XPRIMM: We are living one of the most challenging periods in the recent history. What were, in your opinion, the main points in the evolution of the insurance industry in the first nine months of the year. How would you characterize the response of the insurance industry to this crisis?
Elisabeth STADLER: It was really a big surprise for all of us how quick we were able to adapt to this unexpected situation. From one day to the next, we enabled thousands of employees to have a home office, and our consultants ensured that they remained in contact despite closed customer offices. We have replaced physical contact with digital as far as possible, and we have remained in contact with our customers, employees and partners. This has enabled us to successfully maintain business operations while protecting the health of all stakeholders. Another important finding was the great importance of digitization and how important it was that we had already taken intensive measures in this area. It is a fact that Corona has given online and digital services a new dynamic.
The COVID-19 pandemic shows us also the limits of insurability. For example, we register an intensive discussion about business interruption insurance which is only partially effective in the COVID19 pandemic. It usually only comes into effect if the insured entrepreneur either falls ill with COVID-19 himself or is put into quarantine or if the insured business is specifically closed down by the responsible authority according to the Epidemic Law. Only operating restrictions, like a general prohibition of entry by the COVID-19-Regulation, are not covered by the insurance. The basic question for the insurance business is: If a risk is calculable, then it is also insurable. The second question is whether the calculated premium is affordable. Extreme events such as pandemics and wars are not calculable and therefore not insurable, because every insurance policy works on the principle that individual losses are paid for by the premiums of the community of insured persons. This means that the low premiums of all insured persons pay for the high individual losses. In the event of a pandemic, the risk equalization in the insurance collective does not work: If you try to insure this event, the premium would be unattractive for customers.
XPRIMM: From the VIG perspective, what do you think are the main challenges for the insurance industry while we are moving to 2021?
E. S.: Depending on how long the pandemic lasts, a further wave of bankruptcies and an increase in unemployment can be expected. This could also affect our customers and lead to a loss of premiums or contracts. However, we see the greatest challenge in assessing the medium- and long-term impact of the pandemic on national economies and the associated reactions of the capital markets. Currently we are not able to estimate how COVID-19 will affect the individual economies, the capital market and the development of interest rates and what more concrete consequences this will have for the financial services industry.
XPRIMM: How would you characterize the first half of 2020 for VIG?
E. S.: We have had a very good start into 2020. The effects of the lockdown phase mainly affected new business in April and May, and from June we saw an upward trend again in most of our countries. The declines in new business varied greatly from country to country and are now in some cases back to the previous year's level or the level before Corona. It is thanks to the broad diversity of the VIG Group and the strong start to 2020 that we were able to record an increase in premiums of 2.4% in the first half of 2020 and a profit before taxes of 200 million euro. Operationally, we currently see ourselves in a position to manage the effects of COVID-19 for the insurance group. We see our very good balance sheet figures for 2019 as positive factors here - the past financial year was very successful for VIG and provides us with a very good foundation for the current challenges. Furthermore, our strong capital base, which is also always positively highlighted by Standard & Poor's, and also our management program Agenda 2020, where we are taking targeted measures to increase profitability and secure the future. And we will continue to do so during the pandemic.
XPRIMM: What is your opinion about the opportunities and the risks that can arise from doing business in CEE markets, especially in this period?
E. S.: Our focus is on the CEE region, and we are staying there. No country will be spared the negative economic effects of the COVID-19 pandemic and the current economic studies speak of the worst global economic crisis since 1930. We are cautiously optimistic as the forecasts expect a strong recovery of economic activity between Austria and the CEE region in 2021. Especially the Visegrad countries Hungary, the Czech Republic, Poland and Slovakia are the most important investment markets for Austria and they are also essential for us. Cautiously optimistic because there is still a great deal of uncertainty as to how factors influencing Austria's strong economic relations with the CEE region will develop and have a corresponding impact on the insurance behavior of the population and companies.
The pandemic could also be chance that it remains attractive to invest in the CEE region and discourages companies from going to Asia. Because what the crisis has clearly shown us, the interruption of production and supply chains (supply and production stop in Asia) has far greater negative consequences than paying higher wages compared to Asia and having a higher security in return. Supply chains must be made more resilient, especially for strategically important sectors. In general, the EU is now considering making itself less dependent on imports from America and Asia.
XPRIMM: What do you think about the evolution of the CEE markets during this period? Do you consider that this period will change the mentality towards insurance?
E. S.: A very important factor as a result of the pandemic is the acceleration of digitalization and automation. This makes me very confident, as we are not only driving forward the digital transformation strongly and this is one of our major priorities in our management program Agenda 2020, but we are also focusing on our insurance companies in CEE. The most recent example is the Beesafe digital car insurance platform in Poland. I do not believe that Corona will bring a major change of mentality in the insurance sector. However, what we are already noticing, is an increased interest in health and related health care. Due to the Corona crisis and the exorbitant increase in home office activities, the time we all spend on the net is also increasing and so cybercrime. This will increase the awareness to protect against cyber risks. According to a worldwide study, cyber incidents and business shutdowns are among the greatest concerns of entrepreneurs. And rightly so, because hacker attacks and cyber incidents now cost companies three times as much as the damage caused by natural disasters.
XRPIMM: Digitalization and InsurTech are one on the most important trends in the industry. How do you see the future development of the InsurTech landscape, especially in the present context?
E. S.: As I mentioned before the current crisis is a driver for digitalization. After global warming, the digital transformation is the trend with the greatest effect on society and economy. We believe it will have a particularly significant influence in terms of connectivity, mobility and personalisation. As an insurer, offering added value on top of our primary function of covering risks is becoming increasingly important. I see this as an opportunity to become part of the group of things that are seen as important in the lives of our customers in the future. InsurTechs could support us as an opportunity to offer digital solutions more quickly and to be able to act with digital innovations. We are constantly evaluating possibilities for a deeper cooperation with start-ups and for an even more systematic overview of developments and trends in the InsurTech and start-up scene. Start-ups have to try out, take risks when they implement new business models. Large companies have a functioning business model and deviations from this are measured by the potential risks, not the opportunities.
XPRIMM: How do you think that the insurance world of tomorrow will look?
E. S.: Digitalization is primarily driven by technical progress. In addition, consumer behavior (mobilization, self-service, independence, sharing and disclosure of information) and demands (speed, constant availability, desire for flexibility) have changed significantly.
For us as an insurer, these changes offer opportunities, for example through new business opportunities in the area of risk transfer, which is expanding from loss compensation to loss prevention and mitigation. Value-added services are becoming increasingly important. They aim to significantly increase the frequency of contact and also the day-to-day relevance of insurers. By creating additional customer value (e.g. through assistance services), we can strengthen loyalty and preference for our own brands. At the same time, insurance will take a back seat to consumer demand in some areas, which means that the business model of insurance companies will also change in some areas.
For instance, ever-closer interconnections between people and devices will significantly increase the need for protection against losses. Computer-controlled systems in the home provide early warnings of potential harm or take preventive steps automatically. Mobility will be shaped by the rise of driverless vehicles, leading to completely new risk parameters and insurance models. Personalization will increasingly redefine insurance requirements, resulting in short-term policies with tariffs and coverage tailored specifically to individual needs.