BUCHAREST, NOVEMBER 19, 2021 – Digitalization is putting even more pressure on the need for financial education among consumers and brokers in the non-banking financial market. Additionally, the pandemic is increasing the demand for optional insurance in Romania. Individuals need to learn about risk and change their perspective on it. The steps companies and institutions are taking towards digitalization and better information and education were discussed yesterday at the 7th edition of the ISF2021 International Conference, titled "Quality in Financial Services. How Can We Have More Informed Consumers?", organized by the Institute of Financial Studies in partnership with Digi24.
The Financial Supervisory Authority (ASF), through the Institute of Financial Studies (ISF), reaches thousands of students and hundreds of teachers through its courses and financial education projects.
"The common goal of ASF and ISF is to teach consumers how to choose financial products effectively and how to invest wisely in the financial market. This is why, over the past year, ISF has launched several collaborations with prestigious universities across the country. These efforts have been a real success, attracting over 1,500 students to the courses. During this period, ISF also signed several partnerships with school inspectorates, resulting in training for pre-university teachers on financial education concepts.
Regarding the Authority's projects, digitalization is one of the key focuses for the near future. We plan to introduce blockchain technology into the software programs we will implement soon to mitigate financial risks and protect the financial markets we oversee.
Additionally, ASF has approved several recommendations for supervised entities regarding current environmental risks this week. ASF will also need to train all supervised companies to ensure their future investments align with environmental requirements and legislative restrictions. The Authority has decided to create a dedicated section on its website to provide non-banking financial market entities with updates and recommendations in line with environmental policies," said Nicu Marcu, President of the Financial Supervisory Authority.
The level of economic development is directly linked to how financially educated the population is. True competition and product quality improve when customers make choices based on quality and can discern their real needs among market offerings.
"A better-informed and financially educated consumer will know which product suits them best or how to invest in the capital market.
Additionally, the seller from whom they buy the product must be well-trained. In 2020, ISF certified over 20,000 people in the insurance market. We offer many optional programs for high school and university students, company employees in Romania, and middle school teachers. We need to know where we stand in terms of financial instruments and access to them. To assess this, we calculate the financial inclusion index biannually. The greater the diversity of financial instruments and the presence of digitalization, the higher the index. The latest analysis shows that Romania's financial inclusion index is at 0.13%, a low figure, placing us in the second half of the EU rankings. The capital market's index is 0.18%, and for private pensions, it's 0.19%. The insurance market lags behind. Our efforts are focused on this market to raise the financial inclusion level," explained Valentin Ionescu, President of ISF.
Making informed financial decisions should become a routine in our society, according to Marian Siminică, Executive Director of ISF.
"If you invest money in stocks, there's a high potential for profit, but the gain is not guaranteed. The choice of investment alternatives is personal but must be well-researched and based on accurate information. I don't think the issue is a lack of information; currently, there is an information overload. Filtering, understanding, and processing information requires financial education. Studies show a direct correlation between financial education levels and a nation's prosperity. At ISF, we run numerous financial education projects—the largest being the SmartFin project. This project involves specialists from non-banking financial markets giving lectures to students on how these markets work, the characteristics of various financial products and services, career opportunities, etc. Based on student feedback, we are preparing a new project, the Insurance Academy, in partnership with UNSAR, which we aim to launch at the beginning of next year. This project will select a group of 25 students and include training and a project competition. Investing in financial education is an investment in the future," explained Marian Siminică, Executive Director of ISF.
Risk financing and appetite are limited and need expansion, explained Horia Braun Erdei, CEO of Erste Asset Management.
"When it comes to company financing, we're not doing very well. The percentage of risk capital used to finance companies is far below the EU average. Romanian companies need entrepreneurial financing, while Romanians save very little.
Focusing on risk, it’s important to understand that discussing risk is still taboo in Romanian society, creating anxieties and remnants from the communist era. We need a broader general understanding of risk.
Financial education plays a crucial role. In addition to permanent actions, we need to lay more foundations for the development of the capital market and talk more about financial risk-taking and understanding. Financial education through action is also essential. We shouldn't hesitate to explain to people the risks they face when they want to invest. We need to talk more about the relationship between risk and potential returns. As a service provider, we must offer maximum transparency," explained Horia Braun Erdei, CEO of Erste Asset Management.
The consumer should be at the heart of the digitalization strategies of insurance companies, believes Gerke Witteveen, CFO of NN Life Insurance.
"More and more decisions and opinions are formed in the digital environment. The use of mobile phones and digital technology is growing steadily. Romania's insurance industry needs to grow and develop. Digitalization should help increase public access to such services, but technology shouldn't be implemented just for its own sake. The consumer should define the entire process. Technology changes how we do things, but the consumer and their needs define the digitalization process.
The global population is growing very slowly, and in Romania, it's declining. Statistics show a staggering rise in mobile phone usage—globally, 5.2 billion people out of just over 7 billion own a mobile phone. In Romania, a person typically has two mobile phones. Moreover, over half of the population has internet access. Globally, people spend 78% more time on their phones than watching television.
We need to consider this and develop our digitalization strategy accordingly," explained Gerke Witteveen, CFO of NN Life Insurance.
The professional training of insurance sellers is essential for improving financial education, according to Adrian Marin, President of UNSAR.
"Increasing the professional training of insurance sellers is critical, and ISF's role in this is essential. Even though the impact of City Insurance's license withdrawal was significant, I am confident the market will stabilize.
We know that the RCA segment is emotionally charged, but official indicators show a 100% claims ratio, with additional taxes and costs. In total, we reach a technical rate of over 140%. We refer to all types of insurance. Together with ASF and ISF, we are intensifying our information efforts. At UNSAR, we aim to improve understanding of the role and utility of RCA insurance. Pricing decisions are the responsibility of each company. We are launching, for the first time, a series of animations that will be promoted across various media to inform consumers," said Adrian Marin, President of UNSAR.
About ISF
The Institute of Financial Studies (ISF), founded by the Financial Supervisory Authority, is a center of excellence in the study of financial markets and the development of financial education programs to ensure the skills, abilities, and knowledge of the personnel in financial institutions and the ASF staff and to increase the financial literacy of non-banking financial services consumers. In the long term, ISF aims to align its activities with European standards, shifting from knowledge accumulation to the accumulation and assessment of competencies. It provides professional training programs for the non-banking financial sector tailored to new organizational processes driven by legislative requirements, market dynamics, and the European framework, contributing to the maturation of Romania's non-banking financial market and its ability to compete in the global market or withstand the effects of economic crises.