The banks hide the insurances for loans among commissions

One of the typical Romanian costs that aren’t included in the annual effective interest rate for accessing a personal need credit is the insurance. It has diverse shapes from a product to another or from a bank to another. The most often met are the credit insurances or life insurances. They aren’t compulsory by law but they are required by most of the banking institutions. They are quite expensive, and they are paid for almost the entire period of loaning or they are included in the monthly interest and cover in most of the cases the same risk: the decease. Sometimes, also the one of invalidity. In other words, the policy pays the interests in the situation in which the holder of the loan remains either invalid, or dies. “This type of insurance isn’t used anymore in any European country”, Georg Kovacs, Managing Director of EOS KSI Romania, the company which deals of recovering debts, states. In some cases, this type of insurances is even asked for real-estate investments, where the mortgaged good is already insured.

There is also another type of insurance which isn’t meditated for reasons easy of understanding, and that is the one which covers the non-payment risk for any situation. “It’s good to make the difference between the policies which cover the risks related to the person or to the health of the client - death or invalidity, and the ones which cover the risk of not paying, case in which the damage is paid by the insurer to the bank, and the loaner will continue to be forced to pay the values towards the insurance company, the credit contract being ceded by the bank towards the insurer. In the second case, the incidence is much higher then in the first case”, Traian Stancu, legal director of KIWI Finance stated. This type of insurance is however much more expensive.

The scenery is as simple as it can be: the credit applicant signes the insurance after which he cedes it integral in favor of the bank. It must be précised that this covers only the risks imposed by the bank. The bankers say that in this way there is the assurance that the loaned money will be recovered even in extreme situations. Every banking institution has its own insurer, either within the group or one or more agreed from outside. In the situation in which the client already has a life insurance, which includes also the imposed risks, this can be ceded in favor of the bank. The condition is that the insurance company to be on the partners list. It’s observed that this type of insurance doesn’t accumulate additional reserves and doesn’t benefit of redeem value.

However, there are also more banking institutions, much more every year which pull out the insurance from the costs list, in order to transform it in a commission. Or they offer it for free, leaving the impression of some lower costs for credits. “The credit insurance is more and more rarely used by the banks. The main reason for which the banks had insured their loans it was in order to respect the obligations imposed by BNR. As BNR meanwhile drooped out to this request also the banks resort less to this way of covering the risks”, Georg Kovacs added. The variant is sustained by the credit brokers, who sustain that the decision of eliminating this insurance, which eventually is paid as commission, is determined by the harsher competition and obviously by the fact that it isn’t practiced anywhere. “Either the life insurance is offered for free, or is formally eliminated, because these costs are still being paid. And all these as a result of the increased competition on the banking credits segment”, a credit broker précised.

The EOS KSI chief explains the elimination of the insurances for loans by the fact that by signing the insurance premium directs to the increase of the cost for a loan, which disadvantages the banks which assure their credits in report with the ones that don’t.

Some banks openly recognize that they ask to the client to assure themselves when they take a loan. Others say that have dropped out to this practice. There are also situations in which the insurance is imposed also when opening a savings account. An example for this case is given by BancPost, where it is offered a life insurance for the savings accounts. Also here, the cards include the life insurance and the travel insurance.

At BCR, the life insurances for the personal need credits with or without guarantees are compulsory, without exception. Even for the housing investment credits, where it is compulsory the housing insurance. In all the cases there are covered the risk of death and invalidity. “For all types of credits we have annexed a life insurance which isn’t compulsory, but in case in which the client chooses it, ING offers him a promotional interest”, the ING Bank representatives say. In this case it is covered only the decease risk. When it comes about the value of this type of insurance, the companies in domain avoid giving figures. They motivate by the fact that each insurance is unique, in its way, because it is different depending of several factors, such as age, the period of contract, risks etc. The value of the insurance premium can reach up to 4-5% of the loaned value.

A simple calculation shows that at a loan of 25.000 euro signed for 20 years by a man of 25 years old, the annual prime, at decease, is of almost 800 lei.

The insurance market for loans is difficult to be quantified. The companies in domain aren’t too generous in giving data regarding this market segment and at the Insurance Supervisory Commission are outlined all these life insurances, either if they are or not associated to some loans, and in case of the loan insurances aren’t separated the natural persons from the legal ones. For example, the data supplied by ISC show that in 2007, the credit insurances have amounted to 395,37 million lei. The experts already recognize that the market is much bigger if we take into account the fact that in most of the cases there are required life insurances.
The top 5 insurers after the gross premiums subscribed from the credit and guarantees insurances includes BCR Asigurari with a share market in 2007 of 36,64%, fallowed by Asiban-21,5%, Omniasig-18.28%, Garanta-10,19% and BT Asigurari-3,95%.

The big mystery is also around the paid damages, either for the banks and for the insurance companies. The reason: this type of statistics is “irrelevant”. As also in case of debtor’s execution, the banks say that 2-3% from the entire portfolio isn’t at all much. “It isn’t relevant this number, taking into account that ING launched the credits insurance two years ago”, it’s the answer received from the representatives of this bank. “In establishing the weight of the cases in which is resorted to insurance it should be done a difference between the credits which assume resorting to the insurance policy from reasons of health and the ones in which is about bad payers”, Roxana Gavrila, Director of communication Credit Team thinks.

The fact that the insurance market for loans is as profitable as it can be is also proved by the report between cashing and payments. “The value of the gross premiums subscribed by Allianz-Tiriac Asigurari in the financial year 2007 on the segment of credit insurances was of 10,6 million lei. The value of the gross indemnities paid in the same year for the credits insurance policies was of 3,74 million lei”, Marius Onofrei, director of communication and public relations at Allianz Tiriac Asigurari, company which collaborates especially with UniCredit Tiriac Bank, states.

"The credit insurance is less used by the banks. One of the reasons is that signing the insurance premiums directs to the increase of the loan cost, which disadvantages the banks which assure their credits, in report with the ones that don’t practice this anymore. More then that, this type of insurance ins’t used anymore in other European country." Georg Kovacs, Managing Director within EOS KSI Romania