Insurers expecting rate increase

TALLINN - International insurance market changes will hit Estonian insurance companies in coming years, hiking prices here an estimated 25 percent this year alone, experts predict.

Stig Andersen, regional manager for Scandinavia and the Baltics for the international insurer Aon, said reinsurance tariffs will rise up to 25 percent this year and continue increasing.

"The larger reinsurance companies worldwide will raise their prices this and next year. This will unavoidably lead to a rise in the tariffs for end-consumers, for example enterprises and private persons," said Andersen. "Insurance companies are making losses, and they naturally have to fix it by higher rates."

The major trend on the international insurance market is convergence with corporations from a different sphere of business, like banks and telecommunication companies.

Insurance companies are moving away from certain "burn" areas and focusing on life and pension insurance because they fits banks' products, said Andersen.

Globalization is on the rise and insurers' clients are getting bigger, but fewer. "And their financial risks are also getting bigger, and that sets a new level of demands to insurance companies," added Andersen.

The volume of the Estonian insurance market against loss is roughly 1.2 billion kroons ($68 million), a relatively small figure, according to Salva Kindlustus, Estonian insurance company.

Kristjan Varton, a board member of Aon's Estonian branch, said Estonia will soon face changes in people's attitude toward voluntary pension insurance because people will understand the need to save money for retirement.

One of the key steps toward popularization of the new pension scheme is up to the state, according to Varton.

"If the money for a pension fund were taken from a person's salary and were not be taxable, employers would also support the idea of the new pension program," he said.

Otherwise an employer would also have to pay a 33 percent social tax on pension disbursements.

Now employees get back the income tax paid from wages invested in a pension fund. But an employer still has to pay the social tax on total salary, regardless of where the money goes.

Another change coming soon will affect insurance brokers. Estonian law on insurance brokers will require certification of all acting brokers by Aug. 1 this year.

According to a survey Aon conducted among Estonia's top 200 companies this year, more than 80 percent of the companies agree that the certification will increase brokers' reliability.