Member of the Board, Responsible for Europe
ERGO International AG
XPRIMM: ERGO is officially entering on the Romanian non-life insurance market. What do you consider to be the potential of the Romanian insurance market in the next five to ten years?
Thomas SCHOLLKOPF: First of all, let me say that we are very happy that we are entering this market and that we`ve finally made it, because it was a long-going process. We are a life company which is here since 2009 and we were interested from the very beginning in a non-life business. We had this opportunity, to take over CREDIT EUROPE Asigurari, which was a milestone for us for a set-up in the Eastern Europe.
Why Romania? I think it's obvious. There is a huge potential in Romania. It is one of the biggest countries in the Eastern Europe, after Poland and excluding Ukraine, because it's a difficult market right now. Firstly, Romania has a huge potential considering its population and secondly, it has quite a low penetration. As we see this huge potential, it is very good for us to be here. The market is now really mature, so we see a little opportunity to professionalize the market with all our expertise in the group, so for us was very important to have a good step forward having that kind of opportunity.
We will do more in our life business with our operational partners, because they have a lot of potential, besides the fact that we are very happy with 2016`s results, because we got a remarkable market share and also, considering the profitability, we are quite happy. But, as I said before, the non-life business is by far more important and therefore we will approach this opportunity and we are happy to perform in the upcoming years.
If you ask me about the potential: first of all, we already have an existing company which is in business, the portfolio is quite healthy, but for the time being we are very focused on CASCO business and there will be also other options for us to explore in the future. We will focus on the retail business, but if it comes the opportunity to go on a small commercial, like an "e-business", we will do it. For the time being, we are not much interested in industrial businesses, but again, the focus is to explore.
XPRIMM: It is great to have a big name like ERGO believing in the potential of the Romanian insurance market. What are the goals and the objectives of ERGO for the local insurance market
T.S.: I think our exploration is at the very beginning, because when we decided to take over CREDIT EUROPE Asigurari, after a quite long on-going process, it was our aim to explore the opportunity of the MTPL business. It's not that usual, especially if you look at the Eastern European market, to see CASCO insurance sold standing alone. So, normally, if you buy a MTPL in the Western Europe you buy from the same provider the CASCO policy. I'm quite sure that this will also be the case in Romania and also in other countries where CASCO is now a stand alone product. From the very beginning we saw the existing portfolio and the existing cooperation with brokers as a basis for further development. Now we've got to do our homework: we are in the middle of exploring a business case for MTPL. We are aiming at a substantial maker share, but we are quite sure that we cannot do that on a long term perspective without MTPL. Secondly, brokers and consumers will buy in the future MTPL and CASCO more or less from the same provider. As you said, the market is not that profitable, but, on the other hand, we saw a price increase comparing to the last year - I know that it was also a public discussion about it. What we see now is that the prices are on an affordable level. The question is: will this be continued or will some competitors apply a "dumping policy"? However, I can see the market going in the right direction.
XPRIMM: So we might see such a decision by the end of the year?
T.S.: I wouldn't fix myself on when. We are working on that. It is also depending on the other initiatives that we have in the group, because even the execution takes a little more time. But, if we are doing something, we take it seriously, so when we decide to do that it will be in a serious approach. If we`ll take that decision, we will speed it up. There is not a concrete time frame and therefore I don't want to put something on the expectation level, but you can be sure that we are working hard on that.
XPRIMM: You've mentioned more than once the collaboration between ERGO Asigurari and the brokers. Is the CREDIT EUROPE's good relationship with brokers one of the reasons for choosing it as the vehicle for entering the Romanian non-life insurance market?
T.S: Yes, for sure, because for us there were different opportunities to enter the Romanian non-life market. To make the long story short, even acquiring some of the big companies, with all the problems they had at the time. The opposite is to do it like a green field, that's also what we are doing in other countries, but it takes quite long and the question is "do you have that much time?". Therefore, CREDIT EUROPE was really a perfect target for us, because it's something in between - it's what we call a "brown field", because we already have an existing company with an existing infrastructure and, what was the most important criteria, with an existing, very well proven collaboration with the brokers to settle on.
XPRIMM: You have recently stated that you are looking at the growth potential of the CEE and the South-East Asia. In what way are these different from your original core markets?
T.S.: There is not much of a different shape, because in the last year we were already focused on what we call Central and Eastern Europe. Some years ago we sold our entity in Portugal, we also had some non-life businesses in The Netherlands, we are now preparing for Belgium. Therefore, for the last 6 to 8 years, the objective was to be more present in Central and Eastern Europe. It's not a much different approach than the years before. As for South-East Asia, we firstly tried to be in India, because it is a big market and a prominent player in that region. We now have a very successful non-life company in India. We also started a green field in China in the life business and we are now trying to make various actions because we are launching the life business in India this year and we are considering the idea to enter the non-life market in China as well.
In addition to that, talking about South-East Asia, it makes no sense to go for 15 markets in parallel, so we decided to go for the most interesting markets from our perspective. The criteria was the size, the profitability of the market; we also think about what the cultural feed could be, as well as the availability of the market. Last year we bought a company in Thailand, already having one in Vietnam and in Singapore and we now take into consideration other bigger markets in South Asia. So, it's not that we change our strategy. Deciding where you want to be is deciding where you DON`T want to be. We are not going to Australia or the U.S, because we think of our value there, which is our main drive. I will not exclude the fact that we might have a look at other regions, because what we decided was 10 years ago and you have to revise that from time to time. Each 3-4 years we are looking at the U.S. options for us, but we won't do it the same as for CEE and South-East Asia. Entering a region makes sense only if you have the opportunity to cover more than one country.
XPRIMM: Coming back to the CEE market, what changes do you think would be the most important for this market in order to provide a better environment for the insurance business's growth and profitability?
T.S.: First of all, I think you have to consider the current status of the market. That is heavily driven by penetration and density of the insurance products and you can compare it quite easy. For example, Slovakia is now at the level at which Portugal was eight years ago. It is not easy, but this way you can define which will be the steps in this kind of countries. For sure, the biggest challenge will be the different consumer behavior. That could be as well the situation in the emerging markets: the consumers will speed up and they will scratch up some levels. So, we will take care of our customers and use all opportunities to go digital. From my point of view, this is the biggest challenge, because we have to accept that the needs of the customers are different. The customer will define how to communicate with us and it will be not only one direction. I'm 100% sure that we'll need personal consultation. We need, especially in the upcoming years, brokers, agents, bank employees to sell our products, but we need to offer the customer the opportunity to buy directly from the website. The next step will be to organize the claim process in a more convenient way, to apply directly for compensation - this is the issue which we have to work more on.
XPRIMM: You already feel the pressure of the digital era upon the strategy of the company. Will you have some special products, programs or plans in this regard for Romania?
T.S.: I think that online sales won't be the first priority. What we have to do is to support our brokers in a very professional way. We must be the best choice for brokers to work with. Even though we are not the biggest company, we need support and we need to be the best in class for brokers to work with us. Support means on one side to administrate themselves and also to prepare a communication towards the customer, because the customer must communicate with both the insurance company and the broker. The focus won't be on the online sales, because I think the market is not mature enough, but I think we will be very successful doing the other one - digitalization. The advantage here is that we are part of a bigger group, so we don't have to invent something new, but to import from other countries what we already have.
XPRIMM: What differentiates ERGO - a group now present in Romania on all insurance lines -, from the others competitor groups?
T.S.: First of all, I don't like to talk much about our competitors, because I think we all have challenges. We have no interest to be number 1 in Romania in a mid-term, neither on life nor non-life sectors, and that's not our target. I want us to be a profitable company and, again, I want us to be the best choice for brokers. That's out target. I don't believe in a competition driven only by commissions and I don't support it. If you have to play with commissions, you have to do it in a clever way. Our target is to be the best in class.
XPRIMM: As global insurance and reinsurance companies are struggling with low interest rates, currency fluctuations and a more challenging geo-political climate, which are the most important challenges the insurance industry has to currently face? How do you plan to overcome them?
T.S.: The low interest in life insurance is a really big threat. That means that for life insurance companies we need to have other product initiatives, such as to work more on barometrical risk products for example. We have to work more on unit linked and index linked, there are currently very low guarantee in what we give especially in the Western Europe. In what concerns the non-life companies, we see a lot of influence that comes from the local regulations. From time to time, this comes quite quickly, so we have no time to prepare ourselves. I think the markets will stay this volatile. There will come impacts from financial environment, political environment, nobody knows the impact that we will suffer after the election in the U.S. We have to be prepared, flexible.
XPRIMM: Today you start a new chapter here, in Romania, are you looking for further acquisitions in the CEE markets?
T.S.: I think at ERGO we have quite good portfolio in Central and Eastern Europe and in South-East Asia, we have companies which are already quite big, we have a huge market share. There are also some countries where we did not meet the market share. From my point of view, we are still observing the market, it must be opportunity driven. If an opportunity comes up and it makes sense from a strategic perspective for sure we will be interested in it.