INTERVIEW: Elisabeth STADLER, CEO, VIG - Vienna Insurance Group

7 November 2019 — Mihaela CIRCU
VIG - Vienna Insurance Group
XPRIMM: VIG was the first international player to enter Central Eastern Europe in 1989. Almost 30 years later, what do you think about the evolution of the CEE markets?

Elisabeth STADLER:
We've seen huge changes during that time. The region has seen a significant economic upturn, which stalled for a time, as in every part of the world, due to the financial crisis, but it picked up speed again more quickly than in most West European states. Although we're seeing slightly weaker growth in Europe at the moment, the rule of thumb still applies that average growth in CEE is double that in the EU-15 countries. Of course, economic gains and the resulting improvement in living standards have had a positive effect on attitudes towards insurance. Coverage for material goods that people buy, such as cars, houses and apartments, is still the priority. In the most highly developed economies, like Slovakia, the Czech Republic, Slovenia, Poland and Hungary, retirement planning by means of life insurance, as well as health insurance are becoming increasingly important. But having said that, insurance density in CEE averages only a tenth of the figure in Western Europe. So we still see lots of growth potential in the coming years.

XPRIMM: How would you characterize VIG's actual position and what is your strategy for the future?
E. S.:
As you mentioned, we were one of the first international insurers to enter the region. We see this first-mover effect as one of the reasons why we are the regional market leader today, and why we want to clearly maintain that position. We stayed during the financial crisis when lots of multinational insurance companies pulled out, and now in some parts of the region they are facing higher costs as they aim to gain a foothold once more. We pursue a sustainable, long-term strategy in our markets, in line with our commitment to stay for the long haul, and we intend to stick to it. That makes us a reliable and stable partner for our Group companies, our customers and our shareholders.

XPRIMM: What is your opinion about the opportunities and the risks that can arise from doing business in CEE markets?
E. S.:
As I mentioned earlier, the opportunities lie in the very low levels of insurance density in the markets. Motor insurance is dominating at the moment. VIG is the biggest motor insurer in the CEE region. There are ninety-five million registered vehicles in our markets, and VIG insures one in ten, or about ten million of them. We expect to see more new cars in many CEE countries, because the time for which people keep their cars will decrease, like in Austria, so they'll buy high-value replacements after a shorter period. We also anticipate growth opportunities in the corporate business, especially small and medium-sized companies, where we are a big player in the CEE region. Creating risk awareness has a large part to play in this respect. Informing people and raising awareness of the importance of insurance is a key responsibility for all players on the insurance market. If small and medium-sized enterprises are to be viewed as a driving force behind the region's economy over the coming years, they need suitable insurance coverage and support. We need to be prepared to explain what they need and offer them such coverage. And as the market leader, we're definitely ready - and well placed - to do that thanks to our international network. We also believe that health insurance will generate significant opportunities, especially in view of demographic developments, which in turn will lead to the desire for better health care.

Without doubt, the political situation is a particularly important risk factor. Political shifts can bring about changes that have a negative impact on strategic developments. As far as the Vienna Insurance Group and the insurance sector as a whole are concerned, political circumstances are mainly reflected in special taxes, which have translated into a fall in income. Due to our business model, we value stability in our markets. We have to operate and invest sustainably, with an eye on the long term, so we need to be able to depend on stable legal conditions.

XPRIMM: We have seen recently that VIG has expanded the footprint in the Nordic Europe. What are VIG's plans regarding this region?
E. S.:
We're expanding our operations in northern Europe for two reasons. Firstly, we're already operating in the corporate segment and serving industrial customers in the insurance business. We've been working very successfully in this line of business for decades in seventy countries. Our premium income in the corporate business totals a billion euros. Now, we want to provide services directly and even more efficiently to our customers in this extremely important segment on site through local offices.

Second, we are taking advantage of our local presence specifically in order to unlock new potential in the industrial customer business. The north European insurance markets are profitable, firmly established markets where we want to capitalize on our outstanding expertise. We have made a conscious decision to expand into these countries in order to generate added value for our existing customers, and in order to acquire local companies as new customers. But we will also maintain our clear focus on the CEE region.

XPRIMM: Regarding the CEE markets - do you plan to continue the expansions through acquisitions or are you focusing only on the organic growth?
E. S.:
We want to continue growing profitably - and profitably is the operative word - by means of acquisitions and organic growth. Every year we look at several options for potential acquisitions, and we make acquisitions when they're financially viable and make financial sense. We implement measures that allow us to benefit from solid economic data, and to achieve success and profitability in the long run on account of the long-term perspective we adopt. In most countries, we aim to achieve a high ranking between third and fifth place on the market. We're the market leader in many countries and we want to keep it that way. In some countries we implement a specific strategy centered on niches, with a focus on certain lines of business or sales partners.

XPRIMM: Digitalization is, lately, one of the most debated topics in the insurance industry. What is VIG doing in order to prepare for the future?

E. S.: Digitalization is central to our Agenda 2025 management programme aimed at safeguarding our ability to meet future challenges. Generally speaking, we've noticed that people in Eastern Europe are more willing to embrace digitalization than those in the West. We have a digitalization hub in Poland, and over 150 digitalization projects are currently under way across the Group. We've also launched an in-house competition called VIG Xelerate. We present awards for proposals submitted by our Group companies. These are assessed based on criteria such as the degree of innovation in the market concerned and the project's relevance for the Group as a whole, and the winners receive financial backing from VIG. We're investing about fifty million euros a year in digitalization.

XPRIMM: How do you think that the insurance world of tomorrow will look?

E. S.: Alongside global warming, we believe that the digital transformation is the trend that will have the most wide-ranging impacts on society and the economy. 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 those things that matter in the lives of our customers in the future. The digital transformation also represents a chance to provide customers with additional direct benefits, besides our core task of offering protection against risks. One example of this is our assistance services, where the Group is stepping up and expanding its operations through its assistance companies. In my view, assistance services provide major advantages. They enable us to provide rapid support when it's required. For example, when your car breaks down in the middle of nowhere. The customer picks up their mobile and calls the assistance service hotline. With the help of an app, the customer can track when the breakdown service will arrive and in what vehicle - like with Uber. The breakdown service knows exactly where to find the stranded vehicle and then tows it to the nearest repair shop. Another point is that closer connections between people and devices will significantly increase the need for protection against losses. Computer-based systems in the home can provide early warnings of potential damage or take preventive steps automatically. Personalization is increasingly redefining insurance requirements, resulting in short-term policies with tariffs and coverage tailored specifically to individual needs.

XPRIMM: What do you think, from VIG's perspective, are the solutions for one of the biggest challenges of the humanity - climate change?

E. S.: Yes of course because the ability to fulfill all commitments we make to our customers today and to take responsibility for future generations is core to our business. Accepting responsibility is an important part of VIG's business orientation and forms the basis of its sustainability strategy. The environment is also a key element of this strategy, with particular importance given to adjusting the business model to climate change. As a part of this effort, VIG has decided to implement a dedicated investment and underwriting strategy to support green investments and a low-carbon future. In particular, VIG clearly reduces investment and underwriting policies in the coal sector.

Interview conducted by Mihaela CIRCU
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