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BRATISLAVA, SlovakiaInsurance buyers in the Czech and Slovak republics have seen rates for large industrial risks fall dramatically in the past few years--a trend that experts say may have hit bottom already.
Since 2004, when both countries joined the European Union, rates on corporate lines have fallen by an average of 20% year-over-year, according to local insurers and brokers in each market.
The low prices obviously benefit corporate buyers, but there can be a downside when a loss occurs, noted one expert. With brokers and insurers earning much less from such low premiums, neither may be eager to do more than is "absolutely necessary" when it comes to the enforcement and payment of claims, the source said.
From another perspective, being able to secure "more coverage for a better price" means buyers may "start thinking of buying coverage (they) never bought before," said Boris Kostov, general manager at Poji'ovna AIG Slovakia A.S. in Bratislava.
While experts point out that rates have been softening across Europe, some said the decrease has been more pronounced in the Czech and Slovak republics. "It would be right to say that in one or two of the areas we operate in, the declines are ahead of some neighboring nations," said Michael Kleiter-Bingel, the Vienna-based managing director for Austria/CEE at XL Insurance Co. Ltd.
Rates are being kept low by competition in the local market and a long-term positive loss ratio, said Mr. Kleiter-Bingel. "However, with the economy doing well, we are seeing larger sums being insured and more frequent demands for higher casualty limits," he added.
Losses from the major floods that struck the Czech Republic in 2002 led to a 25% hike in rates for natural perils coverage, said a spokesman for Ceská Poji'ovna A.S. in Prague.
In 2004, individual insurers tried to stabilize rates, but then prices began to fall markedly across the market--by 15% in 2005 and 20% to 25% in 2006, the spokesman said. The rate decline was most pronounced in property insurance, though the decline affected all corporate lines, he added.
The entrance of the two countries into the European Union in 2004 opened the insurance markets to foreign players, leading to huge competition, experts said. In the Czech Republic, the significant investment in industry and infrastructure also has an impact on rates, said Paul Moritz, head of commercial and industrial lines at UNIQA Group Austria, based in Vienna.
"Whenever a market becomes more major, like our Western markets, then pressure on premium rates, especially in property business, increases," he said.
In Slovakia, the corporate market is small, but there are between 10 to 15 insurers focused on the business, which has led to "very aggressive competition," said Milan Fleischhacker, a member of the management board at Generali Poji'ovna A.S. in Bratislava.