Month: October 2015

The idea of creating a mutual insurance co-operative in Bulgaria started in the autumn of 1996, when the first 36 insurance contracts were then concluded in December of that year. At that time, there was no specific law on insurance, though in the beginning of 1997 such a law came into force and gave notice to existing insurers that they were to adjust their activities according to the new requirements and acquire licences.

Going back to early 1997, there were 127 Bulgarian companies operating in the Bulgarian insurance market. However, in order to comply with the new laws we ourselves reorganised in March 1998 into 662 individual co-operators and, in August 1998, obtained a licence to carry on life insurance activities under the name Medic-Center Mutual Insurance Co-operative (MCMIC), with our registered office and headquarters in the city of Veliko Tarnovo. Over this period, more than 100 companies withdrew from the market.

In 2005, MCMIC decided to co-operate more closely with the Confederation of the Independent Trade Unions of Bulgaria (CITUB), changing its registered headquarters and its name to Sindikalna Vzaimno Zastrahovatelna Kooperacia (SiVZK), meaning Trade Union Mutual Insurance Co-operative (TUMICO). Fast-forward to today, and the co-operative works among all strata of the population, although it focuses primarily on workers hired on labour contracts.

Our main product for the last 18 years has gone through various iterations of distribution and channels for sale, names and calculus bases, but was always clearly distinguishable

By the end of 2014, the members of TUMICO numbered at 31,483, yet the participation of investors in TUMICO – classed as legal entities – is strictly prohibited by law. All policyholders are served by 17 employees and new contracts are concluded by four employees, out of which three persons are highly qualified and one is in the process of training. The knowledge that underwriters of TUMICO must have is, in volume, about 1,000 pages of different fields of insurance and common matters.

The biggest challenge for TUMICO, concerning the national insurance market, is collecting the initial premiums of candidates for insurance and promoting the benefits of mutual insurance in Bulgaria. Globally, a fair and equal European legal framework for all insurers in Bulgaria is not only our dream, but an aim that, together with our partners, we are working to achieve.

Simple and minimal
Many managers advise companies to change and rethink their goals. We at TUMICO, however, defend the opposite idea. We preach product simplicity and universality, and abide by three basic principles: a clearly distinguishable main product, a continuous effort to maintain a business model, and the application of this business model in all projects.

TUMICO is also hostile towards the idea of fragmentation; the formula of ‘simplify and repeat’ is most appropriate for us. We believe there are numerous ways to implement this model, namely by targeting more clearly defined groups of customers with a certain social status. Our efforts are aimed at the average person, and we promote the ‘lenten’ management system, meaning any job position or activity that does not create added value and/or new production is unnecessary, unless required by law. Simplicity is a useful tool against the growing complexity of corporate structures. Businesses have a natural tendency to grow and complicate.

To manage globalisation, companies are using complex matrix systems of management, hiring experts to develop new technologies and organising a number of meetings that stress employees. According to TUMICO, this is a hidden killer for this overly complex type of business. To avoid this, we strive for more simplicity. Though it is more easily said than done, TUMICO permanently adheres to the mantra of simplicity. Our main product for the last 18 years has gone through various iterations of distribution and channels for sale, names and calculus bases, but was always clearly distinguishable.

The role of the chairman is to simplify the complexity of the business and adhere to the basic principles and policies of the business. However, we believe that the simplicity of the concept is not enough, and we pursue the following obligatory and indisputable business practices: rejuvenation of staff, education of TUMICO’s own talents, concentration of all resources advocated by AMICE, and solving complex administrative tasks with small groups of highly qualified specialists.

Risky business
The new century began with a strong emphasis on raising public awareness of the risks, as well as the fragmentation of the business and personal life of every citizen. Life without risk is impossible and, at a very basic level, people have realised that they can better meet the dangers that their environment serves if they are in groups with others. Uncertainty is most often defined as doubts about the favourable outcome of a given situation. In practice, there are many definitions and categorisations of risk, but to clarify the purpose of our marketing concept we should specify that there are pure and speculative risks.

We find the dialectical relationship between the two types of risks to be an important issue that should distinguish corporate entities. Mutual and co-operative insurance in Europe today shares a fair few differences and is generally different from JSC insurance. Mutual insurance continuously increases the qualitative and quantitative components of its products and does not target corporate profits, while Bulgarian MICs are forced by the Insurance Code to capitalise unnecessarily, without regard from the legislator that solvency is guaranteed by the legal form of the existence of the insurer. Co-operative insurance and reinsurance aim to make a profit, but they are allowed for members with voting rights and investors, which mainly capitalise the insurer, while for Bulgarian MICs this is prohibited and capitalisation for supporting solvency is required.

The main difference in the character of the current two types of life insurance in Bulgaria arises from the ownership of capital. Corporate ownership is measured by unambiguously determining the holder of one’s and/or other insurers’ own funds. In MICs, the holders of the funds are themselves the insured persons, whereas in JSCs this is an independent group of entities. For shareholders, it’s clear that the main criterion is speculative risk, because the optional investment process (unlike for banks) makes the prospects for success extremely tempting, especially in the implementation of conservative management of pure risk insurance.

Such an approach in an MIC is meaningless and absurd, and is most clearly illustrated by the following scenario: compensations are paid conservatively in order not to harm the legal entity (MIC) and pay corporate profits to the insured that have suffered, though only if they are among the living, because the prevention that they expected payment for did not take place due to the mixing of two radically different ways of life insurance imposed by law.

It should be noted that TUMICO includes in its general conditions an opportunity for the prepayment of insurance sums, with a view to protecting the insured, which, in itself, is an accurate expression of the corporate nature of MICs. In time, this approach should serve to induce changes in the Insurance Code, mostly in line with the Solvency II Directive, and taking into account our experience gained from our contacts with AMICE.

Maintaining a reputation
The reputation of the insurer is our first concern. Reputation is hard to build and easy to lose. We are all responsible for building and maintaining our reputation and we strive to continuously improve the quality of our work by acquiring new knowledge, conducting self-assessments, learning from foreign experience and understanding the importance of preserving and sharing accumulated knowledge.

We share a certain responsibility for the work we perform, for the protection of information obtained and the property of TUMICO, to comply with the rules of conduct and business communication.

We work in an environment of mutual trust, encourage different opinions and communicate openly. We believe that the contribution of our colleagues is critical to our overall success and we are respectful of the efforts made by each one of us. In TUMICO, the pursuit of process optimisation and improving the performance of employment duties are encouraged. Also encouraged are innovation, creative ideas and solutions, and any reasonable initiative.

Opportunities for continuous learning and improvement are evaluated, searched and applied. Periodic evaluations and self-assessments of practices applied in the workplace are carried out. Internal and external expertise is collected and evaluated systematically, and the results of the evaluations are used to improve the quantitative and qualitative parameters of the work done.

Every employee strives for continuous improvement and performs their duties competently, responsibly, in good faith and without interfering with others. The employees of TUMICO realise the crucial importance of high competence and personal motivation to preserve the uniqueness of the insurer and strive to maintain their level of training and development in line with the best world achievements in this area.

The insurance industry in Bulgaria is going through a shake up due to a number of new regulatory changes. These changes are guaranteed to have a significant impact on domestic firms such as Armeec Insurance, as well as the wider industry as a whole. One regulatory change, Armeec feels, will put undue pressure on the industry due to the speed with which it requires companies to comply with the new rules, although the firm itself feels confident it is ahead of the curb and will overcome this challenge, as it has many times in the past. World Finance spoke to Tsvetanka Krumova, CEO of Armeec, about the need for an increased awareness of the positive role of insurance, the spill over from Greece’s economic crisis and the importance of technology.

What are the main challenges posed by the transposition of the Solvency II Directive?
The transposition of the Solvency II Directive aims to make the market more predictable and transparent. Introducing a risk-based approach to insurance supervision should reduce any unnecessary administrative burden and increase control in the high-risk areas and activities. The challenge is to change the attitudes of insurers, insurance intermediaries and customers. The directive sets some very-high demands on the quality of information, which will require the commitment of significant additional resources in order to bring information systems in line with the accordance.

Based on the freedom of establishment and freedom of services, the insurance market in Europe has no longer been restricted by national borders

How does Armeec Insurance plan to overcome these tough challenges?
Unlike other companies on the insurance market in Bulgaria, Armeec relies entirely on its expertise, specialists and resources. That’s why we started preparation and readjustments to our business much earlier than our competitors. This process allowed us to carry out a comprehensive review of every detail of the business. It was a chance for further optimisation and improvement, which subsequently should prove to be our competitive advantage.

Specifically, we have had to prepare our information systems, develop and improve programmes and procedures, and increase investment in software and hardware to ensure the quality of information. We have also used the experience of consultants from other member states of the EU, which have implemented the directive much earlier. We have updated our internal rules, procedures and regulations, bringing our practices into conformity with the requirements of the directive.

What are the main challenges posed by the major changes to the insurance code?
The Ministry of Finance’s draft of the new insurance code is due to a need to transpose the provisions of Directive 2009/138/EC on the introduction and performance of the insurance and reinsurance business (Solvency II). In this section the changes are necessary and supported by us. However, the main challenge is the provisions concerning the insurance contract. These represent a fundamental reform in insurance contractual law. It takes years to prepare such a reform.

The new regulation for insurance contracts will be implemented in the coming years – meaning that the time for consideration and evaluation of the impact of these changes will have on the insurance services market is not enough. Such a change requires a very detailed discussion between all interested parties. In the light of the considerable resources that the insurers will have to spend on bringing their activities into compliance with the new regulation under Directive 2009/138/EC, the proposed change in the contractual insurance law should be postponed.

Again, how do you plan to overcome these challenges?
During our company’s 19 years of operating, we have overcome many challenges, making us more resilient and flexible. We will approach this change in the same way, analysing the effects of the changes on the company and the market and deciding the appropriate steps to undertake. This will include changes in our structure, rules and procedures, as well as in the information systems. However, before the final adoption of the new code, we cannot state that we are fully prepared for what lies ahead.

The state will only grant aid to those who are “socially weak” in case of a flood or major disaster. Who does this include?
The exact requirements needed to be entitled to compensation in the case of disasters are unclear for now. However, the question is, whether the focus shall be on income or on ownership, and whether only a certain level of income is a precondition for providing support of any kind. The question of illegal buildings also remains unanswered as such buildings are most often affected by catastrophic events and in no way such property could be insured.

What impact will this have on the insurance sector?
The introduction of compulsory insurance would negatively affect the market. It will lead to a minimum level of coverage, which will inevitably result in lower benefits for consumers. Moreover, it does not support the change in customer attitude and awareness of the need for insurance. The draft amendment to the law on protection in emergency situations and disasters stipulates that citizens have the obligation to take care of their property and to take measures to limit the consequences of disasters. This is a good occasion to explain to the public that insurance is an important part of these measures. We also think that building a knowledge of risk management must be embedded into the high-school curriculum.

How has the ongoing crisis in Greece impacted the insurance sector in Bulgaria?
As a result of the ongoing financial crisis in Greece, in Bulgaria there is increased supply of Greek assets at low cost. Greek insurance brokers for many years have been entering the Bulgarian market with proposals for joint activities in Greece, given the lower prices of insurance services in Bulgaria. Some insurers have acquired Greek assets, but the deals are not yet finalised. Ultimately, the entry of more players on the Bulgarian market will increase competition and improve the quality of service.

From Armeec’s perspective, how would you like to see the Greek crisis resolved?
It is good that the European banking system in its basic parameters is stable and as we have seen, through dialogue and compromise, an agreement has been reached with Greece. The situation about the bankruptcy of the country is formally settled. Greece is part of the EU and it should remain so. Based on the freedom of establishment and freedom of services, the insurance market in Europe has no longer been restricted by
national borders.

What are the strengths of Armeec’s current market position?
The main advantage is the fact that the company has the opportunity to influence consumer attitudes towards insurance business as a whole. Insurance is often present in the media as the anti-hero in the news, with stories of dissatisfied customers and declined claims. Positive news is present only in the insurance companies’ own advertising. Therefore the ambition of Armeec has always upheld a good standard of practices and ensured a high level of customer satisfaction.

Where is the potential for upgrading and developing Armeec’s market position?
Sustainable development has always been a goal and fundamental strategy for us. We think the prospects of Armeec are very good, based on the data at the end of the first half of 2015, the targets for the year and the plans for long-term development of the company. We expect this year to report a steady growth in premium income, improving the structure of the portfolio and reducing the level of risk.

What trends have you seen emerge in 2015?
Since the beginning of 2015, the general insurance market has steadily grown, peaking midyear at 6.67 percent. We expect the growth to continue throughout the rest of year, given the positive economic trends that have affected the insurance market. The most sensitive indicator of the overall economic progress is the insurance of cargo goods, which has had a noticeable growth of six percent. Following the revival in sales of new cars and easier credit availability, there has been an increase in motor insurance demand. The growth rates in property insurance still remain below the desired levels. The low growth rates of the insurance of private property once again demonstrate the need for a broader educational and public awareness campaign.

What does the future hold for Armeec and the Bulgarian insurance industry overall?
The future of insurance belongs to technology. The progress in communications and innovation has made consumers more aware, and shortened the distance and the time for serving a customer. Insurers must meet the new demand of customers. Today we are witnessing a new boom in mergers and acquisitions between insurance companies, driven, in part, by technological advantages. Moreover, there is increased consolidation between insurance and technological companies, showing that innovations will be crucial for the future of our business.

The insurance industry in New Zealand is currently in the midst of a transformation that was born from the challenges it has recently faced. The 2008 financial crisis sent shockwaves through the country’s largely unregulated financial markets and associated industries. The impact for both the financial and insurance sectors has led to a more stable and transparent system, but there is still more work to be done. Financial education for the public, making services more accessible and instilling greater public confidence are vital steps that need addressing.

Facing the challenge head-on is life insurer Asteron Life. Here is a business that is attempting to go above and beyond to create fairer and far-reaching insurance solutions that can help the entire breadth of New Zealand’s various communities. World Finance had the opportunity to speak with CEO Nadine Tereora about the changes currently happening in New Zealand, and what role Asteron Life has to play.

If the [insurance] industry is to make real in-roads, we’ll need to successfully lobby parliament

What was the overall impact of the 2014 ASIC report on New Zealand’s own retail life insurance market?
The Australian Securities and Investments Commission’s (ASIC) report reignited the debate that has enveloped the intermediated advice channel; it has helped to bring the conversation into a more public arena and crystallise various arguments. The industry here is now keen to participate in the discussion and explore various issues in the New Zealand context.

This is helped because a number of insurers in New Zealand are either fully or partly owned by Australian parents – Asteron Life included. Of course we must remain vigilant of the differences between our two jurisdictions and the prevailing regulatory frameworks. That means considering whether the recommendations resulting from ASIC’s review achieve the best outcomes for all of those impacted by it here. However, I am comforted by the enormous effort being invested in the associated due diligence.

The release of ASIC’s report also coincided with the review of the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. These key pieces of legislation are designed to increase the professional standards of financial advisers, ensuring that financial services markets function well and help consumers make informed decisions. We anticipate that the impact of this work won’t be felt until policymakers have undertaken their reviews and New Zealand’s specific data has been captured and scrutinised.

What concerns still persist in the industry?
Ongoing concerns include underinsurance, which is a significant issue facing New Zealand if the data is to be believed. Price, affordability and value perceptions are also factors, together with financial literacy. Customer engagement and product design must be improved and simplified, which involves keeping up with technological innovations inside and outside of the industry. The cost of compliance and disclosure obligations, industry trust and business replacement drivers are other current challenges that need to be addressed.

How are these issues being dealt with?
It’s difficult for me to respond on behalf of the broader industry. However, speaking for Asteron Life, we are 100 percent focused on making a lasting difference as far as the sustainability debate is concerned. That includes everything from sensible adviser remuneration structures, through to the way we communicate with our customers, innovative product development, enhancing our service culture and the evolution of a diverse, culturally rich workforce that is capable of taking us forward.

Why is regulated and quality financial impact such an important pillar for New Zealand’s economy?
It’s about instilling greater confidence and trust to promote an environment that facilitates the development of fair, efficient and transparent financial markets. It’s a crucial component for stability in a country where a significant proportion of households contend with modest discretionary income. Regulation has since improved both the accessibility to financial advice and the levels of professionalism and rigour therein.

How can customer engagement be improved?
Through trust, authenticity and education. We also need to work a lot more on simplification without diluting the message – it’s a tough challenge. Financial education will deliver the most material change of all. There’s an opportunity for the industry to continue bridge-building with the incumbent government to tackle financial literacy among New Zealand’s diverse communities – the Commission for Financial Capability and the Retirement Commissioner, Diane Maxwell, are doing some great work in this area. The State and ACC (Accident Compensation Corporation) aren’t going to come to the rescue – the typical ‘she’ll be right’ philosophy of heartland New Zealand needs to shift somewhat.

How is underinsurance being dealt with?
A review commissioned by the Financial Services Council in 2011 found that the country’s level of underinsurance was the third lowest in terms of penetration among 31 OECD countries – with only Greece and Mexico faring worse. I believe we’re still wrestling with this message; it’s an issue we’re not alone in dealing with – larger markets elsewhere in the world are experiencing similar difficulties.

The public’s perceptions around simplicity and affordability must play a part in the underinsurance debate. If we’re to take the industry forward, we need to tackle this challenge head on. That’s why I continue to press our agenda to evolve customer offerings across the entire breadth of our business.

I also believe that we need to resonate more with the hearts and minds of the communities we serve. Perhaps the financial services industry needs to do more than most to atone for misdemeanours of the past – the global financial crisis has left a legacy for us all to reconcile.

If the [insurance] industry is to make real in-roads, we’ll need to successfully lobby parliament; perhaps significant change won’t happen until insurance is made compulsory or tax incentivised. After all, we’re talking about a country that doesn’t mandate car insurance. And then there’s the savings and retirement gap. Underinsurance might need to take its place in the queue but that doesn’t stop us from trying.

How is Asteron Life equipped to handle an ongoing transformation in the industry?
We’ve championed a more holistic, sustainable advice model for some years now; one that attempts to negotiate the sometimes competing arenas of sales growth and longer term persistency. Undoubtedly, this policy has cost us new business revenue.

But I prefer to point to the overwhelming support we’ve received from the vast majority of our adviser partnerships who have encouraged us to hold our course. This focus on value over volume will deliver longer-term shareholder return and customer trust.

Where possible, our approach is focused on level premium business, equitable commission structures, sustainable product development and customer insight. For the majority of New Zealand households, disposable income levels are modest. This is useful context in helping to explain why a significant number of customers choose to lapse their cover for reasons of affordability.

As a customer-oriented business, we have to be sympathetic to customer feedback. It’s an important consideration for Asteron Life as we distribute our product via a non-aligned network of advisers throughout New Zealand’s North and South Islands.

What are the areas of focus for Asteron Life at present?
Our focus can be summarised across three pillars of activity. The first is founded on a principle of placing the customer at the forefront of everything we do. This is a unifying sentiment across the organisational value chain that includes everything from the speed with which we place our customers on risk, to the care we demonstrate at claim time – and everything in between. We’re doing well but there remains much scope to improve.

The second is all about building strong partnerships with progressive, customer centric adviser businesses and dealer groups – those that are looking to build sustainable revenue streams as a result of better persistency, balanced income portfolios and a genuine desire to elevate the role intermediated advice plays. If we get these first two pillars right, we’ll deliver sustainable shareholder value: a ‘win three’ model where everyone benefits.

The third is built around our people as they afford us a competitive advantage. They live and breathe a leadership mind-set, regardless of where they might appear in the organisation’s hierarchy. This is the difference between organisations that can and those that can’t. It’s no coincidence that over the last three years our financial performance has accelerated exponentially, while at the same time staff sentiment has outperformed high achieving global norms in engagement and enablement.

How do you see the industry evolving in the coming years?
We’re facing some difficult choices. The Ministry of Business, Innovation and Employment’s review of the Financial Adviser and Financial Service Providers Acts may dominate the industry headlines in the coming months, and no doubt the conversations around the water-coolers too, but change feels far broader to me than that and I’m sure other leaders share this view as well. For example, my sense is that at some point, the cost of reinsurance will accelerate the product simplification conversation.

I’m also mindful of the ageing adviser workforce with many individuals either at or approaching traditional retirement age. Metaphorically speaking, that’s a lot of intellectual property that’s about to walk out of the door. Then there is the very real challenge of sustainable growth. For a country with a modest population of roughly 4.5 million dispersed across a geography greater than the UK, the spectre of industry consolidation and the proliferation of alternative methods of channel distribution cannot be ruled out. Intermediated distribution is the life-blood of our business, but we must remain vigilant in the face of acquisition and maintenance cost pressures.

I think it is worth underlining that material success within the industry will be born of a collective focus toward changing customer needs and their perceptions of value, service and trust. I see these things as a ‘must’ if industry stability is to be maintained during these changing times.

Sitting on the notorious Ring of Fire, the Philippines suffers about 20 natural catastrophes in the form of volcanic eruptions and earthquakes a year, not to mention a score of typhoons. And in the wake of these disasters it’s the non-life insurance industry that plays a major role in helping affected citizens and the economy get back on their feet.

“The Philippines is one of the most disaster-prone [areas] in the world, a sort of nightmare for insurers”, said Melecio Mallillin, President of non-life insurance firm Charter Ping An and a 40-year veteran of the industry. “Insurance is one of the keys in maintaining the economy during these catastrophes. Properties are restored and financial losses reduced through insurance coverages.”

Charter Ping An has prevailed over this highly unpredictable environment – in geophysical and commercial terms – for more than half a century. In that time it has developed an unusual and flexible organisation founded on a powerful financial conglomerate, the Metrobank Group, whose subsidiaries and affiliates encompass several of the sectors within the financial sector. Among the parent group’s brands are Toyota Motor Philippines, Federal Land, Orix Metro Leasing, Metrobank Card and AXA Philippines, most of them leaders in their own sectors. “We work together in a way that gives us dynamic synergies”, said Mallillin. “It means we can be much more competitive in our products and services.”

With such a broad footprint in a nation of 102.2 million people spread over a challenging geography of more than 7,000 islands, Charter Ping An has, over its 55 years in business, steadily developed strong business relationships with agents, brokers, car dealers and other distribution channels. In this the firm’s powerful financial position and parentage plays an important role as a reliable insurer capable of settling fairly and quickly. “It’s in the interests of our policyholders that we pay out quickly”, said Mallillin.

And in a country that likes to do business in a personal way, this gives the firm a natural momentum. Always ranked among the top five in terms of business written, Charter Ping An currently boasts the highest rate of growth among its peers. “We believe our products and services are the benchmark.”

Penetration rate
One of the ironies – and challenges – of the Philippine market is that, despite its obvious importance in such a vulnerable nation, insurance has a low penetration. Currently it’s running at 1.7 percent of the total population, not much more than half the average across the rest of the ASEAN region. After a series of catastrophes in the last five years, the industry saw an increase in so-called acts of nature coverage, but generally most Filipinos view insurance as a luxury rather than a necessity. Thus those on minimum wages would put more emphasis on food, housing and other basic necessities than on buying a policy.

Yet insurance has been available since the days of Spanish colonisation when a Scottish group, Strachman Murray, ventured into the country and started selling policies. Non-life policies made their appearance in 1906 and their popularity grew rapidly despite several ups and downs over the years, mainly for economic reasons.

Today, Charter Ping An operates in a market that is being forced to mature rapidly under a variety of pressures. In common with other jurisdictions in the vast ASEAN region of which the country is a long-standing member, the Philippines has introduced regulations that mandate higher standards of compliance while also having the effect of improving competencies such as overall financial management as well as the all-important actuarial and risk management functions that underpin the non-life sector.

As a result of the Amended Insurance Act of 2013, firms are required to comply with several new laws, including one that requires greater capital strength. Known as the net worth requirements, it applies equally to life and non-life sectors.

As the net-worth requirements show, regulators have certainly got tougher. By the end of 2016, non-life firms must have a minimum net worth equivalent to $10.7m, net worth being defined as the total of paid-up capitalisation, retained earnings, unimpaired surplus and revalued assets, all subject to the approval of the regulator. After that it gets tougher – by 2019 the target is $19.2m and by 2022 it will be $27.8m.

But with more foreign investors discovering opportunities in the Philippines, opportunities abound. Here the ‘ASEAN factor’ is proving to be a massive catalyst. Originally established nearly 50 years ago with five of the most populated countries in the region including the Philippines, ASEAN is seen as a powerhouse. Its membership has doubled with commensurately greater economic potential. With a combined population of 625 million and GDP of $2.6trn, economists see ASEAN as a waking giant – and so does Mallillin.

He predicts an increase in foreign direct investment, including in the insurance sector, under relaxed laws of foreign ownership. And that in turn will force local insurers to become more competitive. Indeed he foresees a period of consolidation.

“The increase in capitalisation requirements will pressure the smaller insurance companies to consolidate and merge with the more financially stable firms”, he said. “This will have the effect of strengthening the industry. With fewer but stronger domestic players, [the local industry] will be in a better position to compete with foreign competition.” ASEAN integration will force region-wide harmonisation in terms of regulation to the industry’s benefit, according to Mallillin.

Raising the game
Although the spate of new regulations is challenging for firms, it has raised the game and set up the non-life and other areas of insurance for a better medium-term future. As Mallillin summarises: “The sector should post a significant growth in revenues over the next few years. This will be brought about by increasing household incomes and purchasing power, improved regulations, continued growth in life insurance premiums and moderate growth in the non-life market.” Indeed this is already happening. In 2014, the non-life sector grew by nearly five percent compared with 2013 and its total net worth by nearly eight percent, while gross premiums written on a global basis reached $64.3bn (see Fig. 1).

The market is already seeing promising developments, for instance in bancassurance – the partnership between banking and insurance companies – and in microassurance. The latter is a particularly interesting phenomenon in a country of generally low household incomes. It provides cover against specific perils for financially vulnerable communities in return for the payment of modest premiums. These are calculated to be proportionate to the likelihood and costs of the risks involved. Microinsurance can be bought by people earning as little as $4 a day.

Steady rise
Under these generally welcome influences the Philippine economy is growing steadily, up by 1.8 percent in the second quarter of 2015. That’s faster in just three months than the 1.18 percent the country averaged in the last 17 years. And the industry is growing with it. Along with the capital Manila, the cities are expanding in a general process of urbanisation. And the commercial sector – tourism, education, agriculture, automotive among others – has picked up pace.

The steady rise in commercial and residential real estate is driving non-life sales, but Mallillin believes an increase in employment will make the difference in the long run. The best customers for non-life insurance at the moment, he points out, are corporations who provide cover as an employee benefit. Currently these are few and far between.

Like others in the industry, he believes education will also make a difference. “There is a need to focus on education about the value of insurance. [We also need] to promote microinsurance, which offers low-cost products for most middle and low-income earners.”

As an experienced observer, Mallillin has a vision of where the non-life sector should head over the next few years. First, he is convinced that the inevitable bout of consolidation will make the survivors financially stronger and more professional. Second, he believes it must become more disciplined in its pricing and less cut-throat – “clean and positive competition”. Third, the sector watchdog, the Insurance Commission, must become “more active and decisive”. Fourth, he would like a rationalised insurance tax that would be paid by the consumer. Fifth, schoolchildren should be taught about the role, function and importance of insurance. And finally, in the interests of higher standards, a government-run nationwide training programme would help professionalise the vast army of insurance agents.

And by no means least, he believes acts of nature should become standard in coverage. In a country that must pick itself up after some 20 natural catastrophes a year, that sounds like a very good idea indeed.

Thailand’s insurance industry is undergoing an overhaul thanks to rapidly changing customer demands, as well as new trends in sales and digitisation. As a result of changing demographics in the country, the demand for life and health insurance is experiencing an upward swing, which is resulting in impressive growth revenue year-on-year. In order to meet such rising demand, insurance companies in Thailand must maintain robust internal mechanisms and processes, which includes implementing the latest mobile and internet platforms that can help ensure customer satisfaction and survival in an increasingly competitive market. Leading the industry in terms of innovative models and technological tools is SCBLIFE, a subsidiary of the Siam Commercial Bank (SCB) Group. World Finance got the chance to speak with Stephen Appleyard, Managing Director of SCBLIFE, about recent trends and what the company is doing to maintain its position as an industry leader in Thailand.

Can you tell us about the recent insurance industry trends in Thailand?
The insurance market in Thailand is rapidly evolving, both in terms of channels to market and customer needs. Historically agents distributed insurance, but over the past 10 years this has changed significantly. In 2007, bancassurance made up only 24 percent of new business, but now it equates to over 50 percent of all new sales. Although banking products tend to be simpler and more savings-orientated, we are seeing several leading banks using point-of-sales technology to provide needs-based selling tools in order to facilitate learning and increase sales.

In terms of products, we are seeing clear trends related to the macro environment. As a result of a rapidly ageing population, customers are increasingly looking for retirement solutions. We are also seeing a growth in health insurance due to medical inflation. In addition, the current low interest rate environment drives a higher demand for insurance, as returns appear more attractive relative to other low risk investment vehicles. These three factors contribute to the growth of the insurance market, which has been relatively consistent over the past 10 years, at a growth rate of 15 percent per annum. We expect these mega trends to continue supporting the growth of the insurance sector for the next 10 years at least.

What challenges still exist for the insurance industry in Thailand?
Unlike most markets in Asia, the Thai insurance market is still heavily skewed towards the sale of products with guaranteed returns, whereby the insurance company carries all the risks and associated costs. This is in stark contrast to many other markets in Asia, where customers purchase ‘non-guaranteed’ (participating) or investment linked products. That being said, the current low interest rate environment places increasing pressure on the balance sheets of local insurers and we believe this will drive leading players to start investing in non-guaranteed savings.

Another challenge for insurers in Thailand is to keep up with customer expectations in regards to service. The banking sector is very advanced in Thailand and as the majority of insurance products are sold through banks, there is an expectation that insurance must provide comparable levels of service. The customer experience from online non-financial retailers also continues to raise customer expectations. We are living in a digital world where everything is connected and shared rapidly; hence, it is vital that we maintain a fast pace to match our customers’ needs and desires.

How has SCBLIFE responded to these trends and challenges?
One of SCBLIFE’s core strategies is customer-centricity, whereby our products and services are being developed around needs-based solutions. As a result, we have developed a deep understanding of our target customers’ demographics and we now have a better understanding of their insurance needs at different life stages. We strive to help our target customers fully understand insurance frameworks by elevating the buying experience through multi-distribution channels. We hope to make the decision process for our customers easier by making it more engaging and informative.

We also coach the bank’s staff and our agents via development roadmaps, training, and multimedia tools that aim to maintain, refresh, as well as strengthen their product knowledge and sales ethics in order to ensure the best possible quality in terms of service and products. We believe that this is the key way to sustain SCBLIFE’s strong and long-standing reputation.

In addition to customer-facing service upgrades, SCBLIFE is also investing in a new policy administration system, image and workflow, as well as a new contact centre and digital point of sales technology. This will ensure that we are able to deliver consistent customer service for the 300,000 to 400,000 new customers that we acquire each year. The new platform will also allow SCBLIFE to communicate with its customers more efficiently and effectively.

What impact does Thailand’s economy have on the country’s insurance industry?
Unfortunately, the Thai economy is slow at the moment; however, this lull provides an impetus for us to focus on innovation, for now and for the future. Not all companies can invest during these difficult times, but SCBLIFE needs to take this chance to keep up with changing consumer demands and stay ahead of the competition. We are determined to create insurance solutions that offer great value, while giving people throughout the country the chance to experience world-class service from our dedicated agents and
network branches.

How did SCBLIFE become the leading insurer in Thailand?
At SCBLIFE we are delighted to have been protecting the lives of Thai people for over 40 years now. As part of the larger SCB Group, SCBLIFE successfully leverages the strongest and most trusted financial brand in Thailand. With over 14 million customers in Thailand, SCB has developed a deep understanding of the local population; as a result, SCBLIFE is able to develop innovative products and services that meet our customers’ ever-evolving needs.

What are SCBLIFE’s biggest achievements?
Our biggest achievement is the consistent growth in the number of policy-holders we serve. This is a result of the high level of customer satisfaction that we achieve and the value of our products. We are humbled to be able to contribute to the strong economic foundation of our country and to help enable Thai people to improve their quality of life through financial stability in a sustainable way.

SCBLIFE is committed to providing needs-based insurance products, which positively contribute to local communities. We are proud to have celebrated many milestones, including the launch of our consumer education platform, digital marketing platform for My SCBLIFE, and plug and play services, which all provide us with direct channels to communicate with customers.

What differentiates you from your rivals?
We have a highly integrated strategy with SCB to develop insurance solutions and customer experiences that are complementary to the bank’s other offerings. By leveraging the bank’s infrastructure and reach, SCBLIFE is able to enhance the overall brand value of the SCB Group through a customer-centric approach. Another attribute that makes us stand out in the market is our innovative employees who drive our business forward in a highly competitive landscape that continues to experience rapid changes in consumer behaviour.

What does the future hold for the company?
SCBLIFE’s vision for success is to keep our business true to its core values and continue honouring our commitment to offering unparalleled value and service to our customers. It is also vitally important for us to uphold a culture of passion and commitment among our employees.

We aim to become the number one life insurance company in Thailand within the next five years, which will be driven by our ‘four winning’ missions. The first is ‘winning people’; SCBLIFE wants to be a great place to work. We believe that the future of our company lies in each employee believing in himself or herself, actively tackling challenges and pursuing their dreams. At SCBLIFE, we assist employees with career development through various training and staff engagement programmes, which empower them to develop and diversify their skill sets. Then there is ‘winning customers’, whereby SCBLIFE’s products are developed under our ‘needs-based’ philosophy, which is enriched via customer feedback and research.

‘Winning distribution’ pertains to our distribution network, which consists of 12,000 licensed SCB Bank sellers and 4,000 SCBLIFE agents. We strive to constantly improve and upgrade the services we provide to our distribution partners so that they can offer superior customer service. Finally, we have the ‘winning process and platform’; SCB LIFE sees itself as an industry leader in Thailand and constantly invests in its platforms and processes in order to meet the new demands of consumers in the digital age. Our goal is to have the most productive insurance business in Thailand and to leverage SCB’s experience for our new administrative system, which will be cashless, paperless and chequeless. SCBLIFE continues to embrace the latest technology in order to improve the customer experience and our efficiency, which both translate back into higher added value for our customers.

Recent developments in Taiwan’s life insurance market point to a bright future for an industry in good health already, as the country seeks to cement its status as one of the hottest markets in Asia for insurance. At 15 percent, the country’s life insurance penetration rate ranks among the highest worldwide, and studies show that its growth will outpace that of the economy for some time. In the region, only China, Japan and South Korea can speak of a more formidable insurance market, and continuous improvements throughout mean that Taiwan will no doubt attract expertise ahead of what it can speak of currently.

With an ageing population and a low interest rate environment, Taiwan’s market properties feed comfortably into what is a glittering life insurance market, and the sector today accounts for approximately 80 percent of total premiums written – 90 percent when including the health and personal accident segments. The high net worth population in Taiwan, and in Asia generally, will continue to grow, and this, combined with a greater knowledge about the importance of insurance and retirement planning, will do much to boost the industry’s prospects moving forwards. In this fast-growing market are a number of notable domestic players, not least Fubon Life, which characterise much that is positive about Taiwan’s budding insurance industry.

In doing so, Fubon Life has claimed the Insurance Company of the Year in Taiwan for the fourth time. Receiving votes from 120,000 members from over 50 countries, Fubon Life has become the only life insurer in Taiwan to receive this honour for four consecutive years, and, in light of this recognition, will continue with its goal to become a first class financial institution in Asia.

Widespread sponsorship
Without enterprises such as Fubon Life, the insurance sector would not have made the progress it so clearly has done over the past few years. The company has demonstrated its innovative streak in the fields of human resource development, service optimisation and charitable contribution in 2015. In addition to cultivating young talent and strengthening local services, the company has also enhanced service efficiency and diversified the distribution channel by engaging with cloud services. As a benchmark enterprise, it joined forces with the Fubon Charity Foundation in conducting charity campaigns and supporting the underprivileged members of society. It also diligently fulfils its corporate social responsibility initiatives and aims to become a first class life insurance brand in Asia.

The company has been actively involved in charity activities, supporting underprivileged groups that include children, teenagers, those with mental and physical difficulties, the elderly and indigenous people to the Australian continent. The ‘Make Friends with Love’ scholarship programme – sponsored by Fubon Life and Fubon Charity Foundation – has helped to support the education of more than 143,000 children in nearly 2,200 schools around the country.

It is also a pioneer in incorporating local sports events within a charity campaign. In addition to being the long-time title sponsor of the Taipei Marathon, Fubon also sponsors the Fubon Braves basketball team of the Super Basketball League – a semi-professional basketball league in Taiwan; the and the LPGA golf tournament and baseball tournaments, allowing it to stand out in the life insurance industry with sports sponsorship.

In 2014, Fubon Life posted an after tax profit of TWD 35.367bn ($1.06bn), with an EPS of TWD 8.04 ($0.24) per share, equating to an annual growth rate of 41 percent and topping the life insurance industry in Taiwan for the sixth year in a row. A focus on people and a commitment to human capital is perhaps the foundation of Fubon Life’s impressive financial performance. In addition to providing a professional career-training programme, the company also places a great deal of emphasis on recruiting local talent.

In doing so, last year Fubon Life introduced a No Boundary recruiting programme, which focuses on recruiting new agents from cities and townships around the island to further expand its reach. In recent years, the company has also encouraged its agents to establish their own sales branches via internal entrepreneurship, which not only helps to expand the sales force, but also provides these agents with abundant resources to help them in their career path.

Fubon Life firmly believes that employees are the most important assets of the company. The professional training programme and attractive career prospects have made Fubon Life Taiwan’s favourite employer among college graduates majoring in finance and insurance for five years running. The company’s achievements are not due solely to a focus on people however, and attention paid to the issue of diversification and expansion has done much to improve Fubon’s international standing.

Garnering tailored insurance
Highly responsive to market change, Fubon Life has gone about constantly adjusting its product portfolio to meet customers’ changing requirements. In view of the low birth rate (see side bar) and growing single population, the company has introduced annuity, health and long-term care insurance products to offer clients better protection. The company also launched new products such as foreign currency denominated policies to meet ever-changing customer demands and prepare for a future in which its influence will expand far beyond Taiwan.

In terms of distribution channels, with the emergence of bancassurance and insurance brokerages in recent years, Fubon Life – in addition to distributing its products via its other subsidiaries – has also actively developed strategic alliances with other banks and medium/large insurance brokerages to offer exclusive products for these channels. This year, Fubon started to work with Ping An Insurance in China to this end. Its policyholders who may or may not have an incident in China can now have his or her claim application processed at Ping An’s service counter as a result of this partnership.

In view of the changes sweeping across financial services, particularly in the form of globalisation, Fubon Life has also led the industry in acquiring the OIU license. It is planning to take advantage of its flexible product strategy, extensive distribution channels, solid balance sheet and capital adequacy performance to further expand its business and providing foreign customers with a more competitive product portfolio to satisfy their needs in both protection and investment.

Fubon Life has been actively expanding its reach to Mainland China and other Asian markets for some time. In addition to the subsidiary in Vietnam and the Hong Kong insurance market – which Fubon has already planned to enter – the company also subscribed to shares issued by Korea’s Hyundai Life Insurance in order to expand its business in Northeast Asia. This is the first time ever that a Taiwanese life insurer has invested in the insurance business in Korea. In the future, Fubon Life will continue to study and evaluate the market potential of other countries in order to further integrate its resources on a regional financial service platform, and in doing so to truly become a first class financial institution in Asia.

On top of globalisation, the development of cloud technology has dramatically changed consumer behaviour. How to leverage the trend and technology to provide the customers with a more convenient service and satisfy their needs is a challenge, as well as a new opportunity, for the life insurance industry. Fubon Life has led the industry by introducing an online proposal processing system. Agents equipped with mobile devices can take advantage of the cloud database and back-end system to create a proposal for prospects during the first visit, based on their own individual needs and budgets. The immediate and timely service allows the prospects to have a more comprehensive understanding of the coverage and terms contained in the insurance policy.

The online application system and the policy service platform over the cloud also help to simplify the current application process. Policyholders will be able to complete the process with their mobile devices, and the platform has been widely recognised for its innovation and convenience. In the future, Fubon Life will continue to expand and optimise the cloud service system to provide customers with the most comprehensive digital service in the market.

Looking to the future, Fubon Life will continue to strengthen its business in Taiwan while extending its global reach. The company intends to constantly improve on its customer service and fulfil its corporate social responsibilities to move towards the goal of becoming a first-class life insurer in Asia.

With a nearly 21-percent share of Hungary’s non-life insurance market, Allianz Hungary has an important role to play in a country that has hit the headlines recently because of its geographic position as a frontier for waves of migrants seeking a better life in the EU. Hit hard by the financial crisis but improving, Hungary was recently characterised by the IMF as ‘growing at a strong pace, helped by accommodative policies and improved market sentiment’.

However, the country’s stubbornly low wage rates, at least by European standards, and a labour participation rate of just 67 percent, have put the onus on firms such as Allianz to design products that make a difference to the quality of life of the country’s 9.9 million people.

And, behind the headlines, Allianz is doing just that. As the company’s Chairman and CEO, Péter Kisbenedek explains that the firm is rolling out more affordable policies across the insurance spectrum and distributing them in innovative ways that make them more readily available.

The challenge for insurance companies in Hungary and elsewhere is that the world is changing and historic data is often an unreliable guide to future risks

Indeed, the operative word here is affordability, particularly in a country with a low average household income. Taking the Big Mac index as a proxy, Kisbenedek points out interestingly that in the capital of Budapest, Hungarians work for 49 minutes for a McDonald’s hamburger, which compares unfavourably with wealthier European capitals. It takes just 13 minutes of toil – or nearly four times less – in Zurich, 15 minutes in Munich, 16 in Paris, 18 in Madrid and 20 in Brussels. Even in nearby Bratislava, the capital of Slovakia, it’s 32 minutes and 34 minutes in Prague, capital of the Czech Republic.

Inevitably, in this economic environment, customers are inclined to put price ahead of other considerations, especially in the age of instant online comparison. “Customers have access to more information than ever before”, explained Kisbenedek. “They are using price comparison sites. They want quotes and prices immediately on the platform they choose.”

One happy result of this is that the price of most insurance products has come within reach of the budget of most households. Proof of this trend can be found in a remarkable statistic – an average flat suitable for a family can be insured for a total yearly fee costing no more than the price of 11 pizzas. And that’s at Budapest (rather than Zurich) pizza prices.

Flexible and adaptable
Reflecting the same impetus for affordability, Allianz has been quick to meet a fast-rising demand for what is known as convenience insurance. Thus, it has lately introduced a number of assistance packages for an astonishingly low monthly fee of around 300 forints (€1), offering an extremely wide range of services.

In this cost-conscious environment no insurer can afford to rest on its laurels, even if it dominates the market as Allianz Hungary does. Thus, the firm’s Gondoskodás Programme is a new hybrid life insurance product that combines the benefits of risk insurance and a savings account. According to Kisbenedek: “Gondoskodás completes our life insurance product range, offering our customers insurance solutions for all life situations and for all income positions.”

Allianz Hungary is part of a global group that boasts 85 million customers in more than 70 countries and that, to boot, is celebrating its 125th anniversary. But, in an environment of relentless change, the last 125 years may not mean much. “The challenge for insurance companies in Hungary and elsewhere is that the world is changing and historic data is often an unreliable guide to future risks and future claim patterns”, Kisbenedek pointed out.

“Therefore insurance companies have to be future-thinking and constantly monitor global and local trends, including customer attitudes and behaviour.” It’s a little understood aspect of insurance – and particularly the life and pension business – that by its very nature, firms are committed to their clients for half a century or more. Thus, they are obliged to concern themselves with long-term issues that may influence the value of policies to the benefit or harm of the client. “We have to care about what is going to happen in the world during this period”, Kisbenedek summarised.

Technical nous
And woe betide a firm that doesn’t connect with the digital revolution. Allianz Hungary has invested in the upgrade of its online calculators and fast-quote functions for Casco insurance (unavoidable loss or damage), as well as home and motor vehicle insurance. The firm’s consumer-facing website has been radically reconfigured to present a uniform appearance and make it compatible with all platforms, including tablets and smartphones. In short, total web-based functionality is now available.

Allianz has also overhauled its payments function, another area in the middle of turmoil. Three technical updates were introduced to make it quicker and more convenient for clients to pay premiums. The so-called ‘white cheque’ with the QR code enables them to pay from smartphones and, in a first for the Hungarian insurance market, enables agents to use credit cards. Late last year, the firm made it possible for agents to effect payments through mobile point-of-sale terminals, using a service known as mPOS. It means clients can now pay premiums for any non-life and currency-linked life insurance products at the offices of their tied agents.

“From a technological perspective, this is a significant and revolutionary innovation”, said Kisbenedek. “It’s the world’s first integrated mPOS introduced in the insurance market. In addition to being flexible, the sales process involves a fully integrated solution that makes the entire process digital. This is a major step forward to a society without cash”, Kisbenedek added. And, because it’s scaleable, mPOS can be extended to all Allianz subsidiaries at regional or group level. Underlying all these innovations is the insurance industry’s economic function in providing life-enhancing policies for commerce, agriculture and ordinary citizens. Modest as it was, last year’s recovery allowed Hungarians to raise average savings per household, which in turn boosted the entire insurance sector’s total premium revenue by 4.2 percent.

As market leader, Allianz Hungária was the biggest beneficiary of this. Last year, the firm saw growth in the non-life business, primarily in the performance of the industrial property and liability insurance segments, in the agricultural insurance segment in general and, more specifically, in preferential premium crop insurance, a peculiarly Hungarian product. And in the retail property business, the number of new acquisitions increased by 10 percent.

Simultaneously, there was a turnaround in the previously stricken area of motor insurance, which suffered heavily in the downturn. New vehicle sales jumped significantly, as did the number of mainly premium imports. Between them, these changes led to a gratifying rise in the overall vehicle count in Hungary, allowing premiums to climb off the floor.

One product that is certainly life-enhancing in a generally under-insured nation is long-term pensions, a particular focus of Allianz Hungária. Here, the firm has developed another innovation in the form of a self-care pension that it plans to push into the wider community. Competitively priced, it’s a long-term savings product with a continuous premium payment.

Green growth
Allianz Hungária’s necessarily long horizons demand matching adherence to sustainability. “Sustainability is inherent to our business”, Kisbenedek explained. “With our efforts to reduce risk deriving from global megatrends like climate change, demographic change, and access to financial services, we have actively contributed to sustainable development – our own and that of our stakeholders – for a long time.” As he made clear, Allianz aims to embed sustainability into the group’s DNA.

Allianz Hungária’s head office in Budapest is a monument to the firm’s green credentials. Not only does it collect and recycle, it also reuses rainwater, economises on consumption of paper, heats the building with solar collectors, runs low-energy lighting and employs purified water.

Meantime, megatrends keep coming. Kisbenedek ticked them off – extreme weather, ageing populations, shrinking work forces, social security systems under pressure, demographic change. “They are creating challenges and opportunities for us”, he noted. One example is road safety. The parent group has invested considerable time, energy and money into saving lives, primarily in the form of innovative technologies.

Another life-enhancing initiative is the firm’s commitment to financial education, a much-neglected topic. Allianz Hungária has an online platform dedicated to the publication of articles, research, interesting facts and useful advice on this and other issues.

Every year and taking place in October, the firm organises a conference under the title of Common Future, in which a lineup of scientists and other experts delivers short and often inspirational speeches.

Last, but by no means least, the firm prides itself on its transparency across the board and has pledged to uphold a policy of zero tolerance against corruption. “We expect the same from our contractual partners and entrepreneurs”, Kisbenedek noted. In the meantime, the future is not what it was.

As Kisbenedek explained, experience shows that our highly transformed societies are under constant exposure to new challenges, as indeed border controls will attest. “When we say future, we must talk about a future that is different from the one we are used to. The future is not in the distance any more. Waves of change are all around us.”