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The financial crisis affected the insurance business in CEE, and premium growth has been sluggish at best; in many markets, it was declining. However, in 2017 insurers in CEE saw strong growth. According to XPrimm, premiums went up by almost 10% in the first nine months of 2017, reaching a total of approximately €26 billion. Premium growth was driven mostly by the Polish motor insurance market, which saw a premium increase of 34% in third-party liability. In other markets, P&C premiums went up between 1.3% in Romania and 8.3% in Hungary. Poland is by far the largest insurance market in the region; 41.5% of all premiums in CEE are written there.
These increases in Poland followed an intensive price war over insurance premiums, which damaged the reputation of the market rather than helping it. Currently, motor premiums are no longer fluctuating as much. New insurers entering the Polish market are trying to win market share by competing on price. However, the lessons learned from the price war will ensure market discipline for quite a while.
Recently, CEE insurers have been expanding into other countries, namely the Polish insurance company PZU and the Bulgarian European Insurance Group (EIG). PZU has announced that it has purchased shares in Argenta Syndicates Limited. Argenta manages Lloyd’s Syndicate 2121. Partially state-owned PZU operates in Poland, Ukraine and the Baltics, and now wants to acquire large insurers in other CEE markets.
Mergers and acquisitions have been the most powerful driver of change in Central and Eastern Europe, and this is set to continue. Recently, Pramerica sold its Polish business to US-based UNUM, Belgian KBC acquired the life business of MetLife in Bulgaria, and the Canadian Fairfax Group purchased AIG operations in Romania, Bulgaria, the Czech Republic, Hungary, Poland and Slovakia. Allianz is looking for opportunities in the Polish market. Bulgaria-based European Insurance Group (EIG) has been expanding in CEE, recently buying a 49% stake in Russian insurer RSO Euroins. Currently, EIG operates in eight European countries.
A change of ownership fosters technological innovation as new owners adapt the acquired business to existing operations. AXA Poland is currently merging the back-end systems of the acquired Liberty Insurance and BRE Insurance. Vienna Insurance Group continues to be an active buyer of insurance businesses in CEE and will take over the Estonian Seesam and the Bosnian Merkur Osiguranje. At the same time, VIG is consolidating existing businesses in Hungary, Slovakia, Croatia, the Czech Republic and Latvia.
Insurers are also centralising functionalities in order to make business more efficient. Allianz is currently in the process of rolling out its IT back-end system, ABS, in Poland. The German insurance company established a centralised back office for its entire CEE business in 2008. Now, the German insurance group plans to simplify its entire P&C business, introducing an international approach to products. Other insurers have attempted the same before but failed. Local differences in legal requirements and business practices were often stumbling blocks.
The Italian competitor Generali will move its CEE headquarters from Prague to Vienna. Austria will become part of the CEE segment of Generali. This will have an impact on the entire Central and Eastern European business of the Italian insurance group.
Low margins and the ongoing problem of underinsurance in CEE will be another factor driving technological innovation. Currently, insurance companies are focusing on front-end solutions, looking for new ways to communicate with clients. The Polish insurer Warta, for example, has implemented a new claims portal integrating an application for Facebook Messenger, which is quite popular in Poland. There is also much focus on claims; Generali is using automated fraud detection in Poland, applying analytics to its data.
PZU created a portal which allows clients to track the settlement of claims. The company intends to attract 5 million clients to this portal by 2020. Making use of its database, artificial intelligence can improve client services at PZU. In the long run, the current management intends to move the company’s operating model from an insurer to a service company specialising in harnessing data and caring for the future of clients. Additionally, last year, PZU created a “PZU Lab” which is developing prevention solutions for commercial clients, e.g. a drone prevention system.
Insurers are also investing in digitisation. The Polish insurer Ergo Hestia started a pay-how-you-drive scheme based on mobile technology, branded as Yanosik. Vienna Insurance Group is planning to spend up to €25 million in Poland to develop digital solutions for the entire group. Implementing its Agenda 2020, VIG intends to digitise its front ends and introduce assistance services. The company plans to set up assistance services in all countries in which it operates.
Life business in CEE will continue to depend heavily on government decisions. In Poland, life insurance has been sluggish after the government introduced stricter regulations on bank sales. In Romania, life assurance will face a major slowdown from 2018 after the government reduced tax benefits for Pillar II pensions. But demographic change is a pending problem in almost all CEE countries. The deployment of a Pan-European Pension Product (PEPP) by the European insurance supervisor EIOPA may provide an impetus for a solution to this imminent social problem, but much will depend on the willingness of politicians to address long-term issues.
Co-operation between government and industry is key to success in the insurance business. Public-private partnerships (PPP) have proved helpful in fostering insurance sales in areas where insurance is either not available or not affordable. Albania will now undertake a legal initiative to insure households and businesses against floods. Technology might increase the potential for PPP schemes in the agricultural sector, currently a low-income sector with very narrow margins, if any. Farmers have not profited from the progress of CEE countries in the decades after the breakdown of socialism. They may be an interesting focus for governments and insurers. New technologies allow new approaches to managing insurance where infrastructure is not highly developed.