The Insurance Industry in South-Eastern Europe

Leasing and insurance are always closely linked. The object of any lease transaction is the leasing assetThe leasing asset is the subject... More. The leasing assetThe leasing asset is the subject... More, in turn, carries various risks related to its existence and proper functioning. The insurance industry is one that helps the leasing industry overcome or mitigate many of these risks. Accordingly, the leasing industry assists the insurance industry in its development by generating additional demand for insurance services that would otherwise either not exist or would be strongly limited.
The insurance industry is quite old, at least as far as the developed world is concerned. A comparison between the insurance market in the UK and that in Bulgaria would be quite meaningless. Leasing and insurance are again linked in their history. Like the leasing industry (see “Leasing History“), Bulgaria and most of its neighboring countries have started to rebuild their insurance markets for only about 30 years – a time during which each of them has made different progress. Let’s compare this progress with the potential of different markets in the countries of southern and eastern Europe. What unites them / apart from being close to Bulgaria / is the fact that they lag behind the average European indicators for the development of the insurance market.

Size

Contrary to conventional logic, the size of insurance markets is not a direct function of either the population (Slovenia, has a population of about one-third that of Bulgaria, but has an annual gross written premium that is approximately double that of Bulgaria), or GWP (Romania has a GDP which is larger than that of Greece, but Romania’s GWP is only 2/3 of that of Greece).
Below is a comparative chart of the size of the insurance markets in Southern and Eastern Europe. Data on the gross annual written premium (GWP) of 2018 is used in millions of euro, as reported by the supervisory authorities of each country. Some countries are grouped into clusters on the basis of linguistic, regulatory or cultural links.

Development

In order to make it possible to compare these different markets and economies of various sizes, two ratios are usually used: “Density” and “Penetration”. The Density Indicator shows how GWP per capita, or how much an average citizen spends for insurance purposes. Density is measured in currency – in our case in Euro. The average Density of the EU insurance market in 2018 is EUR 2170. The Penetration rate is the ratio of GDP to GWP, and shows how much of a country’s GDP is spent to cover different types of risk. Penetration is measured as a percentage. The EU average Penetration for 2018 is 7.46%.
Armed with these ratios we can compare the development of the insurance markets:

Apparently, the development of several “new democracies” has been rapid and has outperformed the development of the insurance markets in Greece, Turkey, and even Cyprus. Unfortunately, the further East we move, the slower the development of the insurance markets.
Slovenia and Cyprus are convincingly leading the way in developing their insurance markets, being closest to the European average. Croatia and Greece follow, albeit with a significant lag.
It can be argued that, apart from being the geographical center of the reviewed countries, Bulgaria is also in the middle of the level of development of the insurance market. For a clearer comparison, we remove the first four countries from the chart above:

Potential

Although the insurance market is not a direct function of the size of the economy and population, these can suggest the potential growth of a market. Accordingly, if we apply the average European indicators for the development of the insurance industry (Density of EUR 2170 and Penetration of 7.46%), to the corresponding population and GDP in 2018 we can get an idea of the prospects for the development of the insurance markets in the countries concerned:

Three distinct groups are emerging. It is normal that the prospects for development in the small developed markets of Cyprus and Slovenia are limited (against the background of the other countries concerned). These two developed insurance markets have relatively little potential before reaching the European averages. On the other side of the spectrum are large countries with large GDP. Leading by potential is Turkey, which, in order to reach European average levels, needs to increase its GWP to EUR 45.6 billion! Against this background, medium and small-sized countries have limited opportunities to grow their insurance markets. At the same time, this “limited” growth is measured in an increase of the current markets by two to three times.

This article does not seek to exhaust the subject of developing insurance markets in Southern and Eastern Europe, but to give a clear idea of the development stage of this industry and to suggest the link between leasing and insurance.

You can find additional information on the subject at:

1. The specialized site for insurance information for SEE and CEE https://www.xprimm.com/
2. The address of the relevant supervisory bodies as listed below: