BTA: ESTONIAN insurance market is more intelligent than that of other Baltic States

30 May 2014 —
Estonia's insurance market is more intelligent - residents evaluate services and contract conditions more carefully. Latvian and Lithuanian residents do not. They do, however, trust companies that come recommended, said BTA Insurance Company CE Chairman Jānis Lucaus in his interview to BNN.

He predicts that balances of insurers in Latvia could improve in the next couple of years.

What are some of the most notable recent events in your sector?

One of the most important events would the sale of Balta insurance company to the Polish PZU Group. It should be said that considering how Balta's owner RSA Insurance Group have ended up in a financially complicated situation, BTA had predicted at the beginning of 2014 that Latvia's insurance market may experience a consolidation of market participants this year. Even though Balta representatives had previously noted that no changes were planned for 2014, RSA Insurance Group announced the sale, which had confirmed our previous predictions.

Another important event to happen in the industry is the decline of losses in OCTA. According to the information from the Latvian Vehicles Insurance Office, in spite of 10% growth in OCTA insurance claim payments, this industry has managed to work with smaller losses than those of Q1 2013.

Even though OCTA demonstrated slight improvements at the beginning of the year, it is too soon to speculate whether or not losses will continue to decline in the industry. It should be said that 2013 was concluded by OCTA with losses of EUR 3.7 million, which was 2.5 times larger than losses of 2012.

The third most notable event in the insurance industry is this winter's black frost, which had a notable impact on winter crops and agriculture sector in general. BTA information regarding insurance claim applications for ruined winter crops shows that the black frost had ruined a total of 562 ha of winter crops. Consequences of harsh winter were noted in nearly all farms that had previously insured their crops. The largest damage was done to farms in central parts of Latvia.

Can you say economic conditions are improving and there is a lot of potential for economic growth in the market?

In regard to the insurance industry as a whole, it should be noted that the volume of signed insurance claims had increased 7% in 2013, according to data of the Latvian Insurers Association. The total volume is estimated at EUR 470 million in 2013. According to this information, Latvia's internal market has increased 16% in Q1 2014. Our experience shows that residents now have a better understanding of the role of insurance. With the improvement of the economic situation, people are beginning to save money for insurance policies for potential risks in the future. This is demonstrated by the fact that the volume of insurance claims in voluntary insurance models continues to increase. Clients also tend to include different additional terms and conditions

Looking at results of 2013, the situation of the market and business remained unchanged - there are no signs of any insurance companies significantly increasing their profit margins. Multiple insurance companies, including big players, continued working with losses. This demonstrates that there is fierce competition present in Latvia's market. Entry of new players in Latvia's market does not allow increasing prices in segments where insurers are currently experiencing losses. The positive aspect of all this is that high competition forces customers to consider quality over quantity.

How would you describe the government's economy policy aimed at improving the economic situation in the country?

If we're talking about the improvement of the industry's economic situation over the year, I can say it was positively impacted by the growing purchasing power of consumers. In terms of wages, Latvia has reached its pre-crisis level; residents' purchasing power is closer to it as well. Hopefully, the economic situation in the country will continue to improve.

How is the industry affected by Latvia's policy? What changes to legislation would you like to see? What helps? What makes things more complicated?

We as an insurance company carefully follow changes in legislation and developments tied to the insurance industry. Like any businessman, it is important for us to have the policy that affects business be more focused on predictability: making sure regulations are not introduced in a very short period of time.

Some of the latest amendment projects that are linked to our industry include the new Construction Law and rules of the Cabinet of Ministers that provide for compulsory civil requirements in construction. This matter has earned a lot of attention, especially considering several shocking events that hit the construction sector in 2013: the error in calculations in the restoration project of the Latvian National Museum of Arts and the Zolitude tragedy. In the context of these events and related regulations, insurers had a good opportunity to meet with construction representatives and learn of the government's general attitude. If the construction contract does not include sections regarding safety and insurance, tragic events involving such projects make a lot of noise. If construction is carried out without appropriate risk and insurance policies or that the standard civil liability insurance policy would cover maximum losses that may arise following tragic events, possible consequences are only logical; 2013 demonstrated this in a very clear way. All sides involved in construction have to understand that insurance is not merely another section of expenses. Insurance provides guarantee against accidents and errors. It also plays an important role as safety and stability guarantee for construction activities. Insurance also provides financial safety for clients, because they have the right to have their investments protected.

Regulations of the Cabinet of Ministers, which recently came into force, do not provide minimal liability limits per one a single insurance case. As a result of this, it is possible to write policies with a lower liability limit per insurance case. Minimal liability limit should be stated per a single insurance case, or be set in accordance with the construction project in an insurance period. I believe the introduction of compulsory civil liability for construction specialists will not resolve all problems of the construction sector. Nevertheless, this step should be considered positive development.

I also support the initiative to amend Section 375 of the Criminal Law. This section states that materials and documents used in a criminal process are to be considered a secret of the investigation. With that, only officials in charge of the investigation would have access to them. I believe insurers should be added to the list of people to be allowed to access such materials and interview witnesses. This is needed in order to provide insurers with full information regarding troublesome cases. This would also help insurers complete their duties before clients who are involved in dangerous incidents.

How would you describe the industry's position in the Baltics? What about competition with Estonia and Lithuania?

In regard to the industry's situation in the Baltic States, it should be said that Estonia's market differs from that of the rest of Baltic States. Estonia's market is much more intelligent - residents carefully study services before buying them. This may be due to how close Scandinavia is and what kind of influence it has over Estonia. Estonians have gone through a self-educating course over the year. This can be noticed not just in the insurance sector, but also in banking and others. Residents of Latvia and Lithuania are less interested in reading through offers. They tend to trust recommendations. Estonia has the most constructive and most simplistic model of cooperation with state and municipal institutions.

What can you can your 'trump card'? What is your 'Achilles' heel'?

I believe the insurance industry's trump card is the sense of insurance. At its core, insurance means financial security. It should be said that residents of countries of Old Europe have a working trend - they insure everything they can (vehicles, real estate properties, civil liabilities, health, ect.). Latvia's insurance culture, on the other hand, is still in the middle of development. Lately, though, there has been a positive tendency noted in the industry - people are beginning to understand the role of insurance.

On one hand, fierce competition in Latvia's insurance market is a trump card in its own right - it forces the industry to develop. The customer will only benefit for competition. In a situation when provided multiple different insurance service offers, customers will focus on quality.

At the same time, a larger number of market participants also demonstrates an Achilles' heel of a sort - some insurers are forced to word with unprofitable conditions. For example - OCTA has been working with losses for several years now. Losses are felt n other forms of insurance, but setting an adequate service price is impossible due to competition.

Can you say there is a lack of skilled workers in Latvia?

BTA continues to develop very dynamically. The need for qualified and experienced professionals regularly arises. We are always very careful in personnel selection matters. It should be added that BTA has areas in which it is easier to find employees. There are also areas in which employee selection is a very time-consuming process. Each post requires a separate set of skills and knowledge. We believe it is also important for the candidate to want to apply skills and knowledge in work and be open for learning new things. Professional growth of our employees has always been one of BTA's main priorities. It should be added that potential employees are expected to demonstrate enthusiasm, responsibility and ability to work in a team.

Our employees are required to solve matters of different degree of complexity on a daily basis. This applies to matters of local and international level. It is vital to be able to develop skills and knowledge base. Employee education and their professional growth is a long-term form of investments. In this regard, BTA has experience in Europe as well. More often than not, acquiring specific skills and knowledge in Latvia is not possible. Unfortunately, there is only one university in Latvia that can provide education for insurance specialists - the BA School of Business and Finance. We hope other universities will also create education programmes in insurance in the near future.

In terms of employment, it should be added that the ambitions of potential employees also tend to increase. This is expected to grow even more along with recovery of Latvia's economy.

What do you predict for the next five years? Will the situation in the industry improve, worsen or remain the same?

If you mean the insurance industry as a whole, then, considering current trends and market developments in Latvia, I would say the insurance market division will continue in Latvia. We predict insurers' balance will improve in the next couple of years.

It should be said that insurance service end prices for consumers may increase. This is mainly linked with euro introduction in Latvia - prices of insurance services are tied to cooperation partners - healthcare institutions, car services and other companies' service prices. If the introduction of euro increases prices for cooperation partners, so are insurance companies forced to increase their prices.

It is clear that insurers will continue to work hard in the next several years. They will continue developing their services and offer new ones to their customers. This is because customers are becoming more intelligent in their choices of insurance services. They now pay more attention to quality, service and additional bonuses.

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BTA: ESTONIAN insurance market is more intelligent than that of other Baltic States