Post Europe country review: Poland, the calm in the storm

Since joining the European Union in 2004 Poland has registered large in the British psyche mainly for the number of migrants that have moved to the UK to find work.

However, as the tide of Polish workers has receded in these recessional times, it seems that the UK, so far as the insurance market is concerned, is now looking to make its mark in Poland.

Excluding the UK, Poland is Europe's 13th largest non-life insurance market and the largest in central and eastern Europe. Between 2003 and 2008 gross written premiums almost doubled in the Polish market from a little over €3bn (£2.64bn) to just under €6bn and many commentators are confident about the future.

Resilience in recession
At a time of global contraction what is, perhaps, so appealing about Poland is the resilience it has shown in the face of these difficulties. Poland was the only European country not to fall into recession last year when it recorded a positive gross domestic product of 1.8%. It has since strengthened this performance and is on course to register growth of around 3.5% in 2010.

While Poland may have been through some difficult times as the European and world economies shrank, it at least managed to keep moving forward, and there is a long and very positive road ahead of it according to Mark Harman, chief executive officer Continental Europe, Middle East and Africa for Crawford & Company.

He says: "It is important to distinguish between economic cycles and structural trends. Just like other economies, Poland has suffered some temporary reverses in its fortunes during the global recession. This can be seen in the property sector, where the sharp rises in prices in the early 2000s have levelled off or been corrected downwards. Similarly, new investment in manufacturing has tailed off."

Structural renaissance
However, on the up side, he believes things are a lot more positive and says the big story in Poland is one of structural renaissance in the economy. It was only in 1989 that Poland broke out of communist rule and in the 21 years since, the country has gone through some dramatic changes.

These are not over and in terms of the insurance market Mr Harman adds: "Insurance penetration in the property and casualty segment was traditionally extremely low and has risen steadily over this period. There is still a long way to go until penetration reaches UK levels, which is why there will continue to be underlying growth."

Motor dominance
The Polish insurance sector is dominated by motor, which accounts for over 60% of the total non-life market. Property insurance is responsible for 17% of gross written premiums while personal accident and health picks up 8% of premiums. There is, therefore, room for significant development as demand for other classes of business begins to grow in Poland as its insurance appetite become more sophisticated.

For international insurers looking to write business in Poland, the motor market is not likely to be the place to start unless they have something significantly different to offer or have an existing customer base to sell to.

Breaking through
Aviva has been active in Poland since 1992 when it established its life business and has since sold both personal and commercial lines general insurance policies. However, it was not until 2008 that the insurer felt it worthwhile entering the motor market and when it did so, it chose to go direct in the first instance.

Maciej Jankowski, chief executive officer of Aviva Poland, explains: "We are the biggest in the market for pensions, the second for life, third in funds management by asset and 11th in general insurance. We are still a small player at 11th place, but we are growing and we were absent from the motor market for quite a long time, which is still roughly 60% of the GWP of the GI market."

Clever manoeuvring
Aviva started writing motor business in 2008 and although the direct channel only accounts for around 6% of the market it was into this space that Aviva chose to park. This may not seem like the best piece of manoeuvring, but what Mr Jankowski says next, puts things in a much clearer light: "We have a client base of more than three million customers and so we have an excellent cross selling opportunity to enable us to grow our general insurance business."

It is too early to tell just how well Aviva will be able to capitalise on this opportunity, but there is no doubting the scale of it. The success of this move is likely to have a significant impact on the long term success of Aviva's operation in Poland, which saw sales in the country fall by 40% in its third quarter figures announced recently.

This fall is largely on the back of changes to pension legislation and, in particular, those announced last year affecting the fees that pension fund management companies can charge.

While Aviva has a large customer base in Poland, making the most out of it will depend on its ability to move them to profitable products and this is, perhaps, why its move into the motor market could be so important in the medium to long term.

Aviva retains a strong appetite to operate in the country and group chief executive Andrew Moss said Poland was one of the eight key European markets the insurer was focusing on.

Additional opportunities
While international insurers with an established customer base can cross sell into established markets, new players will have to seek out other opportunities and this is exactly what Lloyd's is seeking to do.

Lloyd's sought and secured the requisite license to trade in Poland in 2008 and Enrico Bertagna, the Lloyd's regional manager for Europe and Africa says things have developed well: "We have seen a very positive trend in the first half of this year when our business actually doubled in comparison to the same period last year. We are looking to close with about €30m or €40m of gross written premium. In overall terms this is not huge, but the growing trend is very positive."

Sophisticated economy
Mr Bertagna believes that when it comes to Poland's dominant market of motor, Lloyd's does not have anything different to offer and is not structured appropriately to handle claims. However, he says the insurance market has other strengths and is playing to them: "The economy has become bigger and more sophisticated and so has the demand for insurance products like directors' and officers' insurance or marine and cargo covers. There is an increasing demand for these type of covers and the market is moving from a motor and personal lines based market into a wider range of insurances and this is where Lloyd's can come into its own and help businesses to find the right cover."

Indeed he believes Poland could become one of the top five markets in Europe for Lloyd's, producing annual gross written premiums of over €100m within the next five years. At the moment, there are five Lloyd's managing agents that are active in the market, but Mr Bertagna says the number is growing, as there is a better understanding of the potential the market has.

Lloyd's is keen to promote this potential and on top of the work it is doing locally to introduce Polish brokers to the market and explain how they can access underwriters and secure cover, it is also working hard to promote Poland back in London among the market's underwriters.

Big not always better
However, when it comes to breaking into Poland, there are those that believe size is not everything. Przemyslaw Owczarek, Ace European Group country manager for Poland, says: "It should be noted that it is a very competitive and soft market, so only those with innovative and interesting solutions and new distribution channels are succeeding. These are primarily the smaller players that have found niches in the Polish market and have been successfully exploring new opportunities."

To this end, Ace has sought to make its mark in the gadget insurance sector and provide cover for mobile phones through one of Poland's major network operators. In a developing economy with growing affluence among the country's developing middle classes, this would seem like a sensible strategy and Mr Owczarek says: "The company successfully launched the first handset insurance cover, offered by one of the largest Polish mobile operators, a few years ago."

As the commercial landscape in Poland becomes more sophisticated so too is its demand for insurance to cover the risks that it faces and Mr Owczarek says this has led to Ace developing and selling environmental impairment liability in the region.

Off the shelf products
Another firm looking to develop its business in Poland is CFC Underwriting. The agent underwrites business on behalf of 16 Lloyd's syndicates and has recently started targeting the Polish market with off the shelf professional indemnity, public liability, products liability, property and business interruption policies.

Specifically, CFC Underwriting is looking to attract business from technology companies in Poland as director Andy Homes explains: "There are 9000 technology companies within Poland of which 3000 fit within our appetite. The problem is that most of these do not buy any sort of professional liability insurance at all and so it is a question of getting them to buy. We, therefore, need to get premiums at a tipping point level and so we are coming in at as little as €100 for €100 000 limit."

Language barrier
For CFC underwriting, the decision to sell off the shelf policies over an online platform made sense for a number of reasons. In the first place, it meant that the agent could continue to support the UK broker community and all of its business comes via a London broker despite enquiries being generated in Poland. It also meant that the business did not have to employ staff that had Polish Language skills.

As Mr Holmes explains: "The online system is the perfect way to mitigate our lack of Polish skills as we do not have to employ lots of Poles here to underwrite the business. At the same time we can be innovative in the local market as there is no-one offering online commercial insurance for technology companies and yet they are the perfect sector to be buying their cover online because that is what they understand and that is what they do."

He accepts that premium levels are low and that there is a lot of work to do if CFC Underwriting is to really develop the volume of businesses it is selling to in Poland. However, he also believes in the country's potential and the way in which many of its young businesses are going to develop over the coming years: "A lot of these companies are literally start ups and our job is to get them to buy insurance and to realise the benefits of transferring the risks and once they do this then we can grow with them."

Huge opportunities
Breaking into any new market is never easy. However given the political and commercial transformation that Poland has been through in the last 21 years and the ongoing changes it is experiencing, the general consensus is that there are huge opportunities for insurers in the country.

Many insurers have already positioned themselves to take advantage of these opportunities and it seems many more are likely to do so in the coming months. As Marcin Tarczyński, a spokesman for the Polish Chamber of Insurance, concludes: "There are many companies interested in launching their business in Poland. We have heard both about those which are going to start with greenfield operations and those that are keen to take over existing Polish insurers. The Polish insurance market is no longer emerging, but it is not yet mature, so we believe there really are huge possibilities for new players to succeed here."