Life insurance (PZU Życie)

Market situation

Poland’s life insurance market measured by gross written premium was estimated at PLN 16,409 million in the first three quarters of 2018 meaning that over the most recent 5 years it contracted on average by 6.7% per annum. At the same time, the premium collected in the first three quarters of 2018 was 10.3% lower than in the corresponding period of the previous year. This resulted principally from the evolution in the single premium business in investment products while the gross written premium in periodic products has persisted at a similar level.

Gross written premium reported by life insurance undertakings in Poland (in PLN million)

Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance market] 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016, Rynek ubezpieczeń 3/2015, Rynek ubezpieczeń 3/2014

The changes in the level and the growth rate of the life insurance market premium in recent years has been stimulated mostly by single premiums in investment products.

Life insurance market – gross written premium (in PLN m)

Attention should be drawn to the fact that the premium contraction during the first three quarters of 2018 for the overall market year on year pertained to single premiums to a greater extent (down PLN 1,911 million, i.e. 31.7% y/y). At the same time, the growth rate for the corresponding period of 2017 was positive at 8.0%. The single premium compound average growth rate since 2013 was -18.3%. The changes in circumstances on the capital market and in the legal environment should be considered to be the underlying causes for the gross written premium on single premium business to fall in a trend over several years. The record low interest rates contributed to the decline in the yields offered by term deposits packaged as insurance products, thereby leading to heightened interest in other investment products. Additionally, a tax was introduced as of 1 January 2015 on short-term endowment insurance offering a fixed rate of return or a return based on indices; this also contributed to reducing client interest in these types of products and ultimately to their retraction, especially the first ones, from the offer of insurance undertakings. In subsequent years the regulatory authority’s guidelines, including guidelines regarding the level of fees incurred by clients of unit-linked products and EU directives regulating the market for these types of products and their distribution led to insurance undertakings constricting their offering of these types of products, especially in cooperation with banks. The next quarters of 2018 were characterized by a dip in the level of single premium to the lowest figures in many years.

The outcome of this market evolution was the expanding significance of periodic premium that constitutes PZU Życie’s competitive advantage on the market. In Q1-Q3 2018, periodic premium was 0.2% higher compared to the same period in 2017, with a cumulative average growth rate of 0.6% for the last 5 years. Despite the decline in periodic premium in unit-linked life insurance, the protective premium in classes I and V continues to trend upward.

At the same time, market concentration measured by the periodic gross written premium is on the rise. The sequence of the largest market players has not changed, but their combined share, especially of the top four, has expanded.

The total technical result generated by the life insurance undertakings in Q1-Q3 2018 was down PLN 11 million (0.5%) from the corresponding period of 2017 to PLN 2,407 million. A decline of PLN 116 million (19.7%) transpired in the life insurance group (group I), while one of the main drivers was the drop off in revenue from investment activity in the part allocated to this product group. At the same time, the life insurance segment result improved by PLN 81 million in combination with unit-linked business (class III) and by PLN 55 million in accident and illness insurance (class V). In the first instance, improvement transpired as a result of the falling level of expenses, chiefly acquisition expenses as revenue slackened. In turn, in the latter instance, the cause was linked to the growing level of business accompanied by a simultaneous fall off of the loss ratio.

In this same period, life insurance undertakings generated a net result of PLN 1,964 million, representing a PLN 105 million (5.6%) increase y/y. This improved result was the effect of better investment performance recorded by insurers than in the corresponding period of 2017 with respect to investments of undertakings’ free funds and also lower other operating expenses.

Life insurance market – gross written premium vs technical result (in PLN m)

The total value of the investments made by life insurance undertakings at the end of Q3 2018 was PLN 40,912 million, signifying 0.6% growth compared to the end of 2017. In turn, negative investment performance and the rising level of redemptions accompanied by the decline in the level of client contributions to funds led to a lower net asset value of life insurance in which the policyholder bears the investment risk (down 9.3% to PLN 53,633 million).

PZU Życie’s activity

Within the PZU Group, PZU Życie operates on the Polish life insurance market. PZU Życie offers an extensive range of life insurance products, which for management purposes are reported and analyzed broken down into the following three segments: group and individually continued insurance, individual insurance and investment contracts.

During the first three quarters of 2018, PZU Życie wrote 37.8% of the gross written premium of all life insurance undertakings, signifying further growth on top of last year’s market share (+3.0 p.p.). The expansion of PZU Życie’s market share was driven by a positive rate of growth in periodic gross written premium on a y/y basis than that of all its competitors combined and the lower decline on average than for the other market players in the form of a single premium, accompanied by the Company holding a lower percentage of that business in its portfolio.

PZU Życie continued to be the clear leader in the periodic premium segment. In Q1-Q3 2018, it generated 46.0% of these types of premiums written by insurance companies, signifying growth of 0.2 p.p. in the market share in this segment and, once again, the highest market share level since 2010. The year on year growth rate of gross written premium at PZU Życie in this segment was 0.6%, while the other market players taken together posted a negative growth rate of -0.1%. One of the major factors was the rapid growth in the health insurance portfolio. PZU Życie now has more than 1.8 million policies of this type in its portfolio. PZU’s share in just the life insurance segment (class I) for periodic premiums at the end of Q3 2018 was 64.0% when measured by gross written premium and 70.7% when measured by the number of agreements in force. In turn, PZU’s market share in terms of the method of entering into an agreement just in the life insurance segment (class I) was 66.6% for agreements executed in group form and 39.2% for individual agreements (measured by gross written premium). 

Life insurance undertakings - percentage of periodic gross written premium in the first three quarters of 2018 (in %)

PZU Życie’s technical result represented more than half the result earned by all life insurance companies. This evidences the high profitability these products enjoy. PZU Życie’s technical result margin on gross written premium was nearly two times higher than the overall margin generated by other companies offering life insurance (20.4% versus 11.3%).

Product offer

PZU Życie, as a popular and the largest insurer on the Polish market, continuously expands its product offering by adding new products or modifying existing ones to protect its clients at each stage of their lives. Changes in the product offering are intended to attract new clients and expand the insurance cover for those already in the portfolio, along with strengthening their loyalty and increasing their satisfaction level. Taking advantage of the unique synergy of competences within the PZU Group (insurer, medical operator, investment manager), the company is able to comprehensively take care of life, health and savings of its clients, providing them with the broadest possible support.

Concurrently, the changes in the offering take into account the evolving requirements of the regulatory authority and the growing extent of statutory consumer protection. PZU Życie takes a customer-oriented approach by designing its offer and client service process so that the client feels fully cared for and satisfied. It should also be emphasized that the changes introduced in 2018 are made not only to the product itself but also entail the modernization and simplification of the way in which insurance is offered and sold (processes and front-ends) and enable the client to take advantage of various contact channels to reach the insurer (e.g. in a branch, by phone, e-mail, client account, person handling technical issues related to insurance in the workplace or through an insurance intermediary, whether tied or external).

Most significant product changes in 2018

Under group and individually continued (protection) insurance, PZU Życie made the following major changes in 2018:

SOHO clients

As part of the insurance products dedicated to the SOHO business (micro-business conducted by businesses run by one or two persons), two existing products were combined in October 2018: Mój Biznes [My Business] and Zdrowy Biznes [Healthy Business] with a price benefit offered for the combined purchase (2-in-1). The combined offer provides comprehensive protection to clients that includes both financial support for the beneficiaries in the event of death, illness or after an accident, as well as access to private medical care for the insured.

SME clients 

The main change that was introduced in 2018 in group insurance for the SME segment was the implementation of PZU Ochrona i Zdrowie, a new protection and health product in November. In that insurance, the Company offers, among others, a benefit in the event of the insured’s death, financial support and medical services in the event of critical illness or accident. The insurance consists of 3 bundles: Moje Zdrowie, Moja Rodzina, Mój Wybór.

• The Moje Zdrowie [My Health] bundle offers private medical care in the event of an illness (critical illness or regular cold) or an accident and prevention measures. Additionally, in the event of a critical illness or accident, PZU provides financial support to the insured;
• In the Moja Rodzina [My Family] bundle, the insured’s relatives receive financial support in the event of his/her death caused by an illness or an accident (including motor accidents). The bundle also offers benefits for the insured on account of a childbirth and financial support in the event of a death of the relatives;
• Each insured (employee) may adapt the insurance to their needs and individually expand the insurance cover to include additional options from the Mój Wybór [My Choice] bundle. In this bundle, PZU Życie ensures financial aid in the event of accidents in daily life, offers additional insurance for family members in respect to medical care and finances the purchase of specified prescription medicines (at 80% of their regular price).

Corporate clients

Two new health riders to the P Plus group life insurance were implemented in March 2018:

• PZU w Trosce o Zdrowie [PZU Care for Your Health] The insurance covers, among others, specialist consultations, physical therapy procedures, ECG tests, CT and MRI scans in the event of an illness of the circulatory system, nervous system, malignant neoplasm and meningioma. The key benefits for the client include:
• access to private medical care – after delivery of documentation confirming the occurrence of a critical illness,
• caregiver supporting the patient and his/her family over the entire treatment path,
• fast service time in private medical facilities all over Poland,
• psychological care.
• PZU Powrót do sprawności [PZU Return to Ability] – medical care in the event of a traffic accident or an accident at work. The scope of available services includes specialist consultations, selected diagnostic tests and a list of physical therapy procedures.
• In November 2018, system changes and additional clauses were introduced to the General Terms and Conditions of P Plus and Pełnia Życia group life products in connection with the proceedings by UOKiK (more detailed specification of the list of exclusions of liability and introduction of a definition of diagnostic and treatment proceedings in the GTCI.

Individual continuation clients

In April 2018, PZU Życie commenced the national roll-out following the pilot sales of the Kontynuacja dla Ciebie [Continuation for You] product. This insurance is an alternative to the standard individual continuation. This product aims to give a package of benefits close to a group offer, which an insured would like to continue having, and it is our response to the needs of younger clients.

In an effort to develop the offer for individual continuation clients, sales of new riders were launched:

• PZU Uraz Ortopedyczny [PZU Orthopedic Injury] – providing for private medical care in the event of an orthopedic injury caused by an accident;
• Myocardial Infarction or Stroke Rider – providing for financial support in the event of a myocardial infarction or a stroke. 

Based on an UOKiK decision, editorial changes were introduced to the GTCI of other riders to individually continued insurance: Z Kartą Apteczną [With Pharmacy Card] and Asystent w Czasie Utraty Zdrowia [Assistant During Illness], related to the wording on exclusions of events pre-existing before liability under the insurance began.

In addition, in the interests of clarity of the message to the client, the letters concerning individually continued insurance are changed to a simple language comprehensible by the consumer in cooperation with the Polish Language Department at the University of Wrocław. The work in this area will be continued in 2019.

Individual clients

In 2018, PZU Życie rolled out the following individual protection insurance product:

• in the direct channel (on the moje.pzu.pl website) – PZU Ja Plus [PZU Me Plus] accident insurance. In this insurance, PZU covers not only the insured (the parent) but also all the children (who are older than 1 year old and younger than 18 years old). This insurance provides for a benefit payout in case of being in a hospital, having a broken bone, permanent disability and accidental death or death in a motor accident. When entering into an agreement, the client does not have to provide any information about his/her health condition. Additionally, we offer special treatment to clients with a Large Family Card: if the insured or the beneficiary hold a Large Family Card at the benefit stage, the benefit paid out will be 30% higher;
• in the PZU Branch Network and the Agency Network – the new PZU Gwarantowane Jutro [PZU Guarantee of Tomorrow] endowment insurance product. Four riders were implemented along with the base agreement (death caused by an accident, death in a motor accident, hospitalization, monthly benefit in the event of the insured’s death). Additional riders will be rolled out in early 2019;
• promotion entitled “Twelfth premium – pay less or nothing” in the PZU Start w Dorosłość [PZU Launch into Adulthood] dowry insurance product. The promotion calls for rewarding clients for conducting simulations, leaving data with a marketing consent and for the purchase of this policy;
• individual life insurance for borrowers of cash loans extended by Alior Bank;
• in Bank Pekao – life insurance for borrowers of cash loans (CPI PEX).

The following changes were made by PZU Życie to the product offering in investment insurance:

• launch of sales in Bank Pekao of Program Inwestycyjny Multi-Alokacja [Multi-Allocation Investment Program] (a single premium unit-linked product for Private Banking clients) and Świat Inwestycji Premium [Premium Investments World] (a single premium unit-linked product for clients of the Retail Network and CDM Pekao);
• bancassurance unit-linked products (Multi Capital, World Investment Program) were migrated from the previous transfer agent’s systems to Pekao Financial Services’ systems to enhance the effectiveness of cooperation in the group and optimize service processes;
• additional subscriptions of the structured insurance product known as World of Profits (Świat Zysków) that has enjoyed tremendous client interest were sold. Various investment strategies that adapt to volatile market conditions were offered in the individual subscription tranches, based on various models of calculating the investment bonus.

In its other initiatives PZU constantly opts for understanding client needs better and better and building long-term client relations. PZU wants to respond swiftly to changes in the environment through a sophisticated offer accompanied by clear and communicative messages by doing the following:

• creating predictive client attrition models and responding swiftly and effectively to symptoms of client dissatisfaction;
• developing a loyalty program;
• using a simple and transparent arrangement and description of its products on its new website www.pzu.pl.

In addition, having regard for the legal and regulatory environment and the requirements placed on PZU, its products were adapted to the EU General Data Protection Regulation (GDPR). These changes affected the process of selling, implementing and servicing products.

Factors, including threats and risks, that may affect the operations of the life insurance sector in 2019

The following constitute the major risk factors on the life insurance market in 2019:

• the prospect of a higher inflation rate and economic growth driving an increase in T-bond yields, which in the long term will be beneficial to the PZU Group, although in the short term may adversely affect investment income;
• softer conditions on the capital markets deteriorating the attractiveness of products, especially unit-linked products;
• demographic changes and the aging society and the ensuing changes in the current mortality, fertility and morbidity levels, especially diseases of civilization, i.e. lifestyle diseases;
• constant price pressure in group insurance and the battle for client ownership (and their data), thereby cutting the insurer’s margins, reducing the quality of the product and fostering entry and exit obstacles for clients to overcome with independent intermediaries;
• changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurers to adapt to these expectations rapidly;
• the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies;
• consequences of the entry into force of the Insurance Distribution Directive (IDD);
• further consequences of the entry into force of MIFID II;
• entry into force of the new pension security system (Employee Capital Schemes) and its impact on the products existing in the 3rd pillar of the pension system.