During the financial crisis, Hungary’s insurance sector proved itself to be crisis-resistant. In another sign of its robustness, the market has shown impressive annual growth over the last three years: according to the Hungarian Insurers’ Association, in 2015 the number of total written premiums had increased by 2.2 percent in a non-inflationary environment.
Non-life insurance written premiums were the strongest basis of this growth, having increased 7.7 percent to HUF 427bn ($1.54bn). In parallel, written premiums of life insurance had decreased to HUF 441bn ($1.59bn), which can be explained by the 12 percent decline in single premium insurance, while the regular premium life insurance portfolio could still increase after a considerable period of time. Therefore, the adjusted written premium of the life insurance branch increased by 2.9 percent to HUF 294bn ($1.07bn), in which 10 percent of the single written premiums are included.
Revenue expansion in non-life insurance can be attributed to the fact that after a long period of time, the fierce premium competition in the field of compulsory third party liability motor insurance did not continue. This in turn has caused the written premiums of this line of business to increase from HUF 90bn ($320m) in 2014 to HUF 107bn ($390m) in 2015.
The mission of insurance companies is not scaremongering, but setting forth a realistic alternative
Nonetheless, average insurance premiums are still far below the premium level of neighbouring countries. Growth in regular life insurance premiums clearly resulted from pension insurances that are supported by state tax allowance, which saw the number of contracts exceed 135,000 last year alone. And so, although the market continues to show signs of stability, there is scope for considerable growth.
At this interesting point in the market’s advancement, World Finance had the opportunity to speak to Anett Pandurics, CEO of Hungarian Post Life Insurance Company, about Hungary’s highly robust insurance market, and her plans for the future.
How has insurance legislation changed, and how has this impacted the Hungarian market?
The national market has been preparing intensively for the transposition of EU regulations, the ever-changing conditions of Solvency II and the implementation of the IDD and PRIIPS rules. As a company, we have taken further steps forward as well. The cooperation developed under the aegis of the Association of the Hungarian Insurance Companies between the profession’s stakeholders and the Hungarian National Bank performing its supervisory role is a pioneering initiative.
Following negotiations, the Insurance Act has been amended in several stages: as of this year, the act now centrally regulates the minimum levels of investment and surrender values while limiting the commission rate payable for life insurance. To further strengthen insurance rules, it has also become mandatory to involve depositaries, and from next January only those units that have been invested by the insurance company may be shown.
An even more ambitious change is that, uniquely in Europe, the total expense ratio (TER) – which was introduced in 2010 by insurance undertakings for unit-linked life insurances as a self-regulating measure – remains applicable as a legislative provision. Since 2014, the TER level of pension insurances has been regulated by the Hungarian National Bank. In order to widen the scope, earlier this year the regulation ensuring cost transparency was extended to all life insurance policies.
Which aspects of the Hungarian insurance market currently show the most potential?
It is clear that life, pension and health insurance provide the best potential. Numerous studies show an increasing number of Hungarians are aware that old-age benefits cannot be financed solely from a state pension. According to a recent study by the Hungarian National Bank, the stability of the current pension system is ensured until 2030, meaning our ageing society will be confronted with increasingly substantial challenges in the subsequent years. In fact, people are already facing problems with the healthcare system. In this respect, the mission of insurance companies is not scaremongering, but setting forth a realistic alternative.
What are the most important trends in the Hungarian insurance market?
Our domestic economy has established an appropriate basis in recent years; as households and companies have started to regenerate assets, their demand for insuring these assets is increasing. Moreover, the number of people who take out travel insurance when going on vacation is continuously increasing year after year.
As the economy improves, the number of people travelling abroad increases as well. Consumer propensity to save has also taken a positive turn; the importance of self-provision is recognised more and more by the Hungarian population.
Growth of Hungarian non-life insurance premiums in 2015
Non-life insurance premiums’ current value
What other challenges must the sector be prepared for?
One of the sector’s key tasks is to create and continuously build trust. According to a recent market survey, only 27 percent of consumers explore the market unprompted. An even greater concern is that 48 percent of them do not understand products. This is a problem because many of them might have the wrong idea about a product they have bought, which may remain misunderstood for years. For this reason, insurance companies have a great responsibility in clearly communicating with the client both during and after a sale. As far as I am concerned, the Hungarian insurance sector and regulators of the Hungarian legal environment have developed cutting-edge solutions in this field. However, there is plenty more to be done in order to make it clear that different types of insurance have positive utilities at both micro and macro levels.
Although a low interest rate environment presents another challenge to insurance companies, it is also an important advantage, as insurance coverage may provide valuable help over such timeframes where the accumulated return on investment would not resolve the problem encountered in the given life situation. Besides, we have to overcome an important innovation challenge: insurance cannot be distributed to members of Generations Y and Z by traditional methods anymore. It is therefore crucial to rethink our products, services and sales solutions, and take advantage of digitalisation.
What is Post Insurance’s main focus in light of such opportunities and challenges?
Regarding our short-term plans, we understand current economic trends are more beneficial for the development of non-life insurances. We are witnessing organic market development in this field, where both written premiums and penetration are increasing, therefore we are investing significant professional resources into it. Although a stronger regulatory environment does not favour life insurance policies, we can find niche markets in terms of product portfolio and sales channels, in which our company may gain significant advantages.
Likewise, we benefit from our flexibility, which enables us to provide services that harmonise with the increasingly rapid pace of life and the habit of planning for the shorter term. Our overall aim is to have people consider Post Insurance – after a year or two, as well as after 10 years – as an easily accessible, reliable and useful partner in many walks of life, just as more than three million Hungarian customers have considered us for almost 1.5 decades.
How important is innovation to Post Insurance?
Innovation plays an increasingly important role in our customer service. We have made a major leap forward in our technology, having introduced a new customer service IT system that gives us the opportunity to make numerous developments in the future. It is fantastic for managing outgoing campaigns and, thanks to the knowledge-based call distribution, it directs the call to the most competent administrator for any given product, thereby shortening the administration process on both sides. As our customer service staff may receive requests regarding more than 30 different products or product modalities, these solutions ensure a smoother workflow.
In a move towards greater efficiency, our online sales system at post offices has become redundant, and it is now accessible through our integrated postal network at an even higher bandwidth than before. Besides developing our sales system and rationalising our mailing process, several back office processes were optimised last year. We now include an intelligent barcode on each and every insurance proposal and document; this means all documents received and converted into an electronic document are catalogued automatically.
Experiences gathered during the last year prove we have the opportunity to recreate our classic values in the online space as well, to conquer new target groups and, as a result, conquer new market segments through new services and products. In this context, we are working on providing a modern service to the customers of Generations Y and Z, who rarely visit post offices, thus enabling us to develop products that correspond to their needs.
How would you rate the company’s successes last year?
The 14 years of cooperation and a joint commitment with the Hungarian Post for continuous innovation brings us success year after year. As a result, this year we were voted the Best Life Insurance Company, Hungary for the third year in a row in the World Finance Global Insurance Awards. For this award, we have to thank all of the postal employees who welcome our clients day after day at around 2,500 points of sale in Hungary.
What are Post Insurance’s plans for the future?
At the end of August, we placed a new product on the market that offers a burial term life insurance to our postal clientele. We endeavour to add as many term life insurances to our product line as possible, as demand for self-provision and insuring owned assets is continuously increasing in Hungary’s improving economic environment.
We believe it is very important to enhance customer satisfaction with our services, whether at the signing of a contract, handling a claim or making payment at the termination of an investment product. When changing our current practices, we will continue to request feedback from our customers about experiences they had with our assistance service, and on any changes they would propose in order to make our administration practice as efficient as possible and to improve customer satisfaction.