Interview with Mihály Erdős, CEO of Generali in Hungary

Mihály Erdős, Chairman of the Board of Directors and CEO of Generali Biztosító Zrt., with Figyelő magazine, a Hungarian business weekly. In his interview, he speaks, among other, about how was the past year for Generali in Hungary, one of the key markets in the Austria, CEE & Russia Region. Local achievements, digital transformation but also CEO´s comments on the local market performance in 2020 in terms of products, M&A or increasing importance of pension, life and health insurance.

Group Fenice 190 and EnterPrize

The Generali Group, celebrating its historic, 190th anniversary, announced the launch of Fenice 190, a € 3.5 billion investment plan to support the recovery of the European economies impacted by Covid-19. Another major event will be the first edition of EnterPRIZE, an initiative dedicated to support European small and medium-sized enterprises. Could you give a brief summary of the two events and how Hungarian company may benefit from these substantial funds?

Ever since the outbreak of the pandemic, the Generali Group has been committed to prioritizing the health and protection of its employees, customers and partners – as well as the support of our communities. Therefore, not only has the Group offered financial help to managing the health crisis, but it also created an Extraordinary Fund of up to 100 million Euro dedicated to the mitigation of economic losses and the support of the recovery. Upon this special anniversary, we are taking further steps in line with our commitment. I would like to emphasize that these initiatives go much beyond offering one time financial help. We are urged, now more than ever, to consider sustainability in all our decisions about the future, whether these decisions concern investments or support programs.

Fenice 190, this € 3.5 billion investment plan is aimed to offer significant support for the most innovative, sustainable and strategic sectors for the restart of the European economy, while at the same time encouraging the inclusion of those most heavily impacted by the crisis. To date, ten investment opportunities have already been identified for a multifaceted commitment of more than € 1 billion, ranging from support to infrastructure, innovation and digitalization, SMEs, green housing, health care facilities and education.

EnterPRIZE is an initiative dedicated to European small and medium-sized enterprises with the goal of encouraging them to adopt sustainable business models, which – as international research has proven – may not only enhance recovery from a crisis, but also strengthens economic performance. In Hungary – in addition to the financial support which will be awarded by tender – we intend to focus on education through a five-part webinar series. The key topics of the tender will be about sustainability: employee welfare, the protection of the environment, and the promotion of microcommunities.

Covid-19 pandemic and achievements of Generali Hungary

Generali Hungary has been actively supporting protection, prevention and the mitigation of economic losses since last year. To help our customers, we launched video claim settlement, online sales and digital customer services; we offer free insurance coverage to health care workers who contact the coronavirus; under some health insurance covers, we also offer free telemedicine and the reimbursement of the cost of the COVID-19 test on one occasion; we launched the Charity Chat campaign to support customers living alone; we allocated a HUF 250 million budget to help health care private practices, and we arranged free screening tests for our SME customers; we offered support to our dealership partners so that they can retain their employees while our foundation, the ‘Generali a Biztonságért Alapítvány’ made a HUF 50 million donation to the emergency pandemic hospital to take our share from the fight against COVID.

Local insurance market performance in 2020 and digital transformation

According to the data of the Hungarian National Bank, premium income in the insurance market grew, at a slower pace, by 4.7 percent in 2020, but total premium income exceeded HUF 1 200 billion and the policy portfolio also expanded. What do you think of the performance of insurers last year?

The performance of the insurance market should be looked at from two perspectives. In terms of premium income, the sector achieved total growth of 4.7%; in business line breakdown, this means a 5.2% in the non-life and a 4% increase in the life insurance segment. In the life insurance business, the most dynamic growth was seen in pension insurance. At the same time, the travel insurance sector has virtually collapsed, with premiums down by 60 percent on the previous year. That said, I would neither jump into hasty conclusions, nor raise high hopes irresponsibly, as in insurance we often see a delay between an economic event and its impact.

Another, in my opinion crucial, aspect is the transformation and change triggered by last year’s events in the operation of some insurers. By transformation I mean the proliferation of online, digital, paperless processes, both in sales and claim settlement, as well as in customer service, with a primary focus on simplification and prompt responses to rapidly changing customer needs. While digitization has been on the agenda in our sector for years, it was the pandemic that truly accelerated the process, having induced a major change in customers’ attitude and openness to technology. In addition to speed and convenience, the protection of our health has become a decisive factor, which was indeed reflected in the declining rate of postal bill payments and in the increase of self-service transactions.

Generali Hungary performance in 2020

In the light of preliminary numbers, how do you think Generali performed last year? At what rate do you expect the Hungarian economy and the Hungarian insurance market to expand this year?

With regard to economic expansion, forecasting is now very difficult. Analysts are optimistic, as seen in the regular upward revision of preliminary growth expectations. I do trust that an expansion of around 4-5% is realistic for the year. While it is certain that this year will be another challenging year, we hope it will be mainly about reopening our lives. As regards the insurance market, it is very important to emphasize that the level of trust in insurance companies among customers is sound and stable, as confirmed by a survey we conducted last year, while their openness to precautionary savings options has even grown. This is a foundation which our sector can and should rely on in the future. Increasing simplicity, speed and efficiency with enhanced customer experience will be a top priority for all market participants, Generali included, and digitalization is the key enabler in achieving this.

In 2020, Generali’s business performance was in line with the market, while our entire operation has been transformed. We sell differently, we interact with customers differently, we settle claims differently. Numbers, in fact, reflect the changes we successfully implemented last year. That said, I should also emphasize that we could only adapt to these changes so quickly and successfully because we had already laid the foundations in previous years. Remote claim settlement, remote sales, paperless processes, digital payment solutions have been present in our lives for years, as have remote work, but it was last year that all these became dominant. It is proof of our efforts that our strategy for the 2019-2021 period could remain intact even amidst the pandemic; what’s more, the crisis indeed reassured the accuracy and validity of our strategic objectives and aspirations.

Did the renewal of commercial insurance policies at the beginning of this year confirm the expectations of analysts, i.e. Hungary’s GDP may expand by up to 4 percent this year, or is it the delayed impact of the pandemic on the insurance market?

The renewal period in January showed a very mixed picture of whether or not Hungarian businesses anticipate higher GDP growth for the year, as there are major differences both in the segments and in their business operations. It was the renewal of liability insurance policies, in particular, where these differences were more pronounced, when, for example, an automotive supplier is already planning higher sales revenues than in 2020. The most severely hit sectors, tourism, hospitality and the services sectors, still face a great deal of uncertainty as to when the pandemic will be over and what medium-term effects they will need to fight off. The insurance market will be most directly impacted through certain sectors in the SME segment. While in 2020 businesses could leverage on the momentum they had gained earlier, this momentum – as well as their savings – were often consumed by the end of the year, so the pandemic’s impact will only be felt this year, for instance when they should renew their insurance policies. The government’s protective measures and the funding provided to support the economic recovery are highly important to us.

Savings and life insurance

According to the data published by the Central Statistical Office, the share of insurance in total household savings has increased significantly. Is that what you're experiencing at Generali?

The Association of Hungarian Insurers has just published a summary of the latest statistics of the MNB (Hungarian National Bank) which confirms that assets held in life insurance have been increasing. At the end of 2020, life insurance premium reserves exceeded HUF 2 240 billion, which is a 7 percent increase. Moreover, absolute growth was due not only to favorable returns, but also to the growing number of transactions. It was not since 2008 that so much ‘fresh’ savings were placed in life insurance as last year. Nevertheless, life insurance still accounts for only a small proportion of household savings: its pre-crisis share of 5.6% has decreased significantly over the years. Last year, however, the trend seemed to reverse: numbers had been rising from quarter to quarter, and by the end of December the proportion of life insurance savings in total household financial assets reached 3.4%. This trend could be reinforced by the fact that in addition to being a savings form, life insurance can also help in emergencies.

Favourite products

In recent years, pension insurance has become an increasingly popular product, and the sales of private health insurance have also been on the rise. Is this trend typical of Generali?

We also find that pension insurance remains popular with the general public, although the outbreak of the pandemic in the second quarter of last year hampered the proportion of these policies. We have also seen rising interest for health insurance solutions. In addition to our traditional fixed-sum insurance products, we also offer complex fee-for-service health insurance solutions for both retail and corporate clients (employers), which make private healthcare available at a reasonable price. Under the current circumstances, fast access to healthcare takes on even greater significance; this is a trend we expect to continue in the future given that fee-for-service health insurance coverage is relatively new to the Hungarian market.

According to experts, regular premium insurance is once again popular among customers. How do you see this in the insurance market? Which insurance products are expected to be this year's ‘greatest hits’?

Interestingly, in our experience, it was single premium life insurance that enjoyed growing popularity last year and even the volume of top up payments made on existing policies has risen. It may partly be attributed to the major stock-price drops at the beginning of the year, providing an excellent entry point to our customers. For example, customers who made payments into our Innovation Equity Fund, launched at the end of 2019, at the right time could realize an over 80% return on their investment within a year. In addition to growing financial awareness, the higher interest in our products may be due to a decline in consumption: the money set aside for a summer vacation or a skiing trip, for example, has been placed into savings products. That said, it is indeed true that regular premium insurance remains the most popular savings form, offering the best solution to our customers’ need for making precautionary savings. Pension insurance represents a significant part of that, and for that reason we expect these products to continue to be popular and sought after in the coming period.

Mergers and Acquisitions

At the end of last year, Vienna Insurance Group (VIG) acquired the subsidiaries of the Dutch Aegon Group in Hungary, Poland, Romania and Turkey. This will trigger a significant shift in the Hungarian insurance market, since the Vienna Insurance Group, together with its Hungarian subsidiary, UNION Insurance Company, has thus further increased its market share. Are there any plans for a merger of the three subsidiaries of the Generali Group in Hungary to strengthen its market position?

Strengthening our market position alone has never been our strategic priority. We continue to believe that the progress we plan and achieve year-on-year makes a steady contribution to enhancing the satisfaction of our customers, cementing the trust of our distribution partners, and is, in turn, reflected in our stable market share. The establishment of Genertel and Európai Utazási Biztosító was driven by the pursue of a strategic goal to achieve significant presence in some clearly defined market segments, offering highly specialized solutions and services to our target group. In 2009, in an increasingly fierce price competition in the MTPL market, Generali Insurance Company wanted to be perceived as a value-oriented insurer with a professional agent network targeting customers with a preference for personal interactions; with the establishment of Genertel, however, we could reach out to customers who were more price sensitive in their choice of provider and had a preference for digital and telephone sales. Genertel’s product range has, of course, expanded considerably since then, and today 50% of its revenue is earned from non-MTPL products. Európai Utazási Biztosító, too, is a best-in-class, professional service provider with a stable presence in a clearly defined sector even now when this segment has been hit hardest by the pandemic. Generali has been operating in Hungary for 189 years. This fact alone represents our long-term commitment and value-based operation.

Former President of Association of Hungarian Insurance Companies

Previously, for more than a year, you were acting President of MABISZ as a deputy to Ms. Anett Pandurics. Looking back, how do you see this period?

MABISZ – the Association of Hungarian Insurance Companies – is an organization leveraging on collaboration between the members and democratically representing the diverse interests of market players. It plays a key role both in aligning professional work in the insurance industry, in raising public awareness of insurance and advocating the importance of precautionary savings, and in enhancing dialogue with the regulator. I was, of course, honored to serve as Interim President, but I was very pleased when Madam President returned and continued doing an excellent job in this position.

It was particularly interesting to experience the acceleration of the entire sector in this very brief period. The insurance industry has been, for a while, changing and transforming right in front of our eyes in line with the changes in the economic and social environment; financial markets are fluctuating, new regulations, digital innovations are emerging, and customer behavior has also significantly transformed. These trends were not superseded by the pandemic, but only accelerated or increased the pace of a transformation which already began. Market players in all industries have faced the need to change, transform their previous operations and processes. Technology, first an enabler, then a competitive advantage, has become an inevitable capability for survival. Of course, each market player has its own strategic response to these issues, but it is exciting to think about these issues at industry level.

I firmly believe that it is our shared responsibility to help people look out for themselves and enhance their confidence in the insurance industry as well as in insurance companies.

(source: Figyelő magazine, April 2021)