"Imagine going home with the news that you will no longer be paid for your work!" - Interview
You arrived at Allianz Hungária, the largest insurance company in Hungary, in 2019. Is it correct to assume that 2023 is your most difficult year at the helm of the company?
Alexander Viktor Protsenko: This is the case, undoubtedly, as we have to work in a challenging environment, which is true not only for us, but for the entire insurance market.
What are the main challenges the Hungarian insurance market is facing right now?
Inflation is the main one as far as the general economic challenges go. As regards the regulatory challenges I’d mention the significant tax burden on the sector, while in respect of sector-specific challenges natural disasters were on top last year. The latter cost the sector more than HUF 40 billion last year in drought damages.
How much has Allianz paid out for drought damages? Was it a burden on a par with the special tax of more than 10 billion forints? How much of this was covered by reinsurers?
Yes, we had to pay more than 10 billion forints, which the reinsurers reduced significantly, but it still put a dent into our in our annual result. Our specific local figures are not yet public, but Hungary was mentioned in a recent Allianz Group press conference in the context of both the major tax burden and the drought damage claims.
As an insurer, you will be hit by inflation through your operation costs and the amount of claims at the same time. To what extent can you pass this on to your premiums? Will it be easier to do this this year than last?
We have a strong presence both in motor and property insurance, where claims inflation, i.e. the increase in the cost of restoring property, is higher than the average inflation. The former was over 20% and the latter 14.5% in Hungary last year. It takes time to reflect high claims inflation in our premiums, if only because most of our contracts are for at least one year and not all of them are renewed annually. In many cases, the lengthy claims settlement process and potential legal disputes also delay the settling of claims and increase the inflationary burden.
Nevertheless, in repricing our products we have been ahead of the market, which seems to be slow and delayed in reflecting inflation in premiums. The high interest rate environment does not really compensate us for higher inflation either, as we do not have access to the 18% deposit of the Central Bank, and on the other hand, due to the high tax burden, we do not have as much cash to invest.
Is it easier to readjust premiums for inflation for retail or corporate customers?
The price competition is high in the retail insurance market, so it's harder to do that here. In the corporate market, it is more common to find a solution together with our customers and distribution partners in terms of both service content and coverage.
Last summer, everyone feared an energy crisis and there is still a risk of a recession. Are you feeling a crisis in the insurance market in terms of new business and existing life insurance policies?
The immediate risks from high energy prices have been significantly reduced by now. However, the indirect effects, only partly caused by the energy market, are also felt by our clients in terms of prices.
We are indeed seeing a slight downturn in new sales as a result, it is more difficult to convince customers of the benefits of optional products, it requires more explanation and meetings with customers. However, the downturn is not as dramatic as expected after the outbreak of the energy crisis.
Existing life insurance policyholders also understand that the current situation is temporary, so they are holding on to their life insurance savings, not reaching for them recklessly, sticking to their long-term strategy.
Which sales channels are feeling the pinch the most?
Direct and online channels are growing fastest. Allianz's network of tied agents is also performing well and in a stable way, but with slightly lower growth.
Are you also struggling with the ageing of your agent colleagues?
The phenomenon exists here too, but compared to what is experienced in the CEE region, we have a higher proportion of young entrants than elsewhere. Nevertheless, it is a challenge to attract the younger generations, but we need to differentiate between new agent network colleagues and, for example, back office staff. The latter seem to be harder to reach at the moment, while analytical or actuarial areas are much more attractive to them.
Let's look at natural disasters: as an insurer, how can you prepare for more difficult years?
Let's not forget that protecting against the unexpected is at the very core of what insurers do!
In the event of a natural disaster, it is the key of our contribution to the well-being of society and the functioning of the economy. Of course, it is not all the same how we adapt to the dual trend of natural disasters becoming more frequent and more severe. There is no single, self-evident solution. We need to rethink our models of risk management, pricing, provisioning and service delivery. Reinsurers are doing the same: they have changed their exposure in some areas and increased their premiums.
In the long term, active participation in the fight against climate change is also part of getting prepared. Allianz, as a global company, is really committed and is doing a lot in this topic. We are, for example, one of the founders and driving forces behind the global Net-Zero Asset Owner Alliance to reduce CO2 emissions, just to give you one concrete example.
Let's look at the regulatory challenges: how was the introduction of the windfall tax (or ‘extra profit tax’) last June and its increase over Christmas received?
We consider this extra burden as our contribution to the Hungarian community in difficult times. We are good taxpaying citizens of the country, but it is a very large amount, the relative tax burden on the insurance sector is greater than on many other sectors. The amount of the increased tax now exceeds the insurance sector's profit before the introduction of the tax in 2021. The profitability of the sector as a whole has substantially fallen, which raises the question of how long this burden can be sustained.
How do you respond financially to such a burden?
This is a complex issue that we cannot respond to with a single measure.
Imagine going home overnight with the news that you will no longer be paid for your work! It is not a realistic response to say that you will no longer spend money on anything.
We have therefore set up a team at Allianz to review the entire operations, from operating costs to pricing.
A few weeks ago, the government also changed the regulation on home insurances. How was this received at Allianz?
In general, we are not opposed to competition, we welcome the intention if the government wants to stimulate it. However, the question is whether the objective can be achieved this way, and this is much more complicated to foresee. For a start, an intensive home insurance campaign is expected in Hungary in March 2024, the success of which will depend not simply on the behaviour of insurers and intermediaries, but also on the reaction of customers, which is difficult to predict.
We also have to think about secondary effects: lower commissions will encourage less activity and mobility among agents, who may not be motivated in reaching out to customers in the smallest and most remote villages to renew their home insurance, for example.
The government has already indicated that life, agricultural and health insurance will be re-regulated after home insurance. In what areas do you see a real need for this?
If these areas are tackled in a prudent way, good things could come out of it. We welcome the government's intention to increase insurance penetration. In the life insurance market, it makes sense to do this in a way that supports people's willingness to take care of themselves. In Germany and Switzerland, for example, this works exceptionally well, but there is no tradition of this in Hungary therefore we need to educate customers to think ahead for their retirement.
The situation is even more urgent in the case of agricultural insurance and health insurance, in the case of the former changes are needed to cope with the increase of natural disasters and in the case of the latter to improve the quality of health services and balance funding. The majority of society has an interest in avoiding health insurance becoming unaffordable. The Association of Hungarian Insurance Companies (MABISZ) and the experts of the insurance market have a major role to play in shaping the new regulation, and I am pleased that the government is open to dialogue, since, as I said, we share a common goal with the government to increase coverage and penetration.
The government also set a goal that more than 50% of the insurance sector should be domestically owned. Previously, we would not have thought that the state would get involved in Aegon or Union insurance, but it happened. Is it possible that Allianz will also be involved in this process?
I don't have any information on this, but foreign players nevertheless make a significant contribution to the performance of the Hungarian insurance sector. They also play a huge role in the development of the market, both in terms of scale, expertise and in providing the necessary capital for operation.
A decade ago, the banking sector suffered losses of hundreds of billions of forints, and foreign-owned players received a substantial capital injection from their parent bank. Could this be the year for insurers?
In fact, as far as I know,
capital strengthening measures were already made last year by various players in the market. And this is one of the reasons why the average solvency ratio of the sector improved slightly in the fourth quarter after the first three quarters of the year.
Moreover, this year will certainly not be about big dividends.
In such a difficult year for business, is it even possible to innovate?
We have less room for manoeuvre at the moment, but it is something we cannot stop doing. Innovation is always needed.
We are lucky because we can build on the developments of the Allianz Group and initiatives we have made locally in recent years. During the time of the pandemic, gaps were uncovered in digital customer service. Unlike banks, we are not talking about tools for daily use in insurance, so our focus now is to get customers to be confident in using our digital channels.
In addition, we developed a number of new products in 2022, and this year we will promote these innovations. We have launched a new health insurance product, introduced new coverages tailored for electric vehicles in motor insurance and launched a modular business insurance product.
We have also launched a blockchain solution for travel insurance, giving customers the possibility to get immediate compensation in case of flight cancellations or delays. It is very important for us to introduce these innovations by keeping up to date with the latest trends and taking customer feedback into account to make their experience with us even better.
Allianz has moved towards a simple product structure in recent years. Is it also noticeable that, due to inflation, risk protection life insurance is now more in demand than savings products?
For years we have focused on life insurances with regular premium payment and life insurances with risk protection. In the short term, the extra profit tax has made single premium life insurance unattractive,
but risk protection life insurance has appreciated in this environment, justifying the efforts of recent years.
In particular, which products do you consider strong in this year?
We see the highest growth potential now on the side of travel insurance and life insurances with regular premium payment providing risk protection, including death benefits. For non-life insurance, everything depends on the development of the primary markets, such as the development of the used and new car market, which is difficult to predict.
Photos by László Mudra / Portfolio
