collaboration with our European reinsurers, we also offer the innovative Cyber Risks Insurance Policy, covering the risks posed by the internet, as increased activity by hackers has been observed and there are companies that may need this type of protection. We also provide individualised policies for renewable energy sources, such as solar farms and windmill parks at both the construction and operational stages. Apart from the new insurance trends, we endeavour to create policies that would provide cover in the event of a ‘gap’ in the industry’s available covers. An example is our special comprehensive policy for Blocks of Flats, which provides insurance for a building, all apartment contents separately and the liability towards third parties by its administrative committee. Our goal is to pinpoint situations where the cause or nature of a loss is not insured, but is insurable, and to compose the right contract wordings to offer the opportunity to the consumer for best possible protection.
NOVEMBER 2016
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Trust Insurance
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even years ago, a company that would change the insurance industry appeared on the scene. With an annual average turnover of 18% and increasing the annual turnover by €3 million annually, it did not take long for Trust to be noticed both in Cyprus and abroad. Within record time from commencing its operations, it has been awarded as the best insurance firm in the general insurance sector by World Finance magazine. Signing 10,000 new insurance policies annually, the company has managed to sign 105,000 policies in just seven years. 6,000 claims are paid out annually and are processed in a very short period of time. The support from the colossus Nest along with the creative and innovative policies followed by Trust is, with each passing day, bringing it closer to the top.
The company’s course The company began its operations in 1990 by offering insurance and reinsurance services for the Nest Group of Companies. In 2009, it expanded its operations by providing insurance services to the Cypriot market. Its inlay into the Cyprus market was based on its diversity with regards to the rest of the market, identifying the existing ‘gap’ with regards to the clients’ needs and the attitude they were forced to face. At a time when the balance of the country was at best, upset, Trust aimed to be different in the market. This was a huge challenge which was successfully handled. This is highlighted by the company rising to 4th position out of 22 general insurance companies in a matter of seven years. Trust adopted to add value to the money paid by its clients as a strategy to liberate them from the insecurities imposed on them over the last few years. Trust gave their clients an alternative choice – the Trust choice.
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Its present on-going meteoric rise and simultaneous adoption of governance and risk assessment policies aimed towards the uniqueness of each client strengthen the continuous success in this sector. The vision “to lead through innovation and service excellent” has been adopted by each and every employee of the company irrespective of their duties. Values The company’s basic values are evident in its history and the legacy of the Nest Group. Values which guide the company in the way it operates, inspire and challenge its employees. Trust recognises that its existence relies on excellent customer service and has responsibility, professionalism and dedication as its unconditional values.
Personal Solutions • Motor • Health and Accident • Home • Travel • Medical • Yacht
Business Solutions • Fire • Public Liability • Employer’s Liability • Technical Insurance • Group medical schemes • Professional Indemnity • Cargo • Product Liability • Marine • Machinery Break Down • Electronic Equipment • Jointly-owned • Renewable Energy • Hotel
Quality Service The quality which is characteristic to the company is evident in all parameters and points of communication with the company. Service, immediacy and consistency in obligations as well as insurance range of products which respond to the demands of a modern society are a rule for Trust. The company operates with the interest of the client in mind as it aims to offer the appropriate insurance and not just to sign another policy. An entire range of insurance policies are available to cover the client’s needs. New generation products have been introduced (All Risk), which offer a wide variety of cover and insurance for all types of risks. It offers clients multi-faceted cover at no extra cost, offering flexibility in insurance cover and allows Trust to prepare products that are reflective of a client’s evolving needs in today’s modern society. Trust takes care to respond immediately to the increased demands of clients, offering a wide range of General and Medical insurance products for individuals and companies. The insurance policies and benefits are created individually for each client according to their requirements. The New Generation Products offered by Trust allow the client to obtain a unique insurance policy tailored to their personal or professional needs. The company and its policies evolve along with the ever evolving public need. Through its insurance intermediaries and management, the company maintains an open dialogue with its clients and the market in order to identify and respond to new developments with innovative insurance solutions. Products Applying a different approach to the insurance market, the company follows developments in Cyprus and abroad on a daily basis, offering pioneering and innovative insurance solutions to individuals and companies alike.
THEME
Why do we need insurance? The benefits and advantages of managing and reducing risk to individuals and businesses
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nsurance helps individuals and businesses to evaluate, manage and reduce risks they face. It works for the beneficiaries as it allows them to take the cost of a huge and unexpected circumstance and turn it into a plan of manageable, smaller payments (premiums). Without insurance, people would be less willing to undertake various activities of modern life as they would be potentially exposed to an enormous economic risk. For example, individuals would be reluctant to start their own business without insurance, as they themselves would be fully responsible for the cost of an accident or a fire. They would also be less willing to buy their own home for exactly the same reasons. Consumer and business conf idence Insurance offers individuals and businesses the confidence they need on a daily basis to carry out their activities and interact with others. They can be sure that the company with which they are cooperating will continue to operate and be able to meet its obligations. For example, holidaymakers feel at ease when booking a hotel that has insurance coverage, knowing it will compensate them for their advance payment in the event something goes wrong (i.e. fire), forcing the hotel to suspend operations. Risk management Society benefits when there is a competitive insurance
market that uses sophisticated risk assessment methods for billing purposes, thus encouraging better risk management practices. The prospect of lower premiums can modify behaviour, encouraging individuals and businesses to reduce risks where they can, either by changing how they behave or taking preventive measures. Examples include decisions by some people to quit smoking in order to reduce their life insurance premiums, or install smoke detectors to bring down the overall cost of home insurance against fire. Businesses can also come up with more effective risk management arrangements in order to cut down the cost of liability insurance. Another example is promoting safe driving by offering discounts in insurance premiums for drivers who file no claims. Long-term investments in economy Insurance companies are the largest institutional investors globally, as they invest their earnings from premiums back into the economy. For life insurance companies in particular, products and services are long term, and so are the investments managed under long-haul plans. This steady f low of long-term capital, historically offered by the insurance industry to financial markets, is critical to the financial system as a whole. Such f lows substantially reduce f luctuations in the markets and contribute signif icantly to their stabilisation and smooth operation.
Stable and sustainable savings and retirement benefit plans Insurance companies are key providers of savings as well as pensions, which are very important to the financial security of the elderly, particularly in a period marked intensely by an ageing population. In addition to putting to use their experience and specialised models ensuring fair premiums, insurance companies are also
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able to combine different risks. This lowers the probability of filed claims that would differ drastically from what was initially estimated during the risk assessment process. In this way, companies cut down the cost of offering their products. For example, combining longevity risks inherent in pension products with the risk of mortality inherent
in life insurance products, companies reduce the economic impact of life expectancy. Increases in life expectancy naturally raise the cost of pension plans for insurance companies, as they have to pay benefits for a longer period. However, the insurer gains elsewhere with respect to countervailing benefits for the company with respect to life insurance plans.
A BASIC GUIDE TO TAKING OUT AN INSURANCE POLICY
What to look out for
What are my rights to information, as provided by the law, before I take out an insurance policy? According to the law, each insurance firm or insurance mediator is obliged to give you specific information, which includes, among other things, all the facts regarding the insurance firm and/or the insurance intermediary, the legislation governing the insurance contract and the procedures to follow if you have a complaint. Additionally, if the insurance policy is made through an insurance intermediary, the following information is required to be made available to the client: If there is a conflict of interests between the intermediary and the insurance company which he proposes The client’s right to report and submit a complaint against the intermediary and the procedure one must follow If the proposed insurance policy is only from the companies that the intermediary cooperates with or if it is from the general market based on an impartial analysis If the contract they have with the insurance firm makes provision for whether the premiums received by the intermediary are not considered to have been received by the insurance company Lastly and most importantly, the intermediary must, based on the information given to him by a client, address the requirements and needs as expressed by the client and the reasons on which he bases his recommendations for a specific insurance policy. Especially in the case of life insurance policies, along with the insurance proposal, ask for the relevant information brochure with all the information, as provided by the law. What information must I give when taking out an insurance policy? As a general rule, the information required for insurance is included on a document named
‘Application or Proposal for Insurance’. You must ensure that all the information you give is correct and true. Even if there is no specific question, ensure you do not withhold any information which may in any away affect the insurance company accepting or not the risk and under which conditions. Alternatively, considering your policy is based on your answers, you may end up not being covered by your insurance. Two more pieces of advice: never sign an insurance proposal which is not fully completed and is missing information, and if there are corrections on the insurance proposal, make sure you initial them. What should I look out for when receiving my insurance policy? The document which you receive should include the standard terms and table. Insurance policies mandated by law will also include the Certificate of Insurance. Read the table carefully as it includes all the policy information applicable to you. Ensure it corresponds with what you discussed with the insurance firm or mediator. Read the policy carefully in order to be fully aware of the cover that the policy offers you, for example the risks covered, additional cover, benefits or provision, exemptions (if any), the terms and the exceptions, and what they are, and whether, according to the table, they are applicable or not in your situation. If you have any queries, contact the insurance company or your insurance intermediary. If you have any complaints, submit it in writing to the address that appears on your policy. If you lodge a verbal complaint, keep notes as to what was discussed, with whom and when. Where a life insurance policy does not correspond to your needs, and provided you do not have any demands, you have the right to withdraw.
INSURANCE ASSOCIATION OF CYPRUS What must I look out for when taking out an insurance policy? Ask what is and isn’t covered by the policy. What choices do you have? How much does it cost? In this way, you will be adequately informed to make the right decision. To be more specific: • Learn in detail the risks or the cover which the policy addresses and provides, as well as any additional cover which you can obtain. • Inquire about the exceptions included in your policy, and which of these can, in many cases with a minor additional policy, be covered. • Inquire as to the exemptions - in other words, the amount you as a client must pay for a claim in the event of damage. • Request a sample of the insurance policy. Read it carefully, note any queries and request clarification from the insurance company or intermediary before taking a final decision. • Request information from another insurance firm or mediator to get a complete picture of the insurance policy you are interested in. • Finally, you should be aware that: your employer may offer you some kind of insurance cover as part of your job benefits; the tenants’ committee in your apartment block may be have been obliged, by law, to take out an insurance policy on a jointly-owned building; your credit card may, under certain conditions, provide some insurance cover. Investigate all of these possibilities.
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