‘Our only focus is on our client’s and people’s needs’

Ante_Banovac_GrECo

Ante Banovac, a member of our Executive Board, shares his thoughts about future risks facing the insurance industry, the state of the insurance market in Serbia, Slovenia and Croatia and the role that risk specialists have in a world full of increasing risks. The interview was originally published in the Svet osiguranja, an insurance specialized publication issued in Croatia, Serbia and Slovenia. 

 

Insurance today is facing a number of challenges posed by the risks of the new age that are constantly increasing. What are the biggest risks today that companies should pay attention to as insurance brokers?
At GrECo we see four mega trends and their consequences as the main risk changers driving a fundamental transformation of our client’s risk landscape. These are the challenging development of our environment, leading to climate risks such as an increasing impact of natural hazards as a result of climate change, but also the reaction of the global industry adapting their business models to reach their sustainability targets. Furthermore, the digital transition leads to great opportunities for innovation with the result, that corporate assets and therefore the risk landscape of a company nowadays is increasingly affected by intangible risks such as cyber or reputational risks.

Another area that keeps our clients busy is the limitations which are arising from our globalized economy. The global pandemic and the current war in Ukraine lead to dramatic impacts on supply chains impacting prices and therefore also endangering our level of welfare. Finally, all industries are more and more struggling with the enormous lack of skilled labour, and this leads to a war for talents and changes in the labour market where employees are more and more dictating the rules.
 
And what do you see as the biggest challenge for insurers in responding to those risks that companies and citizens face? Are there risks that are in danger of exceeding the capacity of re (insurers), which have been insurable so far? (The issue of cyber risk, supply chain disruption due to the pandemic, and also due to other risks is mentioned …)
The situation for insurers is not easy. The new risks are challenging them and are very difficult to calculate, leading to a rather cautious approach with respect to coverage and limits. For example, capacities in the cyber insurance market are currently very scarce and insurers and reinsurers cannot provide sufficient balance sheet protection for our large corporate clients, where insurance should traditionally be the last line of defence in a corporate risk management strategy.

Another example of their difficult situation is the need to contribute to a carbon-free future. Companies must change their processes and sometimes even business models in order to fulfil their new sustainability targets over time. These measures lead to new risks. To react to those necessities insurers are looking into their ESG agenda and for example blacklisting carbon-heavy industries such as coal, because they must. At the same time, proper solutions helping this industry to manage the challenges of transformation in front of them are somewhat disregarded.  

Serbia is generally the least developed when it comes to insurance compared to Croatia and Slovenia. What do you think could and should be better? In which segments should changes be made?
I think the key components in a long process are financial education for younger generations and stable, strong and reliable domestic insurance markets together with a growing overall economy. You see, how insurance is perceived in the mind of citizens is strongly influenced by claims experiences made in the past and the reliability of institutions in general. Changing perception to the positive requires time. Serbia has some very good insurers today. Jointly, constant efforts need to be made to educate insurance takers, both private and corporate, to keep conducting image campaigns and convincing through professional and transparent claims handling. GrECo is a corporate specialist broker. We have been pioneers in developing risk awareness and understanding of insurance as one possible tool for risk mitigation in Central- and Southeast Europe for more than 30 years. Together with our insurer partners, we are continuing to contribute to this development every day.
 
What type of insurance do you think has a better chance of developing in Serbia, and is not sufficiently represented now?
Next to the classical and established coverages like Property damage and motor insurance lines, we see a rapidly growing need for Health & Benefits solutions. This is mostly connected to the already mentioned war for talent and skilled labour as companies are looking for ways of attracting and retaining employees. Another area which from our point of view is not yet developed enough is all lines of liability including specialty casualty lines. Those require specialist knowledge and proper consultancy, so clients would see their huge benefit. Increasing awareness of liability risks would also contribute to the overall development of the acceptance of risk consulting and advisory in Serbia.

When we talk about the activities of insurance brokers, can you compare these three markets in which you are present? What is the situation, where it is most developed, who uses your services the most in terms of the industry that is most represented in your portfolios?
In all three markets, I’d say that most registered insurance brokers are acting as generalists, offering services in all insurance lines, mostly collecting offers from the insurance market and focusing on product and price comparison, leaving claims handling completely to insurers. Those are competing with insurers and their agents directly, especially in the retail segment, servicing private individuals. A few brokers take it one step further and are also assisting clients with knowledge and expertise during claims handling, but still being generalists. Very few brokers are offering true risk management and specialty advisory with innovative solutions to improve a company’s corporate risk management. Being a strictly corporate & specialty broker, we belong to the latter group and we believe this is where true value is created for corporates. To do this in Slovenia, Croatia and Serbia you need patience in explaining the difference between a pure product comparison and price-driven approach on the one hand side and highly skilled, often very specialized teams on the other.

We are not insurance dealers, but risk advisors. Major industries we specialize in and we are advising are financial institutions, construction, Oil & gas, Power generation and distribution, Food & beverage, Tourism, Transportation & Logistics, Aviation, and Telecommunication. The need for professional risk advisory has developed and grown over the years and we believe it will continue to grow as economies in all three countries continue to grow over the longer term. Recently, the fragility of global supply chains became apparent due to the pandemic. We expect to see certain effects of nearshoring in the future. Countries like Slovenia, Croatia and Serbia have the chance to benefit from this development.

Insurers have recently faced major flood damage, but on the other hand, most assets are still uninsured against such risks. Only 35 per cent of economically relevant climate losses are currently insured in the EU. How to bridge that gap? Will insurance become more expensive precisely because of the growing climate risks?
Climate change represents one of the most critical challenges in the future in general and for insurance companies as Nat Cat risks are clearly on the rise. Because of a rapidly changing exposure arising from climate risks, there are limits to insurability and economic affordability of insurance covers for corporations. Current risk transfer strategies, relying on traditional insurance solutions alone, without adapting their facilities to these changes, will not bridge the gap. While insurers and risk consultants like us are constantly developing new, innovative concepts of coverage, corporations who have not yet done so will still need to think about Nat Cat Management – meaning analysing and understanding their risks properly, then managing, i.e., mitigating those risks technically. In the longer run, we believe those whole industries will have to transform their business models, factories, and supply chains to increase their resilience and adapt to climate change. Therefore, also our business models are transforming as we are increasingly becoming risk specialists helping our clients to thrive in a changing world.

Although insurance companies have shown great resilience in volatile times over the past two years, how will the current geopolitical instability still affect the work of insurers? And in what way? How much do you think all this geopolitical tension will disrupt general stability, the economy, and finances in 2022 when it comes to this region (Adriatic)?
The insurance industry is one of the most resilient industries and will continue to be one. The consequences of geopolitical instability in the insurance sector that we have seen so far relate to the revocation of coverage of international insurance programmes in Russia because of imposed sanctions, but also in Ukraine. Further, after many years of ultra-loose interest policies of the European Central Bank, inflation has now manifested itself in Europe while economies are not really growing significantly. We are looking at stagflation. Inflation will for instance lead to higher unpredictability of losses as higher replacement costs can be expected, but it is difficult to predict upfront how much higher. The ongoing instability of supply chains also affects replacement times, adding another element of uncertainty. So, predominantly the work of insurers, but especially professional risk advisors and brokers is affected in the way that an even higher level of diligence needs to be applied when consulting clients to safeguard them from such significant, unexpected losses. The ones best technically skilled and prepared to provide professional risk management and advisory will even benefit.

When it comes to the Adriatic region, I believe the same principle of increased diligence applies. It is difficult to say how current geopolitical tensions will translate to this region during the rest of the year and look further ahead, but I hope that we will see a general trend of de-escalation. Economic interdependencies between nations are significant and it is hard to imagine that further escalation would do any good, economically and also from a civil and social perspective for the people in the region.

However, challenging times have always also been phases of opportunity to than in calmer times innovate, adapt and improve. I am very happy to see that corporations, including insurers, became more agile, by showing efforts towards necessary transformation and adaption to this constant crisis. The insurance industry is, thankfully, wide awake and moving ahead.
 
Although the Croatian insurance sector has so far proved to be relatively stable during the corona crisis, could the effect of the crisis on insurance companies occur with a certain time lag?
That depends on whether we will see new, again significantly more dangerous variants of the virus or not. If yes, it is fair to assume that protective measures like further lockdowns will fuel the current stagflation and make another serious dent in the Croatian economy. This may then also influence the results of insurers. If not, I’m quite positive that such a scenario will not occur.
 
How should risk monitoring be approached in these unstable times (pandemic, war, disturbed international relations, pronounced climate change)?

As I stated already in the beginning, from my point of view it is most important to include a proper risk prognosis within a company´s risk management process. This means, that forward-looking companies adapt early to uncertainty by constantly applying methods for assessing their business model and their supply chains, checking vulnerabilities and potential impacts. The risk management department must be aware of these changes at the earliest possible stage, to anticipate the possible impact on their specific risk landscape and develop appropriate treatment strategies. Therefore, it is now more than ever of utmost importance that risk advisors and insurers are finally much more included in the clients’ strategic planning. We are increasingly rendering such services and we see more and more clients understanding and appreciating this. This is a good trend.

Croatia is intensively preparing for the introduction of the euro, on January 1, 2023? How will this affect the insurance industry?
Yes, after a long process of preparation and fulfilment of EU requirements Croatia will be taking this major step, which I personally welcome. In the best scenario, this will contribute to increasing foreign investment which in turn could create additional value and increase the total amount of economic assets in Croatia, leading to increased demand for insurance. The pure change from HRK to EUR itself will have no major impact on insurers. In fact, the HRK has been linked to the EUR for decades now. Many major economic transactions in the country have effectively been executed in EUR. It remains to be seen whether insurers will try to use the currency change for (unjustified) price increases. However, the insurance industry is a competitive market with sufficient choices for clients, so I believe this risk shouldn’t be too pronounced.

Croatia has a relatively developed insurance market. Where is insurance in Croatia most developed in comparison to the region? Where does the market in Croatia still need to catch up with the more developed countries in Europe?
Interesting question. Yes, I would agree that Croatia’s insurance market is generally relatively well developed when comparing it to other economies in the region, but there is not a huge difference. In fact, in the Adriatic region, the Slovenian market seems to be the most advanced. This is also reflected in the per-capita expenditure for insurance in general which is highest in Slovenia. In general, we see well-established Lines of Business and really good products, especially in Property and Business Interruption, of course, motor insurance, but also general liability coverages and to a certain extent in Health & Benefits across the region.

Unfortunately, and this is the major difference to more mature western economies, the focus for many companies seems to still rather be on basic protection of assets, based on a Casco mentality translating into possibly no or low deductibles. This shows that understanding of risk- and insurance management is still on a level which offers potential for improvement. This is where we need to catch up. However, this is changing for the better. The understanding of benefits and the value of professional risk management is increasing among Croatian corporations and in fact, there are some very mature companies in this respect we service in already for many years. Those companies are blazing the trail for others and the number will increase.

We observe that the understanding of risk and risk management today correlates with the size of the business rather than with any specific country in the region. The more mid-sized companies learn how to analyse and calculate all their business risks – hence, knowing their total cost of risk (TCOR), the more we will see purchasing behaviour moving closer to more developed western European insurance takers. At GrECo, we are passionate about helping companies increase their awareness of a holistic approach to risk.

GrECo recently acquired MAI CEE. What exactly will that acquisition bring you?
We like to see this transaction rather as joining forces than an acquisition. This is a strategic investment into a joint future. Unlike private equity or other financial investors, our shareholders are thinking long-term and our full focus is on servicing our clients, being a trusted and loyal partner to them offering first-class specialist solutions. After thirty years of dedicated work, GrECo is the leading independent insurance broker & risk advisor in Central Eastern and South Eastern Europe today. This region is what we call our home territory. We are constantly striving to improve and strengthen our leading position by offering talented people from the region a superb platform to develop and grow. MAI is also an independent broker, traditionally rooted in CEE and SEE, just like us.

Also, MAI is home to many incredibly talented and motivated people. I know this first-hand, as I have been deeply involved in making this transaction happen. Together we will be expanding and improving the portfolio of our professional services for our clients. MAI brings, among many other things, superb expertise in servicing international business, first-class international network affiliations and strong Health & Benefits and HR advisory into the Group. We are proud that MAI has chosen to shape the future of risk advisory in Eastern Europe together with us.

Until recently, you were at the helm of GrECo nova, an international network of brokers. Who is gathered in that network and what is its basic role?
GrECo nova is is our global specialist insurance broking network which provides our clients with decisive benefits in all their global ventures. What we do here is ensure GrECo’s quality of service for our multinational clients worldwide. We are having a wide range of long-standing partnerships with other leading independent international brokers in their parts of the world. Under our network GrECo nova, we foster active collaboration of insurance experts who are sharing our culture and values. As the international broker landscape is dynamic, we work with them on a non-exclusive basis, constantly monitoring the quality of services via a sophisticated process. We go the extra mile and have a team that is travelling extensively meeting partners in person around the globe. This way we build trust beyond the usual level and our clients can feel this in the international servicing we put together for them every day.

How much can a broker actually contribute to a company in terms of choosing the right policy and achieving the best price?
The broker is the client’s advocate and expert. He represents the client in front of the insurance market. If the client understands the value of a broker, then the broker is selected carefully, maybe in a broker tender, and appointed exclusively. The broker speaks thoroughly with the client in the analysis phase, gaining a full understanding of all aspects of the risks the client is facing and forming a risk mitigation strategy. Then, the professional broker and risk advisor – not only the insurance dealer as described previously – can engage in a serious process of what we call marketing the risk, or broking. He can approach all insurers, locally and if needed internationally, making it clear that he is appointed exclusively, and the negotiation is about the best possible terms for the risk coverage at the best possible price for his client. This very often means designing the coverage instead of selecting an existing insurance product. The outcome for the client in such cooperation is usually very good. The value of the cooperation between client and broker is then periodically assessed, say once a year, or every three years.

This still happens too rarely in South-eastern Europe, unfortunately. What we often see is that companies appoint multiple brokers, very often not engaging in a risk dialogue before. They think the more brokers they appoint, the better the result will be because there is a higher probability that someone will bring the best price to them. However, the opposite is the case. This is very important to understand: when multiple brokers are appointed, then the brokers who are supposed to be the clients’ advocates and experts are having a difficult task. All those brokers go to the different available insurers. The insurers then have the difficulty of not knowing which broker will be the one whose offer will be selected by the client and hence, usually settle on one offer and send it to all the brokers to maintain fair competition. A deeper conversation about the risk between broker and insurer is often neglected and the risk is not marketed in the best way. The outcome is that, while the offer may be cheaper, it may often also be lacking fundamental aspects of coverage and is hence not the best possible solution for the client. Although not in anyone’s interest, the broker in this case in effect becomes an agent of the insurers, an insurance product dealer. This can seriously harm the client in case of a major claim when the client then finds out what he has bought.

So, the right broker, appointed exclusively, can bring enormous value to the client when engaging in a risk dialogue first, setting the right risk mitigation and insurance strategy, before approaching insurance markets. Then, marketing the risk as the exclusively appointed broker can make all the difference.

GrECo is a family business, does it give it any advantages over other brokers that are mostly owned by funds?
I believe yes. At first sight, it might seem that for a client it does not matter who is the owner of a broker. But, what does matter is the people performing services for the client. Now, there is a saying that when you care about your people then they will take care of your clients with all their hearts. I believe this to be true and we are offering a lot to our teams.

The first is stability. GrECo has a long tradition of sticking closely to its people, especially during difficult times and providing them with a very stable business environment. For example, during the pandemic, there were no layoffs and no salary cuts at GrECo.

Second, continuity at the management level. We are a hands-on, flat organisation and management is very much approachable to everybody, decisions can be made quickly and without complicated processes. Also, management is carefully selected, and there for the long-term. There is no hire-and-fire mentality. This helps us to set a strategy, pursue it and establish much deeper trust with our people. In our daily work, we don’t need to focus on some financial investors’ or stock market analysts’ expectations. Our only focus is on our client’s and people’s needs. We believe that this is more attractive to skilled employees and talented young people than working for PE-backed brokers who are strongly EBIT-focused and interested to resell the company after a determined period. While we are a very successful company, those owners are in the investment banking business, not in the corporate insurance broking business. We are. And people, as well as our clients, can feel this.

You recently became a member of the Executive Board of GrECo Holding. Where did you come from in insurance and among insurance brokers, how did your career develop and what do you think brought you to that high position?
Yes. And I am very grateful that our supervisory board and our shareholders are placing so much trust in me. I started my career in 1997 in Germany as an apprentice, working for one of the major German insurers. I went through all departments from property-, motor-, liability-, and health- to life insurance and claims and enjoyed a very good, classical insurance education. I went into sales and client servicing after this and learned what it means to understand and satisfy clients’ needs while running my own brokerage company. During this time, I also studied insurance management and economics in Munich and attained my bachelor’s degree. I continued my professional education at the Chartered Insurance Institute in London and became a Fellow of the CII. Finally, I completed my studies with an MBA in General Management in the UK. I joined GrECo in 2014 and had the chance to contribute to our Group’s international development, always putting people first, working hard and (hopefully) smart. I guess when you love what you do this is visible to others and can be inspiring.

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How do Food & Agriculture companies insure their plants abroad?

International Insurance in Agriculture

Multiple positive benefits come with international insurance programs.

International or Local Insurance?

When an enterprise has a wide range of operations in more than one country, a convenient form of insurance ensures the entire enterprise, together with foreign entities, in an international program.

This is a fitting solution for companies with subsidiaries, commercial agencies, warehouses or production plants abroad.

Advantages of the international programme?

Multiple positive benefits come with international insurance programs.

They allow for controlling the scope of coverage and the cost of insurance from the level of the parent company by one person responsible for the risk or insurance. It is easy to obtain a homogenous and possibly the broadest scope of insurance coverage for the entire company without leaving any gaps. International programs usually mean higher limits and broader protection than those locally available for individual companies or plants.

Thanks to their wide scope and uniform structure, international programs come with a lower premium. This is not always guaranteed, but in most cases, the premium is lower than one negotiated with many different offers for individual companies/subsidiaries.

The conclusion of an international program allows a higher level of deductible. A group of companies, acting as a whole, can retain a higher share than a single entity. The higher risk levels remaining with the client, the smaller share of risk transferred to the insurer and the lower the final premium.

In the international program, people responsible for risk or insurance have access to all claims data, which allows for better analysis of causes and minimization of unacceptable risks. Finally, control over claims also means more effective claims handling by insurers.

However, there are several elements where international programs will not always be sufficient, and a better solution would be insurance taken on the local market. For example, there are risks exclusive to one company which do not exist at a group level (e.g. crop insurance). Also, we should not forget insurance that requires local service (e.g. health or accident insurance for employees).

As seen above, from the parent company’s point of view, international programmes have many advantages but do not always cover 100% of the risks associated with the activities of local companies. Therefore, the best solution is to combine both insurances. Use an international programme for those risks and assets managed at the group level and attach local policies (to the extent that the programme does not offer full coverage).

Based on this assumption, the best solution for the client will be to use the professional assistance of an experienced broker in both the development of international programmes and with a good understanding of the local market in the many countries where he actively works. GrECo is such a choice.

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Zsolt Varga

Practice Leader
Food & Agriculture

T +36 20 292 33 73

State of The Polish Insurance Market

Polish Insurance Market Skyline

For many years, Poland has been a rather low-premium market due to high competition and rather good results in most lines of business. This has changed by now in industrial insurance, where international standards and practices are being increasingly adopted.

Polish insurance market: premium and insurers in 2021

The Polish insurance market achieved a premium volume of 22.1 bn. PLN (8 bn. EUR) in Life insurance and 47.1 bn. PLN (10.2 bn. EUR) in Non-Life in 2021. Claims and benefits paid by Polish insurers amounted to approximately PLN 41.3 bn. At the end of the year, the combined assets of Polish insurance companies amounted to PLN 201.6 bn. Insurance penetration stands at 3.7 %, thus reflecting the country’s overall picture as one of the well-advanced economies among the Eastern European countries.

There is a consolidation tendency in the insurance market, as shown by the recent takeovers between international groups: Nationale Nederlanden bought MetLife, Allianz took over Aviva and Uniqa purchased AXA. Uniqa´s takeover of AXA had an impact on the overall market in terms of Insurers´ more selective approach while mainly focusing on the loss ratio and financial situation (related to the surety bonds). Moreover, lack the of AXA on the market, also caused problems with a lower number of offers and a lack of alternatives, especially for bigger contracts in CAR insurance. Despite these changes, most European insurance groups are active in Poland, contributing largely to the capacity of the market along with major Polish insurers PZU.

For many years, Poland has been a rather low-premium market due to high competition and rather good results in most lines of business. This has changed by now in industrial insurance, where international standards and practices are being increasingly adopted. More underwriting information is required to support a policy of selective underwriting, but still, there is no withdrawal from certain branches or occupations. Increases in deductibles and prices indicate a more moderate development than in other countries. The capacity of insurers remains similar to the previous years, but the risk appetite is more selective.

The state of construction insurance

Looking at the construction market in Poland, hydro-technical and tunnelling contracts still seem to be estimated as the riskiest. So far, the market has been hardening quarterly and, as a result, substantial rate increases can be observed in the majority of the contracts. Other negative changes contain more limited cover, higher deductibles and additional sub-limits. The line projects (mainly road projects) are estimated as more difficult and the insurance is referred to as unprofitable due to the significant losses in CAR. The concentration is also raising as the local CAR market in respect of the construction insurance is dominated by WARTA, ERGO HESTIA and GENERALI with some minor share of other Insurers. This tendency could lead to the situation where the conditions for many types of contracts can be comparable to foreign markets which would, in turn, make them more attractive.

The problem that currently affects the Polish market, and also affects insurance, is the value of inflation, which in May was almost 14%. As a result of an increase in the price level of construction materials and higher labour costs, there is an unpredictable increase in the value of the insured property or construction work. Due to the unstable situation in this respect, difficulties arise in determining the appropriate sum insured to avoid underinsurance. The obtained compensation may not fully cover the costs of repairing the damage resulting from fire or flooding or other damage resulting from the insurance contract.

For liability risks, the situation is stable and without changes. On the property side generally, a trend of rising prices was observed mainly due to an increase in severe weather events in territories that were previously not considered exposed. However, the overall rates are still competitive compared to Western European markets.
The same trend of increased rates applies to Health & Benefits where the overall influence of Covid-19 connected death and excess mortality, hospitalization, and the increase of serious illness cases have impacted the Polish market. Prices of Medical Packages are increasing due to rising medical costs and overall inflation. At the same time, there have been new products and coverages in Health & Benefits packages: oncology, cardio, diabetes packages, etc.

The situation in energy insurance

With regards to the historically well-known high competitiveness in the Conventional Power & Renewable Energy insurance, it can be said that the unsustainable reduction of deductibles led to losses due to insufficient premium volumes to cover underwriting expenses. In 2020, a change in deductibles and rate increases were observed on the market after another negative underwriting year. Poland plans to increase its renewable power capacity by 65% between 2020 and 2024, with most advances gained through the development of offshore wind farms. The country is finalizing its 2040 energy policy and looks to partner with the world’s largest Renewable Energy companies to develop the market.

One of the great changes the Polish economy will have to face is the transformation from coal as the country’s most important energy source, to other, “green”, sources. Although this will take some time, opportunities for innovation of both the technical bases and insurance solutions will positively influence the insurance market. Still, one of the main concerns of the insurers is to obtain higher market shares, which leads on the one hand to product innovation and product enrichment in Life insurance and a wild price war on the other.

In financial lines, we are experiencing rate increases as well as lowering of capacities just as at the Western markets, however, the Polish market still seems to be amongst the softest. D&O is experiencing certain changes, but they are not as harsh as foreign markets would expect. Cyber is still a market with quite a low penetration, however as the clients’ interest is increasing, the insurer’s appetite is decreasing, especially due to the low level of IT security standards at some local companies.
In the mentioned market segments, the following price increases are observed:

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Pawel Paluszinsk

General Manager GrECo Poland

T +48 661 992 282

Michal Olszewski

Energy & Mining Specialty

T +48 723 979 990

Insurance from Copacabana to Ponta da Piedade

Insurance From Copacabana to Ponta da Piedade

José Manuel Fonseca, CEO of GrECo nova partner MDS Group, talks to GrECo nova Network Coordinator Jonathan Höh about the special features and differences of the two largest MDS insurance markets: Portugal and Brazil.

The two countries have many things in common, such as language and their dynamic growth, but on closer inspection, they could not be more different. Jonathan Höh and José Manuel Fonseca take a closer look at the insurance markets of Portugal and Brazil.

MDS is the market leader in Portugal with almost 300 employees in 9 local offices and in Brazil among the top 3 insurance brokers, with more than 500 employees in 12 locations.

HÖH: José Manuel, tell us something about the insurance markets in Portugal and Brazil.

Fonseca: Let’s start with Portugal. Here, the insurance market is highly developed – in terms of population – at just under 5%, but of course much smaller than the Brazilian insurance market. However, Portugal is currently experiencing a growth spurt due to the events of the last few years. For example, the pandemic has led to an increased demand for health & benefits solutions. We are experiencing an upward trend, especially in health and accident insurance, which is expected to continue. In addition, Covid-19 and the global natural disasters have unfortunately led to a massive hardening of the market in Portugal as well. In property and business interruption insurance, liability insurance, but also in financial lines such as D&O and cyber, capacities are tumbling and premiums are rising, in some cases massively. In summary, the Portuguese insurance market is characterised by stronger demand for personal insurance, especially health insurance, and despite the tough market environment, also for cyber and D&O insurance. In addition, there is significant growth in retail and insurance related to e-commerce platforms, B2B2C as well as online sales.

The Brazilian insurance market is also developing well. The main drivers here are agriculture, livestock, health and technology, with the latter gaining tremendously in importance due to the exponential increase in teleworking. We expect this trend to translate into increased demand for cyber insurance in Brazil as well. Agricultural insurance has also seen the largest growth in recent years, with a 30% increase. Other booming areas, partly due to the pandemic, are surety and credit insurance.

Brazil is also attractive to foreign investors but is considered a high-risk country in terms of stability, corruption, bureaucracy and currency fluctuations. Therefore, hedging political risk is important.

HÖH: Let’s go into a little more detail. Where do you see the main differences?

Fonseca: In Portugal, an EU member, most insurance regulations are similar to those in other EU countries. After all, they are based on EU regulations and directives. For example, motor vehicle liability insurance has been compulsory for forty years, and the scope of coverage is at the European level. Brazil also has compulsory third party motor insurance, but at such a low level that it does not provide sufficient minimum protection. This means that international corporations are well advised – especially when travelling on business with rented cars – to purchase the so-called “non-ownership clause” as a protective cover in their global liability programmes to guarantee a minimum level of protection.

Brazil, unlike Portugal, is a broker market. This means that in Brazil it is mandatory to purchase insurance through an insurance broker. Another key difference that is relevant for large international companies, concerns the reinsurance capacity. In Brazil, reinsurance is highly regulated. Many companies have to reinsure through the largest Brazilian reinsurer IRB, Instituto de Resseguros do Brasil, while in Portugal risks can be freely placed on the international reinsurance market. 

HÖH: What distinguishes the MDS Group as a partner for the industry?

Fonseca:
MDS was founded in Portugal over 35 years ago. From the beginning, we have strived to build a global company that challenges standards, sets trends, modernises processes and expands business areas and portfolios. With our presence in seven countries – Portugal, Brazil, Spain, Angola, Mozambique, Malta and Switzerland – MDS is a strong partner for the industry and an independent leader in several markets, with Portugal and Brazil being our two largest markets.

Since 2017, we have also been Lloyd’s broker, incidentally the only one from a Portuguese-speaking country.
We will continue to focus on digital transformation as one of our strategic priorities, investing in technology, software development and teams of experts.

For example, we have developed an app that allows our clients to access their insurance portfolio easily and quickly via mobile phone. To meet the need for efficient processes, we are also using digital tools to manage most administrative tasks, enabling both our clients and our teams to invest freed-up time resources in high-quality activities.
 
About José Manuel Fonseca
Jose Manuel Fonseca has led the MDS Group for 20 years, growing the company from a small broker to a giant in the Portuguese-speaking region. He has 35 years of experience in the risk and insurance industry. Fonseca is also chairman and founder of Brokerslink and a former vice-president of FERMA (The Federation of European Risk Management Associations) and a board member of CIAB (The US Council of Insurance Agents & Brokers). In 2018, he was awarded the “The Broker Leader of the Year” award by FERMA.

About MDS Group
MDS was founded in Portugal over 35 years ago. With an active presence in seven countries – Portugal, Brazil, Spain, Angola, Mozambique, Malta and Switzerland – MDS is a strong player in the European brokerage landscape and an independent leader in several markets. The company employs 900 people who manage a premium volume of 650 million EUR and generate a turnover of 80 million EUR.


This article is a part of our latest Spotlight publication focusing on supply chain issues. Read the publication and learn more about how you can protect your business from changes and unpredictable supply chain disruptions.

Related Insights

Jonathan Höh

Network Coordinatoron

T +43 5 04 04 396

José Manuel Fonseca

MDS Group CEO

We think and live internationally

The demands on risk and insurance management are naturally complex. This is especially true in the management of international groups of companies.

The opening up of the East and a few years later the accession to the EU have boosted the Austrian economy.

GrECo also recognised the opportunities at that time and started on the path towards internationalisation more than 30 years ago. An independent department was established in Vienna, the “Central Account Management”, or CAM for short, which manages all the insurance interests of globally active groups of companies.

The CAM team focuses exclusively on this client segment. It is also responsible for the so-called incoming business, i.e. investments by foreign companies in Austria. The account team also manages the own international network GrECo nova, which acts in the interest of the clients.

Local and international know-how

As with purely national insurance solutions, international programmes also begin with an intensive examination of the risk. This is the basis for the risk financing strategy, from which the insurance principles are derived.

Specialised knowledge is required for the correct design of insurance programmes. It is important to know local regulations and special features. GrECo is in constant exchange with international partners and accesses databases to take all current trends and country specifics into account when designing contracts. This makes consultancy challenging, not least because the circumstances are developing dynamically.

Monitoring & Controlling

Central monitoring and guidance are an essential element of GrECo’s service for international clients. In this context, claims management plays an important role. Of course, our experts are also available worldwide to advise clients on site if necessary.

In addition to providing top service on global insurance programmes, the CAM team also handles regular reporting, often using its own GrECo Online Services. The decisive added value comes from quality control and analysis of the data. In addition to an accurate overview of costs, we also create a basis for decision-making. We develop all digital solutions in-house, which allows us to respond quickly and individually to our clients’ needs.

GrECo nova – surprisingly individual

GrECo nova has been working with the majority of its international partners for a very long time. This is a great advantage, as trusting relationships have been built up from this. We and our partners share the independence and identity of owner-managed companies. Moreover, many of our partners are market leaders in their home countries.

The cross-national and cross-organisational cooperation is tried and tested and based on internationally recognised service standards that regulate all aspects in a binding manner. This creates clear structures. Contractual agreements allow for enforcement where necessary. In practice, the advantages of independent selection of the local service team are even more extensive. The right broker partner is selected by the CAM team according to regionality or sector know-how and not hired via an anonymous international desk.

Turnstile Placing Hub

GrECo nova also makes mutual use of the partners’ specialised knowledge and direct access to international experts in various industries or insurance sectors, so that cooperation is lived in the sense of “best of all worlds”.

This also applies to access to capacities. Via Placing Hubs, we access all relevant international players in the insurance and reinsurance market. This allows us to individually configure the best solution in each case.

The CAM team is not only professionally active around the world, but also thinks, feels and lives internationally. This can be seen, among other things, in the universally shaped leisure time behaviour of many team members. One colleague, for example, is a passionate mountaineer and tackles the 6000-metre peaks of this world. Another colleague is a table football player with international tournament experience. In general, the team is a good mix of long-standing GrECo employees, including real GrECo veterans, and young talents, some of whom completed their apprenticeship at GrECo and were then able to develop further.

Communication skills in demand

Communication has a prominent position in the CAM team. This, of course, concerns – very obviously – language. Among the team members, there are many language talents who speak several languages at once, including Chinese. But even more than language skills, the experts need communication skills, especially when it comes to the tension between central decision-making and local implementation. In addition, in international business it is essential to understand the special features of local markets and to design an optimally adapted solution.

Flexibility, of course!

The activities of our clients on different continents require intensive travel. The experience of the last few months shows that there are unfortunately limits to the exchange via virtual channels, especially when it comes to risk consulting or claims management.

But it is not only activities that can be planned, such as risk surveys, that are carried out with élan by the CAM team. By their very nature, international groups of companies are much more frequently involved in M&A activities. It can happen that an insurance due diligence has to be prepared at very short notice, often within a few days, and/or a planned deal has to be provided with a suitable transaction insurance (warranty & indemnity).

Roland Litzinger is pleased: “I am proud of the achievements of our team of around 30 experts. We can confidently claim that our bundled competence, combined with extensive experience, is outstanding.”

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Roland Litzinger

Head of International Business GrECo Austria

T +43 664 210 50 13

Challenge is our different states with very different cultures

Tusher Thakker, CEO at PERAJ INSURANCE BROKERS talked to Jonathan Höh, GrECo nova Network Coordinator about the variety of languages in India and how excellent client service can lead to long-term client relationships.

HÖH: India will be the most populous country in the world. India has, arguably, greater linguistic diversity than any other large country. The precise number of languages spoken in India is probably over 1,000, but it is often hard to define when one language begins and another ends. How does this affect business? How do you cope with this varieties?

THAKKER: Well, the number of spoken languages, regional, folk etc. is said to be over 3000. However, we have Hindi as a national language which is taught in almost every school. Also, most schools in major cities and towns are English medium schools where Hindi is taught as a language, but overall teaching is in English. Most legal documents including insurance policies are printed in English. Language has never been a barrier in growth. In fact, India has become a huge IT hub because of a very large, young English-speaking population.

HÖH: What are the biggest risks that foreign companies operating in India need to be aware of?

THAKKER: So far, the major risk has been frequent policy changes in various sectors but that seems to have changed. The government seems to have adopted long term goals and have set up policies accordingly. Sometimes, infrastructure projects get affected when there is a difference opinion between state and central government.

HÖH: How do India risks differ from those in other countries?

THAKKER: Infrastructure is not at the same level as in Europe, the US or even China. That can be a “challenge” or a risk at some point. I would say the other “challenge,” which is not so much a risk, is that we have different states with very different cultures, different languages, and different consumer behaviour. That can be an extraordinary situation for companies that want to be present throughout India.

HÖH: What regulatory challenges are companies facing? What types of insurance are mandatory?

THAKKER: The current government is very industry friendly. A lot of new Economic reforms have been introduced and the latest budget presented on February 1st has been very well received. Non admitted cover is prohibited but some multi-national companies still rely on the master policy for D&O cover with no local policy. This can be a big issue and it is mandatory for stock listed companies to have a local D&O coverage in place. Other mandatory coverages include MTPL and a public liability act policy when storing or manufacturing certain, specified hazardous materials. The “cash before cover” law presents a challenge when it comes to global programmes as we often receive invoices / quotes very late and sometimes after renewal.

HÖH: How do you cope with these regulatory issues?

THAKKER: It is a standard practice for us to keep our partners updated with developments in India, be it regulatory or market practices. To cope with cash before cover issues, we keep regular contact with the local fronting company and global brokers well before renewals. Wherever possible (if accepted by the local fronting company) we advise the client to place deposit money, if invoices / quotes have not been received.

HÖH: Can international insurance programmes be implemented? Which special features must be considered?

THAKKER: Programmes can be implemented, all lines. Recent development however is that on PDBI local tariff rates will apply even on programme policies´. One must always remember that India has cash before cover law and that Indian clients are used to low deductibles. In general, local deductibles are much lower than programme policies for almost all lines. We closely interact with controlling brokers particularly on scope of cover. Generally, our observation is that when submitting terms to master insurers, local fronting companies often submit narrower terms.

HÖH: Please describe Peraj incoming business servicing capabilities?

THAKKER: Peraj has been in international business since 1978. We take extreme care to have a diplomatic and delicate approach with clients. We endeavour to spend time and efforts on confidence building with clients. More so when programme policies are to be implemented when local terms appear better. We try to engage clients in conversation, answer all their questions and allay all their fears and apprehensions. Generally, when the appointment is from HQ, the local client tends to get apprehensive. We give them comfort and confidence that we are by their side, to take care of all their issues. The entire team speaks fluent English in addition to local regional languages.

HÖH: Can you tell us about your most complicated case when dealing with international clients?

THAKKER: A large cement producer was setting up a very big and complicated project in this region. The quarry was being set up in the North East border of India and the cement plant was to be erected in Bangladesh, the two to be connected with a closed conveyor belt, 17 km long (longest in the world) crossing the international border and a river. North East was and is still a troubled state with Naxalite activities (insurgency group). The Bangladesh market was too small to be able to write a risk of the size the client was proposing (in fact the entire capacity was just about 5% of the requirement). Owing to challenges mentioned above, international reinsurers were unwilling to write lead terms and we had to arrange most of the capacity from India. The leading broker assigned us the task of placing the risk locally. The year was 1996 and we managed to do what was necessary. This client is still with Peraj although globally brokers have kept changing.

Tushar Thakker
Tushar Thakker is the owner of Peraj insurance broker and leads the broker as CEO and Director for more than 30 years. He is well known in the global risk management community and has strong relations to brokers around the world.

About Peraj
Peraj is the oldest intermediary services company in India for direct/retail broker related services. Peraj is a pioneer with 65 years’ experience in the industry. A very high client retention rate reflects the quality of services and the ability to service all lines of insurance. Peraj provides services not just across India but also Nepal and Bangladesh.

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Jonathan Höh

Group Sales & Market Coordination

T +43 5 04 04 396

“You need to have a detailed strategy to succeed in Japan!”

Simon Wallington, Managing Director at the GrECo nova partner Cornes in Japan discusses with Jonathan Höh, GrECo nova Network Coordinator the rise of foreign investment, regulatory issues of insurance and the importance of “hanko” in Japan.

HÖH: What role does foreign direct investment play in the Japanese economy?

WALLINGTON: By way of background, Japan has had less foreign investment when compared with most of the other major developed nations. This is mainly because for a long time, they have sought to nurture and protect their own companies until they were strong enough to trade and compete in the global markets. In some cases, foreign companies have entered the market and then withdrawn once they found the barriers too difficult to manage. For example, eBay Inc who entered the Japanese market in 1999 but had to withdraw in 2002 due to local competition. Fortunately, the situation has recently changed and foreign investment in certain industries is now rapidly increasing.

Japan is potentially a very attractive market for many overseas companies because it has a very large and sophisticated customer base of over 120 million and represents approximately 10% of the world’s economy. However, it is a tough market to break into because Japanese customers can be very demanding, with different tastes and needs requiring overseas companies to redesign or redevelop their products. Examples of this in the past have included cars, mobile phones and toothbrushes.

HÖH: What are the biggest risks that foreign companies operating in Japan need to be aware of?

WALLINGTON: The size of the market requires substantial investment and there is usually fierce competition from long established competitors (depending on the products and industry). A detailed market research and strategy is an absolute necessity to succeed in this country.

In addition, Japan has always been a very bureaucratic country with lots of regulations, permissions, certifications, procedures, offices and authorities requiring approval procedures. These don’t normally exist to such an extent in most developed countries and it requires a lot of patience to navigate through these.

On the physical risk side, Japan is reported to have around 5,000 minor earthquakes recorded per year (more than half measure between 3.0 and 3.9) and around 160 earthquakes with a magnitude of 5 or higher. Having said that, the building construction regulations are such that most of the infrastructure can withstand all but very strong earthquakes. Other natural perils such as flood, typhoons and windstorms are becoming more regular and stronger as climate changes make their presence felt.

HÖH: What are the main facts of the insurance market in Japan? How do the key indicators compare to European markets like the German insurance market?

WALLINGTON: The Gross Written Premiums of 114,818 million USD in Japan are rather low compared to 126,005 million USD in Germany. This clearly indicates that the Japanese insurance buyers do not purchase as much insurance as these other countries, in particular business interruption insurance.

The major lines of insurance include Motor (40.2%), Liability (19.6%), Property/Commercial (18.4%), Marine (4.7%) and Other (17.1%).

Additionally, the market share of the top big 3 Japanese insurers represents 86% of the Japanese premium, indicate a strong concentration and power base in these 3 insurers.

The largest Claims in FY 2018-2019 were natural disasters including eight typhoons totalling 29.3 billion USD/ snowfall 3 billion USD / heavy rain 1.8 billion USD although this is somewhat less than major earthquakes such as the Tohoku earthquake in 2011 which resulted in 15,782 killed/4,086 still missing/128,530 dwellings destroyed & losses totalled 236 billion USD.

HÖH: Can international insurance programmes be implemented? Which special features must be considered?

WALLINGTON: There are literally thousands of International Programmes in place in Japan through fronting policies for foreign companies operating in Japan. As non-admitted insurances in Japan are illegal (apart from marine, aviation, reinsurance and overseas travel), companies must have their global insurers/brokers arrange for fronting policies to be issued by either their licensed subsidiary in Japan and if they have none, then by a correspondent licensed insurer/broker.

Additionally, when purchasing insurance in Japan it should be noted that the Insurance Policy Wordings need to be first approved by Japanese FSA. In addition, the collection of insurance premiums is critical as Japan is a “cash before cover” jurisdiction and the fronting policies are only effective once the premium is paid to the insurance agency such as Cornes. Insurance premiums need to be paid by a policyholder who resides in Japan in Japanese yen and not from overseas parent companies.

Policy wordings are available in Japanese or English depending on the type of insurance and the insurer. The compliance laws in Japan require insurance agents to explain each type of insurance and get the local subsidiary’s ‘sign off’ that they understand and agree to the renewal terms even when the terms are agreed by their head office.

HÖH: What are the first steps for foreign clients regarding insurance?

WALLINGTON: Once, we at Cornes, are advised of a new client and the fronting policy(ies), we introduce ourselves to the local subsidiary’s contact and the fronting insurer(s). We then re-confirm the terms, run through the insurances with the local client representative (as required under Japanese law), raise an invoice and issue the application forms (one required for each policy every year). Japan is a “cash before cover” jurisdiction so cover commences only once we, acting as the insurer’s agent, receive the premium. Every application form requires the client’s registered “hanko” (stamp) and insurers will only accept the originals of these forms before issuing the policy documents although the pandemic and WHF restrictions has meant that some insurers accept copies for the time being.

Cornes Insurance Agency prides itself on its professionalism and we have established a comprehensive servicing and follow-up system in place to ensure we give every client a friendly and professional service. Our incoming business service capabilities are our lifeblood and we insist that all account managers have a minimum level of English. In addition, we currently have two persons who can also speak and write Spanish and one who can write and speak German.

Our insurance license enables us to not only manage the client’s general and financial risk insurances but also assist them with their Employee Benefit insurance needs – two of our account managers used to work for Japanese Life Insurance companies. All account managers are required to pass the Japanese Insurance Agency exams before being allowed manage clients. In terms of our international business experience, we have an average of 10 years per account manager.

Simon Wallington

Simon holds the title of ACII from Chartered Insurance Institute as well as the NIBA diploma that allows him to practice as an insurance broker in Japan. He worked in 3 different countries starting in London as a trainee in 1977 before becoming account manager and then moving to Tokyo in 1985 where he was branch manager at Sedgwick. After just over 5 years in Tokyo he transferred to Sydney where he managed a portfolio of corporate clients. Afterwards Simon joined JLT as Director of Asian Business Development. His role soon extended to include local Australian and European clients, such as major Japanese and Korean corporate conglomerates. Since 2010, after working for InterRISK in Sydney for 5 years, he joined Cornes as Managing Director responsible for all aspects of the Insurance Division.
Email: simon.wallington@cornes.jp
Phone: +81 357 301650
Mobile: +81 804 2004459

About Cornes
The Cornes business was founded in Yokohama more than one-and-a-half centuries ago in 1861 by Frederick Cornes and his partner, William Aspinall. Initially trading in silk and tea, the business quickly expanded to include the import of cotton, metals, consumer goods, coal and other raw materials. The company was also a pioneer in the Japanese insurance market starting with its appointment in 1868 as the first Lloyd’s agent in Japan – a position that is still held today. With the development of its maritime and insurance operations, Cornes paved the way for new services-based industries in an age when business was still dominated by trade in material goods.
The 25 employees in the insurance division located in Tokyo and place over 26 million EUR premiums into local and international insurance markets. The insurance division of Cornes has specialised knowledge and expertise across several industries enabling clients to benefit from tailor made programmes that extend beyond the market’s standard insurance products. They look after over 700 clients with global programmes ranging from property & liability, cyber and D&O to Group Life Insurances working in conjunction with the global brokers and agents overseas.

Related Insights

Jonathan Höh

Group Sales & Market Coordination

T +43 5 04 04 396

Ensuring compliance of international insurance programmes: Eurasian countries

Before the collapse of the Soviet Union and the declaration of independence of many former CIS countries in the early 1990-years, two state companies had a monopoly for all insurance business. Ingosstrakh wrote all reinsurance and international insurances requiring hard currency and Gosstrakh, sometimes via its branches of the Soviet network, covered domestic risks that could be insured internally.

Since gaining independence, the Eurasian countries have substantially been replacing and modernizing their insurance legislation inherited from the former Soviet Union. However, compliance with local legislation remains complex for multinational companies covered by international insurance programmes.

In general, there are multiple ways to cover a Eurasian risk of a multinational corporation under an international insurance programme. One can purchase insurance locally if the market capacity allows or install a local fronting policy and reinsure the risk to a central capacity provider. Other possible solutions include non-admitted insurance or coverage via a financial interest clause.

Local Market Placements

As in some other post-Soviet economies, insurance spending in % of GDP remains quite low, also impacted by constraints in macro-economic conditions, restricted bank lending, and currency devaluation. This results in market premium primarily depending on the compulsory classes of property and MTPL, supplemented by voluntary premiums across all classes related to the major corporate businesses in the oil, gas, energy, real estate and construction sectors.

However, usually local market capacity is not enough to cover large corporate risks of foreign direct investors. Additionally, the wordings do not match the standard of Western European countries and regulatory complications, such as the required filing of forms with authorities, make local market placements difficult or impossible. Therefore, brokers advising multinationals with business interests in Eurasia try to organize global coverage.

Non-admitted Insurance

Non-admitted insurance refers to placement of risks outside the regulatory system of the country where the risk is located and by an insurer that is not licensed in that country. Non-admitted insurance is not permitted in almost all the former CIS countries because the law provides that insurance must be purchased from locally authorized insurers. There are only some minor exceptions for highly specialized risks such as Marine and Aviation.

One exception is Armenia where a foreign insurer can transact business through its locally registered branch, which does not need to be locally capitalized. While foreign insurers are not allowed to market their products in Armenia without having a local license, anyone can buy, quite legally, a non-admitted policy. This is not market practice, and there might be significant practical obstacles for corporate businesses, such as not being allowed to consider non-admitted insurance premium as tax-deductible, and potentially having to treat incoming claims payments as income subject to local taxation.

When it comes to non-admitted insurance, the requirements of the law appear to be adhered to, since it is difficult to effect insurance other than with the locally licensed insurers in the absence of exchange control facilities for non-admitted placements. However, international firms that operate in the Stan-countries (Afghanistan, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan, Uzbekistan) are likely to arrange most of their insurances on a worldwide-program basis, placing only those parts of their covers with the local markets that they are absolutely obliged to. Technically, this may be strictly illegal under local law in some countries, since even DIC and DIL (Difference in Conditions/Difference in Limits) covers seem to be proscribed. But, certainly in the case of liability master covers, and particularly when neither premium nor claims recoveries are recorded through local accounts, the law is difficult to enforce.

In the strictly controlled economic and political environment, purchasers of non-admitted insurance are likely to face severe penalties for breaches of the law. Another potential solution could be central coverage via a financial interest clause.

Financial Interest Clause

A financial interest clause (FINC) is a provision within a global or master policy that covers the parent company’s diminution of financial interest when losses are suffered by its worldwide subsidiaries. A loss suffered by a subsidiary causes a reduction in the value of the parent’s financial interest in the subsidiary, for which the parent is indemnified under the FINC in its home country.

However, these are the top 4 limitations to keep in mind:

  • First, because the parent is the only insured under the FINC and the subsidiaries are not actually insured, claim payments must be made to the parent and not the local subsidiary that faced the damage.
  • Second, since the local subsidiaries are not the insureds, providing evidence of local coverage to third parties is not possible.
  • Third, any recovery under the FINC is limited to the parent’s interest, while the subsidiary’s actual loss could be greater than the parent’s financial interest loss.
  • Fourth, no premium should be allocated to or paid by local subsidiaries.

Given the above limitations, GrECo believes that local policies are the most secure option facilitating compliance, local servicing and claims payment in most jurisdictions, including the highly regulated markets of Eurasia. To overcome the capacity restrictions of local insurance markets, fronting solutions are the most feasible option.

Fronting

Fronting is a recognized feature in Eurasia for many of the larger risks, particularly those with an international connection, because of the general prohibition of placing non-admitted cover.

In most cases state insurers are the only authorized insurers in the country and should a risk require to be fronted, it would have to be through these companies. Some of the state insurers might require assistance in producing wordings for the more complicated risks but welcome every opportunity for involvement in international risk. This is not only for the premium it produces, but also for the access it affords to product innovations that might be turned to commercial advantage in the indigenous market. In the rare cases where there are also foreign licensed insurers the process is much easier since those are usually set up for this specific purpose.

Fronting, and reinsurance generally, are usually subject to a statutory minimum retention by the cedant, and in certain cases, subject also to a withholding tax. In some Eurasian countries the local law requires (re)insurers or reinsurance brokers to offer a certain percentage of the risk to domestic reinsurers before offering the risk to foreign reinsurers. Reinsurers used must have a good credit rating, usually better than A- or B+ Standard & Poor’s or AM Best. Additionally, the state insurers will require a fronting fee, usually in the range of 2.5% to 7,5%.

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The Transition of Insurance Markets in Eastern Europe

Since the 1990s, countries of Central-, Eastern-, and Southeastern-Europe have largely been transitioning to market economies with democratic forms of government and now participate in global markets for goods and services.

Starting of the Transition

The general transition also concerned the insurance market. Drastic changes had to be made to break insurance monopolies which were in place during the communist era as part of fiscal authorities. Existing insurers were first converted into state-owned companies and then privatized. While this transition was taking place, also new, privately-owned insurers appeared on the markets in all parts of Central and Eastern Europe. However, the former monopolists held on their dominant market share for several years and in some markets are still the major players. This transition was characterized by the high pace of foreign direct investments, also into the insurance market. The number of insurers controlled abroad remains high, even today.

Joining the European Union

One additional major factor in the development of the insurance markets is also the accession to the European Union. By today, most of the countries in CESEE have joined, or are in discussion to join, the EU. Accession compelled the adoption of European Union standards including the ban on state monopoly, liberalization of market access, abolition of price and product controls, as well as finance-related issues such as adoption of EU solvency regulations, tightening of capital adequacy requirements and strengthening insurance market supervision. This included full market access for companies from other EU members which translates to regular use of Freedom of Service coverages in those countries.

Despite the rapid transition towards a free and fully EU-compliant insurance market, the insurance density and insurance penetration are significantly below Western European standards. For example, annual insurance premium per capita is above 2.000 EUR in Austria and in Eastern Europe only between 50 in Albania and 1.000 in Slovenia with an average of 450 EUR.

Main players and impact of foreign insurance groups

During and prior to accession the impact of foreign insurers was significant, as most insurance market leaders in the countries joining the EU in 2004 were owned by foreign companies with Allianz as leading foreign insurance group being the prime example. As of 2018, the major insurance group in CEE is Vienna Insurance Group (VIG) with a presence in 21 countries and a GWP of more than 5 billion EUR in those countries. Of the Top 10 non-life insurance groups operating in Eastern Europe eight are foreign owned. The same goes for the life insurance sector.

The major local players are PZU in Poland and Triglav in Slovenia which both have their roots in state owned monopolies from the communist area. The main foreign investments in the Eastern European insurance markets stem from Europe, namely Austria, Germany, Italy, France and Benelux. Other, less prominent players are groups from the US, Canada and the UK.

Consolidation of the insurance market

In recent years, a trend towards consolidation can be observed. This is due to the very granular structure of the market with multiple rather small countries and unfulfilled growth expectations.

One recent example is Uniqa’s acquisition of the AXA subsidiaries in Poland, the Czech Republic, and the Slovak Republic. This 1 billion EUR merger further strengthens Uniqa’s footprint in Central Eastern Europe while concluding AXA’s withdrawal from the region. “For us, the growth markets in Central and Eastern Europe are our second home market. With the purchase of the AXA companies, the profitable retail business and balanced product mix perfectly match our long-term growth strategy, we are now one of the leading insurance groups in the CEE region,” comments Andreas Brandstetter, CEO of UNIQA Group.

On November 29th 2020, Vienna Insurance Group signed a share purchase agreement to acquire the entities of the Dutch insurer AEGON in Hungary, Poland, Romania and Turkey.
 “The acquisition of the Central and Eastern European business of Aegon is an important step for our Group to sustainably strengthen our leading position in CEE and to take advantage of new opportunities. In Hungary, we are making the leap to the top. In Turkey, we succeed in entering the life insurance market and in Poland, Romania and Hungary we can significantly expand our potential in the pension fund business,” says CEO Elisabeth Stadler about the successful deal with Aegon.

Smaller mergers and acquisitions in 2020 happened in various other countries, such as Romania, where Allianz acquired Gothaer Romania.

Increasing Interest for Corporate Insurance

The insurer landscape and insurers’ risk appetite is undergoing dynamic developments in the CEE region. While the main focus for insurers remains on profitable private lines and standard product offerings for small businesses, an increasing interest for corporate risks can be observed also among pure local insurers.

Due to relatively moderate local capacities and consequently relatively low retentions, usually ranging between 20 and max. 50 million EUR depending on the risk, structured reinsurance is regularly needed when incorporating covers. This trend is expected to continue as corporate clients’ risk awareness increases. Sometimes it reaches Western European standards already today. This will most likely pave the way for specialty risk advisory to become more sought after in the years to come.

30 years of experience in CEE

GrECo has been operating successfully in CEE for over 30 years and today is the leading corporate risk advisor and insurance broker in the region. Over the decades close ties to group management of all insurance companies in the region have been established and are being constantly nurtured. This is the basis for swift and competitive implementation of sophisticated tailored covers for our clients.

With our strong presence in 16 countries via owned offices, excellent insurer relations and profound operational expertise GrECo is in a prime position to deliver first class specialty placements. Our international expertise also allows us to implement fronting solutions for multinational clients efficiently. This is making us the first choice for independent international partners around the world.

We have experienced the transitions of the insurance markets first hand. Having been in the region for over 30 years we have gained insights we are happy to share with our partners.

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„Great potential for the insurance culture in Mexico“

Interview with the insurance broker Howden Mexico

Jonathan Höh of GrECo nova (a global network of insurance specialists) spoke with Howden Mexico about major risks facing foreign companies and the specifics of the local market.

According to statistics, Mexico employs 61% of the workforce in the service sector, which accounts for 60.1% of GDP. The technology-, information- and software development-sector in particular is growing due to the good quality of the workforce and low operating costs. But medical services and tourism are also growing faster than in Western countries thanks to low service-costs. In 2018, Mexico recorded a record number of visitors, estimated at 41.4 million according to the Ministry of Tourism.

Although, according to the Mexican Association of Insurance Institutions (AMIS), the insurance sector recorded a real increase of 5.37% in the first quarter of the year compared to the same period last year, the declines were significant in some sub-sectors such as automobile and accident insurance. In addition, a general decline in business of 5.4% is expected at the end of this year or in the beginning of 2021. Currently all companies in the insurance-sector are suffering from the low demand and also affected by reorientations in their business-activities.

HÖH: Can you tell us some of the key facts about the Mexican insurance market?

HOWDEN MEXICO: The insurance culture in Mexico is weak, so the growth potential is very high. Per capita-insurance-consumption in Mexico is low, compared to other Latin American countries and lags behind Brazil, Argentina, Chile, Colombia – and even Peru. It is important to make insurance accessible to the people by developing technological business strategies. A large part of the population does not even know where to buy insurance.

The insurance with the highest penetration is car-insurance, with 30% of the total fleet of vehicles in Mexico, mainly because a significant percentage of cars are bought on credit and insurance is therefore required. Immediately after this comes life insurance, with a penetration of 10%.

HÖH: What are the biggest risks for foreign companies?

HOWDEN MEXICO: The risk for foreign companies is primarily the legal uncertainty and – due to the current crisis – also the economic uncertainty of the country. We also have a considerable risk of natural disasters such as hydro meteorological risks and earthquake risks. Another risk is the high theft of vehicles and goods. And the health-risk should not be underestimated: too high a proportion of the population suffers from obesity.
In 2017, Mexico ranked fifth in the world in terms of losses due to cyber-attacks, with financial institutions accounting for 20% of these losses. Recently, some banks were again the victims of a cyber-attack that caused almost 300 million pesos of damage (editor’s note: approx. 11.5 million EUR). Therefore, one of our greatest concerns is operational-security and that the information of companies offering services or products online is protected.

HÖH: Can international insurance-programs be implemented? And how does Howden Mexico provide customer service, how do you coordinate with the controlling brokers?

HOWDEN MEXICO: Insurance-programs can be implemented for companies that have are a representative office, partner or a branch of a firm headquartered in other countries. In particular, the requirements for quality, service and KPI standards must be taken into account. This requires a structure with a solid, dedicated and experienced support team for large and/or international business as well as representative offices in the countries of the respective regions. Currently, we have established an international business area within Grupo Ordás Howden that largely meets these criteria. Customer service is provided through the signing of a service-agreement, which is reviewed with the customer at least once a month. The coordination through the controlling broker is coordinated through written agreements, emails, telephone and video conferencing.

HÖH: How many years of experience has your team in international customer service?

HOWDEN MEXICO: We created the capacity for the international insurance business two years ago. The team consists of two people, Vice President Arlen Cooper and a senior executive, Perla Hurtado. Both speak English and have years of experience in international business. Arlen Cooper has been in the insurance business for 15 years and Perla Hurtado for ten years.

HÖH: What about the strong automotive sector in Mexico? Do you have proven capacities for this sector, and what specifics have be taken into consideration here?

HOWDEN MEXICO: Grupo Ordás Howden has a large team in the automotive sector. We are leaders in the insurance market here. This year, however, it will be a major challenge for Mexico, which relies heavily on the automotive sector, to recover and reach pre COVID-19 levels.

HÖH: What regulatory challenges are Mexican companies facing? What types of insurance are mandatory?

HOWDEN MEXICO: Currently, Mexico does not have clear and specific regulations, so the biggest challenge is to maintain information security even without these regulations. Since April 2013, the only compulsory insurance that exists in Mexico is car liability insurance.

HÖH: How high is the tax burden in Mexico, and how strongly does it affect the activities of insurance brokers?

HOWDEN MEXICO: Currently, companies in Mexico must pay 30% income tax plus additional 10% of dividends and 10% of employee profit sharing. However, companies do have access to deductions and often end up with lower rates.

Insurance policies are tax deductible. For example, no value-added tax is levied on life-insurance policies. This is an advantage for companies and it is the responsibility of brokers to point this out to companies.

Arlen Cooper I Vice President International
Phone: +55 797 81083, email: acooper@ordashowden.mx

Grupo Ordás Howden
Founded in 1982, Grupo Ordás Howden is a leading company in the Mexican insurance market with strong expertise in all lines of insurance. Headquartered in Mexico City, the company is characterized by a strong client focus, exceptional talent and an entrepreneurial ethos. In addition to expertise in motor insurance, an experienced international desk and industry practices, an impressive technology platform helps to provide even better solutions to customers in many different lines of business.

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Jonathan Höh

Group Sales & Market Coordination

T +43 5 04 04 396