Interview with Pavel Mencl, CEO of Generali pojišťovna in the Czech Republic: When simple solutions are required, nothing but just words are often spoken
06 August 2018
On Monday 23 July 2018, exactly 25 years had passed since Generali insurance company returned to the Czech market. On this occasion, CEO of Generali pojišťovna Pavel Mencl provided an interview for Banking magazine sharing his view on market regulation, technical innovations as well as relations with clients.
1. You have been with Generali for more than 20 years, can you remember your beginnings?
My beginnings with the insurance business are connected with joining an entirely new world because I had started with engineering companies. The reason I made this change was my confidence in investments into the financial sector. Banks and insurance companies have always been and still are the firms that invest most into the development of their own people in the long term. And this has been confirmed during my 23-year career.
And any practical memory of the beginning with an insurance company? Conditions at that time were utterly incomparable with today: I started with paper, pencil, price list, calculator and fax. You probably would not find these tools in a modern office. In addition, all the regulations applicable to the insurance market could have been included in a single document with a couple of pages. Simply – the former world was an easier place to live in. We are surrounded by a significantly more complex and regulated world that aims at protecting the client. However, this necessarily leads to a certain of lack of clarity and to significant complexity.
2. How has the insurance business changed during that time and what transformation has Generali gone through?
The insurance business as an industry must follow the development of human needs as well as technologies. This is a fundamental theme for us as we must be able to quickly and reasonably respond to such changes. That is why we already use biometric signatures, we are developing a squadron of drones in claims handling, a chatbot in the call centre or we engage in social networks. And it is beyond any discussion that the insurance industry is pushed forward by these technological innovations.
Generali started in 1993 in the Czech Republic de facto as a green field investment. We started from zero as a small family company, even though supported by a strong background and excellent reputation of the brand. Today, we are part of a major international group. Even though we are a company that is managed on the basis of processes and projects, we still do not forget about the simple solutions we used to start with. They have remained important.
The achievements that Generali has managed to make over the past 25 years are admirable. The insurance company has been successful in a highly competitive market, in particular thanks to the human factor – simply we have been lucky to have key people who were able to maintain and develop the strategy of the company. Look around - many companies today are not able to stick to their strategy for more than half a year or for one year, and they keep changing their objectives. Of course, this brings chaos. For Generali, a certain consistence in what we do was also of key importance. We have been able to come to agreements with external contractors, brokers...
And yes, during this quarter century of our business, we also had to struggle with changes, however these changes were perceived by Generali as an opportunity rather than any threat. By this approach we have significantly strengthened ourselves as a company as well as our processes.
3. How has the approach of clients changed? And who is a typical client of Generali?
Since the beginning, Generali as an all-purpose insurance company has focused on the family. What we can observe on the side of our clients is their growing “appetite” for the distance communication. In short, simply anything that can be settled remotely (from a distance). Clients and their behaviour change along with the changing world around, even though not so dynamically. I would compare this to buying books online. If you fancy buying any publication today, you will look up in an e-shop whether the book is available and you simply order it. Clients of insurance companies expect more or less the same approach. They will find information on a product, will check its availability within our company, and then they buy the insurance. It is naturally a challenge, and also a piece of art of its kind, to design a combination in our insurance company to serve both the new generation of clients and also those existing ones who have grown up in totally different conditions. In addition, we must also take into account the complicated world around us, so it means that this whole issue is not only extremely difficult, but also financially demanding.
4. Jan Matoušek, the Executive Director of the Czech Bureau of Insurers, says that Czechs underestimate insurance risks. Can you see a similar trend?
Our market is often compared with Western Europe which was far much more developed both where average wages and expenses for services are concerned. Therefore it would be illusory to expect that we would pay the same premium and have the same sums insured in our country, when people did not use to have such property. However, the times have changed and the Czech Republic as well. What we can see is that people insure more valuable assets and in particular they are much more interested in all risk variants. Simply they refuse to select what to have insured, they want to insure practically everything and they allow for the higher costs of such a policy. This change does not occur in leaps, it is rather gradual, when people require higher sums insured as well as a wider scope of insurance covers. We are catching up with the rest of Europe in this way, though it still is a way ahead of us.
5. You are the Executive Director for the second year. What are your major achievements so far and what else would you and your people like to achieve with Generali?
I feel it is important to keep the continuity of Generali development, and I think I am successful in this point. We are able to compete in situations such as natural disasters, we have successfully passed many audits, we have top-rate solvency....
My personal objective is to get simplicity into the insurance sector for normal people. It is something the customers call for and where many gaps lie. Clarity, comprehensibility and simplicity, these things can help us and make the people wish to get closer to us. These are the characteristics which, in my opinion, should not be forgotten in the insurance industry.
Do you think that this objective is different to other insurance companies? Is this not a common goal to have the products designed to be simple so that clients do not get into contact with the insurer?
As far as simplicity and clarity are concerned, the whole matter often remains in the form of words and ideas, or, eventually, simplicity is being mistaken for simplification. Nevertheless, to implement simple solutions must not be anything complicated. It would definitely be great if things started to move across the market in this respect. I am just afraid that the idea of simplicity is different from the perspective of insurers on one hand and clients on the other.
Moreover, I do not think that simplicity must mean that clients will stop getting into contact with the insurer. Simple solutions, on the contrary, may mean that clients will want and need to contact the insurer whenever they like as there will be no obstacle preventing them from doing so. To be in contact should be convenient and useful for both parties.
6. Do you have the ambition to become the leading company in the Czech Republic?
The market share is not anything the Generali Group in the Czech Republic would like to race for. Our priority has been clearly defined – profitability. We are actively working on improving this. We have done a lot in this field this year, in particular in car insurance, and we can already see the results.
7. In the last year, Generali pojišťovna showed a significant loss compared with 2016. What caused this loss?
When we take the last-year’s results, we must mention in particular the fact that we were successful in our principal business, i.e. selling insurance. We had positive results both in the life and non-life sectors. However the overall results were adversely influenced by the non-technical account. There are two issues: in particular overvaluation of our financial placement, supported by the growth in interest rates. However it should be noted that according to international standards supported by the Generali Group – and de facto also in compliance with the Czech accounting regulations effective from 1 January 2018, we closed with a profit of CZK 108 million.
The most important information is that both this year and last year we managed – in some insurance segments – to grow faster than the market.
8. In your Annual Report you write that most investments were used to implement the IDD and GDPR; how do you perceive these two Directives? How did they influence the insurance sector?
Definitely these activities cost us a lot of time and money. I personally perceive the intention to provide better protection for clients as good news. However I think that the scope and method of implementation and the complexity of this measure is extremely unfortunate. This brings not only high expenses, but on top of that a large volume of information which will totally overload the clients. My opinion is that this all could have been done in a much simpler manner.
9. How much were the systems cleared as part of getting ready for GDPR?
Preparations for the GDPR were actually monstrous, both in respect of the scope used and efforts made. More than one hundred people, working on top of their normal tasks, were engaged in this agenda which affected many areas, such as information obligations, incident management, training of colleagues across the company, renegotiation of relationships in HR, automated processing... In addition it also involved full analysis of tens of our systems that we work with.
10. What are the major changes made in your company in relation to the IDD? And how do you perceive the ever increasing consumers’ protection? Don’t you rather feel any higher moral hazard from the consumers’ part?
In my opinion, the main impact of the Insurance Distribution Directive – IDD – on our company is that we have even more emphasised the analysis of client’s needs so that we are able to prevent situations when the client buys something he / she actually does not need. In this way, we have already started to use analytical tools or specific questionnaires providing a very comprehensive analysis of client’s needs right at input.
What is the response from clients once the new rules have been implemented?
We implemented the mentioned measures in advance as we think that it is important for our clients to know why they have purchased a particular insurance policy. This is closely related to their satisfaction which is provably linked to products they understand. Clients appreciate that leaving our office they have a policy they understand because they had the opportunity to discuss this product in detail.
11. Do you communicate these general regulations with your Head office or do you deal with them locally?
These are EU-wide regulations so it would lose its sense not to communicate them with our colleagues, either in Italy or in our Central European region. By contrast, we coordinate our know-how and practical experience with both the Head Office and with other companies, in particular within the Generali CEE Holding. Specifically, some solutions from our colleagues in Austria were especially inspiring. Here I can mention, for example, the process of robotisation, such as full automation of claims handling – from a claim being reported through to paying benefits. This will also involve solutions for the Internet of Things.
12. Actually, what issues do you solve locally and what at the Group level?
Coordination with the Head Office is of great importance for us in many respects. Yet, we are in the Czech Republic and all we do is adjusted to our Czech clients. Occasionally, we ask for foreign assistance to benefit from obviously good solutions which work. However, we are able to achieve a lot ourselves. Let’s say, for example, application development or technical solutions for cooperation with garages. The result will be as follows: the client, having reported a claim, will take his / her car to the garage and all substantial issues related to the claims handling will be solved right there. He will hand over the vehicle, will get a replacement vehicle and will come back for the repaired car. Done.
13. What is the difference between the approach to insurance in Italy and in the Czech Republic?
I do not think that we might find any material differences in the philosophy of underwriting. However, each market has its specifics with respect to social composition, dynamics of the economy, as well as natural conditions... The Italian market will definitively have a higher degree of insurance penetration of many products.
14. In the Annual Report, you have also praised your employees for CSR (Corporate Social Responsibility) activities. How do you assess the approach of financial companies to CSR activities and do you intend to be even more active in this aspect in the future?
With respect to the fact that assistance ranks amongst the cornerstones of the insurance business, we are really very active in the CSR field. For me, personally, it is of great value that we have also involved our employees in the processes of how we contribute. They can thereby directly influence where and whom we are going to help. In addition, we also have volunteers’ days when our colleagues personally support a good thing. Besides, we have clearly defined the direction within the Generali Group where we direct our support to social responsibility. These activities are called the Human Safety Net and I believe that we will introduce them in the Czech Republic in 2019 with an interesting context.
15. How do you perceive the trends in the IoT sphere? Are you testing new technologies in this respect in Generali? And does the Generali Group have any own Innovation hub?
The Internet of Things (IoT) is a trend that we cannot ignore, and we do not do it. Instead, we are locally testing the interest in and logic diagram of technological innovations in our market. You can imagine this, for example, as a home security which could have a positive influence on the loss history and also can motivate clients to buy a policy. At the same time we keep in mind that we want to provide our clients with solutions that can bring them obvious benefits.
At the global level, the Generali Group makes investments into start-ups which can be, thanks to their dynamics and ability to bring new ideas, an excellent accelerator of the entire business. I am convinced that the benefits they will bring will be used also in the Czech Republic.
16. A significant portion of the sale of insurance products is provided by agents. What portion of your sold products goes through these agents? How do you perceive the change in commissions which was introduced in 2016? And do you think that 5 years is a sufficient period, if we take into account that the volume of saved funds starts to be interesting at least after 10 years?
At the moment, we are selling 75 percent of all retail policies through the agent network when we count individual policies. In terms of money (CZK) it is about 50 percent.
Only the future will show whether life insurance will retain the “appetite” to renegotiate policies. A simple view shows that five years is more than two years, so in this respect I can see a positive move here. It is a give-and-take matter (compromise) between all participating parties.
However we can see a clear trend in Generali over the past one or two years – clients more and more deviate from the combination of live insurance and investing, and today up to 80 percent of them select solely risk variants of life insurance.
17. How do you assess the quality of insurance intermediaries in the Czech Republic? Don’t you think that the mediation is focused primarily on selling instead of consultancy and financial planning?
Here we must mention the situation which occurred around life insurance. Clients here underestimated the risk of investment; it was difficult to understand the product and to imagine the possible decline in saved amounts. Of course, the problematic behaviour of agents (intermediaries) had also contributed to this state. However it is important that the market managed to cope with this situation and moved it significantly further. I perceive the move in the quality of insurance selling as provable. But still, it can be even better. And that is the direction on which the IDD measures are focused
18. How do you see comparators as tools for selling insurance? I am asking in particular in the context with new trends when people keep saying that fintechs will basically become principal communication channels with clients.
Comparators are addressing a specific group of people, in particular those interested in car insurance, and mainly those for whom the price is the principal indicator. And that is how they select products. Under such circumstances it is useless to try to explain the quality of a product, claims-handling process or assistance services. These clients simply do not evaluate the complexity of an offer. Sometimes, the comparators are in their nature simply too simple. I would personally like to know how they will cope with the necessity to analyse clients’ needs and coming regulations such as the IDD.
19. You were the first insurance company to start to insure risks for the EET – was there any interest in this service?
Insurance of risks associated with the deployment of registration cash registers proved that we are able to deliver really useful solutions to the market in a very short time. Along with introducing the EET, there was logically a great interest in this product. Hundreds of clients decided to buy this product last year.
20. Are you going to extend the portfolio of your insurance products? For example with insurance of cyber risks or pets? Can you see any potential in these insurance products?
We offer these products within the Generali Group in the Czech Republic, but I perceive them basically as supplementary insurance. As solitary products, they often fail to survive due to profitability reasons. Costs of investment into the development and implementation of a stand-alone product are high.
Therefore we want to focus on an extended our offer of insurance in the form of partial supplementary policies within the existing product lines. Indeed, improving these products can represent the right and meaningful way we are strolling along. As an example I can mention the cyber risk insurance as part of business insurance or development of assistance services, such as White Technology Services or handling bicycle accidents.
21. We have already talked about regulations; what regulations are you most afraid of? Is there any further scarecrow on the horizon, or is the difficult period for insurance companies over?
Definitely the growing requirements related to the regulation will be more administratively and financially demanding – either in the insurance industry or in accounting. It does not seem that we can expect any relief in the near future.