Europe: Opportunities in Middle and Eastern Europe despite geopolitical risks

According to our analysis, 2015 presents significant potential for insurance market growth. This is thanks not only to the market's revival, but also to continued underinsurance and the development of new products.

The economic growth rate of countries in Middle and Eastern Europe should, according to the World Bank's prognoses, continue to build on the gains of 2014.This acceleration of economic activities is supported in the main by increased domestic demand.

GDP growth
The Czech National Bank estimates real GDP growth of 2.6 % in 2015, and this will be fuelled by the private household sector, which is, according to regional standards, characterised by low indebtedness. Improving employment market conditions will also support this growth. Slovakia also is in a similar situation - real GDP should grow by 2.8 %, , as is the case of the Czech Republic, thanks to strong domestic demand.

In addition, the insurance market in the Czech Republic developed better in the field of non-life insurance in 2014, whereas the volume of written premium for life insurance decreased. The total written premium increased to 115.2 billion CZK, which equates to 1.1% growth compared with 2013.

This growth was created mainly by a strengthening non-life insurance market, which increased by 2.3 % to 69.1 billion CZK. Motor Third Party Liability, which is significant non-life insurance growth factor, also increased by 4.6 % compared with the previous year.

Changes to legislation
2014 also brought significant changes to Czech legislation. The most important was application of the New Civil Code, which among other aspects puts more stress on the strengthening of the customer's legal position. This change required a major rewrite of contractual documentation and its impact on insurance was very apparent. For example, the code had a direct influence on indemnification for bodily injury, which increased average motor third party liability bodily injury loss values by 50% compared with 2013.

Due to the economic and social specifics, Middle and Eastern Europe still present an interesting opportunity in 2015 for this insurance market. Economic underinsurance in the Eastern Europe still persists, which acts as a driver for this interest.

In addition, one of the main burdens of developing the insurance market has now vanished following the standardisation of legislative and regulatory conditions in the CEE region and the improvement of law enforceability.

Geopolitical risks
Turning our attention to geopolitical risks, the major determining factor that influenced and will still influence the European market is the Russian-Ukrainian crisis. Export sanctions into Russia have an impact on the insurance market coverage of projects too.

As a result, Czech broker Renomia's analysts expect this year to clearly highlight the importance of purchasing adequate credit insurance as a safe haven in the fight against the rising insolvency figures.

Growth markets
Our analysis and estimates also indicate an expectation of considerable growth within the cyber insurance markets of Eastern Europe, especially in the Czech Republic and Hungary.

D&O insurance has not lost its importance in the region, with the Czech Republic once again leading the charge as a result of recent legislation changes. Continuing this regulatory theme, the planned launch of Solvency II in 2016 to ensure financial stability will both improve the insurance market and require time to prepare for this demanding policy.

Regardless of the multiple and complex factors affecting these markets, insurers need to react quickly to ever-changing political situations, new legislation and market developments by constantly updating existing products or developing entirely new ones. This will only be possible if insurers and brokers maximise their flexibility by adopting the latest technology to both drive rapid innovation and deliver exemplary customer service.

Regardless of the uncertainties, 2015 is certainly the year for the Middle and Eastern European insurance sector to invest in its own infrastructure in order to take advantage of this growing and increasingly sophisticated market place.

Marek Kalbáč is International Department Director at RENOMIA, a member of Brokerslink