XPRIMM: How do you comment on the results recorded by your national insurance market in 1H2014? How do you assess the end year results for 2014, taking into consideration the mid-year accomplishments?
Klime POPOSKI: In the first half of 2014 is achieved gross written premium (hereinafter: GWP) in the total amount of 3.98 billion denars, representing a 9.72% growth compared to GWP achieved in 1H2013 (1H2013: 3.62 billion denars).

This positive trend occurred in both insurance segments, where the non-life insurance segment achieved a GWP of 3.59 billion denars (1H2013: 3.30 billion denars), representing 90.32% of the total GWP in the insurance sector, or 8.74% growth compared to the same period last year. This high increase in the non-life insurance segment is resulting from the 23.61% growth in the property insurance, with GWP of 954.06 million denars (1H2013: 771.83 million denars), and the 4.26% growth of the motor-vehicle third-party liability insurance (MTPL), with GWP of 1.63 billion denars (1H2013: 1.56 billion denars).

In the life insurance segment, which represents 9.68% of the total GWP of the insurance sector, a GWP of 385 million denars was realized (1H2013: 321 million denars), thus marking a 19,83% growth.

We expect 2014 to end with a GWP growth, i.e. we expect the growth seen in the first half of the year to continue until the end of the year. The life insurance segment will keep up its dynamic two-digit growth, but also the non-life insurance segment is expected to maintain its positive growth by the end of the year, with a slower growth rate compared to the growth achieved in the first half of 2014.

XPRIMM: What were the most challenging issues for the local insurers in the first part of the current year?
K.P.: In the first half of 2014, the economy of the Republic of Macedonia realized a 3.9% real GDP growth, which is a higher growth rate than expected. The major drive of this growth is the export sector joined with the gross investments, mainly resulting from the increased private and public investments.In the second quarter, domestic prices have dropped by 0.9%, on average, per year. Such developments also meant a significantly reduced inflationary pressure compared to the expectations, largely due to factors on the supply side, i.e. the downward deviation in the dynamics of the global food and oil prices and their transferred impact on the domestic prices.

When it comes to the legal framework, in the first half of 2014 an amendment was adopted to the Law on Contributions for the Compulsory Social Insurance, which introduced a new category of obligation for payment of contributions for the compulsory social insurance. These changes may reflect on the distribution channels that are used for the sale of insurance policies. The amendments to this law will particularly affect the insurance agents, who hold an 18.14% share in the total GWP, because the costs borne by the insurance undertakings to hire insurance agents, which thus far only included the reimbursement of their commission, will now rise by the amount that needs to be paid as contribution for their pension and health insurance.

In the first half of 2014 no greater claim arose on the insurance market that could undermine the stability of this market.

XPRIMM: What is currently the distribution structure on your market? How relevant is the role played by the insurance brokers?
K.P.: In the first half of 2014 we have a strong dominance of intermediation in the sale of insurance policies, which accounts for 54.11%. Following is the structure of sale channels per insurance groups: direct sale 45.89%, insurance brokerage companies 21.71%, agents - natural persons 18.14%, insurance agencies 10.75%, and other distribution channels 3.51%.

The intermediation in insurance policy sale has increased over the last two years, joined by a drastic rise in the number of intermediaries. 27 registered insurance brokerage companies, 11 insurance agencies, 769 licensed insurance agents, and 351 licensed insurance brokers operate on the insurance market in the Republic of Macedonia.

The most important intermediation channel are the insurance brokerage companies, particularly in the compulsory insurance (MTPL), with a share of 30%, and in the life insurance, with a share of 60%. In the other classes of non-compulsory insurance, insurance brokerage companies hold a 10% share. However, in the life insurance segment, one insurance brokerage company alone is dominating with a 98% share.

When it comes to intermediation in MTPL policy sale, their participation in the sale arises from the fact that insurance brokerage companies operate in the immediate vicinity of the vehicle inspection services (in most cases, service owners are at the same time owners of the insurance brokerage companies). What we expect in the future, however, is the insurance brokerage companies to focus on corporate clients in the area of designing risk management programs, recording risks, and offering full insurance programmes, thus getting to reach an even greater place at the insurance market.

XPRIMM: Which are the most important insurable natural risks to which your country has a significant exposure? Which is the household insurance coverage degree?
K.P.: Republic of Macedonia is to a huge extent sensitive to natural disasters (especially earthquakes and floods) and climate change. Nevertheless, insurance coverage for natural disasters for homeowners and small and medium enterprises is almost non-existent (only 1-2 of 100 homes have insurance against catastrophe risks).

More than 40% of the territory of Macedonia is vulnerable to extreme droughts and floods that are repeated every 3 to 4 years, causing severe damage to numerous crops.For example, the 1995 flood in Macedonia caused damage 77 times greater than the allocated budget for dealing with such crises.

Macedonia is also located in a sensitive seismic area, making it vulnerable and exposed to earthquakes.The 1963 earthquake in Skopje (6.1 on the Richter Scale) resulted in devastating consequences, leaving more than 130 000 people homeless and making total economic damage estimated at $1 billion at that time. In the event of a similar natural disaster in the present circumstances and level of development, the damages could reach around EUR 3 billion, of which the households alone would suffer damages of over EUR 1 billion.

Analyses and estimates suggest that even in case of large natural disaster, the losses in Macedonia can reach up to 40% of the GDP. For example, an earthquake in the region that appears once every 500 years may cause economic damages to Macedonia that can exceed EUR 3 billion, of which the households alone would suffer damages exceeding EUR 1 billion . Then, extreme droughts that are repeated every three to four years, occur on more than 40% of our territory. There were droughts in Macedonia in 1969, 1992, 1993, 1994, 2003, 2004, 2007, and 2012. World Bank estimates that drought intensity will increase as a result of projected temperature increase by 1.9 degrees. The last report of the United Nations points out that climate change will affect the increasing shortage of water and food. Experts warn that climate change risks will become much larger if temperatures rise by four degrees, which could happen by the end of the century.

The low market penetration of insurance against natural disasters in Macedonia is mainly due to two main factors: (1) General lack of awareness for the needs and benefits of insurance among the majority of the population, and (2) insufficient supply of effective products for insurance and reinsurance against natural disasters.

XPRIMM: Is there in place a national risks mitigation programme in your country? If positive, please explain its main features.
K.P.: Republic of Macedonia has adopted its National Strategy for Protection and Rescue, with the objective to provide a sustainable development, improvement and full efficacy of the protection and rescue system. The priority of this Strategy is to raise the awareness and increase the responsibility of the state administration bodies, the local self-government units, public enterprises, trade companies, and of each citizen of the Republic of Macedonia to fulfil their obligations under the law to plan, prepare and implement the protection and rescue measures against natural disasters and other accidents.

XPRIMM: Please give us your comments on the agricultural insurance development in your country.
K.P.: On the insurance market in the Republic of Macedonia, 2,559 agricultural insurance contracts were signed in 2013, of the total of 70,000 registered farmers, and 2,282 policies were subsidized by the Government as per the measure for covering 60% of the costs for the insurance premium. Compared to 2012, the number of concluded contracts for agricultural insurance has reached a 49.56% growth.

Also, it is worth mentioning that in the first half of 2014 alone 3,160 contracts were signed with a total premium of 105.06 million denars (2.64% share in the total GWP realized in this period), which is an indicator for the future development of this type of insurance in the period to come.

This result is drawing on, among other things and above all, on the enhanced activity of the Insurance Supervision Agency for the promotion of agricultural insurance by way of publishing brochures and flyers that were aiming to promote the purchasing of agricultural insurance policies, as an efficient form of protection of crops against perils related to the weather, natural disasters, pests and diseases. Also, ISA has participated in panel discussions that were organized for the farmers with the purpose to provide more information about the advantages of having their agricultural production insured.