New Swiss Re sigma Study: Insurance Industry in Central and Eastern Europe — Current Trends and Pro

February 21, 2001

The latest sigma study from Swiss Re provides a detailed overview of Central and Eastern European insurance markets with an analysis of the latest developments in life and non-life insurance in 27 countries, including the CIS, and on progress among the ten countries preparing for EU membership.

In countries like Poland, Hungary, the Czech Republic, Slovenia, Slovakia, Bulgaria, Romania and the Baltic states — currently applying for EU membership — the insurance industries are rapidly approaching Western European standards. In the CIS states and most of former Yugoslavia however, both regulatory conditions and the investment environment are still in need of considerable improvement.

Boom in non-life and life business

Since the end of the transformation crisis at the beginning of the nineties, the insurance industry has experienced dynamic growth in Central and Eastern Europe.

Life business registered — albeit from a low starting point — 17.4 percent growth after adjustment for inflation. This was almost twice as high as the annual growth rates among the EU member states. In non-life business the growth rate surpassed EU levels to an even greater extent, averaging 7.6 percent per annum.

Life business benefited from tax incentives designed to encourage individual pension provision; while the main growth drivers in non-life were the introduction and expansion of compulsory motor third party liability insurance in addition to healthy demand for private health and accident insurance.

Moreover this trend should continue on the back of the positive macroeconomic indicators. A total premium volume of USD 15.2 billion was generated in the region in 1999, of which almost two-thirds was accounted for by the ten countries applying for EU membership.

The proportion of income spent on non-life insurance in these countries was 2 percent or two-thirds of Western European levels, whereas life business expenditure was only equivalent to a fifth at almost 1 percent. In the CIS states and most of the southeastern European countries, the proportion of income spent on insurance is considerably lower.

Steadily declining market share

Generally speaking market share among the former monopolies has fallen to below 60 percent in life business and under 50 percent in non-life. In some Eastern and Central European countries (e.g. Poland and Hungary) as well as in the Baltic states, foreign insurers already control more than half of the insurance market.

By contrast local insurers dominate the market in the CIS states, as they do in most southeastern European countries. This is mainly due to the restrictions on market entry and the higher risk of investing in these markets. Reforms Introduced to Meet EU Standards In the ten countries involved in negotiations for EU entry, the development of the insurance sector is taking place on an increasingly solid regulatory and macroeconomic basis.

Reforms to the supervisory framework in these countries are geared to EU standards. The most advanced countries are Hungary and Poland. Development of the insurance sector in the CIS states and some southeastern European countries, on the other hand, is proving more difficult and unstable.

The establishment of an efficiently functioning insurance sector in these countries still requires extensive reform. The main areas needing reform are the introduction and expansion of compulsory motor third party liability insurance, the tightening of minimum capital requirements and the liberalization of market entry for foreign investors.

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