The quintessence of insurance in Latvia

How do the current political developments and economic conditions in Latvia influence the insurance industry and clients’ risks?

KĻAVIŅŠ: Well, before COVID-19 in economics everything was going well, and we were developing faster than established markets. There was good organic market growth in all lines of business, with minor adjustments in some lines depending on tactical targets of insurers.

The political system in general is rather stable, I’d consider the government we have now, one of the best in recent times, as it includes more professionals and sufficient amount of people from new political parties that are more energetic.

In which economic segments/industries do you expect increasing investments in the coming years?

MILTS: This really depends on how the economic outlook will look like after COVID-19. We were quite established in IT sector, financial institutions, timber exports, agriculture produce. More and more innovative manufacturers are created, they are not world-renown yet, but there have been some of our start-up acquisitions already by larger corporations, so we are being noticed.

KĻAVIŅŠ: I think investors value stability, relative geopolitical safety, fast internet. We are blessed with rather modest climate without major climate or natural disasters.
Also, my personal opinion is that Latvia is a good market for larger corporations to experiment on some new technologies and approaches – as the market is small, it supports the ability to quickly test different approaches without risk of large scale failures. I hope to see more high added value manufacturing in our country, as with it comes development of other service industries as well.

What are the biggest risks foreign companies doing business in Latvia need to consider?

KĻAVIŅŠ: I think foreign companies are used to huge numbers, but in Latvia, twice the size than Belgium, but with 6 times less the population will never produce the turnover expected by larger corporations. I believe we have plenty of internationals having come here and found out that the market is too small to bother – that’s a pity, because country is developing and with less competition, the price of some goods or services tend to be higher per capita than in “old Europe”.

MILTS: Due to spare population and high people and talent concentration in the center of country around our capital Riga, there is long term issue of maintenance of infrastructure and life quality in the regions. I mean, we have a rather extensive road network in terms of kilometers covered, but we do not have enough people that can pay taxes to support all the infrastructure. So when an investor is coming here, they have to take account these risks – all will be ok around larger cities, but if the property of interest is located in rural areas, it could be challenge to make it profitable.

The availability of skilled workforce could be of an issue, good market research before investing is needed to understand if there will be enough necessary specialists. The education quality is not bad and younger generation is proficient in English, however due small population, availability of certain specialists could be of an issue.
Considerable issues are also court processes. As our legal tradition is barely 25 years old, there are still many flows both in legislation and execution of fair and logical legal and court process. Foreign investor lobbying groups are working hard to push for more transparent and efficient legal system, so foreign investments would be better (and fairly) protected in courts when business disputes arise.

As a success story I can mention that we have done a lot in recent years in our financial sector and now Latvia has one of the highest compliance levels in the whole world for financial sector and anti-money laundering.

From insurance perspective, an investor should take in account, that generally, the understanding of insurance and risk management is lower here in Latvia if compared to “old Europe”, so they need to know, that their local partners and subcontractors will most likely carry only very basic insurances, that would not always cover the actual risks involved, therefore, it is crucial to employ a competent broker, who can advise also on necessary approach to have partner and sub-contractor insurances at needed protection levels. For our corporate clients, we in IIZI do this type of advising as integral part of our services.

How do Latvian risks differ from those in other countries?

DREIFELDE: The risks for companies in Latvia do not greatly differ from those in Western Europe. As our insurance industry has been operational for only about 20 years, and the loss ratios have been rather good, the pricing for insurance is rather competitive and there is no problem to get good coverages unless the sums insured stay relatively low. Local insurance providers, despite being foreign internationally owned company branch offices, would struggle with anything above 25 million EUR, because of their current reinsurance setups and own ground level capacity limitations, driven by market need for low sums insured.

What are the main facts of the insurance market in Latvia?

MILTS: The total volume in 2019 was around 520 million EUR. The share of corporate insurance was approx. 50% and brokers account for 40% of the market. Looking at the lines of business, life and health insurance account for 15% respectively 20%, motor for 40% while property is rather underdeveloped with 15%.

As in any developing market – liability insurances are growing. Other lines are growing according to economic trends, Employee Benefits (EB) are somewhat limited to tax incentives related to EB insurances and as the thresholds are not changed for some time ago, this limits the premium growth, however, the interest for these products is generally increasing. D&O is slowly gaining ground.

The push from insurers to support their direct and internet sales is rather high, and brokers are lacking in their IT capacities, to keep up with extensive IT budgets of insurers. This might decrease the availability of broker service in the long run. However, IIZI, as the top broker, also offering market leading online solutions, will probably not be affected by this and rather profit from a market consolidation.

What specifics differ from those in other countries?

KĻAVIŅŠ: Latvia is specific in insurer interpretation of some GDPR norms, e.g. insurers consider MTPL loss data a sensitive information, that rather undercuts the availability of reasonable MTPL statistics crucial for large fleet quotes.

Additionally, even the price of MTPL insurance is considered “sensitive data” by some insurers, that is generally driving the purchase process for this simple and necessary product, to ridiculous complications.

There is no insurance tax, but there is “levy” for sustaining the functions of regulatory body (FKTK), that stands at 0.2-0.3% from GWP. This is generally not separated from premium in any transaction and insurers simply pay that based on their GWP turnover, so clients do not feel it.

Brokers account for about 40% of all corporate insurance sales in LATVIA. Is the share the same in life business?

KĻAVIŅŠ: Brokers are more prominent in the corporate sector, where the need of independent advisory service is more prominent. Life insurance is historically dominated by agents, we are not doing it.

MILTS: IIZI BROKERS, however, has invested in the EB capabilities (Health, Accidental Death, Critical Illness – lines that we don’t consider “life insurance”), where our premium placed has grown YTY and now these lines account for almost 30% of our GWP. We have very strong team for EB right now, including auxiliary consultations in EB matters, very valued by HR’s of our client’s.

In total, IIZI BROKERS corporate unit places around 7 million in premiums, almost 2% of non-life market and with our affinity and SME/Private client unit we place more than 13 million.

Can international insurance programs be implemented? How is this done at IIZI BROKERS?

KĻAVIŅŠ: Yes of course. Being part of EU, makes many things simple, including placement and servicing of international programs, nothing particular to worry about.
We have dedicated brokers trained in international business servicing and international business specifics. We probably would not be TOP 5 broker in Latvia, without this excellent client service. As we constantly invest in the education of our brokers, we have a specialization driven teamwork and dedicated claims consultancy capability, I am sure we can provide top service for most demanding clients.
We have been involved with international business since 2013, we have the understanding and capabilities to adapt to the controlling broker’s needs.

Please describe IIZI BROKERS incoming business servicing capabilities?

KĻAVIŅŠ: Everyone in our team speaks three languages – Latvian, English and Russian, and some brokers have even fourth language knowledge.
Both me and Zane have more than 15 years of experience in insurance and many of those years have been spent working with international clients. Both of us have “hand’s-on” understanding of wide range of products, from Employee Benefits to Owner Controlled Insurance Program for Real Estate developers, and we can provide client servicing in English as well.

Additionally, we have our excellent team of 8 specialized brokers and claims manager to provide efficient and specialized services for almost any industry.

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

DREIFELDE: For some time GDPR and IDD was on the table as in the rest of the Europe, but it is handled now. Motor Vehicle Owners Liability is mandatory, as in rest of Europe. Construction and construction specialist professional indemnity is mandatory, as well as PI for insurance brokers, bookkeepers, bankruptcy administrators and other professionals.
Overall, these mandatory PI policies tend to be very simple and with low limits and we always provide options for better coverage above required minimum.

How do you cope with these regulatory issues?

DREIFELDE: Well, you simply must be compliant and do it in an effective way. I believe this is one of the key ingredients what is required for a broker company to be successful if it plans to work long-term in the corporate insurance sector as we do.

We are auditing and reviewing our processes and procedures regularly. All our procedures are reviewed internally by at least two managers from the management team.
When we develop our internal procedures, even if they can be standard according to local legislation, we would always look if we can improve them to achieve better and more efficient compliance in our Client’s interests.

We are always looking for transparent cooperation with our Clients and have an SLA in place to make sure there is less ambiguity and better protection of Client’s interests.

The level of tax load in other countries – how seriously does the tax burden affect the brokers’ activities?

MILTS: There are no significant taxes apart from normal corporate taxes any company have to pay. I can confirm that IIZI is one of the largest taxpayers in the broker industry of Latvia. Overall, the tax burden in Latvia is relatively low.

When was the last (most recent) bankruptcy of an insurance company in Latvia?

MILTS: A locally owned insurer that was heavily involved in road hauler’s segment went bankrupt in 2013. That has still affected the market, as the payouts for MTPL signed by this company are paid from the securities pool and remaining insurers must make additional payments to the pool, to have it in required level – this increases the prices for MTPL to all customers.

Our clients were not exposed to this a lot, as our corporate clients usually understand the risks involved with placing the business with locally owned insurers that do not have the security of larger shareholder in Europe and good group reinsurance. Also, these insurers are not competitive in larger P&C placements, so that is not a big issue anyways. Right now, there is only one locally owned insurer in the market, and they are trying to sell the business for some time already.

Additionally, the GrECo Group analyses the risks of the insurers in our region as part of the market security service offered. This means, at a holding level GrECo scans the insurer market and advices local colleagues in the broking teams not to work with risk carriers we do not deem appropriate.

Where do you at IIZI focus on when advising clients and what special expertise have you developed?

MILTS: Our team provides wide range of insurance consultancy services, with dedicated specialists for Construction, Employee Benefits, Motor and Manufacturing risks. Additionally, we have separate advisory and assistance capabilities for claims management.

Overall, we provide client with the advice that is necessary in given situation – different clients will need different advice and we believe that is a great value of broker service, to have access to this wide range of knowledge, experience and competences, either for industry specific or general situations, to make the best out of the protection that insurance can provide.