The Lithuanian insurance industry is very young and only accounts for roughly three per cent of the country’s financial system.
It is still developing, especially when compared with many other Western countries, as the nation only left the Soviet Union and declared its independence in 1990.
But there are compelling reasons to think the nation is well placed to improve its financial services sector - it was voted 17th in the world in the most recent Ease of Doing Business Index from the World Bank. On top of this, it has one of the fastest-growing economies in the European Union.
According to a report by Finasta, there have been signs of market concentration in recent years. For example, there were 36 companies active in the market in 1996, but this fell to 28 firms by 2010. Part of the reason for this is that falling profit margins meant that competition is intensifying.
On top of this, the five leading non-life insurance companies account for 80 per cent of the total market, with three life insurers owning a similar stake in the life insurance market. Lietuvos Draudimas is the biggest group in the non-life sector, while Swedbank Life Insurance is the main company in life insurance.
The industry is regulated by the Bank of Lithuania - the central bank of the Republic of Lithuania. As of 2012, the Supervision Service has been responsible for overseeing the insurance industry, and this body focuses on compliance.
It is supposed to offer reliability, efficiency, safety and stability in the insurance system, and at the same time protect policyholders, those who are insured and beneficiaries. The Bank of Lithuania follows the requirements of the European Union directives, international standards and insurance supervision best practice. The industry continued to grow steadily during the first decade of the 21st century, outperforming many of its European rivals in the process. However, between 2008 and 2011 growth plateaued due to the wider economic problems, before starting to recover in recent years.
Optimism is high among the sector, however, as the insurance market only accounted for 1.6 per cent GDP in 2010 - putting it way behind the EU average of 8.4 per cent. Its share of the life insurance assets is also twice as small compared to the traditional non-life insurance assets, significantly behind the traditional Europe ratio of 60/40. Both of these factors are indicative of its large long-term potential.
Research by Timetric looked at the Lithuanian insurance industry between 2008 and 2012. A rise in property insurance due to natural catastrophes and the compulsory nature of motor insurance have underpinned growth. Indeed, motor insurance is by far the leading category in the segment, accounting for 65.1 per cent of written premiums in 2012, followed by property insurance (27.4 per cent), general third-party insurance (6.5 per cent) and marine, aviation and transit insurance (one per cent).
Insurance broker companies are licensed by the Bank of Lithuania and have to comply with a series of requirements in order to take part in this activity. This includes capital adequacy, professional indemnity insurance, separate bank accounts, information provision to consumers and establishment of their needs.
Brokers have to pass examinations, while anyone looking to practice also has to be a member of the Chamber of Insurance Brokers.