Driving into positive territory

Ending 2009 with a profit? How is this possible? Insurance company Astra Asigurari’s Radu Mustatea talks through the strategies of leaving a rough year in the black. Profile by Corina Ilie

February 2010 - From the Print Edition

Insurance companies have been tested by the financial crisis – but Romanian-based Astra Asigurari resisted a dramatic hit in the dark days of 2009.
While many insurance firms in Romania saw their customers giving up on life, health or car insurance, Astra Asigurari’s profit rose by 218 per cent in the first nine months of the year, compared to the same period of 2008, to a modest, but enviable, one million Euro.
This is an upbeat sign for the insurance firm, which is majority owned by Romanian holding company The Nova Group and 27 per cent owned by Austria’s insurance firm Uniqa.
Growth last year for the company was seen in insurance for buildings and goods, ‘Casco’ protection insurance for planes, and the mandatory car accident insurance, Civil Auto Liability (RCA), which covers third-party damage.
“Property insurance for companies was the most dynamic of all the segments last year,” says Radu Mustatea, president of the directorate at Astra Asigurari. “While contracts in aviation insurance saw a 13 per cent increase on 2008.”
However life insurance and the optional vehicle insurance ‘Casco’, which covers damage for the owner’s car, registered the steepest decline in Astra Asigurari’s portfolio.
Many customers could no longer afford to pay for these voluntary forms of insurance, while others feared the impact of the crisis on the insurance market and believed it was better to cash some of the money invested in their insurance, rather than po¬tentially lose everything if the insurer went bust. “We have a relatively small life insurance portfolio,” says Mustatea. “The RCA insurance went well this year, because we cut the service prices and the price of the insurance premium dropped also.”
Yet since 1 January 2010 the price of the RCA insurance is being calculated according to the number of car crashes caused by the drivers. Under this new system, the value of the premium will increase by a certain percentage from one year to the next for drivers guilty of accidents, but will decline for those who were innocent of causing damage. The price of the premium could go up by 250 per cent.
The Casco insurance will stay the same price this year as last, but Romania is still the country with the highest prices on Casco insurance in the region. Last year the Casco insurance segment dropped on the retail side, according to Mustatea, but maintained its sales level on the leasing side.
This is an expensive product because many drivers in Romania have accidents and cash their Casco policy at least once a year. For an insurance company, this means a lot of costs. Last year Astra Asigurari decided to increase the value of the ‘franchise’ paid by the customer. Each time an insurance customers has an accident, if the damage is only a small quantity, this ‘franchise’ is the money he or she must pay. For the first accident, even if this a minor amount, Astra Asigurari will pay out. But as the accidents grow in frequency, so does the threshold of the franchise. “This is a measure that stimulates the car owner to be more careful in traffic,” says Mustatea.
One of the strategies that helped Astra Asigurari grow its profit last year was to re¬¬negotiate the damage costs for the auto segment with the car repairers and spare parts suppliers. “It was easier than in other years to get cost slashes and this was very helpful for us,” says Mustatea. “Because the Romanian market is dominated by car insurance and we provide mainly this type of insurance, our highest costs were related to the damages and we even tried to oversee the repairs to make sure that if we pay for new components, the repairers do not use second-hand spare parts.”
Mustatea thinks that one of the biggest mistakes made by many insurers last year was the fact that, because they were overwhelmed by the economic instability and by the fluctuation in the exchange rate, between the RON and the Euro, did not take any actions to restructure their offers.

Car over life

While car insurance remains the best-selling insurance product on the Romanian market, Romanians care much less about insuring their homes and their health, even ¬¬though chronic sickness or a gutted house have a far more damaging effect on the average person’s life experience than a few dents in an automobile. This meant that last year, at a time of financial cost-cutting, home and health were the worst-hit sectors on the insurance market.
“People should think about insuring their lives, their health, their homes and they should also consider taking out insurance in case they lose their jobs or because of an accident which could leave them paralysed,” says Mustatea. “But image matters for Romanians and it is more important for them to have an expensive car insured, which they can show to everyone, than to have an insured home.”
Another reason why the average Romanian cannot afford to have a health insurance is the price. The premiums for such insurances are around a few hundred Euro a month. Last year Astra Asigurari launched a health insurance for Romanians to gain medical services in Austria and Germany.
“After going abroad for treatment many Romanians return well treated, but with empty pockets,” says the president. “That is why we launched the Astra Sante insurance, for those who want to prevent this situation. Unfortunately there are many Romanians who pay hundreds of Euro a month for car insurance, but ignore health insurance.”
This year the firm has also launched an online portal, Astra Online, where customers can purchase selected insurance products via the web.

Who is Radu Mustatea?

Graduating in physics from the Uni¬versity of Bucharest, Radu Mustatea saw few opportunities in the field in the early 1990s – other than becoming a teacher or a researcher at the Cernavoda nuclear po¬wer station in east Romania. Therefore in 1993 he entered the insurance business, when the market was just beginning and was dominated by Romanian insurer Asirom. First working for local insurer-reinsurer Ardaf as a sales representative, he then became a branch director and ended up as general director of a smaller insurance company, called AGI.
Born in Ramnicu Valcea, where he lived until he left for uni¬¬¬¬versity, 43 year-old Mustatea is now married with one child. “After starting to work in the insurance sector I realised that this is an area connected to everything - from economics to law to engineering,” he says, “so I found similarities in insurance with the science of physics, which explains the mass that surrounds us.”