CEE insurers will be driving technological innovation
Feb 14, 2018 innovation, technology , Article , Innovations, Insurance

The financial crisis affected the insurance business in CEE and premium growth has been sluggish at best; in many markets, it was going down. However, in 2017 insurers in CEE have seen strong growth. According to XPrimm, premium went up almost ten percent in the first nine months 2017, a total premium of approximately 26 billion Euro. Premium growth was driven mostly by the Polish motor insurance market, which has seen a premium increase of 34 percent in third-party liability. In the other markets, P&C premium went up between 1.3 (Romania) and 8.3 (Hungary) percent. Poland is by far the largest insurance market in the region; 41.5 percent of all premiums in CEE are written there.

These increases in Poland follow an intensive price war over insurance premiums, which damaged the reputation of the market rather than help. Currently, motor premiums are no longer fluctuating as much. New insurers entering the Polish market are trying to win market share by compromising on price. However, the lessons learned from the price war will ensure market discipline for quite a while.

Recently, CEE insurers are expanding to other countries, namely the Polish insurance company PZU and the Bulgarian European Insurance Group (EIG). PZU has announced that it has purchased shares of Argenta Syndicates Limited. Argenta manages Lloyd’s Syndicate 2121. Partially state-owned PZU is operating in Poland, Ukraine and in the Baltics, now it wants to acquire big 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, the Belgian KBC acquired the life business of Met Life in Bulgaria, the Canadian Fairfax Group purchased AIG operations in Romania, Bulgaria, 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.

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 business in CEE and will take over the Estonian Seesam and the Bosnian Merkur Osiguranje. At the same time, VIG is consolidating existing business in Hungary, Slovakia, Croatia, 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 has 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 Eastern European business of the Italian insurance group.

Low margins and the ongoing problem of underinsurance in CEE will be another factor of technological innovation. Currently, insurance companies are focussing 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 automatised fraud detection in Poland, applying analytics to its data.

PZU created a portal which allows clients to track the settling 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 creating prevention solutions for commercial clients (e.g. a drone prevention system).

Insurers are also investing in digitisation. The Polish Ergo Hestia started a pay-how-you-drive scheme based on mobile technology, which is branded as Yanosik. The Vienna Insurance Group is planning to spend up to 25 Million Euro in Poland to develop digital solutions for the entire group. Implementing the agenda 2020 VIG intends to digitise its front-ends and introduce assistance. The company plans to set up assistance services in all countries it is operating in.

Life business in CEE will continue to depend heavily on government decisions. In Poland life 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 give an impulse for a solution to this imminent social problem, but much will depend on the willingness of politicians to address long-term issues.

Co-operation of government and industry is key for success in insurance business. Private-public partnerships (PPP) proved to be helpful to foster 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 from floods. Technology might increase the potential for PPP schemes in the agricultural sector, currently a low-income group with very narrow margins (if at all). 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 of managing insurance where infrastructure is not highly developed.