Othmar Michl: Climate change is making these national disasters more and more frequent
The insurance sector seems to have come through the worst of the financial crisis. The ruinous competition in motor vehicle liability insurance seems to be coming to an end, and the additional tax burden seems to have been digested with no further increases in sight. All in all, UNIQA Biztosító Zrt. general director Othmar Michl is confident about the current business year.
How was last year for the insurance sector in general and for UNIQA Biztosító Zrt. in particular?
Among our largest claims was the damage from the snowstorms on 14 and 15 March. This left clear traces in the numbers of all auto insurers. The Danube floods constituted a still greater burden. Climate change is making these national disasters more and more frequent. The further stagnation of the markets over 2013 also had a negative impact on our sector. Only in life insurance was there some growth. Nevertheless, UNIQA was still able to hold up well within these circumstances. In everything outside life insurance we were able to grow by 5.6%, while the market grew by only a modest 1.8%. But our most considerable growth was in life insurance: while the market grew by 11%, we were able to achieve growth of 44%.
How has the special tax affected your sector?
We are no longer directly affected like the banking sector but there were nonetheless increased payments we had to make to the state – in motor vehicle insurance about 30% of the premium, for instance, 15% in comprehensive insurance and 10% in house insurance. With a 15% market share, we are a leader in comprehensive insurance, so this naturally hit us very hard. The same goes for liability insurance. In contrast to the banking sector these additional cost burdens were not passed on to consumers. This resulted in an additional burden of 4.6 billion forint for UNIQA alone, while earlier we had to shoulder two billion forint of the special tax. At the same time the taxes led to an intensification of competition in our sector.
What have been the consequences for your firm?
Within UNIQA, which is represented in 19 countries, we brought in very respectable profits. Today our profits are very largely sucked up by taxes. We continue to be in the black but no longer with the same magnitude. One has to keep calm and set more modest goals. If one looks further, beyond the Carpathian Basin, one sees how other firms are reacting to the bleaker long-term prospects. The Raiffeisen Bank is one of our main shareholders. Currently it is strongly considering abandoning the Hungarian market, which is naturally quite unpleasant for us. Such considerations stem from assessments about the future – good results in the past don’t really make that much of a difference. When a company doesn’t see good prospects in a market then it will sell its assets and invest in more lucrative markets elsewhere. AXA sold its Hungarian operations to the Vienna Insurance Group, for example. I know of other competitors who are considering this step but have so far not found any buyers. The consolidation pressure applied by the state could lead to two principal consequences: in the first place one tries to reduce costs through transnational synergy within the same company. UNIQA is cooperating more intensively within the Czech Republic and Slovakia. On the other hand there is cooperation and mergers with other firms inside a given market. This can involve a complete takeover or merely the sale of a certain number of existing contracts.
There is talk of a new wave of consolidation among the banks. How are things looking in your sector?
Currently there are about 30 insurers in our market, including 10 large ones. I expect that the consolidation process is not yet over.
In contrast to the banking sector we aren’t hearing about any withdrawal plans from a firm in your sector.
Yes, there are even statements indicating a further expansion in Hungary. Our head office still sees Hungary as an important location. This is not only a matter of the numbers but also of innovation transfers. As much now as before we are a kind of think-tank within the company. Many innovative solutions that are now used in the whole company were first developed by us or first tested in practice. One example is the Business Operation Centre, a solution for centralised administration that was introduced last March in Croatia, Serbia, Bosnia, Bulgaria and Montenegro and will now be introduced in Romania, Ukraine, the Czech Republic and Slovakia. The fraud investigation software Sixstep also stems from us, as well as the Software Towers Watson Pricing Tool, which is used to calculate auto insurance quotes and will perhaps soon be introduced within the entire UNIQA company. In addition we are also involved in the development and implementation of smartphone applications, including one enabling the online purchase of travel insurance. Innovations like this have made us very valued within the company. They’re made possible by the brilliant mathematicians and programmers we have on site.
To go back to the special taxes, are you worried that any more burdens could be laid upon your sector here in the short term?
No, there are even positive measures: in life insurance connected with pensions there has been state financial support since January, which was very well taken by the market. Besides home savings plans, this is the only form of benefit that is supported by the state. Given the foreseeable holes in the pension system, it is a very wise decision of the state to motivate citizens to invest more in their own retirement. I think that all of the large insurers in Hungary will gradually offer corresponding products. We are one of the front-runners here. We were ready to go immediately with the coming into force of the new rules and we have already concluded many contracts.
The Hungarian
subsidiary of UNIQA brought in very
respectable profits
How did this positive development for your sector come about? Were there consultations beforehand?
Yes. Above all our trade association MABISZ, the Association of Hungarian Insurance Companies, was strongly involved. There were constructive consultations with the Ministry of the Economy, which was responsible for drawing up the new rules. My general impression: there is a readiness for dialogue on the part of the state in response to good proposals.
So insurance companies seem to have escaped the continuous attack the government has mounted upon financial services.
We clearly have fewer image and acceptance problems with the state than the banks, for example. What occupies us much more is the decline of premiums in motor vehicle liability insurance, which also puts pressure on comprehensive insurance.
The ruinous trend in liability insurance of drastic cut-rate prices, which we already discussed in our last conversation about three years ago, is continuing then?
Yes, if not with quite the same intensity. Up to the end of last year 400,000 customers of liability insurance changed their provider, at the high point it was far over one million. Instead of only costs, customers are looking even more at quality, such as the reputation of an insurer concerning the settlement of claims, and will not immediately change insurers just because of a difference of 1,000 forint. Slowly the premiums are going as low as they can go, however. When competitors go below the average premium of 17,000 forint then it is advisable for customers to be very careful. All in all, the market seems to be leveling off but at a very low level. Premiums are so narrow that at the moment no insurer is making any money off auto liability insurance. The loss frequency and the payment outlays balance each other out, if only because, due to the tense financial situation, most private households in Hungary drive fewer kilometres per person than elsewhere in the region, which naturally exerts a very positive effect on our balance sheet. But what will happen when rising real incomes in Hungary cause people to drive more? We are treading on very thin ice here. Firms like UNIQA that offer a wide range of insurance products find themselves in a much more solid position than others that have concentrated strongly on automobile insurance.
How is the supplementary health insurance you introduced two years ago developing?
In this domain we have a market share of 50% of recent business. But one must bear in mind that the entire market here consists of only 50,000 customers, which is very few in a country of ten million inhabitants. In comparison, there are about two million people with private insurance for 7.5 million inhabitants. There is also a growing tendency toward private insurance in Hungary however.
How do you explain your success in this domain?
It perhaps has something to do with the fact that health insurance is the core business of our Austrian mother company. Out of the two million contracts in Austria about half carry our logo. This strong market position gives us considerable know-how. In many cases we offer solutions to our clients that go beyond mere insurance and actuarial advice to actual medical matters, such as helping our clients access preventative medicine.
Looking at the state of the Hungarian healthcare system it is a bit surprising that there are so few people with private supplementary insurance.
That is increasingly changing. More and more firms are taking advantage of possibilities in the tax system to insure their employees, which is very much appreciated by the employees themselves. There are also a large number of private individuals that are taking out private insurance. At present their number exceeds that of firms.
Private insurance with benefits going beyond those offered by the obligatory public health insurance only makes sense when customers can make use of their benefits in case of emergency. For that, however, it would be necessary to have more private hospitals, or at least private departments in public hospitals.
Clearly. Private insurance only makes sense when a corresponding infrastructure exists. For example, we pay 30,000 forint as a per diem to our insured patients but this takes for granted that they are able to spend this money. In contrast to outpatient care, in hospital care there are not yet so many private services on offer. As part of the healthcare reform we can expect further reforms from the state after the election, for example to make additional services available in public hospitals. The legal basis for this already exists, with Hungarian hospitals already able to charge patients more than 100 euro. The reforms that are now possible must now simply be better implemented in practice.
Are other insurance companies following suit here?
Yes, some are very active in this domain, a fact that I welcome. The market will change more quickly if many providers take part, rather than us entering as the sole combatant. In this way altogether more money will flow to hospitals, which have a pressing need for it. In the end every side comes out a winner.
Supplementary health insurance is not the only area where your firm has a significant market position – insurance of art objects is another. What is the situation here?
Now as before, we are very active in museums and institutions in Hungary. We have also supported many exhibitions in the Museum of Fine Arts and in the Museum of Applied Arts as a sponsor. We also cooperate with numerous private galleries, such as Kieselbach, Virág Judit, Nagyházi and the Ernst Gallery, to only name a few of the largest ones. Among private households we are still noticing the after-effects of the crisis. When money is short, investments in art objects are one of the first things to go. But since the economic prognosis for this year seems so much better, I expect that we will soon start feeling the effects in our art object insurance.
