Krešimir Starčević, CEO of Croatia Osiguranja, Croatia’s market leading and state-owned insurance company, meets with PM Communications to discuss the state of the local insurance market and the possible affect joining the EU will have on it
Please comment on Britain’s support of Croatia in the latter’s accession to the EU.
The support from the UK is very important to us. Especially so, because David Lidington, Minister for Europe in the British Foreign and Commonwealth Office (FCO), as well as other members of the Parliament recognised the efforts of Croatia on its way to the EU. During the debate in Parliament Minister Lidington underlined that Croatia “has passed through a much more demanding and thorough negotiation process than Bulgaria and Romania at their time of accession” and that the situation is much better than it was at the time when these two countries were admitted to the membership.
What changes do you expect for Croatia and her insurance industry after 2 July 2013?
Upon admittance into the EU, Croatia is surely going to face much stronger competition in the market in general. The freedom of service also applies to the insurance market. This means that the insurer from one member state can directly insure the risks situated in another member state. The FOS option will be of benefit to Croatia, too. Through extending assistance to the Croatian companies abroad, but also thorough so-called fronting insurance business that Croatian insurers will be able to conduct for foreign insurers establishing their branch offices in Croatia.
Upon admittance into the EU we expect the formation of financial conglomerates and the integration of financial services. We believe in the development of Internet-based technologies and the integration of the whole financial industry at that level. Also, further strengthening of the advisory role of the integrated financial sector is expected in the future. Croatia is expected to face premium adjustments that are going to affect both its level and structure.
Our estimate is that Croatian citizens’ interest in insurance will shift from currently prevailing motor insurance to life and health insurance as a result of the improved standard of living, once Croatia becomes a member of the EU. A higher rate of economic growth will be accompanied by the increased interest in small and medium enterprise insurance as well as agricultural and property insurance.
Slovenia – an EU member since 1 May 2004 – has also been through a tough competition period ever since the admittance into the EU market. 582 insurers with their company site outside Slovenia have entered their market, as well as more than 3,000 foreign brokers from the EU and beyond.
Despite that, domestic insurers have managed to keep the major share of the market. Also, the opening of the market did not result in the premium decrease as was expected. The premium volume was decreased mostly due to the impact of the global financial crisis and the tougher competition among the domestic insurers.
Further implementation of the EU legislation and stricter supervision of the insurance companies will lead to more market stabilisation. All our citizens shall profit too, as the same standard of service will be guaranteed to them across the EU market.
Could you share you expectations with regards to the flow of fresh FDI from EU member states?
Croatia expects more intensive foreign investments upon its admittance into the EU. According to the present Eurostat researches, all countries admitted into the EU had an increase in investments. So far, Croatia has recorded massive investment into the financial sector and its numerous services. Upon Croatia’s admittance into the EU we expect that investments in other sectors will grow, too.
CROATIA osiguranje is a leading brand in the region. We would like to know what strategy will be implemented with your neighbouring countries after EU-accession.
Croatia has fulfilled all conditions in the process of EU accession, made a commitment to continue reforms, and as such surely represents an element of stability among its neighbours. We believe that upon Croatia’s admittance into to the EU the cooperation between the countries in the region will be even better.
I would like to point out that CROATIA osiguranje, as an important player of the financial sector, has always been among the leading Croatian companies in the regional markets. A daughter company was established as early as 1992 in Bosnia and Herzegovina. Today, the presence of CROATIA osiguranje in the region is felt through daughter companies in Serbia, Bosnia and Herzegovina, Macedonia and Kosovo.
The reputation of CROATIA osiguranje has a long tradition in the countries of the region, so it will surely continue to play an important role in the future development of this market. Our group members are established on sound business principles, performing business in line with all standards of the parent company and the significant results from them are yet expected.
Do you believe the citizens have concerns regarding the preservation of Croatia’s identity upon admittance into the EU?
I believe that Croatian citizens do not have such fears in relation to the admittance into the EU. In fact, it is the accession to EU that is going to help Croatia preserve its identity and cultural variety. It is well known that EU respects the variety of all its member states and promotes the tradition and identity of not only the individual countries, but also whole regions.
Also, upon the admittance into the EU, Croatia will find itself at the centre of attention of the EU member states which will make it easier and simpler for us to present the vast realm of its cultural, gastronomic and other specialties. Finally, the Croatian language will become 24th official language of the European Union and thus equal to all other official languages in EU.
A return to economic growth is expected in 2013, and an annual average growth of 1.7% in 2013-17. Could you share with us your growth previsions for the coming years?
The data from EU member states reveal that all former extensions of the EU have brought higher rates of economic growth as well as the increased standard of living in the member states. The accession process boosted economic growth in the new member states by an average of 1.75% per year. These data show that we, too, can expect a positive impact on economic growth of the country and higher standard of living for our citizens.
The data of the year 2008, the year before the global crisis, reveal that the average income per citizen in the new member states increased up to 52%. In the period between 2003 and 2007 there were around 3 million newly employed people, and the unemployment rate decreased to around 7%.
Although the economic crisis in the past years has slowed down these trends, we believe that EU accession will bring us numerous benefits.
What has the evolution of Croatia’s insurance industry been like and what effect did the European directives have in the sector?
After the Republic of Croatia's admittance to the European Union, we expect faster growth of premium. In future we anticipate growth of life insurance, annuity insurance, children insurance, as well as all types of pension insurance. As far as non-life insurance we anticipate growth of entrepreneur insurance, property and health insurance; that is our target.
Our estimate is that its influence i.e. European Directive Solvency II is very positive considering the insureds’ protection, transparency, compatibility and competitiveness of the Croatian market compared to EU market as well as other financial services.
Solvency II will make better risk management, consequently higher profitability and safety of insurance business.
What are the competitive advantages of your sector?
In the Republic of Croatia, the insurance industry has all conditions in place for faster growth and development. Here, the ratio between life and non-life insurance is 27/73 while in the member countries of the European Union this ratio is almost inverse. That ratio shows the big potential of life insurance development especially considering the faster ageing of population and problems linked with it. Besides, approximate insurance premium per capita amounting to $379 in the Republic of Croatia, compared to $2,736 in the EU, further indicating the potential of further insurance development.
Before the economic recession, in the Republic of Croatia the double-digit growth rates were recorded (from 2003 until 2007 app. 10.4%) and the stake of the written premium in GDP amounted to app. 2.8%. The admittance to the EU is the greatest challenge for the Republic of Croatia, but we expect that in spite of harder competition, the Republic of Croatia should in a short time return to previous fast growth rates.
How is the industry adapting to the market scenario?
The insurance market inevitably shares the fate of an economy affected by crisis and recession. In spite of that, the Croatian insurance market offers to the insurers major products present in Europe actually. Continual monitoring of innovations, redesign of existing and launching new products in accordance with global insurance development trends, is an imperative for us.
The basic aim of Croatia osiguranje is, besides that, achieving and preserving high level of insurers' pleasure and their loyalty. The individual approach is a part of our mission and strategy that Croatia osiguranje already applies.
What measures are being implemented to raise public awareness about the benefits of insurance?
The Croatian Insurance Bureau, an umbrella organisation of Croatian insurers is the initiator of the Financial Literacy in the Republic of Croatia project. We are of the opinion that financial education of our people is a necessity. All European surveys showed, and Croatian ones confirm, that individuals are not aware of whom they are supposed to ask for financial advice. The project of financial literacy should enter the school through education in future.
These days, various financial institutions – banks, insurance companies as well as investment funds – compete between themselves by offering similar types of financial services, consequently acquiring financial literacy seems more necessary and more complex than before.
Croatia osiguranje d.d. is included in all projects of acquiring financial literacy including continual education of people and companies about insurance during its ordinary business.
Could you describe the company’s historical importance for the country and your most important recent achievements?
Croatia osiguranje is the oldest and the biggest insurance company in this part of Europe and will celebrate 129 years of successful operations and 108 years of life insurance sales in the year 2013. It was founded as a result of waking up a national identity in Croatia in the year 1884.
In the year 2004 the shares of Croatia osiguranja were quoted in the first quotation of the Zagreb Stock Exchange as the first major state owned company. In the year 2009 it was awarded the best insurance company in South-Eastern Europe. Owing to its successful business operations it was awarded four times by Zlatna kuna (Golden kuna) of the Croatian Chamber of Commerce and it was a winner of the Zlatna dionica (Golden share) 2007 award.
The slogan of Croatia osiguranje – tradition, power, safety and successfulness – clearly speaks about mission and vision of business based on financial security and insureds’ confidence during the whole history.
2012 was a year of solid financial performance. Please share with us the various results that you obtained.
In the year 2012, Croatia osiguranje retained its leading position in the Croatian market with the share of 31.1% counting together with Croatia zdravstveno osiguranje. The gross profit of the company increased by 34.1%, while consolidated gross profit of the Croatia osiguranje Group, before elimination, increased by 8.6% compared to the year 2011. The written premium amounted to HRK 2.7 billion. The ordinary share price of Croatia osiguranje increased by 57.5% in the year 2012.
During the following period, the most attention will be paid to the strengthening of the leading market position in the Republic of Croatia as well as to the stronger regional enhancement and development. The main strategic goal is the sales network development, launching new as well as improved existing products, and last but not least, socially responsible business.
The Finance Ministry has received four bids for consulting services relating to the privatisation of and injection of fresh capital into the Croatia osiguranje insurance company. Why do you believe this is a unique chance to invest in Croatia?
From the beginning of the current year, the sales advisors perform due diligence of our business in our company. Our aim is that the company, nevertheless, works normally to maximally improve business process as well as to achieve as better business result as we can regardless the beginning of the privatisation process.
Our owner, the Government of the Republic of Croatia, has to bring a final decision whether to privatise Croatia osiguranje or not. One could say that recession and actual financial market situation do not favour fast privatisation especially in case if there is not any need for it. The admittance of the Republic of Croatia in the EU does not mean an automatic pressure to sell the biggest Croatian and state insurer but there are many business related reasons to sell majority stake of the company that is performing at the highly competitive market. Slovenia and Poland kept their strong home insurers but they are also now considering selling them. The Government of Republic of Croatia clearly declared to keep minority stake in Croatia osiguranje d.d. after privatisation.
However, the European trend is privatisation of the financial industry and perhaps is completely normal step in the development of the Company. Regardless of the final result of the privatisation story, Croatia osiguranje will remain the leading insurer on the Croatian insurance market.
What is the upside potential of Croatia osiguranje with the appropriate foreign partner?
I am of the opinion that the change in ownership will not basically influence the business operations of the company. Croatia osiguranje already operates on the hard competitive market in the Republic of Croatia as well as in the region, while on the market of the European Union soon.
The potentials of growth of Croatia osiguranje are out of question. The real economic expansion in the region is expected even in future ten years. It is expected that the markets of the developing countries should grow twice faster than in industrially strong economies. In accordance with such envisaging, fast recovery of insurance industry is expected, which could in next years realise growth rates higher than 20%.