Europe: Q&A with Bart de Smet, Ageas

The Competition and Market Authority has just issued its final report on the UK motor sector - how do you, as an outsider, view the UK motor market. What is its importance to Ageas at a group level?
For Ageas, the UK non-life activities are quite important. The UK is our biggest market, closely followed by Belgium, and motor insurance is very important within that. We see the UK as an extremely competitive market [and one which] helps innovation in our other non-life activities across Europe and Asia.
Due to the fact that the UK is so competitive, we sometimes see more volatility in both rates and results than we see in other regions. To give a comparison, look at the way the rates in the UK have evolved in the last four years. There was a sharp increase in 2011 and then a decrease through 2013 and 2014, linked to initiatives to ban referral fees. That's something we don't see in other markets. In Belgium the rates have stayed quite flat over 12 years - it is almost a reduction, because the cost of repairs has moved up.
We also see there are still a number of elements in the way motor insurance is provided in the UK that we don't really see on the continent - such as the use of repair shops and rental cars. This is one of the reasons why that volatility is so much higher - there are so many more interests than simply the insurer, the broker and the insured.

Other insurers have sought to mitigate volatility by limiting the influence of motor on their portfolio and increasing the position of covers like household or commercial products. Is that something Ageas is considering?
We will keep some focus on motor in the UK and try to insure as many cars that meet our underwriting criteria [as possible], but we certainly wouldn't deny that we would like to strengthen our position in household and in other risks, for the diversification effects.
There is some pollination between motor and household - the recent floods in the UK have shown that. Some events cause higher losses in both lines, but there is also a difference in the duration of claims management. Household is on average quite short in duration in terms of managing the claim. Motor, certainly with injuries, is longer tail. We don't deny we are looking to broaden the offer, but we're certainly not in the mode to try and reduce our motor activity.

How closely were you monitoring the Scottish referendum? Are you relieved the Scots voted to stay in the UK?
We always try to be politically neutral. It's not up to us to express preference for one or the other. But more generally, it is, of course, clear that there had been a different outcome there would have been an impact in other areas in Europe, like the initiatives in Spain with Catalonia, and it's fair to say that as a group we are not in favour of further fracturing of the European community. We are certainly not looking for a Europe that is continuously struggling with its constitution and its structures.

Aviva, RSA and Direct Line have all sought to reassess their operations in Europe over the last year. Is this a UK-specific trend of evaluating over-reach, or is it something seen across Europe?
The tendency will continue for companies to reduce the number of operations they have - it's not about having as much as possible any more, it's more about having positions in countries where they can make a meaningful contribution. I don't think it's specifically a UK phenomenon - we also see it in groups that are not UK-based. You can take us as an example, in 2009 we said we were in Russia, Ukraine and Germany, but we were of the opinion that the future value of being in those places was fairly low.
There are a number of different of reasons behind [this thinking]. Capital is expensive and it will become even more of a focal point in the context of Solvency II. But we also think insurance is a local business - it's difficult to create cross-border synergies - what works in country A does not necessarily work in country B. For example, Direct Line has innovated in direct business, and invested in operations in several other countries. But it has seen the enormous jump that has been made in the UK is not a guarantee that the same can be done in other countries.

What territories are most exciting for growth globally? Is Asia the most enticing emerging region for Ageas?
In terms of non-organic expansion we have two approaches. In Europe we look at how we can strengthen the provisions we have, and in the UK we have done this with Groupama, Kwik Fit and Castle Cover. If we can participate in further consolidation in [Europe] then we certainly will.
On the other hand, in Asia, we are still growing at 15-20% year after year. We look to markets where there is low penetration and where we expect gross domestic product per capita to increase. We are looking at countries like Indonesia, the Philippines and Vietnam to find opportunities to work with a local partner to build as we have in Malaysia, China and Thailand.

What are the benefits to being first into a new market? Do insurers gain by leading or following in emerging markets?
We were able to be among the first when we took a position in China and went quickly afterwards into Malaysia and Thailand. At that moment, the number of European insurers attracted by Asia was quite low. It was considered a bit of a risk. Most of the time they have focused on Central and Eastern Europe and Latin America. When you are entering new markets, you could leave someone else to do the hard work - but if you wait, the entry ticket will be much more expensive.
In 2000 in China we entered a joint venture with a local player that had a national licence, but could only have a 25% share. Today, Ageas has taken the number six position in China with a 5.5% market share - more than the sum of the European insurers that waited for more control and entered afterwards. They can only get approval for one province, and have to apply for approvals in each extra province, which takes quite some time. So we are happy we were one of the first, and today we have maybe only 25% - but I prefer that 25% of 5.5% to 50% of 0.5%.

This article was published in the 16 October edition of Post magazine.