Life insurance (PZU Życie)

Market situation

Poland’s life insurance market in Poland measured by gross written premium was worth PLN 18,293 million in the first three quarters of 2017 meaning that over the most recent 5 years it contracted on average by 7.6% per annum. At the same time, gross written premium in Q1-Q3 2017 was 2.7% higher than in the corresponding period of the previous year, signifying the first year-on-year increase after 4 consecutive years of a downturn in the life insurance market, spurred predominantly by single premiums in products of an investment nature.

The evolution in the level and the growth rate of the life insurance market premium in recent years has been prompted mostly by single premiums in investment products. Attention should be drawn to the fact that the premium expansion for the overall market year on year in the first three quarters of 2017 pertained to single premiums to a greater extent (up PLN 446 million, i.e. 8.0% y/y). The growth rate for the corresponding period of 2016 was negative at -34.1%.

Life insurance market – gross written premium (PLN million)

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

The single premium cumulative average growth rate in the period under analysis was -17.0%. 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 recent years. The record-breaking low interest rates contributed to the declining profitability of what are known as term deposits packaged as insurance products (polisolokata in Polish), thereby stimulating greater interest in other investment products. Moreover, as of 1 January 2015, a tax was implemented on short-term endowment insurance products offering a fixed yield or a yield defined using an index; this also contributed to constricting client interest in these types of products and ultimately to their retraction, especially of the former, from the insurance undertakings’ offering. In subsequent years the regulatory authority’s guidelines, including guidelines regarding the level of fees incurred by clients of unit-linked products led to insurance undertakings constricting their offering of these types of products. Last year’s improvement in the condition of the equity market facilitated higher sales of unit-linked products, especially ones offering a single payment. This involves clients re-allocating funds among various products, thereby reducing the fees charged for surrenders. This upswing was observed primarily in the bancassurance channel.

The outcome of this market evolution over several years was the expanding significance of periodic premium that constitutes PZU Życie’s competitive advantage on the market. In Q1-Q3 2017, periodic premium was 0.3% higher compared to the same period in 2016, with a cumulative average growth rate of 0.7% for the last 5 years.

The total technical result generated by the life insurance undertakings in Q1-Q3 2017 was up PLN 239 million (11.0%) from the corresponding period of 2016 to PLN 2,418 million. This improved performance was caused by higher profitability, especially in life insurance (class I) and accident and sickness insurance (class V) – these classes recorded y/y increases in their bottom line of PLN 133 million (28.7%) and PLN 96 million (7.4%), respectively, driven largely by lower acquisition expenses with a concurrent upswing in revenues, including from deposits, and a lower value of benefits disbursed in class I.

In this same period, life insurance undertakings generated a net result of PLN 1,859 million, representing a PLN 115 million (6.6%) increase y/y. This improved result was, to a large extent, the effect of better investment performance recorded by insurers than in the corresponding period of 2016, both in terms of investments used to cover liabilities under technical provisions and the insurance undertakings’ available funds.

The value of the investments made by life insurance undertakings at the end of Q3 2017 was PLN 41,913 million, signifying 2.6% growth compared to the end of 2016. In turn, these positive investment results contributed to a higher net asset value of life insurance in which the policyholders bear the investment risk (up 4.4% to PLN 59,507 million).  

Life insurance market – gross written premium vs. technical result (PLN million)

PZU Życie’s activity

PZU Życie SA (PZU Życie) does business on the Polish life insurance market on behalf of the PZU Group. The company 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 Q1-Q3 2017, PZU Życie wrote 34.8% of the gross written premium of all life insurance undertakings, signifying further growth on top of last year’s market share (+1.1 p.p.). The expansion of PZU Życie’s market share was driven by a higher rate of growth in gross written premium on a y/y basis than that of all its competitors combined, both payable periodically and in the form of a single premium. 

At the same time, PZU Życie continued to be the clear leader in the periodic premium segment. In Q1-Q3 2017, it generated 45.8% of these types of premiums written by insurance companies, signifying growth of 0.8 p.p. in the market share in this segment and the highest market share level since 2010. The growth rate of gross written premium at PZU Życie was 2.1% y/y in this segment, compared to the negative growth rate posted by the other market players who reported an outcome of -1.2%. One of the major factors in this respect was the rapid growth in the health insurance portfolio. PZU Życie now has nearly 1.5 million policies of this type in its portfolio. From the outset of 2016, KNF has also been publishing data making it possible to depict as a matrix PZU’s share in just the life insurance segment (class I) for periodic premiums. After Q3 2017, this share was 65.7% when measured by gross written premium and it was 72.9% when measured by the number of agreements in force. For this same group of risks, the market share split by the method of execution in the period under analysis was 68.3% for group agreements and 40.4% for individual agreements (when measured by gross written premium).

Life insurance undertakings - percentage of periodic gross written premium in the first three quarters of 2017 (%)

PZU Życie, a well-regarded company and the largest insurer on the Polish market, continuously expands its product offering by adding new products or modifying existing ones. 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. Concurrently, the changes in the offering take into account the changing requirements of the regulatory authority and the growing extent of statutory consumer protection. It should also be pointed out that in many cases such changes 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 insurance undertaking (including in person in the branch, by phone, by e-mail, via the newly deployed client account, via the person providing technical insurance services at the workplace or through an insurance intermediary, either a tied one or an external one).

Under group and individually continued (protection) insurance, the following major changes were made in 2017:

• a new bundle of insurance products called PZU w Razie Wypadku [PZU In Case of an Accident] (WrW) intended to protect the insured against events related to accidents. The choice between the two bundles along with an extensive cover means that this offering is targeted at young and active clients practicing sports or otherwise exposed to events related to accidents. Moreover, this insurance, with a view to make it as comprehensible and clear to the client as possible, was written from the beginning to the end, as the first product in group insurance, using unsophisticated and consumer-friendly language (in cooperation with the Polish Language Faculty of the University of Wroclaw);
• a new protection and health insurance (POZ) bundle combining within a single product both a protective part and a health part, focusing largely on civilizational illnesses (cancers, cardiovascular diseases and neurological diseases). The structure of this product is unique in that it consists of three large modules: My Health, My Family and My Choice, providing the insured with a significant degree of flexibility and a choice of riders within each of these 3 modules. Moreover, it is supported by a very user-friendly proposal system enabling the seller and the client to walk together through the process of creating an individual proposal tailored to the actual specificity and needs of the client. This product is targeted predominantly at companies operating in the SME sector;
• work was continued on segmenting the insurance offering among the selected client groups by focusing on the creation of a simple modular offering tailored to a specific client segment and a specific distribution channel (in implementation of the strategic postulate of the ‘strategy of 10 simple products’);
• further changes were deployed in the functionalities of the system for selling and proposing insurance products – the transfer of the PZU Ochrona Plus [PZU Protection Plus] product for small groups was launched and the system was completely rebuilt for the purposes of selling the new POZ product (creating modules, selecting options and specificrisks, premium rate calculator and insurance and marketing documentation);
• implemented was the proposal of insurance for persons withdrawing from group policies shaped in the form of the Kontynuacja dla Ciebie [Continuation For You] product providing an alternative to standard individual continuation for insureds aged 50 or under. This product comes with a much more extensive offering of riders which, it is assumed, should reflect as closely as possible the client’s insurance at the group phase. In 2017, this solution was tested in PZU’s selected branch networks.

In the area of health insurance, PZU Życie’s product offering in 2017 was focused on addressing to the largest possible extent the needs of specific client segments, creating solutions enabling an easy inclusion of health insurance agreements to PZU Życie’s existing client portfolio, seeking unique market solutions and looking for new strategic partnerships on the market with a view to preparing specialized solutions for specific client groups. Among the solutions that were prepared, the following ones may be distinguished (in addition to the health insurance products described in Section 3.7 MEDICAL SERVICES (HEALTH AREA):

• introducing an offering dedicated to VIP clients based on the PZU Group’s extensive spectrum of products and enabling an effective relationship management in this segment. As part of this offering, the following types of insurance products were proposed to the clients: outpatient insurance, hospital insurance, medicine insurance, PZU Wojażer travel insurance, accident insurance and a loyalty program;
• supplementing the offering with two new health riders for group life insurance. These riders provide for healthcare services in the event of a critical illness or a traffic accident or an accident at work:
• PZU W Trosce o Zdrowie [PZU Care for Your Health] – in the event of a critical illness, access to private medical care is arranged (in privately owned medical centers) during the first few days following the diagnosis. These healthcare services enable monitoring the progress of treatment and early prevention of recurrent illness as well as help the patient return to physical ability;
• PZU Powrót do Sprawności [PZU Return to Ability] – in the event of a traffic accident or an
• accident at work, the insured may benefit from healthcare services (provided in privately owned medical centers). In such cases, the medical care is intended to help the patient return to physical ability after an accident;
• developing the offering by adding a new rider to individually continued insurance – insurance against an orthopedic injury caused by an accident. These healthcare services enable the patient to receive rehabilitation treatment in privately owned medical centers;
• continuing the pilot project of outpatient insurance for small businesses, the so-called SOHO (small office/home office) clients, either self-employed or having no more than one employee. This product provides access to medical consultations and diagnostic tests;
• The client account functionality will enable an insured under group insurance to create his or her own account on the website through which the client will have access to his or her data and, additionally, to a number of features making it possible, for instance, to set up medical appointments, report benefits, display a calendar of events, etc. Ultimately, this will serve as the main tool for the client in managing his or her insurance portfolio at PZU.

In the area of unit-linked insurance, the following changes, among others, were introduced in 2017:

• a new unit-linked insurance product with a single premium called Multi Kapitał [Multi Capital] was launched in collaboration with Alior Bank;
• also launched to sales was a modified PZU IKZE individual unit-linked life insurance product. This product was made more attractive by extending the range of available benefits through adding an accidental death benefit;
• 7 subscriptions of the structured insurance product known as Świat Zysków (World of Profits) 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;
• a Key Information Document (KID) was drafted and implemented into the product distribution process in accordance with the objectives pursued by the PRIIP Regulation GLOSSARY. The changes affected the process of selling, implementing and servicing the product.

Factors, including threats and risks, that may affect the operations of the life insurance sector in 2018

The following constitute the major risk factors on the life insurance market in 2018:

• 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;
• a downturn on the capital markets deteriorating the attractiveness of products, especially unit-linked products;
• changes in the current mortality, fertility and morbidity levels;
• continued pressure on the prices of group insurance products. A price war is underway along with a war for the possession of clients and their data, resulting in lowering both the insurers’ margins and the quality of the products offered to clients accompanied by the creation of barriers to entry and exit for clients at independent intermediaries;
• changes in trends and clients’ behaviors toward the customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to rapidly adapt to these expectations;
• the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies;
• changes on the unit-linked insurance market and on the endowment insurance market resulting from the undertakings’ adaptation, as of 1 January 2018, to the PRIIP Regulation – Read more. Regulations pertaining to the insurance market and the financial markets in Poland; 
• entry into force, as of 1 October 2018, of the Insurance Distribution Directive (IDD) – Read more. Regulations pertaining to the insurance market and the financial markets in Poland;
• adjustment of insurance undertakings to the EU General Data Protection Regulation, i.e. the GDPR – Read more. Regulations pertaining to the insurance market and the financial markets in Poland;
• the final shape of the new pension security system (Employee Capital Plans) – Read more. Regulations pertaining to the insurance market and the financial markets in Poland