Some years ago, analysts were speaking about a potential "loss of breath" of the Czech insurance market to emphasise a visible slowdown in the growth rates registered by the industry, especially when compared to the double-digit hikes reported by other insurance markets in the region. Nevertheless, in the longer term the Czech market proved to be more resilient than its more-dynamic rivals and emerged as the only major CEE industry reporting an annual positive change in turnover in 2009.
Consequently, its share of the regional consolidated output for the last year rose by about 2 percentage points to 16.86%. Although the recession impacted the overall volume of premiums written in the past year, the numbers remained in the black, Tomas SIKORA, CEO of the Czech Insurance Association (ÄŒAP), said in an interview published by monthly insurance magazine Pojistn' obzor. As expected, the pace of growth in the premiums-written segment slowed in 2009 from the about 5% year-on-year recorded in the previous year to roughly half that figure. A surprising trend was a significant increase in the life insurance segment.
It is worth mentioning that the Czech currency's stability in 2009 provided an excellent proportionality between the market results denominated in euro and those in the local currency, with just a slight improvement of the growth rate when speaking in the European currency.
According to the Czech National Bank (CNB), as of 31 December 2009 there were 35 domestic insurance undertakings operating on the Czech insurance market. There were also 17 branches, of which 16 belonged to EU insurance undertakings and one to an insurance undertaking from outside the EU/EEA. In addition to those insurers licensed by the CNB, insurance companies and branches from other EU/EEA member states may provide services in the Czech insurance market under an agreement on the freedom to provide services. The number of such entities rose by 60 to 614 at the end of 2009.
never "in red"
Premiums written for the entire insurance market totalled EUR5.28bn in 2009, a rise of 4.3%. The year-on-year decrease in the growth rate of premiums was due chiefly to the stagnation of the Non-life insurance market, where premiums rose by only 2.4%. In contrast, Life insurance continued to grow: premiums rose by 6.9%, compared to 5.1% a year earlier. The Life insurance share of total premiums again rose moderately in 2009 to a historical high of 42%.
Life insurance - surprisingly growing
Within Life insurance, Investment Life insurance continued to expand at a relatively rapid pace, rising 11.7% in 2009 after growth of 17.4% in 2008 and increasing its share of the Life insurance market to 40.1%.
According to a market analysis by the ÄŒAP's Statistics Work Group that was published by Pojistn' obzor, 2009 statistics show that once again the past year was not favourable for flexible Life insurance policies that allow the clients to pay premiums when they are solvent and not pay when they are short of cash. Singlepremium insurance in regular-premium paid contracts dropped 7.1%, a greater dip than the 6.4% recorded in 2008. Conventional lump-sum products in 2009 again better withstood the impact of the financial and economic crisis, with business production rising 12% on the year and premiums increasing 16%, although the average premium rate continued to tumble.
A typical example of this was in the bancassurance. Three insurers closely linked to major banking groups upped their total market share in aggregate to 15.3% from 13.3%. In the Life insurance segment they already control more than a quarter of the market (24.4% in 2008 and 28.7% in 2009). But in 2009 they saw a 23.6% drop in single-premium insurance in regular-premium paid contracts and they secured their growth in market share through the sale of regular-premium insurance policies and conventional lump-sum products.
Non-life still in the Motor era
The non-life insurance market is still dominated by MTPL insurance, which has a 29.0% share, insurance against damage to or loss of property, 23.7%, and Motor Hull insurance, 19.9%.
According to the ÄŒAP's Statistics Work Group analysis, Motor insurance continued to underperform in line with the trend of recent years. However, last year saw only a mild decline. Market leaders in particular continue to weaken and this resulted in a lower market concentration than recorded in the previous two years.
Looking at Non-life insurance in terms of insurance portfolio development shows growth in all three relevant segments. The development of financial and non-financial indicators suggests that total average premiums and MTPL insurance premiums will continue to decline. Conversely, the evolution of the corporate insurance segment indicates an increase in average premiums, albeit by only about one-third of the 2008 level. In terms of the premium growth rate in the coming years, the 2009 figures are not very encouraging; nonetheless in the spirit of optimism we maintain the predicted growth rate of 4-5%
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Insurance fraud exceeds EUR22m Czech insurance companies are becoming more interested in - and skilled at - detecting fraudulent insurance claims. But the industry lacks sufficient transparency among insurers that are still not convinced that investing in fraud prevention is worthwhile, experts say. Czech insurers detected more than EUR22m worth of insurance frauds in 2009, according to the ÄŒAP. Insurance inspectors investigated 4,806 suspicious insurance claims, fewer than in 2008 but they yielded a higher return. Market sources estimate the overall annual loss due to insurance fraud at more than EUR185m. Motor vehicle fraud accounted for more than two-thirds of all insurance scams in the Czech Republic. As well as the usual exaggerations of the damages amount, staged accidents organised by criminal gangs are becoming increasingly frequent. It is estimated that 15% of all insurance claims are fraudulent, but improved technology is allowing companies to be more efficient in screening and investigating them. Nevertheless, many companies still hesitate before investing in fraud-detecting technology or, although they have good technology and databases, there is insufficient human capacity to investigate claims. |
As the Statistics Work Group analysis say: A pessimist would point to the lowest year-on-year increase recorded in the new millennium, whereas an optimist would praise maintaining the growth trajectory under the conditions of the economic downturn and encouraging growth in corporate insurance (+5.0%).
Spending and saving balance into profitability
Claim settlement costs totalled EUR2.86bn in 2009, up 9.7% on the year. This rise was due to increasing claim settlement costs in both Life and Non-life insurance. In 2008, claim settlement costs in Life insurance had risen by 21.4%, but in 2009 they recorded a smaller increase of 9.2% as the number of policy surrenders decreased. The growth rate of claim settlement costs in Non-life insurance rose 10.0% from 6.5% in 2008. Beside the substantial level of Motor claims, insurance companies also received claims amounting to over EUR3.67m for damages caused by heavy snow, according to a survey of the largest insurers conducted by the Czech News Agency (ÄŒTK).
Total assets of insurance undertakings rose by 7.6% to EUR15bn in 2009, accelerating from the previous year's 7.2%. Financial investment remained the most important item in the balance sheet of insurance undertakings, with an 80.2% share. This item consists primarily of bonds, which accounted for 62.8% of total assets.
The financial investment structure of domestic insurance undertakings arising from Life insurance technical provisions is dominated by debt and equities, which accounted for 78.2% and 11.6% respectively, while the Non-life insurance technical provisions are mainly invested in bonds, whose share increased by 7.9 percentage points year on year to 69.9%.
The insurance sector posted a profit of EUR585m, representing a year-on-year rise of 64.3% despite the financial crisis.
