Report on Business Activities
Non-life Insurance
Česká pojišťovna continues to spearhead the non-life insurance sector with a 24.8% market share.4 A crucial factor in the development of written premiums is the motor insurance situation. In 2016, Česká pojišťovna successfully increased written premiums in this segment, especially in collision insurance. In contrast, portfolio optimisation pushed down the volume of life insurance business. Non-life insurance premium billing came to CZK 19.1 billion, up by CZK 375 million (2.0%) on the previous year. The lion’s share of this can be attributed to Česká pojišťovna’s dealings in collision insurance (CZK 229 million) and coverage of financial risks (CZK 163 million).
Claims incurred generally progressed along positive lines in 2016. Claims costs were CZK 266 million lower than in 2015. In June 2016, after two disaster-free years, there were large-scale incidents involving agricultural insurance (with costs estimated at CZK 329 million) and property insurance, (estimated at CZK 268 million). The various types of insurance report very different developments in the costs of loss events, which depend on whether any disaster have struck and whether any exceptional claims need to be handled.
Business Risk Insurance
In 2016, written premiums in business risk insurance were down a slight CZK 33 million compared to 2015. Large-risk insurance against natural hazards had the greatest impact on the volume of written premiums (a CZK 125 million decline). This came about when the portfolio was optimised to remove the dangers posing the greatest risk. There was also a downturn in agricultural insurance premiums written. On the other hand, engineering insurance, liability insurance and SME insurance continued along their favourable trajectory. Compared to the previous year, in 2016 claims costs were affected in particular by hail damage covered by agricultural insurance, while large-scale claims were less frequent. Total costs were up by 0.5%; adjusted for disasters, the developments in claims incurred were encouraging.
In the first half of 2016, there were two spells of widespread crop damage. First, in the spring (24–28 April), there was frost damage. Damage was caused to fruit crops, including strawberries, but mostly vines. The second case saw crops damaged on a disastrous scale by hail. Central and northern Bohemia bore the brunt, while southern and western Bohemia were also affected. What made this disaster so unusual was not simply its magnitude but also – and mainly – it’s earliness (May, June). Crop damage in the second half of the year remained within the norm. It was a run-of-the-mill year for animal insurance.
Non-life Personal Lines
This class of insurance was stable in 2016. Written premiums inched up by a mere 0.3% year on year as contents and personal accident insurance dipped while liability and building insurance rose. The vagaries of the weather in particular were reflected in the 6.4% higher volume of claims incurred in the first half of the year, though all of this increase can be attributed to a natural disaster.
The ongoing bleak political and security situation in the majority of previous tourist hotspots prompted a slump in travel insurance in 2016, especially via the travel agent distribution channel. In tandem with the steadily growing trend of travel to exotic destinations, including in the winter, a higher incidence of claims originating in places such as Thailand, Vietnam and Bali was recorded. However, there was an upswing in interest in this type of insurance in the second half of the year.
Motor Insurance
The first half of the year was very fruitful for motor insurance. Written premiums went up by 3.4%, while the volume of claims incurred was down by 8.7%. The number of vehicles insured rose by 20,000 during 2016. These figures illustrate the revival of the motor vehicle market and the improving economic situation, on the one hand, and, on the other, ČP’s successful market stabilisation and improved economic results in this sector.
In 2016, motor third party liability insurance premiums written were 0.9% higher than in 2015, propelled forward by a 3.6% rise in fleet insurance. This is another insurance segment in which Česká pojišťovna remains the largest insurer, with a share of 22.7%.4 Claims costs are stable and the profitability of this insurance has been maintained at an acceptable level in such an intensely competitive area.
The collision insurance market, though consistent with the MTPL market, was typically more volatile. Written premiums increased year on year by 7%. Fleet insurance rose by 14.6% and personal lines insurance was up by 2.7%. Nevertheless, these results continue to limp behind the market revival as a whole in the Czech Republic. Claims incurred grew by 4.6%, partly on account of a disaster. Bearing in mind how much written premiums increased, this was a very productive result.
Innovation and Future Developments
In early 2016, the Bytové domy (Blocks of Flats) product was overhauled so that the coverage was expanded to include further risks (for both property and liability insurance), and insurance of a very broad range of assistance services was introduced. The new-look product is expected to increase penetration of this fast-growing area of insurance.
The scope covered by JISTOTA (CERTAINTY), the product for micro-businesses, was also updated. A new customer-friendlier online platform was also implemented to make the contracting procedure easier. The range of activities covered under professional liability was expanded to include a new compulsory insurance – that of consumer credit intermediary liability.
Within the framework of liability insurance, directors and officers liability insurance was incorporated into Česká pojišťovna’s standard systems and hence into the standard range of business insurance offered by the Company. School insurance rates were put up in response to a change in the way personal injury is compensated in cases of “quasi-occupational accidents”.
Act No 134/2016 on public procurement took effect in October 2016. In keeping with that legislation, Česká pojišťovna updated its tender guarantee insurance to offer all those involved in procurement procedure a fresh way of providing security in the form of new insurance for guarantees in favour of the contracting authority.
In agricultural insurance, each insurance contract underwent its annual update. In autumn 2016, technical adjustments were made to insurance which saw the introduction of discounts with automatic appraisals. Product innovations were made to both crop and animal insurance for 2017.
In the next year, we intend, in particular, to revise the appearance of insurance contracts for business insurance. The non-life insurance consolidation project will include the creation of a standalone product for block of flats insurance, accompanied by policy terms and conditions. In parallel to this, product innovations across all insurance products, in particular with a view to forthcoming legislative changes, will continue.
In 2016, a new product among non-life personal lines was prepared and deployed. This highly variable product incorporates certain parts that customers can combine to suit their requirements, such as contents, building, recreational household, civil liability or travel insurance. These parts of the product will encompass a wide range of coverage and add-ons, many of which are new, unique on the market, and considerably enhanced from the point of view of customers. The deployment of the new product was also an opportunity to make contractual documentation more transparent, update the policy terms and conditions, revise the pricing and modernise the contracting process. Full-scale sales of the product were launched in October 2016. The release was accompanied by a massive media campaign. Initial sales results indicate substantial year-on-year gains and a warm reception among customers.
In the first half of 2016, travel insurance focused on the preparation of a completely new product in this area that would not be time limited. Customers can take out this unique insurance as part of their Můj majetek property insurance policy. The medical expenses and assistance limit for the travel insurance retail product was raised to CZK 100 million. Travel insurance sales were promoted by a summer marketing campaign.
In 2016, a new product was developed under professional indemnity insurance to address individual contracts. Its deployment is planned for the start of 2017. This product sets out to innovate the scope of insurance, including the addition of a range of extensions suited to employees’ specific professions.
One of the focal points of 2016 was the completion of the switch of the sales network used by ČP and cooperating partners to the new HUGO contracting system. This application delivers a swift, highly intuitive solution for insurance contracting. It facilitates simple communication with external partners cooperating with Česká pojišťovna directly via their own systems. We also managed to establish cooperation within Volkswagen Financial Services, where we became a brand insurance partner for both leasing and retail insurance.
Česká pojišťovna continues its efforts to enhance the quality of services and products for customers. This is reflected in plans to unveil a new motor insurance feature in spring 2017, entailing the introduction of supplementary insurance quite unique on the market.
Life Insurance
In its regular-premium life insurance product range, Česká pojišťovna continued to sell insurance built around the current circumstances and needs of its customers.
Throughout 2016, we implemented fundamental product innovations for our flagship Můj život in order to offer customers industry-leading quality at reasonable pricing on the fiercely competitive Czech insurance market.
On 1 April, Můj život was expanded to include a new children’s life insurance riders and assistance. As a result, the product now meets all requirements for the genuine protection of the entire family. In the introduction of the new children’s riders, our main concern was to cover the immediate financial impacts if children become seriously ill, as well as the long-term financial implications faced by a family when a child ceases to be self-sufficient. Another new area is the nursing allowance, which covers parents’ short-term loss of income caused by caring for their children when they contract a common illness or are injured. The main idea underpinning the new riders is to enable parents to be close to their children when they need their care and assistance. The new children’s riders were complemented by a new assistance service unique on the Czech insurance market. The Péče o dítě (Childcare) assistance was expanded to include services associated with the convalescence of a child.
Since 1 July, it has been possible to negotiate changes to existing Můj život contracts in order to incorporate the new children’s riders. The aim is to let our customers keep their insurance up-to-date so that it reflects the current needs of the whole family without any of the adverse consequences associated with the cancellation of existing contracts.
Starting on 2 October, we adjusted the Můj život settings, reducing the overall minimum premium from CZK 500 to CZK 300 per month, with no need to resort to a mandatory minimum life component. This move placed a modern product within reach of all customers preferring purely risk coverage for selected risks at lower premiums. At the same time, we stopped selling Multirisk because it had been rendered redundant by the changes to the modern Můj život product. By combining the offer of both types of insurance under the established and commercially successful Můj život brand, we are seeking to reinforce the transparency of the product range using a single type of insurance for all needs stemming from the situations faced in life by our customers.
Under insurance contracts concluded in 2016, our customers use Můj život regular premiums to cover risks in more than 75% of cases. Demand for coverage of life and personal accident risks, as well as assistance services, is expected to grow further.
In the realm of single-premium life insurance, in early June 2016 we launched sales of a new product, Moje jednorázové pojištění [My Single-premium Insurance], enabling customers to take out insurance covering death and death resulting from personal accident while making returns on their disposable resources in three different underlying risk funds run by Generali Investments CEE. In addition, customers enjoy a bonus of up to CZK 1,000 in indemnification when they make their first claim upon being hospitalised following a personal accident. Between the launch of sales and the end of 2016, more than 760 contracts were taken out with an aggregate annual premium of CZK 142 million.
Financial Indicators
Despite a 6% year-on-year decrease, total premiums written under new regular-premium life insurance contracts still amounted to CZK 8.1 billion. Single-premium products generated CZK 0.7 billion in written premiums. On aggregate, our regular-premium life insurance products were purchased by 84,000 customers in 2016.
In 2016, life insurance claims paid fell by 31% from the previous year’s figure to a total of CZK 8.5 billion on account of the lower volume of endowment payouts (2015 had been affected by the maturity of the Garance single-premium life insurance product). As in previous years, the greatest number of paid claims was registered in the “insurance on death or survival” class. In terms of monetary volume, most funds (CZK 4.8 billion) were released in the form of endowments. In 2016, 302,000 claims under the life insurance portfolio were handled.
Outlook
With effect from 1 December 2016, Česká pojišťovna a.s. – in the wake of consultations within a Czech Insurance Association working party – implemented a Key Information Document in the pre-contractual Můj život product documentation in accordance with the available wording of regulatory technical standards (RTS) further to Regulation (EU) No 1286/2014. Effective from the same date, Česká pojišťovna implemented new statutory rules for new business that concern an intermediary’s entitlement to a fee if a contract is terminated prematurely (commission regulation) and the calculation of the surrender value in accordance with an amendment to Act No 38/2004 on insurance intermediaries and independent loss adjusters and amending the Trading Act (the Insurance Intermediaries and Loss Adjusters Act).
In 2017, Česká pojišťovna will analyse and fulfil the revised requirements of the regulatory regime under Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs), with a stress on the new wording of the RTS affecting the appearance of the Key Information Document (KID) for sales of life-insurance-based investment products from 1 January 2018.
The groundwork will also be laid to comply with requirements associated with the regulation of distribution in the insurance industry and the obligations of insurance intermediaries under Directive (EU) 2016/97 of the European Parliament and of the Council on insurance distribution (the IDD). We will monitor legislative developments prompted by the transposition of this Directive into an internal implementing measure in the Czech Republic designed to ensure that insurance distribution takes place in customers’ interests and that customers are able to purchase insurance products that are suited and relevant to them. Within the Czech Insurance Association, Česká pojišťovna will try to actively influence the scope of obligations incumbent on insurance companies and intermediaries under national legislation.
Finally, we will analyse the impacts and configuration of related processes under Regulation (EU) 2016/679 of the European Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (the General Data Protection Regulation, or GDPR). This Regulation, which mainly sets out to achieve a common level of consumer protection in the field of personal data in all EU Member States, has general scope, is binding in its entirety and is directly applicable.
With reference to the current state of play in the market landscape, which is constantly evolving and is influenced by European and national changes, in 2017 we expect the Czech insurance market to witness ongoing improvements in the range of benefits under the insurance of risks associated with loss of income and the need for extraordinary outgoings in case of personal accident, cheaper prices for such insurance, and, on the whole, sales of cost-transparent products on the basis of risk insurance with the option of non-routine deposits.
Sales of Insurance
Internal Distribution Channels
Internal distribution channels consist of a network of captive insurance agents and staff from the Česká pojišťovna branch network.
Management restructuring at the end of 2015 yielded more efficient management of internal distribution and the faster transfer of information. Building on the change in sales management, the sales support service was revised to reflect this and is now the central point for most support services, guaranteeing the same level of support for distribution channels and improved capacity control.
In 2016, internal distribution was characterised by product revisions and adaptation to legislative changes as part of the modification of the distribution model following an amendment to the Insurance Act. An amendment to the Insurance Intermediaries Act also prompted changes to remuneration.
One of 2016’s fundamental milestones was the launch of the Customer Club, rewarding Česká pojišťovna’s customers with various benefits for their loyalty. Besides these services extending beyond the normal framework, we continue to offer customers a high service standard that makes use of modern technologies. With a network numbering more than 600 points of sale, Česká pojišťovna is the most accessible financial institution for customers in the Czech Republic.
Product innovations in life insurance (Můj Život) and non-life insurance (Můj Majetek) necessitated a series of nationwide training courses for the sales service, during which all 4,000 members of sales staff were trained over the course of several months. As a result, Česká pojišťovna’s sales service is now in a position to offer customers top-class products via consultants who have had the necessary training.
In parallel, non-life insurance contracting tools were unified during 2016, leading to the implementation of HUGO, the target system.
As explained above, towards the end of 2016 the distribution model was revised and legislative changes prompted the creation of a wholly-owned Česká pojišťovna subsidiary called ČP Distribuce s.r.o., which is where all of the Company’s internal distribution will be concentrated in the course of 2017. In the new setup, ČP Distribuce will continue to provide our customers with comprehensive financial consulting to the very highest standards.
Specific Distribution Channels
External Retail Partners – Focused on Personal Lines
In terms of product sales via external companies, the first half of 2016 was a year brimming with interesting activities. For example, we were busier in non-life insurance contracting, especially with motor insurance.
Our sales success was fuelled by new underwriting limits, broader assistance coverage and a new pricing policy.
Our main activity, however, centred on setting up a process to assess the risks posed by life insurance contracts. These measures, which we believe are crucial, yielded stable and profitable new business.
In our relations with external partners, the coming period will be geared towards intensive preparations for the launch of Hugo, the new non-life insurance contracting system.
Our focus in life insurance sales was be on the new children’s insurance launched on 1 April 2016.
Česká pošta (Czech Post)
Česká pojišťovna and the state enterprise Czech Post have worked together to offer a range of basic retail insurance products since 2001. The entrenched business model sees certified Czech Post staff and captive insurance agents cooperating in the provision of a comprehensive range of products from the life and non-life insurance portfolio, including a full-blown service offered to the entire Česká pojišťovna customer base at specialised branches of Czech Post.
Throughout 2016, qualification and development activities were carried out that targeted certified Czech Post employees at specialised centres offering insurance products. Mystery shopping was combined with a system of feedback and follow-up measures as an effective means of monitoring. In the second half of the year, all acquisition agents in the Czech Post distribution channel were successfully certified to use the new motor insurance contracting system, which had a positive impact on new business in the car insurance segment.
In 2016, the growth trajectory followed by the Czech Post distribution channel portfolio climbed by CZK 35 million year on year to stand at a final CZK 726 million as at 31 December 2016. In the portfolio structure, regular-premium life insurance accounts for 69%, motor insurance 18% and non-life personal lines insurance 12%. In terms of new business in 2016, non-life insurance contracting led the way with an aggregate CZK 101 million, while new regular-premium life insurance amounted to CZK 65 million.
In 2017, the sales emphasis will be on our range of non-life personal lines insurance products. At the beginning of the year, across-the-board training will be provided on how to sell the innovated property product by drawing on the contracting system that has proved so effective in car insurance. Throughout the year, acquisition activities reinforcing the added value of innovated non-life insurance products will build on product certification. According to Czech Post’s tendering procedure, the existing agency agreement concluded in 2005 will come to an end on 31 December 2017.
4 Czech Insurance Association. Statistické údaje dle metodiky ČAP 1-6/2016 [online]. ČAP ©2014 [accessed 2016-08-024]. Available from:http://www.cap.cz/images/statisticke-udaje/vyvoj-pojisteno-trhu/STAT-2016Q2-CAP-CZ-2016-07-25-WEB.pdf