Life insurance (PZU Życie)

Market situation

Poland’s life insurance market measured by gross written premium was estimated at PLN 15,898 million in the first three quarters of 2019, meaning that over the most recent 5 years it contracted on average by 5.6% per annum. At the same time, gross written premium in Q3 2019 (ytd) was 3.1% lower than in the corresponding period of the previous year. This resulted principally from the evolution in the single premium business in investment products, while the gross written premium in products with a periodic premium increased slightly.

Gross written premium reported by life insurance undertakings in Poland (in PLN million)

Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2019, Rynek ubezpieczeń [Insurance market] 3/2019, Rynek ubezpieczeń 3/2018, Rynek ubezpieczeń 3/2017, Rynek ubezpieczeń 3/2016, Rynek ubezpieczeń 3/2015

The changes in the level and the growth rate of the life insurance market premium in recent years have been stimulated mostly by single premiums in investment products. It is worth noting that the premium contraction for the overall market year on year after the first three quarters of 2019 pertained to single premiums (down PLN 699 million, or 17.0% y/y, compared to a decline of 31.7% y/y recorded in the previous year). The single premium compound average growth rate since 2014 was – 17.4%. The changes in circumstances on the capital market and in the legal environment are considered to be the underlying causes for the gross written premium on single premium business to fall in a trend over several years. Initially, the record low interest rates contributed to the decline in the yields offered by term deposits packaged as insurance products, thereby leading to heightened interest in other investment products. Additionally, a tax was introduced as of 1 January 2015 on short-term endowment insurance offering a fixed rate of return or a return based on indices; this also contributed to reducing client interest in such products and ultimately to their retraction, especially the first ones, from the offer of insurance undertakings. In subsequent years the regulatory authority’s guidelines, including guidelines regarding the level of fees incurred by clients of unit-linked products and EU directives regulating the market for these types of products and their distribution led to insurance undertakings constricting their offering of these types of products, especially in cooperation with banks. The first 3 quarters of 2018 were characterized by a rapid dip in the level of written single premium to the lowest figures in many years, followed by its stabilization at PLN 1.1-1.2 billion in each of the subsequent quarters.

Life insurance market – gross written premium (in PLN m)

The outcome of this market evolution was the expanding significance of periodic premium that constitutes PZU Życie’s competitive edge on the market. In the first three quarters of 2019, periodic premium was 1.5% higher compared to the same period in 2018, with a cumulative average growth rate of 0.3% for the last 5 years. Despite the decline in periodic premium in unit-linked life insurance (by PLN 210 million y/y), the premium from protection products (in classes I and V) continues to trend upward (PLN +395 million y/y), mostly in individual insurance.

At the same time, market concentration measured by the periodic gross written premium remained high. The sequence of the largest market players did not change either, but their combined share, especially of the top four, expanded.

The total technical result generated by the life insurance companies in the first three quarters of 2019 was up PLN 135 million (5.6% y/y) to PLN 2,542 million. An increase of PLN 167 million (34.8%) transpired chiefly in the life insurance group (class I). This was caused by an increase in investment income in the portion allocated to this product group as well as growth in revenues, which more than offset the claims inflation and increase of costs associated with insurance activity.

Life insurance market – gross written premium vs. technical result (in PLN m)

In this same period, life insurance companies generated a net result of PLN 2,061 million, representing a PLN 97 million (4.9%) increase y/y. This improved result was the effect of the technical result described above partly offset by a worse performance recorded on insurers’ free funds.

The total value of the investments made by life insurance undertakings at the end of Q3 2019 was PLN 39,918 million, signifying 0.7% growth compared to the end of 2018. In turn, the high level of funds redeemed accompanied by the decline in the level of client contributions to funds led to a lower net asset value of life insurance in which the policyholder bears the investment risk (down 3.3% to PLN 49,231 million).

PZU Życie’s activity

Within the PZU Group, PZU Życie operates on the Polish life insurance market. PZU Życie offers an extensive range of life insurance products, which for management purposes are reported and analyzed broken down into the following three segments: group and individually continued insurance, individual insurance and investment contracts.

During the first 3 quarters of 2019, PZU Życie wrote 39.9% of the gross written premium of all life insurance companies, signifying further growth on top of last year’s market share (+2.2 p.p.). The reason for the increase in PZU Życie’s share is the higher level of written single premium than a year earlier (both from protection insurance products and investment insurance products) with a decrease in the share of other market participants (in the unit-linked life insurance group).

At the same time, PZU Życie continued to be the clear leader in the periodic premium segment. In Q1-Q3 2019, it generated 45.9% of periodic premiums written by insurance companies, signifying a small decrease (by 0.1 p.p.) in the market share in this segment. The y/y increase in gross written premium at PZU Życie in this segment was 1.3%, while the other market players taken together posted a 1.7% growth rate (with a particularly high rate of growth recorded by TUnŻ WARTA SA). One of the major factors was the rapid growth in the health and individual protection insurance portfolio. PZU Życie now has more than 2.1 million this type of policies in its portfolio. PZU’s share in just the life insurance segment (class I) for periodic premiums at the end of Q3 2019 was 62.4% when measured by value (gross written premium) and 67.3% when measured by volume (the number of agreements in force). In turn, PZU Życie’s market share in terms of the method of entering into an agreement just in the life insurance segment (class I) was 66.5% for agreements executed in group form and 39.6% for individual agreements (measured by gross written premium).

Life insurance undertakings - percentage of periodic gross written premium in the first three quarters of 2019 (in %)

Groups: Talanx - Warta, Europa, Open Life; VIG - Compensa, Vienna Life; Aviva - Aviva, Santander-Aviva

Source: KNF’s Quarterly Bulletin. Rynek ubezpieczeń [Insurance Market] 3/2019

PZU Życie’s technical result represented more than half the result earned by all life insurance companies. This evidences the high profitability these products enjoy. PZU Życie’s technical result margin on gross written premium was 1.6 times higher than the overall margin generated by other companies offering life insurance (21.0% versus 13.0%).

Product offer

PZU Życie, as a popular and the largest insurer on the Polish market, continuously expands its product offering by adding new products or modifying existing ones to protect its clients at each stage of their lives. Changes in the product offering are intended to attract new clients and expand the insurance cover for those already in the portfolio, along with strengthening their loyalty and increasing their satisfaction level. Taking advantage of the unique synergy of competences within the PZU Group (insurer, medical operator, investment manager), the company is able to comprehensively take care of life, health and savings of its clients, providing them with the broadest possible support.

Concurrently, the changes in the offering take into account the changing requirements of the regulatory authority and the growing extent of statutory consumer protection. PZU Życie takes a customer-oriented approach by designing its offer and client service process so that the client feels fully cared for and satisfied. It should also be emphasized that the changes are made not only to the product itself but also entail the modernization and simplification of the way in which insurance is offered and sold and enable the client to take advantage of various contact channels to reach the insurance undertaking (e.g. in a branch, by phone, e-mail, client account, person providing technical insurance services in the workplace or through an insurance intermediary, whether tied or external). 

Most significant product changes in 2019

Under group and health insurance, PZU Życie made the following major changes in 2019:

• implementation of functionalities supporting automatic process of signing an insurance agreement in PZU Protection and Health, which is a protection and health insurance product (March 2019). Thanks to the implementation, a seller may prepare an offer for the client, prepare the proposal and collect data of the insureds (enrollment declarations). The vast majority of the process is already carried out electronically and is not limited by the working time of the support teams. Thanks to the implementation, the seller can complete the whole process in a single meeting with the client and can provide administration electronically, printing only the final versions of the documents;
• pilot sales of the PZU Z Myślą o Życiu i Zdrowiu (PZU Thinking about Life and Health product (since May 2019 with the launch of sales throughout Poland scheduled for March 2020) targeted at companies employing up to 4 people. This is the innovation that agents and clients have been waiting for – each employee may select a different insurance option and the insurance agreement is concluded remotely. PZU Życie can insure even a single employee – also when an employer itself does not take out a cover. The product is very flexible. It supports enrollment for people from 18 to 65 years of age. A client may select up to 6 insurance options with different covers and benefit amounts. Additionally, each option may be extended to include private medical care and the cover may be extended to include underage children. The insurance ranges have been prepared to address different needs, depending on the client’s stage in life. As a result, for example a client who does not plan to establish a family, will not pay for risk such as childbirth or spouse’s illness. The insured is not obligated to fill out a medical questionnaire and the premium begins from just PLN 45 per month. The product can be offered using two paths: standard (using paper forms) and remote (using the #moje.pzu portal). Thanks to #moje.pzu, the seller may sign a remote agreement without the need to hold a meeting with the client. This is not only very convenient for the client, but also saves time for the seller – the client receives an offer and a set of documents by e-mail and is guided by the system step-by-step to enter into the policy himself/herself. The client may also pay the insurance premium directly in #moje.pzu;
• commencement of pilot sales of two new ranges of the Opieka Medyczna S (Health Care S) for corporate clients (June 2019) – the first range is profiled to enable a detailed checkup of the health condition of the thyroid gland, liver, heart, arteries and kidneys. The second range enables tests profiled for malignant neoplasms occurring most frequently in women and men. During the development of the new ranges, particular emphasis was put on:
• analyzing results of marketing surveys: to support prevention of the illnesses that clients fear the most,
• expanding the range of benefits with those that are most frequently included in non-standard proposals,
• increasing market advantage by adding new medical services,
• keeping prices at attractive levels;
• as part of the PZU Ochrona i Zdrowie (PZU Cover and Health) product, since July 2019 the option has been implemented of selling products consisting of only the protection part (PZU Życie under Cover) or only the health part (PZU Zdrowie under Cover). This insurance is intended for small and medium enterprises employing at least 3 staff. Spouses, life partners or adult children of the primary insured (employee/company owner) may also
• benefit from this proposal.PZU Życie pod Ochroną (PZU Life Coverage) provides support for the insured’s family in the event of the insured’s death as well as a cash benefit and medical services, including in the event of an accident or a critical illness. Each employee may also individually extend the cover to include financial support in the event of a child’s health problems, co-funding of prescription drugs and additional financial support in the event of an accident in everyday life. PZU Zdrowie pod Ochroną (PZU Health Coverage) offers, among other benefits, access to doctors and tests in over 570 cities and towns across Poland. Each employee may also individually extend the cover to include co-funding of prescription drugs and medical care for family members.The introduction of the option to sell only protection or only health products permits the agent to better tailor the offering to the needs of the policyholder;
• in January 2020, pilot sales of the PZU Ochrona dla Rolników (PZU Cover for Farmers) product began, targeted at individuals who own or co-own a farm. Insurance cover may also include their spouses or life partners and adult children. The product was created on the basis of P Plus group insurance agreements. The advantages of this offering include high benefits under accident riders and a new benefit addressed only to this group of clients: death of the insured as a result of an accident at agricultural work. This is a new solution on the market, developed to meet the expectations of clients from this market segment. Each client may choose a proposal from the four available options;
• in January 2020, new riders were added to the P Plus group insurance offer. The following three new riders were designed to provide insurance cover for children:
• accidental dismemberment of a child,
• hospitalization of a child caused by an accident or illness,
• occurrence of a critical illness of a child (26 different diseases);

each of these types of insurance may be extended to cover medical services that include consultations with specialist physicians and rehabilitation;

• in January 2020, a new rider was added to the PZU Ochrona i Zdrowie (PZU Cover and Health) – PZU Życie pod Ochroną “Ochrona dla Dziecka” (PZU Life Coverage product: “Child Cover”), which consists of the following three additional risks: critical illness of a child, hospitalization of a child and dismemberment of a child. The cover applies to children under the age of 18. The rider has two options that differ in the amount of the sum insured. The amount of the premium depends of the number of the insured’s children.

Under the individually continued insurance, PZU Życie made the following changes:

• launch of sales of the PZU Na Wypadek (PZU Accident Insurance) rider. It is the first rider in this product line that provides both cash benefits and medical services such as outpatient rehabilitation and doctor consultations. The cover includes permanent accidental bodily injuries and accidental bone fractures. This insurance is complementary to the rider providing medical services in the event of accidental orthopedic injury;
• raising the admission age limit in four insurance riders. This change expands the target group for these insurance products to include the oldest clients covered by individually continued insurance. It applies to the following riders:
• accidental death of the insured NW Plus,
• accidental hospitalization of the insured,
• With a Pharmacy Card,
• Assistant During an Illness;
• after the completion of the pilot offering, sales of the target Insurance Program, Kontynuacja dla Ciebie (Continuation for You), began. This offering is targeted at persons leaving type P Plus group insurance, type P employee insurance or type P group life insurance who are eligible to continue the group insurance individually. This proposal may be taken advantage of by individuals under the age of 50 as at the date of signing the declaration of enrollment. Clients may choose the insurance cover that suits them best from the continuation options available for the eligible persons. A total of 6 options with different sums insured, depending on the type of continuation, are available. 

In individual protection insurance products, PZU Życie implemented the following new life insurance products offered in PZU Branches and the Agency Network:

• PZU Wsparcie Najbliższych (Support for Relatives) life insurance. 5 riders were rolled out together with the basic agreement:
• tumors and other critical illnesses rider,
• consequences of critical illnesses rider,
• surgical operations rider,
• accidental dismemberment rider,
• accidental bone fracture rider;

PZU Ochrona Każdego Dnia (PZU Protection Every Day) periodic life insurance; PZU Na Dobry Początek (PZU For a Good Start) endowment insurance. Annuity riders were also rolled out together with the basic agreement.

PZU Życie cooperated actively with 3 banks, including the PZU Group’s member banks, continuing the roll-out of a comprehensive offering using the banks’ distribution networks. The cooperation with Pekao and Alior Bank allows PZU Życie to gradually expand the offering and volume of sales of insurance products linked to bank products. In Q1 2019, life insurance for borrowers of Pekao cash loans was launched.

Within the framework of individual investment insurance, PZU Życie carried out new subscriptions for structured insurance Świat Zysków (World of Profits; 11 subscriptions throughout 2019). Various investment strategies that adapt to volatile market conditions were offered in the individual subscription tranches. The following changes were made by PZU Życie to its product offering in the bancassurance channel:

• launch of sales of the Platinum Investment Plan insurance (a single premium unit-linked product) by Dom Inwestycyjny Xelion sp. z o.o.;
• launch of promotional fees payable by clients in unit-linked products sold by Bank Millennium, Bank Pekao and Alior Bank.

As regards its other initiatives, PZU Życie continuously strives to understand the needs of its clients better and build long-term relations with them. The Company wants to respond swiftly to changes in the environment through a sophisticated offer accompanied by clear and communicative messages by doing the following:

• creating predictive client attrition models and responding swiftly and effectively to symptoms of client dissatisfaction;
• developing a loyalty program;
• using a simple and transparent arrangement and description of its products on its new website www.pzu.pl.

Factors, including threats and risks, that may affect the operations of the life insurance sector in 2020

The following constitute the major risk factors on the life insurance market in 2020:

• the prospect of a higher inflation rate and economic growth driving an increase in sovereign bond yields, which in the long term will be beneficial to the PZU Group, although in the short term may adversely affect investment income;
• softer conditions on the capital markets deteriorating the attractiveness of products, especially unit-linked products;
• demographic changes and the aging society and the ensuing changes in the current mortality, fertility and morbidity levels, especially diseases of civilization, i.e. lifestyle diseases;
• constant price pressure in group insurance and the battle for client ownership (and their data), thereby cutting the insurer’s margins, reducing the quality of the product and fostering entry and exit obstacles for clients to overcome with independent intermediaries;
• changes in trends and client behavior toward customization of proposals and an electronic, swift and paperless method of purchasing and handling insurance, forcing insurance undertakings to adapt to these expectations rapidly;
• availability of medical personnel in public health care;
• the emergence of new competitors and solutions, including the operators of large client bases or insurtech companies;
• continued development of the new pension security system (Employee Capital Schemes) and its impact on the products existing in the 3rd pillar of the pension system;
• possible intervention of the regulatory authority in the unit-linked fund segment.