The Corona crisis, high inflation and uncertainties caused by the war in Ukraine have been impacting the global economy in the past year. How is the insurance market in Southeast Europe (SEE) evolving in these circumstances?
Clearly, those factors have had a significant impact on the insurance business and the Vienna Insurance Group as well. There were significant increases in raw material and procurement prices, which caused claims costs to go up, putting pressure on the combined ratio. This affects all areas of the property insurance business, especially motor vehicle insurance, as contract workshops are demanding significantly higher hourly wages for repairs. Inflation is likely to remain on a high level and, despite inflation adjustments, will also influence future business development. The decrease in real incomes despite inflation adjustments could lead to a partially weakened demand for insurance coverage among consumers. However, it has been shown that the insurance industry in particular is able to cope well with these numerous challenges, as it naturally acts conservatively and has to calculate risks in a long-term and sustainable manner. In addition, especially in times of crisis, people very much appreciate protection against risks. Having at least some security in uncertain times is very important to people. This shows in all our reportable segments and we see the same development in our segment Extended CEE, which includes all SEE countries we operate in.
Against this backdrop, how did VIG perform in the past year and what are your expectations for your results in SEE in 2023?
We had a very satisfactory result in 2022, which underlined our growth strategy and our claim to be a stable and reliable partner for our stakeholders. At 12.6 billion euro, VIG’s premium volume improved by 14.1%; the profit before taxes was 10% higher, profit after taxes 24% higher than in the previous year. The numbers concerning our performance in the first half of 2023 too are extremely positive despite the continuing challenges. Our excellent capital position and our business model with a strong regional focus – which allows rapid, customised action where required – remain fundamental factors behind our continuing success in very challenging times. However, we expect a weak macroeconomic environment and volatile capital markets going forward. There is a considerable number of uncertainties that limit our ability to predict our business performance for the second half of 2023 – besides the factors already mentioned, we have also experienced severe weather events this summer and there is a probability for further extreme weather, which will likely dampen the result for 2023 as a whole. We still expect a result before taxes for the Group between 700 million euro and 750 million euro. Our segment Extended CEE generated almost 30% of Group premiums in 2022, and we are confident that it will continue to develop positively and have a strong impact on our balance sheet.
What are the main trends you see in insurance now? Does SEE stand out in any way?
One main trend that can be seen across various industries and businesses is of course the growing importance of ESG and sustainability in general. I think climate change and its effects will be drivers of global risks in the coming years, so the insurance industry needs to not only follow the developments closely, but also take measures to influence the situation positively. The occurrence of a tornado in southern Moravia some time ago was an event that made me realise how immediately new effects of climate change will be felt in Europe and the CEE region as well. Until now, we had probably mentally assigned tornadoes to other continents, but we have to adapt our mindset as well as our planning and our strategies. However, we do not limit our measures on the “environmental” part of ESG, but also want to deliberately set priorities in the “social” area, for instance on the issue of affordable housing.
Does ESG evoke fear of more management and regulation in insurance companies, or is it more of an opportunity to change some things?
Fear of regulations is never a good sign with insurance companies but in regard to sustainability it is especially unwelcome. Sustainability has been an integral part of VIG’s business model for years. It has long since ceased to be a question of whether we, as a company, take sustainability measures; it has developed from a question or opportunity to a necessity that is clearly demanded by regulators such as the EU and its Green Deal, and also by partners and customers, shareholders and investors. The Vienna Insurance Group has been pursuing a sustainability strategy since 2018, with measures to support the EU’s climate goal of becoming climate neutral by 2050. We are currently working very intensively on the survey of the CO2 emission impact for all our companies, which includes the entire investment and insurance portfolio as well as all locations of our companies. 90% of the CO2 emissions relate to underwriting and investments, 10% to office ecology and climate-neutral locations. These numbers give us a very good understanding of where we need to come up with new ideas and strategies regarding sustainability first.
Another global trend is the use of Artificial Intelligence (AI). How will AI influence the insurance business? What will be important for customers in the future?
As an insurance company, we are continually challenged to work on cost and process optimisation programmes in order to remain competitive and fit for the future. Digitalisation and artificial intelligence do of course play an important role in supporting us here. We are already using artificial intelligence within the Group in claims processing, quoting, data collection and rate calculation, and there will be more touch points. So we must – and will – continue to work on automating processes and increasing productivity. This will possibly take away some work steps, which will allow us to create free space for other capacities that are important for us. For me, personal advice is still the most important sales channel, especially when we are talking about more complex and comprehensive insurance products. Especially when it comes to corporate clients, the necessary insurance coverage is very individual, and insurance expertise is indispensable. But there is a target group that prefers digital contacts, and we have to be prepared for that. The trend is towards hybrid customer care, a mixture of personal and digital contact. We are already responding to that and need to prepare further for the changing customer needs and points of contact with customers. The frequency of face-to-face contact with customers is decreasing, while the numbers of contact via digital touchpoints has increased. To address this trend, we will have to be more present with products and services on platforms where customers are and where insurance is relevant to them. We also want to offer new customer experiences in addition to risk coverage, such as assistance services. I am convinced that online sales will increase further, but nevertheless, neither digital services nor artificial intelligence can fully replace personal and individual consulting – at least not for all of our customers, and we want to offer best possible service to everyone.
What potential does telematics have and how is VIG making use of it?
We recently launched an app based on telematics that is an excellent example for our approach regarding additional services. It is designed for motor vehicle insurance customers and offers cashback payments dependent upon responsible driving behaviour and the vehicle being driven. The app includes an automatic driver’s logbook and gives tips for improving driving style, allowing customers to both improve driving safety and increase their cashback payments. All data is of course recorded with the explicit consent of the users and secured separately. This is a great way of presenting and offering additional benefits to our customers. It is important to be constantly present for them, not only as a claim recipient, but as someone they can trust at all times. Right now, the telematics app is being offered as an innovative service by our Czech Group company Kooperativa, but we are watching how well the customers accept it and may roll out the service to other Group companies in the future.