It has been a bit more than 10 years now since Komercni Pojistovna (KP) started to deploy its bank insurance model focused on life insurance together with the Komercni Banka group. This gives me a good opportunity to look in the mirror and analyse these 10 years of growth for KP and for the Czech life insurance market.
10 years ago the market was massively dominated by Ceska Pojistovna, which had 35 percent of the market share based on gross written premiums, and whose technical reserves represented 60 percent of the total market. The total market technical reserves amounted CZK100bn. From this, CZK62bn were in Ceska Pojistovna, CZK13.5bn in ING and CZK10bn in CSOB Pojistovna. At the end of 2002, KP's technical reserves amounted to CZK2.2bn, which meant seventh position in terms of the size of technical reserves.
During these 10 years, the market did not see any important change in terms of its main players. The top seven life insurance companies in 2012 are exactly the same as they were in 2003: Ceska Pojistovna, CSOB Pojistovna, Pojistovna Ceske Sporitelny, ING, Allianz, Kooperativa and Komercni Pojistovna.
But even though the names are the same, there have been two major changes of shareholders: Ceska Pojistovna moved from PPF Group to Generali Group and Pojistovna Ceske Sporitelny changed ownership from Erste Group to Vienna Insurance Group. These capital moves made two financial groups, Generali and Vienna Insurance, the two leaders of the market, with 20 and 25 percent market share respectively. Based on gross premiums written for non-life business, the figures would be 35 percent for Generali and 30 percent for Vienna, and 26 and 19 percent based on technical reserves. Still, we will mainly base our comments on the development of the market per insurance company, rather than per financial group.
Even 10 years ago, the bank-insurance model was quite present on the Czech market and four companies of the top seven could be at least partially associated to this model.
In terms of product range, the market has not changed much either. Savings-oriented products have increased their weight and there were several players offering structured guaranteed funds via their unit-linked products during the period, but classical endowment product remains today the main driver of income.
So nothing has changed?
From a distant point of view, it could seem that nothing has changed. But was the market really growing during this period? During these 10 years (2003-12), the return from premiums on the Czech life insurance market has amounted CZK563bn. For the same period, the growth of life insurance technical reserves amounted to just CZK158bn. In other words, the market was able to transform only 28 percent of the premium it collected into real growth of the technical reserves.
The market leader who collected 25 percent of the written premium over these 10 years is not showing any growth of its technical reserves during the same period of time, even if the premium collected each year represented around 25 percent of the technical reserve at the beginning of the year.
Due to this, the company that had 60 percent of the market technical reserves in 2003 has dropped to only 23 percent at the end of 2012. This clearly shows that some market players, including the biggest ones, have big difficulties in retaining their clients and the assets of those clients. Considering the market share based on written premiums for the period 2003-12, Komercni Pojistovna is ranked sixth, with a seven percent market share. If we look at the growth of technical reserves, then KP is generating 16 percent of the market growth, which would mean first position, if market share were calculated on this
Saving versus risk
Many analysts of the Czech market have been repeatedly commenting that the single premium trend is not sustainable, and that only regular premium collect presents long-term perspective and should be privileged by market players. At the same time, these analysts generally consider that saving-oriented products don't belong to insurance core business and that insurers should rather focus on risk-oriented products.
The market statistics of the last 10 years, as well as the experience from more mature countries, are, in my opinion, proving the contrary. For instance in France, single paid contracts represent 50 percent of the new production, while in the UK it is one third.
First of all, classical endowment products are also saving products. The fact is that they include a risk element, which makes them very difficult to understand from the client point of view and much better vehicles to include unreasonable amounts of commissions for distributors. Komercni Pojistovna has chosen a different way, based on transparency and long-term client relationships.
Clients from Komercni Pojistovna are aware of the fees they pay on saving-oriented products that aim to protect them and their family for the future; at the same time they know which price they are paying to protect themselves in case of adverse situations. The clients built their own endowment product according to their needs, knowing exactly how their premiums will be used.
But still life insurance is not recognised by consumers as a good solution for savings. Czech consumers would probably not even mention it within the top five or 10 solutions for saving. It has never been encouraged by state support - or if it has, it has had very limited impact - and the market practice in terms of commissioning makes it unlikely that it will soon become a recognised solution for savings as it is in other geographies like Austria, France, and Italy, where about 70 percent of new life-insurance contracts are saving contracts.
The bank insurance model
Still, the development of bank insurance in the Czech Republic might change the picture sooner than expected by the market. Clients of main banks are regularly offered life insurance products as a solution for long-term savings and the products offered by most bank insurers are attractive in terms of fees and performance. Four bank insurers are among the five insurers who had the biggest growth of assets over the last 10 years.
Looking abroad again, we can see that the bank insurance model is key for life insurance distribution in France, Italy, Spain or Portugal.
At the same time, the Czech market has still some efforts to make in order to communicate on clear indicators that would allow it to better understand its developments. I believe the market would gain by regularly communicating indicators such as: total sum at risk for life insurance contracts, financial results of the life insurance company, lapses registered during the last period, and clients' satisfaction.
There will be no possible growth for the market until the share of the profit between stakeholders is more balanced. In recent years, the market has been quite generous with its shareholders and distributors. To offer some long-term perspective of growth, Czech life insurers should reintegrate the client as a key stakeholder.
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