Constantin TANASE

> In order to become voluntary pension intermediaries, insurance brokers are required to have only an authorisation from Private Pension Supervisory Commission (PPSC) and staff licensed as marketing agents. The mechanism, simple in the case of Pillar III, is extremely complicated to apply to mandatory pensions.

With or without brokers ?

What are the differences between voluntary and mandatory pensions? This question seems to be taken from the ABC of the pension systems, but, despite its simplicity, it is logical to ask it. A possible answer could be the type of participation, mandatory in one system, and voluntary in the other one. Another answer would be the guarantees provided to participants, more numerous in the case of mandatory pensions. Last but not least, the contribution collection methods and the IT systems for tracking the participants differ.

Nevertheless, as far as distribution channels are concerned, there are no great differences between voluntary and mandatory pensions. The products of both systems are to be sold, according to the law, by marketing agents, who may be individuals or legal entities. If as far as the first group of intermediaries goes, the only problem is to attend training for each of the two types of pensions, brokers have to face other kinds of problems. An insurance broker, authorised by PPSC to sell voluntary pensions, cannot sell mandatory pensions as well, although, as previously showed, the difference between the two businesses is minimal. This is caused by two regulations in force. The first one, promoted by the Insurance Supervisory Commission, is the Government Emergency Ordinance No 87/2006 amending Law No 32/2000, and stipulating, among other things, the fact that insurance brokers can be intermediaries of voluntary pension funds, besides insurance products. The second one, issued by the PPSC, is Norm nr. 9/2007, regulating mandatory pension marketing. According to it, private pension brokerage can be carried out only by newly set up companies, authorised by PPSC, so any other kind of legal entity intermediaries, like insurance brokers, cannot take part in this sort of business. Correlated, the two regulations don’t take into account the market realities of today. The pension fund administrator waits for his business to become more profitable in time, as the assets add up in the participants’ accounts, whereas the brokers’ interest in mandatory pensions drops right after the distribution of participants to existing funds ends. The reason is quite simple. In the years following market creation, the rate of enrolement to mandatory pension funds is a quite small one (the estimates for Romania are of around 100,000 -150,000 new participants per year). As the greatest part of brokers’ incomes is generated by commissions, a question arises: is starting new brokerage companies for a business that should be profitable for a short period of time (4 months) a good investment or not? We will get the answer in the following months, but the signs are not encouraging at all. By the end of May, just one brokerage company had showed an interest in starting a mandatory pension intermediary company, although the system should be implemented from August. It is not just a matter of time, but also of money. Setting up a private pension brokerage company requires a registered capital of RON 25,000, plus registration costs, fees for getting the licence as a legal entity marketing agent, authorisation fees for individual agents (broker’s employees), monthly operating fee (0.5% of gross income), staff expenses, rents, telephone calls, taxes, insurance policies, etc. If only PPSC authorisation were needed and not a full procedure of starting a new company, the brokers could avoid at least half of the above-mentioned expenses. In other words, they wouldn’t have to deal with registered capital, company registration costs, authorisation costs and expenses related to offices and employees.

Most certainly, the reasons why the two supervisory bodies decided that insurance brokers needed to start up new companies in order to work on the mandatory pension market are not the same. For PPSC, this formula enables a better supervision of marketing agent licensing (brokers’ employees) and comes as a solution to double regulation (ISC-PPSC). Moreover, we can say that brokers increase purchasing costs, and one of the priorities of the mandatory pension system is actually to cut back these costs. However, on the other hand, intermediaries bring an added value to the system. So, cutting authorisation procedures to increase the number of brokers in this business could lead to a higher rate of participant distribution at the end of the deadline for fund enrolment.

Thus, the ball doesn’t seem to be in the court of PPSC, but more in that of ISC. In order to be able to work on the pensions market, insurance brokers have to be first of all authorised by the ISC, although this market is regulated by a whole different entity, the PPSC. This is due to the prerogatives of the Insurance Supervisory Commission, which include the right to regulate the work of all companies authorised by the Commission. Adding a new line of work to the statute (intermediary of mandatory pensions) can be done only if authorised by the ISC. This measure is useless because this new line of work is embedded in the same Code of Business Operations concerning “extra activities of insurance and pension houses”, without separating voluntary pensions from mandatory pensions.

If we take a look at the countries that implemented a pension reform before Romania we can see the fact that there is no homogenous practice of regulating brokers’ participation in the private pension systems. And this is due to the fact that, on one hand, the three pillars are organised differently in the OECD countries than the World Bank model, and on the other hand, in Western European states the basic model is set out by occupational pensions, not by mandatory ones (as it is the case in Central and Eastern Europe). We think that some examples are suggestive. In the countries where financial market supervision is homogenous, the brokers are authorised to provide consultancy, to be intermediaries for all types of financial services, including pensions and life insurance. The insurance brokers, in the traditional sense of the term, are only the intermediaries of non-life insurance policies. The most illustrating example for this type of organisation is Germany. In Poland, the problem of insurance brokers being supervised by two or several institutions was solved by having a single broker authoriser, which is the Ministry of Public Finances. There are 600 insurance and pension brokers to a population of approximately 39 million inhabitants, even if it is true that their number has dropped by around 1,000 in the last years.

Going back to the Romanian market, we have to ask ourselves how many of the 400 ISC-authorised brokerage companies meet the requirements to enter the pension market and actually want to do this? On a motor insurance dominated market, they are not more that 10%. A first category is made of life insurance brokers, especially those who use a MLM distribution system (for e.g.: Safe Invest, MBI, EUROBROKERS Group). They can adjust the fastest to a new type of business as they have a wide network of portfolio consultants. Still, they are just a few on the market, and their contribution to total underwritten life premiums has been quite insignificant so far. Besides this category, private pensions appeal to multinational brokerage companies which are intermediaries of both non-life and life insurance (for e.g.: AON, MARSH, EOS RISQ, etc.), and that have a portfolio of many corporate clients. Last but not least, the private pension business may be attractive to brokerage companies held by a majority of local shareholders, which have an important turnover and effective management. Among these, we have LONDON Brokers, ASIGEST or MEDIATIS.