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October 10, 2012updated 13 Apr 2017 8:42am

In pole position: Ripe market for life insurers in Poland

PolandÂ’s life insurance segment registered an increase in written premiums at a compound annual growth rate (CAGR) of 5.5% during the period 2007 2011, according to a report Life Insurance in Poland, Key Trends and Opportunities to 2016, which is available at the Insurance Intelligence Center (IIC).

By Verdict Staff

Poland’s life insurance segment registered an increase in written premiums at a compound annual growth rate (CAGR) of 5.5% during the period 2007 2011, according to a report Life Insurance in Poland, Key Trends and Opportunities to 2016, which is available at the Insurance Intelligence Center (IIC).

The Polish life insurance segment’s written premium value is expected to achieve a CAGR of 7.1% between2012 and 2016, as economic growth, changing customer behaviours, supportive government regulation and intensive competitive pressure are likely to be key growth drivers.

In terms of GDP, Poland contains the largest economy among the CEE countries, and was the only EU economy to avoid contraction when the rest of the European economies suffered from the global economic crisis in 2009.

Poland’s economy is projected to grow at the fastest rate among EU members, and the European Commission anticipates the country will record an annual economic growth rate of 2.6% for 2012. This growth will be driven by the country’s strong domestic demand and rising export sales for Polish products and services over the forecast period.

Due to the country’s sustainable economic growth, improving labour market conditions and rising government expenditure, the per capita disposable income levels in Poland increased from $11,156 in 2007 to $13,540 in 2011.

This led to a rise in private consumption and more finance that could be spent on life insurance policies.

Furthermore, with the country’s improving employment conditions, which is likely to be supported by the expanding manufacturing sector and increasing government spending, the Polish per capita annual income is expected to continue rising, which is anticipated to lead to more demand for life insurance products over the forecast period.

Changing pension legislation is also likely to spur the Polish life insurance market forward. This is because during the period 2007-2011, the Polish government reformed the country’s pension system by reducing the second-pillar contribution to the public pension scheme from 7.3% of the employee’s monthly salary to 2.3%.

The 5% reduction was diverted to firstpillar accounts managed by Poland’s social insurance institution (ZUS). This is anticipated to encourage more voluntary thirdpillar pension saving activities, under which Polish employers can contribute as much as 7% of their gross earning to a voluntary pension scheme.

The fact that the penetration rate for Polish insurance products was around 2.3% of GDP in 2011, which is relatively low compared to the UK’s insurance penetration of 10.5% of GDP, highlights the opportunity for life insurance providers in Poland.

Other factors that are expected to contribute to rising life insurance penetration in Poland include the population’s improving awareness of the benefits of life insurance, and the increasing number of insurance plans available in the country that cater to different customer requirements.

Poland’s rising life expectancy was another important growth driver for the Polish life insurance segment during 2007- 2011.

According to the OECD estimates, the average life expectancy of the Polish population increased from 74.7 years in 2003 to 75.8 years in 2009.

Life expectancy is used to calculate the premium paid by a policyholder when purchasing a life insurance policy and, as life expectancy increases, the premium charged increases significantly. As a result, the country’s rising life expectancy is likely to contribute towards the growth of life insurance segment.

Another factor that is expected to influence the Polish life insurance segment is the country’s ageing population.

Poland’s demographic dependency ratio, which accounts for the ratio of the population over 65 to the population aged 16-64, will double in the next 25 years from its current level of 30%.

This sharp rise is likely to generate more demand for life and health insurance services in the country over the forecast period.

Polish market breakdownThe Polish life insurance segment accounted for the largest share of 55% of the country’s total insurance written premium value in 2011.

Although the penetration ratio of gross written premium as a percentage of GDP in the country declined slightly between 2008 and 2011, Poland retained the highest life insurance penetration rate of 2.1% of GDP among the Central Eastern European countries in 2011.

Other CEE countries such as the Czech Republic and Hungary have life insurance penetration levels of 1.81% and 1.53% respectively.

Unlike several other CEE countries, the Polish life insurance segment also made underwriting profits as it had a combined ratio of less than 100% in 2011. The segment is expected to continue making underwriting profits over the forecast period.

After registering a slump in 2009, the demand for life insurance products in Poland increased again towards the end of the period 2007-2011.

This was supported by the country’s reviving economic conditions and rising income levels. The life insurance segment’s written premium value increased from PLN25.bn (US$9.bn) in 2007 to PLN31.bn (US$10.bn) in 2011, at a CAGR of 5.5% during 2007-2011.

This was supported by Poland’s rising demand for unit-linked, general annuity and group life insurance products.

Group life insurance products accounted for the largest share of 58.5% of the Polish life insurance written premiums in 2011.

Group life insurance is popular in Poland, and is characterised by a wide range of insurance cover that is suitable for both employers and their employees, as it also provides the ability to protect the insured person and their family members.

In terms of distribution, bancassurance and direct marketing are expected to remain the leading channels for distribution life insurance products in Poland between 2012 and 2016.

The gross written premium generated through bancassurance is expected to increase at a CAGR of 15.1% between 2012 -2016 and its share of total written premiums from all distribution channels is expected to increase to 46% in 2016.

Meanwhile, direct marketing is expected to increase its share to 33% of the total written premiums generated through distribution channels, as the written premium through the channel increases at a CAGR of 14.5% over the forecast period.

Regulatory developmentsThe Polish life insurance segment is regulated by the Polish Financial Supervisory Authority.

The country introduced various reforms and legislation that impacted the life insurance segment during 2007-2011, including pension reforms, increasing the retirement age and proposing the implementation of Solvency II norms.

For example, Polish lawmakers passed a controversial government policy to raise the country’s retirement age from 65 years to 67 years in May 2011.

The motivation for this policy was to cut state debt and maintain economic growth. According to the government, the delayed retirement w ill help the country build up larger pension funds and reduce state spending.

Under the new law, which would especially affect women, a partial retirement will be available to women at the age of 62 and men at the age of 65, provided they have been employed for 35 years and 40 years respectively.

However, this will permanently decrease the benefits they can receive after 67. Increasing the age limit is likely to encourage more Polish people to accept private insurance for long-term pension products.

Similarly, insurance companies are currently expecting to undergo significant changes following the implementation of the new Solvency II regulatory framework over the period 2007-2011.

This framework will introduce higher minimum capital requirements for insurance companies, and insurance companies will also need to introduce several process changes.

The implementation of Solvency I I is likely to encourage further consolidation in the life insurance segment, as smaller insurers are expected to either cease their operations or to merge with larger companies to meet the required capital reserves.

A new pension law was introduced in Poland in May 2011, which reduces the contribution rate from second-pillar individual accounts that are managed by open pension funds (OFEs) from 7.3% of the employee’s monthly salary to 2.3%.

The 5% reduction was diverted to newly created first-pillar accounts managed by Poland’s social insurance institution (ZUS).

The contribution rates to the first-pillar pay-as-you-go program remained the same, with employees contributing 2.46% and employers contributing 9.76% of their monthly salary. Employers do not contribute to the second-pillar.

With the second-pillar contribution rising gradually to 3.5% during 2013-2017, the contribution to the new first-pillar accounts will decrease proportionately. This is expected to generate more demand for private life insurance products.

For more information on Life Insurance in Poland, Key Trends and Opportunities to 2016, contact the Insurance Intelligence Center on +44 (0)20 7406 6596, or email info@insurance-ic.com

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