“We achieved top results”
In 2019, numerous projects were implemented and efficiency increased within the framework of Agenda 2020. The leading insurance group in Austria and the CEE region also made massive investments in digitalisation and worked on relevant ESG topics at the same time.
The current Group Annual Report is published under the keyword “diverse”. Why is this so close to your heart?
Elisabeth Stadler: Diversity is the core value of the VIG Insurance Group, along with customer proximity and responsibility. It dominates our corporate culture and implementation of our strategy and is especially apparent in the local entrepreneurship in our companies. I am firmly convinced that diversity makes us as VIG Insurance Group more successful. Broad diversification across markets, products, distribution channels and brands makes us less sensitive to volatilities in individual areas. Our decentralised structure brings us close to our customers and their needs. We can take quick flexible decisions. Different perspectives and a spirit of openness fuel innovation. This creates an attractive work environment for everyone.
“I am firmly convinced that diversity makes VIG Insurance Group more successful.”Elisabeth Stadler
The VIG Managing Board team of the VIG Holding is also diverse and has had eight members since 1 January 2020. Why was it expanded?
STADLER: The Managing Board includes an excellent mix of external know-how and many years of in-depth knowledge of the Group and its companies. In addition to the professional expertise indicated by their areas of responsibility, Gerhard Lahner and Gábor Lehel, previously substitute members of the VIG Holding Managing Board, and Harald Riener also bring their experience as managing board members in the Czech Republic, Hungary and Croatia. Diversity and a decentralised structure require a common framework, in part because of the statutory and regulatory requirements imposed on us as an insurance group. The Managing Board was expanded to take account of the growth of the Group and increasing regulation.
Does it also have to do with IFRS 17? What is new in that area?
Liane Hirner: Yes, among other things. The debate over the precise development of IFRS 17 continues. We hope that by mid-2020 we will have more clarity concerning the regulations that will apply in the future. What is already clear today is that IFRS 17 will fundamentally change our consolidated financial statements and we continue the intensive preparation work. In addition to further development of content-related topics, the main focus in 2019 was on the implementation and roll-out of Group-wide IT tools.
“IFRS 17 will fundamentally change our consolidated financial statements and we continue our intensive preparation work.”Liane Hirner
Aside from the preparations for IFRS 17, what other challenges were there in 2019?
STADLER: Generally speaking, the low interest rate environment naturally presents a challenge for insurance companies. This is particularly the case in Austria. We have, however, made appropriate adjustments for this situation in the meantime. The focus is currently on unit-linked and index-linked life insurance and pure risk-based products. The growth rates in these areas are considerably higher than for traditional life insurance. This is especially apparent in Central and Eastern Europe.
Franz Fuchs: There were, however, other issues in the CEE region. The Romanian market, for example, continues to be challenging. The government set reference tariffs for motor third-party liability insurance. Thus our companies are acting very cautiously and intentionally reduced the premium volume substantially in this line of business. During the annual goodwill impairment test, we decided to lower our earnings expectations for Romania. This led to a complete goodwill impairment.
Harald Riener: We are happy, however, that the decrease in premiums in Romania was compensated by growth in other segments. Here our diversity pays off. We continue to believe in Romania, which would benefit from a more stable political environment for further development.
Gerhard Lahner: There was also an unexpected development in the Czech Republic. A new tax of 19% will be levied on underwriting provisions there starting in 2020. Insurance companies collect these provisions for bad times. They are not company profits, but money that belongs to customers and is often paid out after decades. The new tax has no effect on the local or Group result, but does lead to an early cash outflow.
Is CEE still considered to be the region of the future? Are you generating the growth you hoped for there?
STADLER: Yes, without a doubt. We are very satisfied with the double-digit growth in the CEE region of around 11% in 2019. A further development due to the coronavirus pandemic cannot be estimated at present. Nevertheless, I am convinced of the great potential of the CEE countries in the long term, as it is precisely these markets that have proven to be masters in dealing with difficult situations in the past.
“I am convinced of the great potential of the CEE countries in the long term.”
VIG Holding is now operating in the Nordics. What made you take this step?
STADLER: We are still following our long-term strategy of growing organically and by acquisitions or by founding new companies in Central and Eastern Europe. It makes sense, however, to opportunistically take chances in specific lines of business. Our presence in the Nordics also creates a geographical bridge to Estonia, Latvia and Lithuania. Scandinavian and Finnish companies in particular are increasingly operating in the Baltic states, where we are the clear market leader.
Peter Höfinger: We are already successfully serving industrial customers in around 90 countries worldwide, including the Nordics. We now want to create added value for our existing customers in these Nordic countries, while we also want to win new corporate customers in these profitable markets. We operate our own branches in Stockholm, Oslo and Copenhagen and the EU freedom to provide services allows customers to also be served in Finland.
What events were also relevant in 2019?
STADLER: We worked hard in 2019 on further strengthening the basis for our future success under the Agenda 2020 and are now in the final year of this work programme. One special highlight in this connection is that at the beginning of 2019 we concluded our mergers of local composite insurers with life insurance companies specialising in bancassurance. Our good cooperation over many years with Erste Group plays an important role in our business activities and we therefore intend to intensify it even further in the future. (For more information on bancassurance, see the information box Erste Group cooperation.)
Looking back, how satisfied are you overall with the financial year 2019?
STADLER: We can be very satisfied. After all, we have top results to show at the end of the year. We exceeded the 10 billion premium threshold for the first time, and also recorded a significant increase in our result before taxes, which rose to EUR 521.6 million. We will therefore be proposing to the Annual General Meeting that the dividend be increased to EUR 1.15.
HIRNER: With respect to the consolidated financial statements, it should be noted that the Managing Board decided on a change to the accounting method for the non-profit housing societies due to the new legal situation. They were deconsolidated as of 31 July 2019 and are now accounted for using the equity method. This increases transparency, as fluctuations between the result before and after taxes are reduced. The change does not, however, affect the result after taxes and minority interests and therefore also does not affect the earnings per share. The Group remains committed to affordable housing, which is also an important topic for the European Commission as part of the EU sustainability agenda.
The demand for affordable housing addresses one of the factors in the “ESG” topic areas, that is, environmental, social and governance-related factors. What specific measures did VIG Insurance Group take in 2019?
LAHNER: Climate change affects the entire economy and has a great effect on us as an insurance company. We therefore prepared a climate change strategy in 2019 in consultation with the local companies and also NGOs, such as Greenpeace. The Managing Board approved it in May 2019 and it is already being implemented. This is special for us as a Group, as this is the first time we have set binding Group-wide standards for asset management and underwriting in a specific area for the local companies. This allows us to withdraw from the coal sector and assist with the transition to a low-carbon future. (For more information, see the information box Climate change strategy.)
“We prepared a climate change strategy in 2019 in consultation with our local companies and NGOs, such as Greenpeace.”Gerhard Lahner
What other trends are you addressing?
GÁBOR LEHEL: We are also adjusting our business model for long-term demographic change – that is, the increase in the average age of people. Although this puts pressure on social systems, so far politicians have more or less avoided dealing with the issue. We are offering, for example, products in the area of nursing care insurance. This also helps to close potential gaps in future provisions. At the same time, more and more of our customers belong to the millennial generation, which are in some ways more demanding. Simply taking responsibility for costs is not enough, they value services ranging from organising appointments for doctors and treatments to preventative medicine. We can satisfy their need to deal with matters quickly and easily by providing a variety of apps.
“We are also adjusting our business model for long-term demographic changes.”Gábor Lehel
RIENER: Assistance services are also in the spirit of the times and create a positive customer experience. We already have five Group assistance companies, in the Czech Republic, Slovakia, Poland, Romania and Bulgaria. The North Macedonia and Serbia markets are served from Bulgaria. Assistance is also being expanded to the Baltic states, starting with Latvia, in 2020. We handled around 400,000 assistance cases in 2019. By insourcing these services, we were able to achieve major savings, while at the same time earning a profit in the assistance companies. At the same time, we attach great importance to taking innovative, digital paths in supporting our customers. One example is a software created specifically for digitalisation of road assistance that is used for accidents and breakdowns. The customer simply dials the number of the assistance company and receives a link by text message. When the link is opened, the customer’s location is determined and the nearest towing company is contacted. The customer can then see on the smartphone in real time when the towing company will arrive and what vehicle they will be driving. This digital tool is currently available in the Czech Republic, Slovakia, Poland and Romania, and will soon also be available in the Baltic states.
“Using innovative digital tools in assistance is important to us.”Harald Riener
VIG Insurance Group has dealt intensively with the digitalisation megatrend in previous years. What happened in this respect in 2019?
HÖFINGER: The digital transformation is one of the trends that is having a great effect on the economy and society. We therefore have around 180 digitalisation projects underway, so that we can take advantage of the opportunities in the best way possible. There are good reasons why the “Börsianer” financial magazine named VIG Insurance Group the “most innovative insurance company in 2019”.
“We have around 180 digitalisation projects underway.”Peter Höfinger
“Financial magazine ‘Börsianer’ named VIG Insurance Group the ‘most innovative insurance company 2019’.”
STADLER: It is becoming increasingly important for insurance companies to provide additional benefits other than pure risk protection. Digitalisation offers many opportunities for innovative business ideas in this area. I see this as an opportunity to become a part of the things that will be important in our customers’ lives in the future. (For more information on digitalisation, see the information box on Digitalisation.)
In addition to adjusting the business model for trends and developments, another Agenda 2020 priority is improving VIG companies’ operating performance. What successes can you report for 2019 in this area?
STADLER: The motor line of business had a combined ratio of 95.4% in 2019 due to the positive effects of the initiatives implemented under Agenda 2020. We are on course to achieving a sustainable reduction in the ratio for the Group as a whole to around 95% in 2020. We are still pursuing our multi-brand strategy, but are also implementing cost-reduction measures in the background. One example of this is the merger of companies that was previously mentioned, and another is the use of shared back office services. Our antifraud management is another initiative for increasing cost efficiency. It was already rolled out in 21 companies in 14 countries by the end of 2019. We are currently working on process automation.
FUCHS: We also reduced our unprofitable truck portfolio by another 8%. The claims ratio in the motor line of business was improved by 2.8 percentage points. We are using a selective underwriting policy, advanced analytics tools and proactive claims management both domestically and abroad. This all contributed to profitable growth in 2019.
What progress was made with the closed file review?
Peter Thirring: We expanded our closed file review to other countries and lines of business in 2019. We are now using it in nine countries and in the corporate business as well. Reviewing old insurance cases allows us to identify possibilities for improvements in claims management. In Austria, for example, we also analyse customer satisfaction and the satisfaction of garage workers as this has a measurable effect on process efficiency. Potential cost savings equal to around 4% of claim payments have been identified in the countries where closed file review has already been introduced. We will therefore be implementing these measures in additional countries in 2020.
“Closed file reviews allowed us to identify potential savings equal to around 4% of claim payments.”Peter Thirring
Fuchs: And to return to the start of this interview, the closed file review is another example of the practical advantages of diversity as lived by the VIG Insurance Group. Claims management is a local responsibility, which ensures that specific requirements are addressed locally. The external perspective gained from the centrally managed review initiative provides additional inputs and strengthens the culture of knowledge transfer, with best practice examples from other countries providing new suggestions for improvements. We combine two important factors: local responsibility and central support and management.
“We combine two important factors: local responsibility and central support and management.”Franz Fuchs
What do you have planned for 2020?
STADLER: Due to the coronavirus pandemic, the priorities for all of us in 2020 have changed significantly. We have taken all appropriate measures within the Group to protect our employees and ensure the continuation of our business operations. Of course we are constantly adapting these measures to the current situation. True to our motto “protecting what matters”, we want to be a reliable, stable partner for our stakeholders even in these challenging times.