“Obviously the politicians don’t want people to start talkin - PDF document

“Obviously the politicians don’t want people to start talking about a two-class But that’s precisely what’s happening in the Czech Republic,” says Peter Hagen, headWhat issues are taking up most of your managerial time at the moment? The economic situation and the question of how to kick-start growth in Central and Eastern Europe (CEE) bother us all. We know that the insurance industry has a huge potential in this region. But at the moment we have to explain to our investors that we have seen a situation like this before, including in the Czech Republic. I’m talking about 1997-98, when we saw a similar short-term decline. CEE has strong potential, but we can’t expect exponential growth. The growth curve will probably look more like a staircase, with a sharp increase followed by a flat period, and then another upward burst. One aspect of the current situation is completely new: in the past the for example Czech market stagnated, followed may be by Romania and then Poland, but now more markets are stagnating at the same time. So are you saying there’s no escaping of the current situation? Previously we were able to make up for a downturn in one country with growth in another, but at the moment the entire region is stagnant. But I can see some bright spots on the horizon, especially in the Eastern parts of this region. In Ukraine statutory premiums are rising by ten, twenty or thirty percent, depending on the type of insurance. That’s why we’re focusing our attention on the Baltic States, Poland, Ukraine and Romania. After all, we’re talking about a market of 120 million people, where average premium payments are just a These countries are still among the poorer once in Europe.Can the people there actually afford more expensive insurance policies? Ukraine has a population of 45 million. Let’s say only a fifth of them can afford better insurance coverage, that’s almost equivalent to the population of the Czech Republic. And that’s a chance for us. Do you want to grow more quickly in countries like Ukraine and other parts of Eastern Certainly. We know that politicians there are interested in attracting Western investors and they are trying to make their legal frameworks more business-friendly. Consolidation is the watchword in these markets. There are currently around 400 insurers operating in Ukraine. When the new insurance legislation comes into force, about 300 of them will disappear. And that’s just the first step. Some of the companies currently on the market would be attractive propositions. I can’t go into details, but I’m sure we will make some acquisitions there, although it depends on the price and the terms of the deal, of course. We want to strengthen our strong position on the Ukrainian market. Is Ukraine the centre of your attention at the minute? Yes, along with Poland. We also want to gain market share there. Poland is another very interesting market – it has 38 million people and at present we are number three or four in the non-life segment. But we want to pick up shares in all of the markets I’ve mentioned, including the Baltic States. Together with Austrian Erste Bank, you’ve always stated that the CEE region has But can we say that the countries with the strongest potential are I don’t think that’s true. Especially in view of the political situation, the mood in the Czech Republic is depressed and bad-tempered, but overall I think that’s misplaced when you How much did the flood damage in June cost you? Our Group is facing claims of up to EUR 200 million before reinsurance, mainly in Austria and the Czech Republic, and to a far lesser extent in Slovakia, Hungary, Romania and Will the reinsurers [the insurers’ insurance, ed] raise their prices in response, leading There are bound to be implications, but it mainly depends on what happens around the world during the rest of the year. We’re expecting more hurricanes than last year, and with more powerful hurricanes, local flooding won’t have such a big impact. Of course prices will go up, because it’s a global business that doesn’t consider individual regions. you recently launched MediKompas [a healthcare support service, e.g. helping to arrange doctors appointments as required, ed].you going to be introducing similar services, even though the reforms in the Czech health system are yet to be finalised? Debate about the health system is peculiar, if you ask me. Healthcare is an even more sensitive topic than pensions. Obviously the politicians don’t want people to start talking about a two-class healthcare system, but that’s precisely what’s happening in the Czech Republic. I know it and the politicians know it too. The same goes for Poland and Hungary. People who have money can afford better healthcare. Are you talking about bribes? It’s got nothing to do with bribery. The state has to provide the same level of care for everyone, but people who have more money should have the option of paying extra for better treatment. In my view, it’s fairer when more people have the possibility to access better healthcare. Compare that with motor third-party liability insurance – who could drive a car without it? Only the rich, because no one else has the money to pay damages if someone gets injured. Other people wouldn’t even get behind the wheel of a car if they weren’t sure that they had enough money to pay any compensation claims. Without motor third-party liability insurance, the huge majority of people would be denied access to cars. So you aren’t in favour of people paying for medical treatment? I believe that one of the basic responsibilities of the state is to provide its citizens with suitable medical treatment when they havediscussion. I’m strongly opposed to a system like the one in the United States, where you’re left to your fate outside the hospital doors unless you can prove you have USD 10,000 in your pocket. In Europe we aren’t used to a system like that – and we shouldn’t be either. But if the sick want to pay for a better standard of treatment, I think that’s fair enough. They want to see a doctor of their choice and they’re willing to pay for that. With the help of insurance companies, the middle-class can afford to do that as well, not just the rich. We don’t want to provide insurance for the top few percent – they can take good care of themselves without it. Unlike in the past, VIG has not published its economic outlook for this year.Is that because you think we are going through such an uncertain period? The critical situation resulting from this year’s flooding shows how hard it is to make accurate predictions, and how quickly things can change. We will be doing everything we can to stick to the path we’ve taken over the past ten or fifteen years, in order to make our group more effective and to guard against the external impact. But look: the Fed [the US central bank, ed] says it won’t cut the amount of bonds it’s buying up each month in an effort to prop up the economy, but the stock markets fall sharply, like they did recently. What can I do about that? Even with the most conservative investments in the world, I would still have a problem. What problems do you actually have at the moment? VIG has total investments of around EUR 30 billion, and bonds account for about EUR 20 billion of that. If bond prices fell by an average of five percent as a result of the Fed’s moves, the group and its policy holders would lose EUR 1 billion gross. In this case I can’t make an accurate prediction of the Group’s year-end remoment. Anyone who issues a forecast for thisbrave or just ignoring the facts. Where do you think the group will generate its As things stand we certainly won’t see any profit coming from the asset side. We have to focus on improving our portfolio instead. Costs are one aspect, but they aren’t the whole causes – also applies to the insurance industry, so if we keep that in mind we’ll be able to boost our profitability. For example, we’re concentrating on making our motor third party y for drivers who have only had a few accidents. Many insurance companies are going through a bad patch at the moment.Will this lead to any fresh developments on the Czech insurance market? We’re certainly seeing a phase of consolidation, and the Czech Republic is no exception. If an insurer doesn’t grow to a certain size, it won’t survive. The costs will drive it out of business. A few international groups were latecomers to the market and they haven’t achieved the market shares targeted by their regional or global strategies. So some of them will pull out of the market sooner or later. Will you be able to turn that to your advantage? We’re always looking to grow, and not just in the Czech Republic. We want to make life as difficult as possible for our competitors. The only thing that can stop us in the Czech Republic is the competition authority. Their job is to make sure nobody oversteps the mark. We have 32 percent of the Czech market at present, but as the market leader you’re always facing problems. In Austria the consolidation process is moving much more rapidly. Smaller insurance companies are trying to gain market shares by offering lower Is there room for a further drop in policy prices? I know an interesting example from Turkey. The country has a problem with earthquakes. There is stiff competition between insurers and as a result property insurance premiums have fallen steadily. But one day the reinsurers said “we can’t give you any more capacity”. So from one year to the next the insurance companies lost their coverage for earthquake damage. And that’s neither good for the insurers nor their customers. So we won’t see anything like that in the Czech Republic? I have to admit that the Czech Republic accounts for the largest number of property claims in our group – more than in Austria. That means the Czech insurers have the highest reinsurance costs in the region. The problem is that the country is like a trough with water flowing into it. Without reinsurance, the insurance market wouldn’t function, but the consequence now is that policies are quite expensive. The level of reinsurance in the country Do you think that the reinsurers won’t be able to cover some Czech insurers? It was the same story after the 2002 floods, although that wasn’t just down to the flooding. Insurance companies that have problems with reinsurance are usually in further trouble, and that can just push them over the edge. So I think the reinsurers could put pressure on some insurance companies as a result of this year’s floods. Peter Hagen (53) CEO of the Vienna Insurance Group (VIG), a Central European insurer which is represented in the Czech Republic by its Kooperativa pojišovna and ovny Group companies. The group has a presence in 24 European countries, mainly in Central and Eastern Europe. It employs over 24,000 people. Born in Austria, Peter Hagen studied law in Vienna. He joined VIG in 1989 and was appointed to the Managing Board in 2004. From 2008 until 2011 he was in charge of Prague-based VIG Re before taking over as VIG’s CEO in June last year. He speaks German and English, and is partner and he has no children. His company car is an Audi S8. In his free time he is an avid reader, and his interests include literature, physics, mathematics and art. The last book he read was called Warum Mathematik glücklich macht