Fidelization of life insurance customers in Romania within the global crisis.

Rahau, Loredana ; Neagu, Gheorghe ; Forgaciu, Flavia 等

1. INTRODUCTION

The insurance market is regarded as the space where insurance demand and supply congregate, therefore the frame in which insurance operations are carried out on a legal and contractual basis (Cistelecan, 2006). Romania does not have yet an insurance culture. The insurance market in Romania is in plain formation process with a growing increasing competition. The real dimension of the market is limited, even if the evolution since 1990 has been a positive one. The demand for insurance is not uniform and is concentrated to the geographical areas with a high economic potential as well as to the population with an income above average (Petrescu, 2005). Even if the romanian insurance market has over 40 companies, the first top ten companies hold over 80% of the gross premium subscribed. Mandatory insurance are purchased because law requires them, but very little money are spent for life insurance, although the potential of his sector is enormous. But buying an insurance policy remains an emotional decision for most customers, based on habits or routines that are formed and help to simplify the preparation activity of buying decision, allowing consumers to face more effectively the pressures of life (Forgaciu, 2008).

2. THE NECESSITY OF FIDELIZATION OF LIFE INSURANCE CUSTOMERS IN ROMANIA

The current economic crisis hits the insurance field. On one hand, some companies in the field of insurance intermediation have suspended their activity or have withdraw their authorization of functioning on the other hand people reject some policies no longer deemed profitable. If general insurance policies are not easily dismissed, in order for people to protect their belongings, in the case of life insurance, there are people who prefer to retrieve their money in order to overcome the crisis. In Romania, a growing number of Romanians give up life insurance purchased in the previous years, even if receiving fewer amounts than deposited by playing insurance premiums.

Many of them need cash (for paying rates owed to the banks for loans taken for the purchase of housing, automobiles and other durable goods), while others no longer trust financial institution (post scandals as FNI, Caritas). Evolution of amounts received on the market of insurance in Romania, in general, and the amounts received from life insurance, in particular, follows an ascending trend, which indicates the development of the market.

For the year 2006, we observe the lowest annual growth rythm of gross premiums subscribed of life insurance in the past years, mainly a 9,66% under nominal terms and a 4,57% in real terms (Tab. 1).

But, in the case of life insurance, insurers also pay in addition allowances, amounts of total or partial buy-back, if the insurance contract provides it (Tab. 2). It shows that the crisis causes changes in this area that are best highlighted by the increasing number of terminated contracts, delays in the payment of the staggered insurance premiums, partial and total ransoms. The volume of amounts paid in 2008 by way of full and partial ransom was situated in real growth of 36,71% compared to 2007.

We conducted a case study on a company located in Top 10 life insurance that is exclusively specialized on selling life insurance, company X. For 2008, the situation of new attracted customers and of those who left the insurance company by termination of the contract, or by delays on insurance premiums payment, is shown in Tab.3.

If we follow the situation of delays in payments of insurance premiums at the company X in the second semester of 2008 (Tab.4), we find an increasing maximum in November. In the last quarter of 2008, the number of X customers who have terminated their life insurances without waiting for contract maturity, has risen by 50%.

A profile of those who annul their life insurance shows that the majority are small entrepreneurs who need cash. Another category are those hit by the price decrease of unit-linked, although at the moment of the policy's sale, they were awarded a risk analysis.

Customers dropping their life insurance before dead-line of the contract lose some of the money paid as insurance premium because of buy-back costs, and, in the case of unit linked, they stand to lose more than in the case of traditional policies, because the investments have lost their value since the beginning of the world crisis.

Data from CSA show that in October and November of 2008, insurers have paid customers, for bought-back policies, an 80% above average of the first nine months of 2008. The study we have carried out allows us to also point out, that during the crisis:

--the percentage of those cancelling their life insurance contracts decreases as we distance ourselves from the moment of closing the insurance contract (14% in the first year of insurance, 26% in second year, 11% in third year, 10% in fourth year);

--customers that terminate their policies are easily susceptible to rumours, frustrated by the acquisition they made without a careful analysis of personal needs, have experienced a negative situation finalizing their first policy, are frustrated by deceived expectations;

--customers are late with the payment of premiums or terminate their contract for several reasons (immediate need of money, negative influence of the media, poor advices given by friends and acquaintances, lack of collaboration with the consultant).

3. CONCLUSIONS

The insurance market has recorded during the period 20012008, nominal growth rate of 25-35% in Romanian currency, which stands as a extremely high comparatively to the European average, which was 4,5% in 2006, but, after taking into account the inflation rate of the perio, the real increase rates have diminished, being situated between 17 and 23%, with a maximum 48,35% in 2003.

During crisis, in Romania, the individual's trust in financial institution decreases, life insurance being among the first financial obligations the individual tends to give up. This means that the efforts to acquire new customers are canceled by an increasing number of clients leaving life insurance companies.

It becomes necessary formulating a strategy of customer loyalty, to be implemented as quickly and efficiently as possible by each life insurance company, creating thus the premises for long term loyalty (Catana, 2003). Customer's loyalty includes all the enterprise measures that follow the positive orientation of the present and future customer's behavioral intentions to a supplier and/or his supply/services to obtain stabilization, a development of the relationships with these clients (Bruhn, 2001).

The research we have carried out shows that, although the tendencies are favorable to the development of life insurance, the companies in the field are not imune to the changes of their area of activity.

In a crisis conditions, these will no longer be oriented mainly towards the drawing of new customers and the increase of market share, but instead, will be looking for means of retaining existing customers, otherwise the number of terminated contracts will increase at an alarming rate. Fidelization customers by a life insurance company, during crisis, and not only, can be achieved by:

--communication with customers and market;

--adjusting the pay system of sales force;

--flexibility and profitability increase of insurance products process of customer retention;

--supporting the sales force with a good information in the retention customers;

--educating the population, consolidating the trust in insurance and life insurance companies;

--increase the number of days to which the termination of the contract takes place;

--improving the processes connected to the prevention of termination of insurance contracts.

The next step of this project is to study the impact of global crisis on general insurance company.

4. REFERENCES

Bruhn M. (2001). Customer orientation, Economica Publisher House, ISBN 973-590-452-7, Bucuresti

Catana Al. (2003). Marketing--philosophy of market success, Dacia Publisher House, ISBN 973-35-1598-1, Cuj-Napoca

Cistelecan, L. (2006). Insurance. Petru Maior University Publisher House, C.Z.U. 368 (075.8), Targu-Mure?

Forgaciu F. (2008). Purchase decision within families, Challenges of European Integration, Risoprint Publisher House, ISBN 973-751-893-4, Cuj-Napoca

Petrescu Eva-Cristina (2005). Marketing in insurance, Uranus Publisher House, ISBN 973-7765-10-9, Bucuresti

*** (2008), Annual Report of the Commission of Insurance Supervision, ISSN 1841-7256, Bucuresti

*** www.csa-isc.ro, Accessed on: 2009-09-15

Tab. 1. Dynamics of underwritten gross premiums volume in
life insurance during the period 2001-2008

 Nominal Actual
Year Life annual Inflation annual
 insurance increase rate (%) increase
 (%) (%)

2001 211.473 -- -- --
2002 414.514 96,01 17,80 78,21
2003 619.932 49,56 14,10 35,46
2004 746.025 20,34 9,30 10,10
2005 1.037.996 39,14 8,60 28,12
2006 1.138.282 9,66 4,87 4,57
2007 1.449.036 27,30 6,57 19,45
2008 1.868.112 28,92 6,3 21,28

Tab. 2. Dynamics of gross indemnities paid for the life
insurance during the period 2004-2008

Year Payed Nominal Rate of Real
 Gross Increase inflation Increase
 Indemnities for the (%) for the
 for Life Life Life
 Insurance Insurance Insurance
 (Mil. RON) (%) (%)

2004 75.280.471 20,45 9,3 10,20
2005 97.385.521 29,36 8,6 19,12
2006 140.824.709 44,61 4,87 37,89
2007 187.698.017 33,28 6,57 25,06
2008 219.856.024 17,13 6,3 10,19

Tab. 3. Customer portfolio evolution in 2008 at company X

Month New clients Total lost clients

January 6.872 3.754
February 6.800 2.915
March 9.122 3.279
April 6.613 3.203
Mai 6.172 3.992
June 7.565 4.372
July 6.302 4.350
August 5.645 4.419
September 7.316 5.389
October 7.452 4.859
November 6.266 5.894
December 7.108 6.780
Total 83.233 53.206
Average/ month 6.936 4.434

Tab. 4. Evolution of delays in payments of insurance premiums
in the second semester of 2008

Month Number of insurance contracts

Jul 13.641
Aug 15.678
Sep 14.630
Oct 15.367
Nov 18.586
Dec 17.116
Total sem II 95.018
Average/ month 15.836