Foreign investors on RCA: Price ceiling can lead to major dysfunctionalities on the market

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The Foreign Investors Council (FIC) has been monitoring the recent developments on the compulsory auto insurance (RCA) market and would like to signal the risk that this important market might become fully blocked.

“Romania is a free economy integrated in the European market, which means prices for various products and services should be the result of the continuous interaction between demand and supply. A decision to intervene in the market and cap prices, even if temporary, is something of last resort. It should only be used exceptionally and after proper evaluation in order to avoid market distortions,” the foreign investors note.

They add that introducing a price ceiling without a very careful analysis in a market that has already been disrupted by several bankruptcies can have “unpredictable consequences which can lead to major dysfunctionalities or even breakdown of that market.”

According to FIC, such a result would be in the detriment of all stakeholders: insurers, insurants and third-parties involved in traffic accidents.

Compulsory auto insurance is sold on a regulated market, closely monitored by the Financial Supervisory Authority (ASF) which has the responsibility to make sure it functions within normal parameters.

In this respect, the investors point out that in principle insurers and insurants should freely agree the price of insurance without any state intervention. Compulsory auto insurance has been designed to ensure that third parties involved in traffic incidents, without any fault of their own, are compensated in a satisfactory way by the guilty party.

“ASF must make sure that ultimately the RCAs fulfill their role,” the organization notes.

FIC encourages all policy makers to take appropriate measures to ensure the proper functioning of the RCA market without negatively impacting any market player.

 

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