Komerční Pojišťovna is leading the way in the Czech Republic’s growing insurance industry, supported by its relationships with other financial institutions
Since the 1993 split of Czechoslovakia into two new states, the Czech Republic has steadily grown into one of the most developed and affluent countries in Eastern Europe. Modest GDP growth of 1.7 percent in the last year does not reflect the stabilisation of the country’s relatively high unemployment figures. With a population of nearly 11 million enjoying the fruits of economic stability that has seen consistently high yearly GDP growth, there is an appetite for insurance policies throughout the country.
Since joining the EU in 2004, the insurance industry in the Czech Republic has been significantly transformed by government reforms encouraging foreign investment.
Coupled with higher prosperity and increased demand for financial services, the industry is one with plenty of opportunities. Despite the economic downturn in the global and domestic economy after 2008, the insurance sector has grown, partly fuelled by an increase in motor vehicle sales, as well as other non-life insurance products. Increased healthcare expenditure is beginning to help fuel the industry, and is expected to continue to do so in the years to come. One firm, Komerční Pojišťovna (KP), has helped to develop the domestic insurance industry as a leading provider of both life and risk-orientated insurance products. Part of the Komerční Banka group that was borne out of the splitting up of the former State Bank of Czechoslovakia in 1990, KP was founded in 1995 in Prague, and is a subsidiary of Société Générale Insurance. Since 2001, KP turned its attention to bank insurance, focusing on dedicated insurance product offers to Komerční Banka customers. With 151 employees across the Czech Republic, the firm manages approximately CZK24.5bn in assets, which is an increase of 22 percent on the 2010 figure. The company appointed a new CEO, Stephane Corbet, in 2011, and he has been charged with growing the company and maintaining its position as a market leader of insurance provision in the country.
Reinforcing client relations
Offering both life- and risk-orientated insurance products under the umbrella of the larger banking group allows KP to easily integrate its services with retail banking customers. Corbet says: “Our business model, bank insurance, is based on cooperation with the retail banking network, where we try to cover the three main areas of banking activity with retail clients: saving, financing and day-to-day banking. For each area, we developed products in order to reinforce the relationship between the bank and its clients. KP is offering attractive saving and investment solutions, which are positioned on the mid- to long-term horizon as a complement to our term deposit offering.”
Since joining the EU, the insurance industry in the Czech Republic has been transformed by government reforms encouraging foreign investment
Security is obviously an important factor for the company, and Corbet says this is a key part of its offering. “In order to give the bank’s clients a high level of security, we offer banking customers payment protection, bill protection and travel insurance embedded in their payment cards.”
Corbet goes on to say that the company has found great success with its fixed interest rate products. “We are very successful with sales of insurance savings contracts like Vital Invest and Vital Premium products,” he says, “which offer guaranteed interest rates. These products offer an interesting alternative to classic saving products, and our model of bank assurance with Komerční Banka works very well in this field.”
Parent companies and affiliates
Being part of the Komerční Banka group has obviously benefited KP, but the company also has strong ties to other financial institutions that have helped to broaden its horizons. The Czech government owned a 60 percent stake in Komerční Banka until 2001, when it sold its share to Societe Generale (Soc Gen) for €1.19bn. As part of Soc Gen’s network of banks, KP has benefited considerably. Corbet says: “Komerční Banka is very important and a key distributor of our products in the Czech Republic, but our other partners within the Soc Gen group are important to us in terms of diversifying our business.” Developing these relationships with other institutions has allowed the company to gain useful expertise in a number of different areas. “We cooperate with consumer finance company Essox, where we provide mainly credit life insurance to their loans,” says Corbet. “We also have strong cooperation with Modrá Pyramida Stavební Spořitelna (MPSS), a building savings company, which is also a full subsidiary of Komerční Banka. MPSS has a wide range of products as well as our risk, life and investment insurance offerings.” In particular, KP has been able to offer its risk insurance products linked to mortgage loans through a number of companies under the Soc Gen umbrella. The risk insurance products are also available through brokers, and Corbet says this is an area that has grown significantly since 2010: “Sales via brokers increased very dynamically in the last two years.”
KP is a universal player member of a dynamic international insurance group and so can provide life and non-life insurance services in countries outside of the Czech Republic, such as Bulgaria, Romania and Germany. Corbet says that this is linked to the scope of the Soc Gen group. “Our role in this aspect is to provide non-life insurance products in the countries where Soc Gen Insurance is present but does not have their own non-life insurance products. In general, the policy of Soc Gen Insurance is to develop insurance activities in countries where the group has a strong presence in banking or consumer financing.”
The bank insurance model
The Czech Republic is a highly competitive market, but KP has stolen a lead on its rivals with its ability to combine banking services with insurance. As Corbet says: “We are one of the few companies which started to really develop the bank insurance model in the Czech Republic. Our products are integrated into the range of services of the bank, which allows clients to find all the financial services they could need in the same place.”
Corbet says this model gives the business a number of advantages over its rivals. Because the products are offered within the retail networks of the banking group, they do not support extra distribution cost, which leads to lower fees charged to clients. The expertise within the banking group also enables the company to offer complex financial advice that other firms might not be qualified to do, available at all the bank’s branches and its website.
Growth in a cold climate
The tough economic climate of the last few years meant that many clients wanted to invest more cautiously, something that the company was easily able to cater for, says Corbet: “KP was able to react flexibly on the changing market when clients demanded mainly safe and conservative investments.” He says KP was able to achieve this partly because of its policy of “total transparency” with its fee structure.
The economic downturn throughout Europe has not impacted too seriously on the Czech insurance market, as there is still plenty of capacity for growth. Corbet says: “The economic downturn is not so visible in the life insurance market here, which is still growing. The life insurance share of Czech GDP is still far from that of Western countries.
Czech insurance companies have found a way to turn clients’ demands for more conservative products into an opportunity, by providing them with appropriate saving solutions. On the other hand, current low levels of government bond yields across Europe are a challenge for companies to be able to deliver competitive yields for their clients in the coming years.”
The company recorded a net profit of CZK251m in 2011, which was its highest point since 2008. It was able to grow, despite the economic downturn, by doubling its reserves and attracting new clients, and reach all of its targets for the last year.
The firm has plans to expand its business in the coming years, and is particularly eager to attract a wider variety of policyholders from different social backgrounds. “Our products range from low segment to high-net-worth individual clients,” says Corbet. “We also use different distribution methods to deliver our products. This includes low segment recruiting from consumer finance company clients, and also private banking clients of Komerční Banka.”
The general theme, however, is one of maintaining the growth of recent years and to build upon the relationships that have got them to the position they find themselves in today. “Our plans for the future are to continue our conservative investment policy,” says Corbet, “to maintain and extend cooperation with our business partners within and outside of the group, and to focus on the most profitable areas of our business.”