The multi-faceted insurance industry

The insurance industry has had something of a tumultuous time of late with the customer becoming ever-more discerning, the problems associated with insuring young drivers and a number of issues affecting overseas principals. Rausi Insurance Agency Managing Director Jovin Rausi gives David Lindsay his opinion on a wide range of industry-related issues.

Rising from the ashes of Prudential’s withdrawal from Malta, Rausi Insurance Agency, headed by Jovin Rausi and his son Nigel , has come a long way. Today the agency, with Lloyds as its principal, deals and transacts in all types of insurance business. More recently, Rausi Holdings was set up to sell Middlesea Valletta life assurance policies , a move necessitated by legislation preventing insurance agencies from doubling as sub-agents.
In an industry in which competition is always on the increase, being in a position to offer any product requested by the customer is of paramount importance.
Jovin Rausi elaborates, "In insurance you have to create a one-stop-shop philosophy in which a client comes in and you are able to satisfy all his or her insurance requirements, whilst being competitive and delivering a good service in the same stroke.
"Today’s client has become more discerning and some would change agencies over very small price differentials. Others, however, are more loyal - they look at the service we give and the way that we deal with claims. These factors have become very important to a great number of people, just as important as the premium in many cases. I do see the customer becoming more demanding, but also more intelligent and educated when choosing policies, a development that we, as an agency, welcome."
With Malta becoming part of the European Union next year, what legislative measures are there for Malta’s insurers to contend with?
"Legislation is a level playing field, in that each agency will have to abide by the same rules. Of course, in today’s scenario of globalisation and now that we are joining Europe, we will have to comply with regulations from beyond our shores.
"There have been regulations affecting our principals due to the fact that they are already within the EU. We, of course, will also have to comply with those same regulations once these rules come into play in Malta.
"One such rule being gradually implemented concerns the ‘green card’, or extended cover for travelling abroad. However, when we join Europe there will no longer be any such thing as all cover will become EU-wide. Being automatically insured across the entire EU is, of course, good for the client. But, as for us, when it comes to claims we will be open to claims as they are in Europe, not as they are in Malta. So there is the good and the not so good, but you just have to move ahead."
There have been a large number of mergers taking place on the international and local insurance markets. I ask how these changes in the lay of the land have affected Rausi.
"These developments have not yet had an impact on Rausi’s operations since we work for Lloyd’s, despite the fact that there have been a number of mergers taking place within Lloyds itself. Most of these mergers have taken place between syndicates, which means the availability of syndicates to write our business has been reduced.
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"We’ve been profitable, which is our biggest asset, but then again it is inevitable that one day we too will be touched by this trend of merging. It has happened in Malta that foreign principals have merged and strong local competitors have found themselves in a situation where they may become partners under one principal. In today’s increasingly globalised marketplace, companies seem to want to become bigger and bigger and it would seem we might eventually end up with one insurer insuring the entire world," he adds with a chuckle.
Rausi Holdings was set up some two years ago to act as life assurance sub-agents, an area many at Rausi, including Jovin Rausi, have had ample experience in.
He explains, "This aspect of the business is doing quite well because a lot of us have been involved in life assurance for many years, myself for the last 43. So selling life was my first real love, and still is in a way. A lot of our clients still come to us for insurance to cover bank loans, for example, and now with today’s pensions issue, people are beginning to rethink these policies.
"Nowadays people are starting to get worried. They come back to us and say ‘look, I’ve been hearing a lot about this pensions business, will I have a pension’ and they are thinking about doing something about it."
The pensions dilemma goes back a long way with Mr Rausi, back to the late 1970s when he was with Prudential, administering their local pension schemes.
He explains, "Up to 1979, when I was with Prudential, we had a very large number of private pension schemes in Malta. But in 1979 legislation was introduced that ensured everyone would have a two-thirds pension. This was a very good step in itself since before 1979 it was either up to the employer to have a pension scheme for his employees and it was also up to the employee whether to form part of such schemes. There was a government pension scheme in place at the time but it was meagre, let us say it was poor man’s pension, and there was no system in place through which you could get a two-thirds pension.
"So government introduced legislation that said national insurance contributions would go up tenfold but everyone would receive a two-thirds pension, which was good. But in the same breath it said that if you have a private pension scheme, you would not be eligible for the two-thirds government pension.
"So overnight all the private pension schemes that had been in force and which were even approved by the Commissioner for Inland Revenue had to be scrapped. At that point in time, the country had an ideal opportunity to introduce the two-thirds pension scheme, while also leaving private pension schemes in place, but it missed the opportunity and look where we are today.
"But we all know the result of that. Everyone scrapped their private pension schemes in expectation of their two-thirds pension and the situation today is that government is saying it will not, in all likeliness, be able to pay a two-thirds pension, especially if you have a certain income.
"What we have today is, in reality, a situation created by the politicians. To be fair, the pensions problem is a global one and is by no means restricted to Malta. What is happening today is that salaries have gone up to, as an example, to Lm10,000 for a senior position. Two-thirds of that is Lm6,000 and even if that senior position holder had a private pension scheme before 1979 and has a deferred pension that would be paid now, the government may not pay him the government pension he is entitled to because he still has a pension from his previous employer. That person is still paying Lm1,000 a year, ten 10 per cent of his salary, toward a government pension scheme from which he might get very little or even nothing. In my opinion that is unfair and totally immoral.
"How can you tell someone who is paying Lm1,000 a year that he will not be paid a pension because he still has a residue pension from back in 1979? Don’t forget these people are still paying Lm1,000 a year and they have nothing, or very little, to look forward to from the government.
"The real bottom line here is that government has done nothing about this state of affairs since 1979. If you were 50 or 55 five years ago, it would be impossible do something about it now. It’s too late even if you’re 40 today because to start working on a decent pension you would need a cash injection of Lm50,000 as you simply cannot possibly earn and save enough to create a good pension between now and 65.
"The pension situation at the moment is very serious and, unless immediate action is taken it will become even more serious."
One other ailment affecting the insurance industry on a global level is the low availability of reinsurers following the many catastrophic losses such companies have seen world-wide over the last few years, which have catalysed tremendous rises in reinsurance prices.
"However," Mr Rausi explains, "the problem is not only the price, but the availability of these reinsurers. Although the increased price of reinsurance is a major problem, the larger problem is when you go to a reinsurer and you are told they are at full capacity and cannot reinsure you.
"This problem makes its way all the way down the line to the clients. If the insurer has to pay more for his reinsurance, that will trickle down in the end to the end-client. In the last two years this problem has gone from bad to worse and it is affecting a lot of insurers in Malta and overseas alike.
"Fortunately Malta is not considered to be in the ‘earthquake’ zone, although we are on the verge of it. If we were to become considered as such, the face of property insurance in Malta would undoubtedly change beyond recognition."
Another aspect hitting local insurers, and news headlines, of late are the problems related to insuring young drivers.
Mr Rausi delves into the difficult issue, "Young drivers are a constant source of concern to most insurers in Malta, simply because of the high risk element they present. This, sadly, has always been the case and I still remember losing friends in car accidents back when I was a teenager, in the cars they were making 40 years ago, let alone with the powerful cars being driven by 18 and 19 year olds today.
"Of course there are accidents and there are accidents. A bumper to bumper incident is an accident, perhaps avoidable, but nevertheless an accident. But then there are the other accidents in which mostly young people are involved. Why should a young man with a powerful car turn a sharp bend at 60-90 miles an hour? That to me is not an accident, it’s looking for trouble.
"Apart from being a major worry for family and friends, this is also a concern for insurers since no amount of premium could ever turn a bad risk into a good one. Of course not all young drivers are irresponsible but the few careless drivers have given the good ones a bad reputation. The issue of insuring young drivers could become more of a problem in the near future, unless the situation improves. And this can only be done by making young drivers aware that there could be one day when they will not find anyone to take on the bad risk and insurance for them will become very difficult if not next to impossible to find."
But, apart from these issues, Mr Rausi sees no earth-shattering changes imminent in the insurance industry.
He explains, "The local industry has reached the stage at which the individual needs of the clients are being met.
"There are changes on the horizon, with Malta joining Europe, the young drivers’ problem and the effects of issues pertaining to our principals in the UK such as the reinsurance problem. We all seem to be waiting to see what’s going to happen next ­ will our principals find reinsurance, will they increase our costs, will there be more international mergers that could affect us?
"Whoever said that insurance is boring?"