Interview with Luciano Cirinà about Future Development of Insurance Business
20 June 2017
Last week an interview with Luciano Cirinà, done at the occasion of the "CEE Media Roundtable" in Venice, was published. In the Czech weekly Echo CEE Regional Officer and CEO of Generali CEE Holding shares his opinions about the importance of CEE region as well as about future development of insurance business in Central and Eastern Europe. If you are interested to learn more, read the transcript below.
Salaries in the Czech Republic to increase rapidly
Central Europe is fairly well strolling towards a long era of welfare (prosperity), says Luciano Cirinà, Chief Executive Officer of Generali holding for Central and Eastern Europe
Prague has never managed to become even a regional centre of financial services. The only major European financial group driving business in the region of Central and Eastern Europe from the Czech metropolis, is Italian Generali. Chief Executive Officer, Italian Luciano Cirinà, believes that the Czech Republic could offer great potential for the development of financial services. This is the industry offering some of the highest salaries in the economy of most countries.
How will the future development of this region be influenced by the changes in Europe – from the brexit to a pressure for deeper integration of the Eurozone as presented by the new French President?
Despite all political changes in Central and Eastern Europe, this region has been recently very stable and has very good prospects for long-term strong prosperity. That is why we focus on this region so intensely. We believe that the region has a strong potential. The Central European policy will be definitely influenced by the discussions on the deeper economic integration of the Eurozone and the hard core of the European Union. Proposals for tax harmonisation and harmonisation of social standards, as presented now and surely also in the future by Emmanuel Macron, are focused, of course, on major differences in salaries between Central and Western Europe. However, it will be a long run. I do not think that this could be enforced in near future.
What is the major competitive advantage of Central Europe? In the Czech Republic, low salaries are often discussed. Compared with most countries in Western Europe, a significantly lower portion of corporate earnings is divided among employees here.
Of course we pay attention to such discussions. This is the fundamental subject. All political parties now, before the parliamentary elections in the Czech Republic, promise to do their best to enforce the increase of salaries. It is legitimate and natural. One can feel stronger pressure on higher salaries in financial services for some time. We can expect that if the prosperity of Central Europe continues, and I am sure it will, salaries here will grow pretty fast. As we monitor the situation, we expect that salaries will grow very rapidly in the Czech Republic, Slovakia, Poland and Hungary. We can already feel this pressure when hiring new people. If we want to acquire really good people, we must come up with an offer of higher salaries. You need to really headhunt good people today. The labour market is very tense now. This increase will influence the competitiveness of countries in Central and Eastern Europe. Even less you will be able to rely on the fact that you are cheap, more you will have to compete by providing high-quality services. Salaries and abilities will need to get in balance. If this happens, which should not be a problem in the Czech Republic, even with the mentioned significant growth in salaries, the economy will retain its high ability to remain successful in the competition. Of course even in financial services – as well as in other industries – you can still hear the same talk from companies´ top management that there is a lack of good people for particular jobs. But you can hear the same also in richer and more sophisticated economies with low unemployment rate, for example in Austria.
However getting rich and higher salaries bring along not only higher costs but also new opportunities for you as an insurance group. Have the people started to spend more money in financial services?
Along with getting rich, the Czech economy, having the biggest share of industry in the European Union, will move towards the structure where services will play still more and more significant role. The level of education will also play an important role. This level is higher in countries of Central and Eastern Europe, so these countries will be getting easier to the more sophisticated, western model of economy. You can already notice this shift towards a bigger proportion of services in the economy. Look how many jobs have been created in information technology in Prague or in Brno.
The Czech Republic has never been a centre of financial services. Not even in the scale of Central Europe. Can you expect a similar growth in financial services as in information technology?
I have not noticed new investors in financial services coming to this country. It is interesting. We are very satisfied here, in Prague. Within the Generali Group, the Holding for Central and Eastern Europe ranks among the fastest growing ones.
What are the major obstacles preventing the bigger development of financial services in Central Europe? These services belong everywhere among the industries with the highest salaries.
I cannot see many of them here. It happens sometimes that legal acts regulating the financial business come into effect in Central Europe rather spontaneously. Fortunately, this is not the case of the Czech Republic.
Which country in Central Europe has the biggest chance to direct its development towards the sophisticated economy with the high value added today?
Insurance business is linked to the level of economic development as well as to salaries. The richer a country is, the more opportunities to have a larger number of financial services. The Czech Republic ranks among the countries with the biggest opportunities. However, big opportunities for the rise are also in countries which are less developed in certain aspects. Since the beginning of the financial crisis in 2008 it was repeated over and over again that Poland was the only country of the European Union that had managed to avoid recession and was still growing. Nevertheless, Poland is a country which, from the perspective of financial services, is not very developed. Guess how many small and medium enterprises in Poland have at least one policy arranged. Your estimate should include everything - from car or property insurance against natural disaster to liability for damage caused by somebody to another employee of the company. Only one out of four companies has at least one policy concluded!
For comparison, what is the situation for example in Germany, Great Britain or Italy?
Nearly one hundred percent. It is completely incomparable. You will not find a company there which is not insured. That is why we expect so huge potential for development of financial services in Central Europe. The Czech Republic is half way between the West and Poland. About sixty percent of companies have at least one policy arranged here, not counting the mandatory insurance such as MTPL. The Czech Republic differs in many aspects from other countries of Central and Eastern Europe. It is more developed, much closer to the Western market than other countries in this region.
Isn´t it one of the reasons that the Czechs consider security as a very high value and do not like to take risks?
Certainly. It is reflected not only in decision-making of companies but also people in their attitude towards protection of their property. More and more people get their houses and apartments insured. We expect that it will be this industry in financial services that will continue to grow in coming years. Also the number of people buying life insurance is growing. These policies are often combined with savings. I expect that the increase of interest rates will raise interest in these policies. Interest in this type of financial business, combining investments with securing yourself and your family, is growing also in Poland and in Hungary. Inhabitants of Central Europe in this matter switch to the behaviour which is normal in Western Europe. Another industry which will go up here is health insurance which will ensure the above-standard health care. This will not happen on a massive scale in the coming months but in the future this will proceed along with people getting rich and living up to an older age. Of course it is closely related to reforms of healthcare and pensions which somewhere go faster while elsewhere they go on for years and years. However, private health insurance policies for above-standard health care are the financial business of the future for all countries of Central and Eastern Europe. Insurance business as well as financial industry will change in line with the development of the society. Insurance companies will not be coming up with new products and will not be selling these products to people any more. Instead, the insurance companies will more and more offer solutions to problems that people may have. And more and more these solutions will be tailored to particular life situations the people may encounter.
How will this look like?
Even now this is a standard in certain countries. Insurance companies offer people with comprehensive packages for all possible healthcare services and, along with this, also with a certain style of financial security for retirement or sickness. This will include assistance services when your personal insurance consultant will get you a doctor you need right at that moment.
Do people change their behavioural habits as the society is getting old? Do people have more need for someone that can take care about them?
I do not have any special surveys from Central and Eastern Europe available now. However experience for example from Austria shows that people have started to think about security for retirement and sickness at a lower age than before.
We have not been able to enforce any reform of pensions in the Czech Republic. People, regardless of how much they had been earning during their career, will experience egalitarian (equalitarian) pensions and many of them will face a sharp downfall of their living standard. The government has cancelled the opportunity to transfer any part of mandatory payments to private accounts. Has interest in pension insurance policies grown in Central and Eastern Europe?
We in Italy have a similar system of government, significantly egalitarian pensions. Politicians will take courage to enforce any changes only after it has become obvious that the situation is unsustainable. That this cannot continue. Until then they will consider this as a problem which is not urgent to be solved and therefore it is useless to waste any effort on it. Until then, however, there will be more and more people who will want to secure themselves in some way.
Technology has significantly changed banking which is available on-line with most companies. Classic routine work of bank clerks has been diminishing. How will the insurance industry change?
In a similar way. There is a trend to provide a combination of more routine on-line services which should be available to customers 24 hours a day, 7 days in a week. The second, still more and more important line, will be consultancy services customised directly to particular clients. This will be happening in all industries including various pension and insurance policies and security for retirement. These policies will be more and more linked to comprehensive assistance services for seniors.
Poland and Hungary completed their pension reforms many years ago. People were allowed to send mandatory payments to private accounts. The government of Viktor Orbán and Donald Tusk then nationalised the savings of people. Are you afraid of similar interventions into private financing in Central and Eastern Europe?
This battle in Budapest and Warsaw has been already lost. They simply took the money. Both countries will have to get back to the reform of pensions and we can see an opportunity here. At the moment I do not see any imminent risk in Central and Eastern Europe that anything similar is about to happen there. But you never know in advance who can come up with any particular idea. Then, it is necessary to react quickly so that the harm is as little as possible.
People in Europe feel less secure in Europe due to terrorism and migration. Are these fears reflected in the growing interest in insurance?
As far as the tendency to get more insured against any particular risk is concerned, migration has no impact on people until the society structure in place where they live has changed. With this change they start to evaluate risks naturally in a different way. From the short-term perspective this does not change the insurance business. In the long-term the business can be changed significantly. However we are not able to see that far at the moment. It depends on how the immigrants will be able to integrate themselves into the society. When this has failed, the level of risk will increase and of course also the price of insurance against this risk will go up. Terrorism is not any new issue. In countries where people feel to be endangered by terrorism, the need to get insured against these risks has been growing since 11 September 2001. Further attacks will not change this situation significantly.
The discussion about accepting Euro has started again in the Czech Republic. What impact did Euro have on Italian economy?
I think that thanks to Euro we were able to go much easier through the crisis period after 2008 than without it. Personally, I believe in Euro. This is my personal opinion, rather than that one of Generali. I know that vast majority of people in the Czech Republic have a different opinion. I am convinced that it is good to be backed by somebody who can save you in a period of crisis. Nobody is able to protect himself against crisis on his own. And the same applies to the Czech Republic.