Ing. Barbora Drugdová, PhD

University of Economics in Bratislava, Slovak Republic

THE INSURANCE MARKET IN THE SLOVAK REPUBLIC IN CONTEXT OF DEPT CRISIS

At present, our society is undergoing a period of important changes in both the social and economic fields. The Slovak insurance sector has gone through a period that has significantly affected its development by economic changes, mainly by the introduction of a market economy and the privatization of stateowned property. The development of the insurance market in Slovakia accelerated after 1990, when Slovenská poisťovňa lost its monopoly position. An important landmark in the insurance field was the adoption of the Act of the National Council of the SR No. 24/1991 Zb. on Insurance, as amended by subsequent legislation. Slovenská štátna poisťovňa was first turned into a stateowned company, and as of January 1, 1992 it became a jointstock company with the name Slovenská poisťovňa, a.s. In the process of demonopolization of the insurance business, other insurance companies, in the form of jointstock companies, were formed (Kooperativa, Otčina, Union, and so forth). Also, several foreign insurance companies obtained a license to operate on the territory of Slovakia, usually founding subsidiaries here.

The Act No. 24/1991 Zb. created conditions for the democratization of the insurance business, enabled the entry of foreign capital and thereby the formation of a competitive environment in the insurance market. In this Act, the supervision over insurance businesses has been established. The position of the authority supervising the insurance business has been delineated by the Act No. 25/1991 Zb.

Another legislative step was the adoption of the Act of the NC SR No. 306/1995 Zb., amending Act No. 24/1991 Zb. on Insurance Business. The transition from special insurance funds to reserves has been made thereunder. A solvency tool for insurance companies conforming to the standards in place in developed countries has been introduced.

Another legislative step was Act No. 95/2002 Zb. on Insurance Business and Act No. 8/2008 Zb. on Insurance Business.

The Slovak Association of Insurance Companies was created as an interest organization that launched its operation on January 1, 1994. It was constituted from the Czechoslovak Association of Insurance Companies, which officially terminated its operation on December 31, 1993. In the Czech Republic, the Czech Association of Insurance Companies began operations.

Currently, 23 commercial insurance companies are operating in the insurance sector of Slovakia, giving rise to a relatively strong competitive environment.

This environment has mainly been influenced by the entry of foreign insurance companies onto the market. These companies have brought along a new, higher standard and quality of insurance products offered.

Out of 23 insurance companies operating in the Slovak insurance market, 4 are 100% Slovakowned, 11 are 100% foreignowned and 7 have mixed foreign and Slovak ownership. As of the end of June 1999, 22 of the total number of insurance companies operating in the Slovak market were affiliated with the Slovak Association of Insurance Companies.

In addition to the Slovak Association of Insurance Companies (SAP), the Slovak Association of Insurance Brokers (SAMP) operates in the Slovak insurance market. Through its active engagement, the Slovak Association of Insurance Brokers has contributed to the increase of sales of life and nonlife insurance products.

The insurance market is a part of the financial market. Besides the insurance market, the financial market is comprised of the money market, capital market, foreign exchange market and market in precious metals. The division of the financial market into the five said segments is purposeoriented and historically limited. It needs to be mentioned that no sharp dividing line can be made between the respective financial market segments. These segments are interlinked by tools, entities, operations, ownership and the like.

The insurance market, being a segment of the financial market, is characterized by certain special features. It represents a system of different market tools and regulatory measures, which provide for the flow of funds and insurance services between insurance market participants in accordance with the principle of conditional recovery and nonequivalence.

The insurance market is the place at which supply and demand for insurance protection meet.

Insurance services, i.e. services of insurance protection, are specific goods sold on the insurance market. A need for insurance protection arises in each society due to the existence of different risks. Such risks have objective and subjective character and are divided accordingly.

The insurance sector, as one of the branches of the national economy, offers its respective goods (money services, i.e. insurance) on the insurance market. Insurance helps to resolve the main problems that may arise as a result of extraordinary and unexpected events. By this token, insurance performs the function of stabilizing the economic standard of business entities and the standard of living of private persons and has an irreplaceable part to play in the financial management of businesses and family budgets. The basis of insurance lies in the objective existence of risks that pose a danger to nature and any human activity. Humans should naturally strive to reduce the risks and the likelihood of losses caused thereby. Nevertheless, if we were to take the population of Slovakia, being the main market entity, as a whole, we would find out that insurance ranks the lowest in their personal consumption ladder. It needs to be mentioned that the proportion of life assurance to nonlife insurance is unsatisfactory in Slovakia compared to developed economies. As an example, this proportion in Japan is 78 to 22, in England it is 67 to 33 and in France 61 to 39 (CEA Number of companies, 2012). In Slovakia, the proportion of life assurance to nonlife insurance is 54 to 46.

Depending on the line of its business, an insurance company may carry out two different types if activities, namely those in the insurance market itself i.e. matching insurance supply and demand, and in the investment insurance market, being a part of the financial market i.e. investing free funds.

Business objects pursued by an insurance company in the insurance market proper consist of insurance, reinsurance and other associated activities.

The investment insurance market is based on the fact that insurance operates on the principle of raising reserves to eliminate the negative financial impacts of random events on the insured. Each insurance company must try to behave as a business entity and to invest temporarily free funds so as to make profit. The insured, in their role of indirect market participants, must believe that their insurance company will find the right spot in the financial market in which to place money.

The insurance market in developed economies is populated by many insurance companies. Each of them gets involved in this market by offering different insurance products and is interested in covering the widest possible segment (insurance market coverage). Competitor insurance companies keep track of the size of the insurance market covered and try to gain as large a share in it as possible by offering new types of insurance products.

As was mentioned before, 23 commercial insurance companies are operating in the Slovak insurance market nowadays. Figures on the relative shares of 22 of these companies, which are affiliated with the Slovak Association of Insurance Companies, are contained in the table given below (see Tab.1 Premiums Written by Members of the Slovak Association of Insurance Companies a.s. of December 31, 2011, expressed in euro).

Table 1. Premiums Written by Members of the Slovak Association of Insurance Companies, life at nonlife (in euro) 31.12.2011

*The Slovak Association of Insurance Companies, Bratislava 2012.

Table 2. Premiums Written by Members of the Slovak Association of Insurance Companies, total (in euro) 31.12.2011

*The Slovak Association of Insurance Companies, Bratislava 2012.

The insurance market formed by European countries may be designated as the greatest and most developed market of the world. The shares of respective continents in the global market are as follows: Europe 32%, Americas 35% (of which North America accounts for 33% and Latin America for 2%), Asia 30%, Africa 1% and Oceania 2%.

In the countries of the European Union, insurance businesses and the insurance sector represent a very important part of their economies. The main and core principle of the EU insurance market is to make arrangements so that each insurer encounters the same conditions across the whole territory of the EU when pursuing insurance business. This requires that the classification of insurance companies and classes of insurance be adjusted in all the member countries.

In conclusion it is possible to note that the insurance business, both worldwide and in Slovakia, undergoes development and changes all the time, to which the insurance market participants must constantly adjust. One of such changes consists of the unification of the European insurance market.

The Slovak insurance is well-developed. As many as 23 commercial insurance companies, of this number 23 associated in the Association of Slovak Insurers, operated in the Slovak Republic until 31.12.2011. Development of insurance in the area of life insurance in recent years is more dynamic than in non-life insurance.

The list of references:

1. Comité Européen des Asurances European Insurance in Figures, 2013.

2. DRUGDOVÁ, B.: Nonlife Insurance. Bratislava. 2012, ŠEVT. 978-80-8106-055-7.

3. Slovak Association of Insurance Companies, Bratislava (2013) Annual report 2013).

4. WAUGHAN,E.J.: Fundamentals of Risk and Insurance. New York: John Wiley and Sons, Canada, Limited 1992. ISBN 0-471-54553-8

5. BLAND, D.: Insuranc eprinciples and praktice. London. The Chartered Insurance Institute 2003

6. Electronic resource. – Mode of access: www.slaspo.sk

7. Electronic resource. – Mode of access: www.cap.cz

8. Electronic resource. – Mode of access: www.nbs.sk

9. Electronic resource. – Mode of access: www.cea.org