Czech insurance market in 2020

Are you ready for the digital revolution?

Czech insurance Table of contents
Introduction.........................................................................................................3

market in 2020 About the survey...............................................................................................4

Key observations...............................................................................................5
Are you ready for the digital revolution? Survey analysis..................................................................................................8

Future trends...............................................................................................8

Opportunities...............................................................................................9

Risks.............................................................................................................10

Becoming digital........................................................................................11

Customers.................................................................................................. 13

Distribution................................................................................................. 14

Products...................................................................................................... 16

Regulation................................................................................................... 17

Conclusion......................................................................................................... 19

2 willistowerswatson.com
Introduction

Predicting the future is always a perilous, if intriguing,

exercise. Even in maturing insurance markets such as the
Czech Republic, regulation, technology, demographics
and politics ensure that there are always fresh challenges.
As insurers look to the immediate future, the confluence
of the old and the new seems particularly significant –
buzzwords such as InsurTech, Big Data, social media,
digitalisation, automation and customer-centricity dominate
the media. Yet products and, particularly, distribution
models seem to have changed very little.

In this vein, we at Willis Towers Watson took the opportunity

to mark our first anniversary in the Czech market by talking
with senior insurance executives and other stakeholders to
get their views on the direction the Czech insurance industry
might take in the period to 2020.

The results of our survey clearly show three dominant trends:

 Digitalisation and the impact of new technologies

 The focus on improving the customer experience
 Optimisation of distribution channels

Technology will fundamentally revolutionise not only

internal processes but also insurers’ relationships and
communications with customers. Insurers will make better
use of the vast amount of data available to them to improve
their understanding of their customers’ needs and to offer
them an innovative insurance solution, priced individually
and communicated via their preferred medium.

The study underscores the need to find pragmatic solutions

to unresolved industry topics – for example, cooperation
with intermediaries, and specifically commission levels,
remains particularly sensitive, as do the ever-increasing
regulatory pressures.

The survey encapsulates the often conflicting demands

felt by insurers – the desire to ‘go digital’ and to embrace
new technologies and social media, whilst needing
simultaneously to deal with real-world regulation, products
and intermediaries. In many cases, the insurance executive
of 2016 feels over-regulated, understaffed and increasingly
frustrated by existing systems and processes.

So, as we look ahead to 2020, what are the major changes

that we can expect to see? And which risks and opportunities
await the insurance sector?

Roger Gascoigne
Director,
Risk Consulting and Software
3 Czech insurance market in 2020 – are you ready for the digital revolution?
About the survey

Figure 1. Survey participants by entity

We asked senior insurance executives, including
representatives of insurance and reinsurance
companies, associations, intermediaries, academics 8
and the supervisory authority for their views on the Life insurers
13
trends that will dominate the Czech insurance market Composite insurers
3
in the period to 2020. The 49 respondents were Non-life insurers
drawn from 23 different entities and organisations 5
Reinsurer
from across the Czech market. Others (academics
supervisor,
associations)
We targeted responses from a cross-functional
group, focusing on senior executives. About 20
two thirds of the participants come from the
C-suite, often members of the relevant Board of
Directors – including 10 Chief Executive Officers
(CEOs), 10 Chief Financial Officers (CFOs), eight Figure 2. Survey participants by function
Chief Risk Officers (CROs), five Chief Insurance
Officers (CIOs) and six Senior Actuaries. 7 Chief Executive Officer
10 Chief Financial Officer
Interviews were performed either face-to-face or 1
Chief Insurance Officer
online during the summer of 2016. Online participants Chief Sales Officer
6
had the option of providing their views anonymously. Chief Risk Officer
1 Other Board Level
Willis Towers Watson would like to thank all the 10
Senior Actuary
participants who took the time to give their opinions
8 Senior Finance manager
and insights as part of this survey.
1 5 Other

4 willistowerswatson.com
Key observations
1. The significance of digitalisation and
automation of processes
This is clearly seen as the dominant trend over the next five
years, both in the back and front offices. Eighty six per cent
of respondents expect the impact to be highly or extremely
significant. The digital Czech insurer of the future plans to
use technology primarily in improving communication with
customers and in distribution. Moreover, the automation of
internal processes is seen as a natural goal, with the fully
paperless office taken by many as a given.
“Digitalisation will fundamentally change our business.
We will digitalise our entire distribution process from
A to Z: from the customer via distributors to our back-end
systems. It means being able to run operational CRM
much better than today as well as giving a moderate
boost to analytical CRM.”
– CEO, life insurance company
2. Ability to adapt to new technologies
compromised by outdated and inflexible
IT systems
The most widely-identified key to success in 2020 is seen as
the ability to adapt to new technologies. Yet many insurers
are clearly struggling with legacy IT systems, which are
regarded as the most significant risk facing their company,
as well as the greatest obstacle to progress.
“New technologies will dramatically change our business
model in all areas – customer service, distribution
and products.”
– CFO, composite insurance company
3. Problems with leveraging vast amounts
of data to personalise the client proposition
Insurers are clearly struggling with the mass of data in their
possession, probably due to their inflexible IT systems.
Interestingly, although 82% agree with the statement that:
‘As insurers we have access to a huge pool of data; however,
we are unable to get the maximum value from the amount of
5 Czech insurance market in 2020 – are you ready for the digital revolution?
customer data in our possession’, only 26% see the ability
to capture and analyse data as offering the key to success.
However, respondents do expect increasing sophistication
of underwriting and pricing, particularly in terms of tailoring
pricing to the individual customer.
“We count on the fact that underwriting and pricing will be at
the level of the individual client’s data.”
– CEO, composite insurance company
4. Distribution models – steady as she goes?
Despite increased awareness of the impact of technology
and changing customer preferences, insurers do not
anticipate major changes in how policies will be sold. The
role of face-to-face sales (via tied agents, financial advisors
or branch staff) is expected to remain dominant in both
life and non-life. Direct writing, even in non-life retail, is not
expected to grow significantly beyond its current limited
share and, with the unsurprising exception of representatives
of the market’s only peer-to-peer (P2P) insurer, respondents
do not envisage a significant role for P2P in the near future in
the Czech Republic either.
“Pressure will increase on the quality of external
sales channels, owing to self-regulation, IDD, PRIIPS,
communication.”
– Senior executive, insurance stakeholder
5. Commissions – to regulate or not to regulate?
It is clear that the issue which has dominated market
discussions over recent years – the level of commission,
particularly in life insurance – remains a major concern.
More respondents agree than disagree that consumers
would benefit from a statutory cap on commissions
(47%:39%), with 41% seeing an inability to control
commissions as a major risk.
 6. Putting the customer first?
Seventy-two per cent see strengthening the customer
relationship and experience as a very or extremely
significant trend, just below digitalisation and optimisation
of distribution. Insurers are looking to technology to improve
their customer communication, particularly for young
customers who, in the opinion of 84% of respondents, are
not being adequately addressed at present. Clearly, there
is also work to be done in explaining and communicating
the nature of insurance products sold, with 80% agreeing
that policyholders often do not understand the nature of
the product they are buying. Only 30% agree that insurers
currently devote as much or more energy to retaining
existing customers as winning new ones.

“We expect a more proactive, individual and digital approach

to clients, combined with a significantly tighter regulatory
environment for customer protection.”

– CRO, composite insurance company

7. Regulation: a necessary evil?

While 67% of respondents expect regulation, both at a
local and an international level, to keep increasing in volume
and strictness of application, dealing with Solvency II is not
considered to either pose a risk or present an opportunity in
competitive terms. Respondents are sceptical that Solvency
II will strengthen the market and almost 20% see the most
significant impact as the additional costs of compliance.
Respondents expect that dealing with conduct of business
regulation will pose a greater risk than prudential regulation.

“Regulation: it’s not positive, but it is inevitable.”

– CEO, composite insurance company

8. Recruiting and retaining talent

Interestingly, while 49% see a lack of skilled resources as
a significant risk (second only to the risk posed by outdated
IT), recruiting and retaining top talent is only seen as a key
to success by 22% of respondents. Does this indicate a
certain resigned acceptance that the people simply are
not available?

6 willistowerswatson.com
9. The future of life insurance is uncertain
Over 80% agree that traditional endowment business is
finished, killed off by low interest rates and high capital
requirements. At the same time, 71% agree that life insurers
should return to core values of protecting assets and lives
and leave investment management to other sectors. And
as for the much talked-about introduction of private health
insurance, only 6% see this as realistic by 2020.

“We all need to solve unit-linked, which as a product will

die. That means designing investment alternatives for
customers. This will bring tremendous changes in products,
distribution and our cost models. Insurers are not used to it
but there is no choice. The only alternative is to discontinue
investment products and focus on risk products, which
means adapting to a very different cost basis. As existing
policies expire what else can we offer?”

– CEO, life insurance company

10. Prospects for market growth: pessimism in

life, cautious optimism in non-life
Reflecting the previous point, almost half expect the life
market, measured by gross written premium, to contract in
the period to 2020. Conversely, 95% of respondents expect
the non-life market to grow by 1% to 4% per annum over the
same period.

Figure 3. How do you expect the market to develop (measured by written premiums)?

50%
49
46
40%
% of respondents

30%
27
25 25
20%

16
10%

5 0 0 0 5
0% 2
5% pa or worse -4% to -3% pa -2% to -1% pa 0% pa 1% to 2% pa 3% to 4% pa

Annual growth in written premiums

Life Non-Life

7 Czech insurance market in 2020 – are you ready for the digital revolution?
Survey analysis

Future trends
What trends will dominate the development of the
Czech insurance market over the next five years?
Asking respondents to highlight the key market trends
over the next five years indicates that digitalisation and
automation of processes, optimisation of distribution
channels, strengthening the customer relationship and
experience, and the ever-increasing demands of regulation
at a local and an international level will primarily occupy
the attention of insurance executives.
Exactly two-thirds of participants see regulation as a very
or extremely significant trend, including 27% who rate it
as extremely significant. CROs are more concerned than
the average about its impact – does their experience in
implementing Solvency II come more into play than in
other groups of respondents?
It is clear that some of the trends, such as emerging
new risks and the aging population may not have an
impact before 2020, even though they may completely
revolutionise the market over a longer period.
The potential for long-term low interest rates also
causes insurers (and not only those in life companies)
significant concerns; yet there is little appetite for alternative
investment strategies. This may be due, as one participant
commented, to regulatory restrictions – “I would if I could
but the regulator won’t let me”.

Figure 4. What trends will dominate the period to 2020 on the Czech insurance market?
0% 20% 40% 60% 80% 100%

Digitalisation and automation of processes

14 43 43

Optimisation of distribution channels

2 6 17 58 17

Strengthening the customer relationship and experience

2 6 20 33 39

More demanding regulation (local and international)

4 6 23 40 27
Increased sophistication of underwriting and pricing
11 34 49 6
'Big data' – managing analysis of huge amounts of data
6 42 44 8

Increasing price competition (price dumping)

21 29 40 10

Increased competition from market disrupters

2 25 33 36 4

Demographic development of society – ageing population

8 31 26 27 8

Mergers, acquisitions and restructuring

6 26 36 30 2

Search for yield leading to alternative investment strategies

4 33 33 24 6
Proactive risk management: from 'regulatory compliance' to strategic imperative
2 27 45 20 6

Insurance of emerging new risks (driverless cars, drones, nanotechnology and so on)
6 35 39 20

Development of a private health insurance market

27 40 27 6

Not at all Slightly Moderately Very Extremely

8 willistowerswatson.com
Opportunities
What will be the keys to success?
What is it that gives a company an advantage over
its competitors and makes it successful? We asked
respondents to select the top three factors that they
believed would be the key to success in 2020.
Interestingly, although ‘Adapting to new technologies’
was named by 44% of respondents as one of the three
keys to success, it was scored the absolute highest by
only 6%. Ranked by overall highest priority, distribution
channels, customer service and innovative new products
claimed the three top positions. This may indicate that
although almost half see new technology as a ‘must-have’,
they are cautious about their own company’s ability to be
a leader in its implementation.
It is probably a positive sign that so few respondents
equate future success with a price war; although this
may reflect a reticence to focus on price rather than
more ambitious objectives. It should, however, be noted
that almost one in three see maintaining low operating
costs as a key to success.
Despite the importance given to regulation as a market-
influencing trend over the period, many respondents do
not view the ability to deal with this regulatory burden as
a key to success, maybe reinforcing the conclusion that
‘we just have to accept it and get on with it’.

Figure 5. What do you think will be key for your company to be successful in 2020?

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Adapting to new technologies

6 14 24

Effectiveness of distribution channels

20 14 6
Superior customer service and communication
16 14 4

Low operating costs

6 10 14

Innovative new products

14 8 8

Ability to capture and analyse data

10 10 6

Dealing with regulatory burden

6 6 12

Recruiting and retaining top talent

4 8 10

Flexibility – multiple distribution channels and customer segments

8 6 6

Sophisticated underwriting and pricing techniques

6 2 8

Maintaining consistently low prices/premiums

2 6

First place Second place Third place

9 Czech insurance market in 2020 – are you ready for the digital revolution?
Risks Figure 6. What are the largest risks your company is facing
and will face in the upcoming years?
Where are the hazards on the road?
Wherever there are opportunities there are also risks. Many -60% -40% -20% 0% 20% 40% 60%
insurance executives may feel bombarded from all sides –
Outdated and inflexible IT systems
by macroeconomic, regulatory, political, competitive, social,
59
technological, demographic, climatic and pandemic factors.
Lack of skilled resources
We asked respondents to rank the significance of various 31
risks facing the industry.
Persistent long-term low interest rate environment
27
Overwhelmingly, participants cited the risks arising from
Increasing claims due to legal changes
their outdated and inflexible IT systems. Less than 10% 23
consider this risk to be low. It was also one of two risks
Conduct of business/consumer protection regulation
considered to be very high risk by over 20% of respondents. 22
Surprisingly, given that the survey covered both life and Misselling and reputation risk
non-life companies, the persistent long-term low interest 18
rate environment (often referred to as the ‘Japanese Inability to control rising commissions
scenario’) was rated the other very high risk, with a 10
score of over 20%. Competitors with more innovative products/distribution
8
It is noticeable how the assessment of the impact Macroeconomic conditions – recession, asset price volatility
of individual risks varied between CEOs, CFOs and 8
CROs/senior actuaries. CEOs seem to be the most IT security/cyber risks
concerned about the lack of skilled resources. CFOs, 0
on the other hand, cite the impact of low interest rates, Prudential regulation (Solvency II)
whilst CROs and actuaries are even more worried -10
about the ability of IT systems to cope than the Claims fraud
overall survey population. -14
Impact of IFRS 17 on results
The findings around distribution outline an interesting -23
picture – the risk of potential mis-selling and accompanying Model risk (risk of non-functional calculation models)
reputation risk to the company or the industry as a whole is -25
ranked almost identically to the risk of dealing with conduct Natural catastrophes and/or pandemics
-47
of business regulation. And while an inability to control rising
commissions is considered a high risk by over 40%, virtually Fee-based model for remunerating intermediaries
-59
nobody expects to see the introduction of a fee-based
model for intermediaries, following the examples of the
Net high score Net low score
Netherlands or the United Kingdom.
Note: Net high or low scores calculated as those answering high
The good news is that concerns over Solvency II and related or very high minus those answering low or very low. Responses of
model risk appear to be low, possibly reflecting the strong ‘moderate’ have been excluded.

overall capital position of most insurers in the Czech market.

Unless insurers can deal with their

unwieldy and inflexible legacy IT systems,
they are vulnerable to attack from more
agile competitors, whose DNA is digital.

10 willistowerswatson.com
Becoming digital But the respondents do not see any material effect on the
product mix – according to the results, new technologies
What does it mean in practice? will influence the development and pricing of products, but
The majority of those surveyed clearly expect the move the overall product mix of the companies is most likely to
towards digitalisation and automation of processes – and remain the same.
the connected new technologies – to have a significant
impact on insurers’ business models. “I do not expect a change in the model, but more support
from technology for the existing model.”
However, opinions are divided on the impact of disrupters – CRO, composite insurance company
on the Czech market, with 40% seeing this as a very or
extremely significant trend, even though there has so far
been little evidence of disrupters changing the insurance Figure 7. What is the main obstacle in implementation of the
market. Even business innovations common elsewhere, new technologies into your business model? (in percentages)
such as price comparison websites, sometimes known as
aggregators, have had very limited success in the Czech Current IT architecture
Republic so far. and systems, not
allowing a full use of
13 new technologies
“I am convinced that by 2020 there will be new disruptive
Costs
players on the insurance market who will strongly challenge 6
existing models.” Lack of skilled people
2
38 IT security concerns
– CEO, life insurance company 4
Lack of senior
4
management awareness
As in other sectors, such as retail or automotive, the 4
Timing – we do not think
question to be answered is whether traditional insurers that the Czech market is
12
will be able to adapt or whether they will be pushed aside ready for such changes
17
by innovative new entrants, unburdened by inflexible IT Regulatory obstacles
systems and sensitive relationships with distributors. Other
There are no obstacles

Automation of processes, both front-

and back-office, is absolutely key to Figure 8. Where do you see the most significant impact
managing both operating costs and the of new technologies, digitalisation and Big Data on your
shortage of skilled resources. business? (in percentages)

6
6 Communication
What is holding insurers back in adopting with customers
new technologies? 11 Distribution
Respondents identified with many potential obstacles to 32 Underwriting based on
implementing new technology, but the most cited was the individual data of clients
company’s current IT architecture and systems, which Pricing
are hampering the roll-out of newer technologies. Other 17
Product design
factors highlighted were a lack of skilled people and the and development
perceived costs involved. Interestingly, regulatory and legal Marketing campaigns
28
obstacles, for example around use of personal data, were
not regarded as a major hindrance.

In terms of the impacts of increased digitalisation, insurers

saw applications across the company’s operations – but
particularly in communication with customers, pricing and
underwriting and in distribution.

11 Czech insurance market in 2020 – are you ready for the digital revolution?
The digital insurer and the customer
If improved communication with clients is the primary use
of technology, how specifically do insurers plan to change
their approach to customers?
In particular, it is apparent that insurers are struggling to
find ways of engaging younger customers – 84% of the
participants agreed or strongly agreed with the statement
that: ‘Insurers need to find a new way of attracting young
customers’.
“The market will be driven by digitalisation and the
need to adapt to the needs of a new generation of
clients who expect negotiations and communication
to be conducted in a modern and simple way.”
– Financial advisor
Can insurance be made more attractive to such potential
customers through a more digital approach?
To what extent will the inability to attract
new young customers lead to more
fundamental problems beyond 2020?
Given the need to reach out to a new generation of digital
customers, there is a surprising reluctance to explore
the potential of new technology for communicating with
customers, either in providing them with information about
products and services, or in understanding more about
their lifestyles and habits. Whether discussing telematics,
the use of social networks or lifestyle trackers, less than
half expect to be making use of them by 2020.
Figure 9. What new technologies do you plan to use in the
near future to understand more about consumer behaviour?
0% 25% 50% 75% 100%
Tracking devices (telematics) for car insurance
47
Social networks (Facebook statuses and check-ins,
Swarm check-ins, tweets and so on)
46
Lifestyle trackers, for example, fitness trackers like Fitbit
40
Yes No
12 willistowerswatson.com
Where respondents do plan to use such tools, the majority
feel that wearables and telematics can be used to help the
companies in better pricing of the risks of individual clients,
including offering discounts for appropriate behavioural
patterns. Participants also expect information from social
networks and telematics to be incorporated into the claims
handling process, notably in the detection of fraud. It is
perhaps surprising that, based on our sample, life insurers
seemed more open to the potential of such technologies
than their peers in non-life companies.
These answers might indicate that the companies have
not yet thoroughly considered how to use the possibilities
and opportunities the new technologies bring and what
might be their potential in the insurance business. Is this
attributable to the ‘old fashioned’ nature of the insurance
business, keeping to the traditional lines on which it is run,
or because the companies have not yet thought over how
to grasp the new reality?
Digitalisation has the potential to
transform the insurance market; in
practice, the immediate impacts on the
Czech market will tend to be around
optimising the existing model.
53
54
60
Customers Figure 10. What do you see as the main attribute of a
client-centric insurer? (in percentages)
Are they really at the centre of insurers’ focus?
The value of looking after the customer base – attracting Use of plain language
new customers, retaining existing ones and improving the Transparency in
overall customer service experience – is a clear priority. pricing and charges
Seventy-two per cent believe that ‘strengthening the (including commissions)
10
customer relationship and experience’ will be a highly 4 Coverage tailored to
the individual client’s
important market trend in the next five years.
needs
16 Approaching market
The survey shows that 16% believe that superior customer 45 according to customer
service and communication will be the single most segments rather
important determinant of who is successful in 2020 than products
(second only to new technologies), with 34% ranking it 12 Use of data analytics
within the top three keys to success. And yet, it is hard to to ‘know’ customer to
12 be able to target them
believe that two in three respondents do not believe that
with offers
superior customer service will be among even the three
Focusing on the
most important factors. relationship not the sale

Being customer-centric is the stated ambition of most

insurers, indeed most companies in all sectors. But what
exactly does that mean for insurance companies? Above all
else, insurers see a focus on the overall client relationship
rather than focusing only on the short-term – the sale – as
being critical. Insurers aim to treat customers as individuals
in providing custom-made offers, in part by making greater
use of advanced data analytics to try to understand their
customers better.
“Mainly effectiveness and client service and improving the
customer experience. More tailoring our offer to needs of
the individual client. Greater efficiency in the back office
with contracting being paperless.”
– Chief Sales Officer, life insurance company
Respondents remain unconvinced by social networks
as a means to reach out to customers. Yet, the use of
social media might help in communicating the nature
(and benefits) of insurance to younger generations who
are alienated by traditional communication media. In this
light, how exactly do companies intend to strengthen the
relationship with their clients? In many cases, the traditional
means of face-to-face communication by intermediaries,
whether internal or external, is expected to continue
to dominate.
“Communication and connection with the clients will be
faster, closer and mutually more open.”

Interestingly, clarity in communication (via greater use – Chief Insurance Officer, composite insurance company
of plain language) and transparency in pricing and cost
structures were seen as less important attributes of
customer-centricity. This would seem to be inconsistent,
however, with the fact that 80% felt that ‘policyholders If customer-centricity means focusing
often do not understand the nature of the product they on ‘the relationship, not just the sale’,
are buying.’
where does this leave insurers who are
dependent on external partners for their
customer interactions?

13 Czech insurance market in 2020 – are you ready for the digital revolution?
Distribution
Will sales still rely largely on face-to-face interaction?
The effectiveness of distribution channels is seen as the
single most important key to success in 2020 by a fifth of
participants. So how do respondents expect products, both
life and non-life, to be sold in five years’ time?
Unfortunately, there is no reliable market data showing the
split of sales by distribution channel in 2016 with which
we can compare these results. However, such data would
probably look very similar to the expectations for 2020.
“We are all looking for a sustainable distribution model.”
– Chief Insurance Officer, composite insurance company

Figure 11. What proportion of new business at your organisation do you think will be sold via each of the major channels in 20201?

Life insurance Life insurance – retail

40% 40%

35% 35%

30% 30%

25% 25%

20% 20%

15% 15%

10% 10%

5% 5%

0% 0%
ts

ts
s) s

s) s
s

er
ct

ct

er
s

s
or y

or y
nk

nk
LM r

LM r
tw an

tw an
er

er
en

en
M iso

M iso
ire

ire

pe

th
ok

ok
k

Ba

Ba
ne mp

ne mp

O
ag

ag
D

o-
g v

g v
Br

Br
in ad

in ad

-t
o

o
ed

ed
C

er
ud al

ud al
Ti

Ti

Pe
cl ci

cl ci
(in nan

(in nan
Fi

Fi

1
Respondents were asked to rate each channel by bands (0-10%; 10-20%; 20-30%; 30-40%; 40-50% and >50%). The results have been produced by
calculating a weighted average of results, based on the lower and upper boundaries of the ranges. Where totals exceeded 100% at the lower of the range
they have been adjusted in line with other categories.

14 willistowerswatson.com
In life insurance, intermediaries (whether tied agents or
financial advisors) are expected to remain dominant. So,
despite concerns over rising commission levels, it seems
as though the current model will still be the preferred one.

By estimating averages across all respondents, who

may themselves have very different business models and
shareholders, the results do obscure some large variances
in results. For example, 21% expect financial advisors to
have a share of sales in excess of 50%, while 27% expect
it to be under 20%.

In non-life insurance, insurers’ exclusive networks, including

branches of the companies, employed salesforces and tied
agents will remain the dominant means of sales. So what
about the long-awaited surge in direct channels? Aside
from a small group of devotees (5%) who expect direct to
account for over half of all premiums in 2020, the remaining
95% believe its share will remain under 30%, and 70% do
not anticipate direct taking more than 20%.

Figure 12. Market share of financial advisors (incl so-called

MLMs) in life insurance

15
21
0% to 10%
10% to 20%
12
20% to 30%
9
30% to 40%
40% to 50%
18 >50%
25

Figure 13. Market share of direct channels (internet/

mobile/call centres) in retail non-life insurance?

25 0% to 10%
25 10% to 20%
20% to 30%
30% to 40%
40% to 50%
>50%

45

15 Czech insurance market in 2020 – are you ready for the digital revolution?
Products Figure 14. Which single factor would give the greatest
boost to sales of life insurance? (in percentages)
How and with what products will the companies
serve their clients? Increased
The responses, and particularly some of the comments, understanding
indicate major concerns over the short-term future of and awareness
of responsibility for
life assurance. Most participants expect the market retirement planning
17 13
to contract over the period, measured by written
More ethical behaviour
premiums, with savings products suffering the most. of intermediaries (no
Indeed, 84% of the participants agreed with the statement: ‘churning’ of policies)
‘Traditional endowment life insurance products are More attractive
finished. Capital requirements and low interest rates 19 28 conditions of life
make them unattractive to both insurers and policyholders’. insurance compared to
other savings products
(for example, tax
We can assume that we will probably see some shift incentives)
in the product mix in life insurance, as some comments 23
Increasing wealth and
received from the respondents also questioned the disposable income of
future of unit-linked products in the Czech market under population
current conditions. The trend towards focusing on selling Other
protection products rather than savings seems clear.

When asked about measures which may help

reverse the negative trend in life insurance, there is,
it seems, no magic solution. Respondents see benefits Just under 20% believe that the sector needs to rely
from increasing tax incentives, including for risk cover, principally on improving macroeconomic conditions, linked
increasing awareness of the benefits of such products, to increasing disposable income to drive future growth.
and by improving the ethical behaviour of intermediaries
by, for example, eliminating ‘churning’ of policies. “A move away from the sale of savings products
towards sales of only risk products, similar to non-life.”
The medium-term prospects for the life market seem – Chief Insurance Officer, composite insurance company
bleak. Risk products are increasingly seen as the sector’s
potential saviour. Realising this potential will require insurers
to re-focus their relationships with their intermediaries.

16 willistowerswatson.com
Regulation Figure 15. What has been the single most significant impact
of Solvency II on your company? (in percentages)
Is there no good news?
To paraphrase Benjamin Franklin, “In this world nothing Additional reporting
can be said to be certain, except death and regulation”. requirements
Respondents are critical of measures recently adopted, Additional costs
such as Solvency II, and fearful of the imposition of further incurred
national and international regulation, as well as stricter 2 Diverting focus
application of existing rules. from business to
28 administration
30 Conversion from
Regulation, of course, comes in many forms: prudential
joint-stock company
(Solvency II), conduct, competition and financial reporting. to branch
It seems that the emphasis is moving away from the Decreased capital
prudential, which, despite the delays in the Czech needs
legislative process, should by now be fully implemented Embedding of risk
9 19
in insurers’ operations, towards the conduct of business. awareness and risk
6 4 2 culture
Over 40% of respondents consider the risk of dealing with
consumer protection or conduct of business regulation Internal organisational
changes
to be high.
Solvency II has not
had any impact on us
“We can expect further regulatory intervention into the
transparency of products.”

– Chief Insurance Officer, composite insurance company

It is perhaps rather ironic that, despite concerns over the
increasing regulatory burden, 47% would agree with the
imposition of a statutory cap on commission levels.
How has Solvency II impacted the Czech
insurance sector?
Only 14% of respondents agreed that: ‘The introduction of
Solvency II will make the Czech insurance market stronger
by increasing capital buffers and regulatory oversight’.
This scepticism is reflected in how they assess the single
most significant effect of Solvency II.
We might consider it a positive step that, by implementing
Solvency II, companies have been forced to embed
risk awareness and a risk culture into their business
models (although many may disagree). Similarly, the
internal organisational changes, including defined
board responsibilities, governance requirements and
implementation of three-lines-of-defence mechanisms
as being a positive move. Interestingly, representatives
of the supervisory authority highlighted the latter point
as being the most significant impact on the market from
their perspective.

Almost half see the impact in negative terms – additional

administrative, reporting and financial burdens. Largely
reflecting the strong capital position of the Czech Both regulators and insurers need to
insurance market under Solvency I, the impact on capital work together to make sure that
requirements has been minimal, with no respondent
referring to the need to increase capital, and 6% having
increased transparency for policyholders
been able to reduce capital. does not result in customers being
overwhelmed by huge amounts of
largely unread paperwork.

17 Czech insurance market in 2020 – are you ready for the digital revolution?
The future of reporting
Figure 16. On what basis do you think your organisation
The additional costs and reporting associated with
will report financial figures in 2020? (in percentages)
Solvency II would be probably justifiable, if the Solvency II
results were likely to form the basis of financial reporting. Czech accounting
However, the majority expect International Financial standards, mainly
Reporting Standards (IFRS) to prevail as their main 13 because of tax
reporting standard by 2020, mandatorily or voluntarily. 26 Mandatory IFRS, but tax
None of those questioned saw embedded value as playing returns still based on
Czech accounting
a key role going forward. standards
28
Opt-in for IFRS as it is a
Are companies ready for the major change that IFRS 17 will group standard
bring? With a proposed first-time application in 2021, the Solvency II figures and
standard is technically beyond the time frame of our survey, derived KPIs
although preparations will need to begin immediately in 33
MCEV as it is a group
order to meet the deadline. standard, but we see its
role diminishing
Of those for whom IFRS is a relevant issue, the level of
preparation is extremely low, with a third having not even
studied the materials already issued by the International Figure 17. How ready are you for IFRS 17 (of those
Accounting Standards Board. Together with the limited respondents for whom relevant)? (in percentages)
perceived impact on results or products, this does appear
to indicate a lack of awareness or possibly complacency.
12
Given the repeated delays, it may just reflect a cautious 25 Have performed
view of the probability of the standard ever coming high-level impact
into force. assessment
Studying materials
29 and waiting for
By comparison, the participants are more advanced in
final version
preparation for the new regulation on Packaged Retail
and Insurance-based Investment Products (PRIIPs), as the No actions taken

implementation deadline is much closer. However, readiness Not relevant

37
for the Insurance Distribution Directive (IDD) appears to be
behind even IFRS.

“…and IFRS….If it happens.”

– CFO, composite insurance company

18 willistowerswatson.com
Conclusion

Measured by written premiums the Czech insurance

market has endured a sustained period of decline For more information
followed by stagnation since the years of rapid growth Please contact your Willis Towers Watson consultant or:
came to an end in 2009. Judging by the responses to our
survey, insurers remain unconvinced that this trend will Roger Gascoigne
change significantly for the better in the period to 2020, roger.gascoigne@willistowerswatson.com
particularly in the area of life insurance.
Miroslav Šimurda
There are many grounds for optimism: Czech insurance miroslav.simurda@willistowerswatson.com
companies remain well-capitalised, profitable and capably
managed. The market has undergone a major regulatory Miroslav Kotaška
change in Solvency II without negative impacts although miroslav.kotaska@willistowerswatson.com
perhaps at the cost of additional administrative and
reporting requirements.

The comments received in answer to our survey questions

indicate a tendency to see the future in terms of the
present. Recent market discussions about commission
levels clearly still influence views on distribution models.

Insurance will not be immune from trends affecting

all business sectors and, consequently, can expect a
period of upheaval, driven by digitalisation, increasingly
demanding customers, demographic changes and external
regulatory pressures. Looking at the results of this survey
it is hard to avoid the conclusion that insurers in the Czech
Republic can do more to embrace these changes, rather
observing them with resignation or even trepidation.

Insurers may be right to be sceptical about the increasing

use of technology such as telematics and health monitors
(and it is true that this scepticism is often shared by
customers) but the use of data to drive underwriting
and pricing, as well as to communicate more quickly and
personally with customers is inevitable. These changes
may not fundamentally change the Czech insurance
environment by 2020; but the steps required to prepare
for them certainly will.

19 Czech insurance market in 2020 – are you ready for the digital revolution?
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