Over the last couple of years the Hungarian insurance market has undergone numerous changes, particularly with regards to how it is regulated. Not only has the previous regulatory body – the Hungarian Financial Supervisory Authority – been abolished and its powers granted to the National Bank of Hungary, but an insurance premium tax was implemented a little over two years ago too. While the changes have posed a challenge to insurers operating in the country, the industry as a whole is in good health and is working to harmonise its practices and laws with those outlined in the relevant EU directives, in particular Solvency II.
More recently, the Hungarian insurance market has seen the number of contracts in both the life and non-life business lines increase considerably. In fact, data released by the National Bank of Hungary shows a rapid rise in the number of people taking out pension insurance. If this trend continues, it could provide the necessary momentum the market needs, as retirement savings help to create more stable portfolios, which is good news for both customers and insurers, as it helps drive down premiums across the board.
One Hungarian insurer that is heavily focused on delivering insurance contracts at the lowest premium possible is Hungarian Post Life Insurance. The company works tirelessly, devoting much of its energy to attracting new customers that were once neglected by the industry. In such uncertain economic times, the insurer sees the rise in the number of people willing to accept the importance of self-provision and make long-term commitments as an indicator of growing market stability. World Finance spoke with Anett Pandurics, CEO of the Hungarian Post Life Insurance Company to find out how the insurance market is evolving, and what the company is doing to stay one step ahead of its competitors.
What are the biggest opportunities and challenges of the insurance market in Hungary today?
The increasing popularity of pension insurance has given a new momentum to the market, and we must admit that having a level playing field has had an important role in the reversal of market trends. The possibility of receiving tax benefits for pension insurance could be a major driver in the market. We should not forget that in the last year when a non-restricted tax benefit could be obtained on life insurance, 800,000 people – almost 20 percent of all the working-age population – took advantage of this option in the Hungarian market. Obviously, this new opportunity imposes more stringent conditions than before. Nevertheless, we have the insight – now markedly reflected in every opinion poll – that the state pension will not be capable of ensuring a carefree old age to the current working population in itself, supplementary pension schemes should play a larger role, to ensure the living standard we all aim for.
Naturally, it is a serious challenge to figure out the opportunities we can provide to our customers in the current interest environment on the savings side. Since Hungarian customers are used to the former high inflation, they do not find yields of one, two, or three percent very attractive. However, in real terms these yields can be higher than the two-digit nominal returns of former years.
How do the regulations determine the continuous development of this sector? What are the most significant regulatory changes?
Regulations could determine market movements fundamentally. It could significantly redefine the lives of the insurers that the past decade has clearly changed the role of consumer protection, as a direct consequence of the financial crisis of 2008. The intention of interference by the regulatory agencies is now more powerful, since the experiences of the former period shows that if the competitive forces are given too much freedom, it may give rise to solutions that could even run contrary to the intentions of the regulatory agencies. We must exercise self-criticism and acknowledge that in this field the responsibility of the insurers were also significant in the past.
The duty of the industry is that while showing proactive cooperation – since fair competition is in our interest as well – with the help of professional arguments that any proposals for overregulation might result in unintended and harmful possible consequences. I believe that an excellent result of this approach and joint effort is the regulation of the total cost indicator (TKM) of pension insurance, where, by means of combining the self-regulating concepts of the market and the intentions of the supervisory authority and consumer protection, a solution that is capable of increasing the trust of the customer was provided, which helps insurers to obtain new contracts.
The regulatory agencies could rest assured that the tax benefit granted by the state will, in fact, increase the wealth of the customer and support their old-age security. The Association of Hungarian Insurance Companies (MABISZ) agrees, and volunteers as a partner in the efforts of the Hungarian National Bank to extend the TKM regulation to the entire sector of life insurance on the basis of the TKM figure of pension insurance.
What accomplishment are you proud of?
We are glad to report that the positive trend of our market growth, which we have been experiencing for more than a decade, continues. Last year, our premium revenues exceeded HUF 63bn ($225.7m), which earned us second place in the Hungarian life insurance market with a market share of 14 percent, according to the MABISZ (Association of Hungarian Insurance Companies). The outstanding accomplishment of life insurance was driven by the significant growth in the scope of single premium products (+24.9 percent), which made us the leaders of the single premium products market at the end of 2014.
Furthermore, it shows the excellent performance of the regular premium life insurance products compared to 2013, as the annual increase of our gross written premiums from regular premium products has been 31 percent, while during that time the market only grew by a mere 3.5 percent. If we consider the results of the first half of 2015, then we can say that our market share has not changed compared to the closing numbers of the previous year.
On January 2 2014, we expanded our life insurance portfolio with our new pension insurance product qualifying for a tax benefit, which helped us to enter the market first, ahead of our competitors. Since its launch, almost 7,000 customers have chosen our pension insurance.
After a series of joint planning and development measures, we participated in the customer loyalty programme of the Hungarian Post since the very beginning. Within the framework of the programme, customers with a loyalty card can collect points on the premiums paid on insurance products, and they are offered a discount when they take out an insurance policy. From 2015, when an insurance policy is taken out customers are also able to redeem their loyalty points. The popularity of the programme is supported by the fact that 200,000 customers have obtained their cards.
It is an outstanding accomplishment of our sponsoring activity that we are privileged to be a gold-level supporter of the Hungarian Olympic Committee, and thus, we can contribute to the safe and peaceful preparation of Hungarian athletes for the Olympic Games to be held next year in Rio.
How is customer satisfaction enhanced?
Since the introduction of our pension insurance product in January 2014, we have been giving a welcome call to each customer to ask him or her about their experiences related to contract conclusion. Of the customers that gave feedback, 99 percent was favourable in the course of telephone conversations, and they were satisfied with the product and the experiences they gained during the sales process, as well as with the information they received.
Last year we also introduced the so-called Key Information Document (KID) for every product in our portfolio, for the purpose of providing a brief presentation of the most important features of the given insurance product, providing useful information to our customers prior to contract conclusion. The concise summary of a few pages contains all the important features of the products, in a simple, clear and easily understandable form.
Why is it important for the insurance market to make companies pay special attention to customer satisfaction?
After the financial crisis Hungary found itself in a fragile, distrustful world, with a severe drop in purchasing power. In order to earn the trust of the people again, it is very important that customers realise that not only the regulatory agencies, but also the market itself and the insurer they have chosen for their partner does its best to provide them with sufficient information to be considered in making a decision.
This is why it is important to repeat from time to time that, for example the TKM regulation started off as a self-regulating effort: the insurance industry really wants to act for the benefit of its customers. However, we must make sure that we provide information at the level of the customer. It has become quite clear that the ‘small print’ period was a misguided effort – even though every item was fully explained in the insurance terms, and the customers signed the proposal in 10 places, they understood almost no legalities, and research shows that many do not even read it. No one is interested in keeping up this situation.
I consider the introduction of the KID the right direction – it is no coincidence that we have already acted on this matter, because I believe that when it comes to insurance contracts, less is more.
This has been recognised in the market, and in this context insurers now apply much more customer-focused approaches in the provision of information prior to contract conclusion, as well as in the handling of insurance policies and in the claim payment.