The Post Europe Interview: Dr Jochen Messemer

How has the regulatory landscape changed in the country/countries you work in over the last five years?

The ERGO insurance Group is represented in more than 30 countries worldwide. Therefore, let's focus on our core market Europe in general and highlight the recent developments in some of our Eastern European markets.

Obviously, the debates about Solvency-II are currently influencing the regulatory landscape within the European Union. We are in the process of adjusting legal regulations to the solutions that exist in the EU. At the same time, we are taking part in shaping a new legislation. ERGO supports the launch of these new regulations, since the new order will lead to a more honest competition within Europe.

What is your overall impression of the body charged with regulating the local insurance market/markets in which you operate? Has this improved or worsened in the last five years?

In general, we have not been recognising tendencies of more regulation or overregulation within the last years. For ERGO as a highly risk-oriented insurer, new regulations have not caused any substantial impacts on our business development. Currently, most regulative changes are driven by the harmonization of legal framework within the EU.

There are tendencies to further increase transparency on the insurance markets and to strengthen the position of customer rights. These are all aspects which are in accordance with the business philosophy of ERGO. As long as these regulations pursue the intention to guarantee a fair and transparent competitive environment market, we will of course follow them.

As regards Poland, one of our Eastern European key markets, we have recently been dealing with changes of the local regulatory authorities, which underlines the above mentioned changes in particular. By implementing EU laws, the transparency of the legal systems is formed and the interests of customers using the services of finance companies will be secured.

How much of a priority do you believe the local government in the territory/territories in which you operate place on having a thriving insurance market?

There is an obvious relation between the operations of companies and the regulatory system as influenced by the government. Poland is currently working on a liberal model leaving the issues of supervision over the market to the institutions that were established specifically for this purpose, such as the Financial Supervision Commission. Our industry is represented by a special chamber associating the insurance representatives (Polish Chamber of Insurance).

How is the insurance sector generally viewed when compared to other parts of the wider financial services sector such as the investment and banking communities? Has this changed in light of the economic downturn which has widely been labelled the "banking crisis"?

Naturally, the crisis has also affected the European insurance sector. Like in a system of communicating vessels, the different parts of the financial market influence each other. The best example is the decrease in the lending business, especially mortgage business, which affected the whole economy including property insurance. However, generally speaking, the effects of the crisis on ERGO have been limited. During the last years, we have significantly been improving our system of risk management. Thanks to this, ERGO has been left out of risky business.

As regards the Polish market, we can state that our subsidiaries performed very successfully - even in times of the financial crisis: They were able to gain considerable market shares in 2009 and our overall market share in Poland rose from 10.4% in 2008 to 12% in 2009. This certainly shows that Polish customers still have a lot of trust in the insurance sector - and above all in the ERGO brand offering a high service level.

How has the global downturn impacted the wider insurance market in the territory/ territories in which you operate? Are customers cutting back on cover? Are you seeing an increase in claims and if so in what areas?

In Poland, the range of turbulences that we are currently experiencing in the global economy translates to hindrances at the local insurance market. The slowdown in the transport industry or in the construction site insurance is evident. At the same time, we see a change of individual clients' behaviour when it comes to motor insurance resulting in a higher claims frequency, much higher average claims and payouts.
This is certainly a challenge for all market players, but in the long-term it will help to further develop the market.

The global financial crisis has massively affected other Eastern European economies, too - and left its impacts on our bancassurance business. The sharply reduced exchange rates had a negative effect on the accounts of foreign insurers, because sales are normally recorded in the currency of the parent company. The weakness of the Eastern European currencies therefore produced negative exchange rate effects. Nevertheless, we are quite optimistic as regards the CEE region and expect premiums to bounce back as soon as the economy begins to recover this year.

What is currently happening with regards pricing and insurance rates in the country/countries in which you operate? How do you expect this to change over the next two years?

It is hardly possible to make general statements on all CEE markets we are operating in. In the Baltic states, for example, face a tremendous market break. Therefore, the premium development ,especially in the mass segments, will strongly depend on the overall economic situation and recovery.

In Poland, one can predict an increase in the prices of car insurance policies. It will be caused by the offset of differences between the current price of liability insurance in Poland and in Western Europe. At the same time, the amounts of compensation for personal damage paid out in Poland are similar to the Western standards. This must be balanced.

Such a development can certainly be foreseen in other CEE markets as well which have been hit even more by the financial crisis. However, we do not expect most of these markets to recover as fast as Poland.

What are the biggest issues facing your employer in terms of distribution?

Tied-Agents are still the most important sales channel in Poland. However, due to the growing use of new media, especially by younger people, we are thinking about the Internet and new media applications in general as a complementary distribution channel. Here we have already implemented several business ideas in our distribution mix in Poland.

Within Eastern Europe, bancassurance is also a very important distribution channel for us. The success is massively influenced by the choice of the local partner. Within the last couple of years, ERGO has become a prime partner for leading bank institutions, such as UniCredit and Volksbanken. Also, we have just recently started an exclusive co-operation in bancassurance with DnB Nord in Lithuania and Latvia and we are planning to expand this model to Poland and Estonia. In order to expand bancassurance in CEE, it is vital to identify further possible partners that fit ERGO's strategic goals.