Greece’s insurance sector recovers with rising health and pension coverage
Mount Pelion, located in the southeastern part of Thessaly, creates a hook-like peninsula between the Pagasetic Gulf and the Aegean Sea, while creating two very different coastlines. Copyright: Giannis Giannelos


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    13.9 bn

    assets under management via institutional investments (Dec. 2018)

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    4.05 bn

    value of yearly insurance premiums (Dec. 2018)

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    contribution to Greek GDP (Dec. 2018)

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    number of direct fulltime jobs created in the sector (Dec. 2018)

Things are looking up for Greece’s private insurance sector. After considerable consolidation during the crisis years, it is now set for strong growth as economic recovery takes hold and more people opt for private health and pension coverage. There’s also potential upside from a relatively untapped property and natural disaster insurance market in Greece, while the sector is expected to benefit from the introduction of new products and increased demand driven by changing demographics and an ageing population. It is also set for a significant long-term boost from a planned push by the new government for a bigger private sector role to help cover the country’s future healthcare and pension needs.
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At a Crossroads

A friendlier political environment, a return of economic growth, and an ageing population can help the Greek private insurance market flourish.

The Greek private insurance market is at a crossroads. The road to the sector’s growth lies ahead, with targets set on converging with European levels of market penetration while leveraging a market that is still widely uninsured. Seizing the right path will be a matter of investments, products, increased personal incomes, and political will.

According to the Hellenic Association of Insurance Companies (HAIC) and the Foundation for Economic & Industrial Research (IOBE), the rate of premiums/gross domestic product (GDP) in Greece stood at 2.2% until 2017-2018. On the flip side, the average rate in Europe during the same period was more than three times higher, reaching 7.5%.

The decade-long crisis that decimated a quarter of Greece’s economic output also took its toll on the Greek insurance market, with the level of premiums declining 23% since 2009, according to HAIC data.

Much like Greece’s banking sector, the private insurance space has undergone a significant amount of consolidation, with 53 companies remaining, down from approximately 100 in 2003. Most of the players that vanished were either too small or simply failed to comply with incoming regulatory requirements.

However, during the economic crunch, insurance companies within the Hellenic market –both local and foreign– not only showed great resilience when compared with other sectors of the economy (such as the banking industry), they successfully faced up to a decline in the incomes of their clients as well as to what was considered, by some, hostile behaviour by the previous Syriza-led government.

“The domestic insurance industry has proven to be one of the most resilient sectors during the economic downturn in terms of profits and economic value generated,” says Nicholas Kakatsis, General Manager and Deputy CEO of European Union Minettas Insurances. He believes there is one key takeaway from the positive performance of the insurance industry: “The inherent flexibility of the business model of insurers that allows them to maintain profitability levels, even under stressed economic conditions, as long as fixed costs are managed successfully.”

Insurance Greece Sector
Copyright: Jirsak / Shutterstock

Today, the insurance space is not only better capitalised than Greek banks, it offers attractive products and is seeing a growing demand for pension, health, and property coverage.

Some argue that Greece’s insurance industry could be the next ‘big thing,’ especially when considering the estimated €9 billion (from a total of €14 billion) that large multinationals have invested in the sector between 2010 and 2018, according to HAIC. Whether or not this is the case, the reality is that shifting industry trends coupled with an improving macroeconomic and political environment are making Greece’s insurance industry a sector to watch.

The structure and evolution of The Insurance Industry

With an estimated €4 billion worth of insurance premiums generated per year and €2.1 billion in claims paid out within the same period, Greece’s insurance industry bears considerable weight on the economy. The sector is broken down into three sub-segments:

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    Insurance companies based in Greece, which currently stand at 53;
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    Insurance service providers – referred to as ‘epi’ in Greek – totalling more than 150 small companies based abroad with local offices in Greece;
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    Distributors, which comprise both agents and brokers, estimated at 18,000.

Since December 2010, all players within the private insurance space fall under the supervision and regulation of the Bank of Greece. Supervisory duties are directly carried out by the Department of Private Insurance Supervision.

Shifting market dynamics prompted the entry of major international players into the Greek market, with a number of deals materialising over the past two decades. The biggest and most notable transaction took place in 2001, with the first purchase by a leading European insurance group, in what resulted in the eventual sale of Greece’s Interamerican to the Dutch Eureko Insurance Group (now Achmea). Subsequent deals saw the entry of France’s AXA and Groupama, as well as Germany’s Allianz and Ergo, among others.

The most recent batch of transactions, however, has come about as a result of winding down by Greece’s systemic banks, through the sale of their insurance subsidiaries. Eurobank set the stage in 2015 with the sale of 80% of Eurolife ERB Insurance Group to Canadian investment firm Fairfax for €316 million. Piraeus Bank followed suit shortly after with the sale of 100% of ATE Insurance in 2016 to Ergo Insurance Group for €90.1million.

And next up is the long-awaited sale of an 80% stake in NBG’s (National Bank of Greece) insurance arm, Ethniki Insurance, which is expected to be completed by April 2020. According to Greek newspaper Kathimerini, NBG values its insurance subsidiary at €750 million.

Shifting Market Dynamics

Looking ahead, the main challenge for insurance companies will be to take advantage of a political environment that is friendlier towards private insurance.

During 2018, the insurance industry jointly generated a net profitability of almost €400 million, an average loss ratio of 85% in general insurances (loss and property), and 95% in life and health insurances. Taking into consideration the low penetration rates of insurance in Greece, if EU convergence targets are reached over the next 10 years, it is estimated by HAIC that the Greek insurance industry could generate anywhere between €1-1.5 billion annually, in terms of net profitability, at an average return on investment (ROI) of 10-15%.

The new Greek government has expressed its support towards the private insurance sector covering areas such as private pensions, auxiliary pension funds, health, and natural disasters. The government has also committed to providing tax incentives for private insurance companies as part of a new, more flexible, public and private pension system.

Alexandros Sarrigeorgiou, Chairman of the Hellenic Association of Insurance Companies (EAEE), sees this new phase as an opportunity to galvanize the role of the Greek private insurance market, on the one hand, and for the industry to catch up with its European peers on the other.

Lighthouse photo by Lemonakis Antonis
Copyright: Lemonakis Antonis / Shutterstock

“We now have the great opportunity and the challenge to grow the Greek insurance market as a mature and well-organised market. The companies in Greece are ready to achieve a successful role as security providers in all aspects. It’s time for the Greek insurance market to reach other developed markets in Europe,” says Sarrigeorgiou, adding that the sector is the biggest institutional investor in the country with €14 billion worth of invested capital.

“[The private insurance sector] is supervised under a particularly strict regulative framework as it is [regulated by] Solvency II,” highlights Sarrigeorgiou, while noting that, in his view – and following the successful example of public-private collaboration of other European countries – the industry can play a significant role in the new pension system, health reform, and natural disaster protection.

Yet the road to success is not without its hurdles, particularly bearing in mind that Greeks are still among the least insured citizens within Europe; for decades, most Greeks failed to believe in the value of private insurance.

European Insurer's Investment Portfolio as a share of GDBP by country Infographic

On the other hand, a drastic reduction in consumers’ disposable income coupled with historically low penetration rates contributed to create a spiral of premium reductions, in what was a fierce bid by issuers to maintain their market shares. The effects of this were particularly felt in the car insurance market, where intense competition in pricing over the past decade has pushed the average premium down by more than 25%, with many companies under-pricing premiums and, as result, obtaining very poor operational profits.

But it seems that this too is now changing.

A reduced state budget means the Greek government can no longer bear the burden of pensions and the cost of healthcare coverage with the same conditions it offered a decade ago. Meanwhile, the Bank of Greece’s supervision of the local insurance industry, along with the legal framework of Solvency II, has contributed to solidify the sector while spurring a surplus of capital. And finally, the reticence towards the private insurance industry that characterised previous generations contrasts considerably with the behaviour of “millennials,” who respond positively to the offers and services of the private sector.

The new pension system: A Changing Paradigm

The new government has proposed the implementation of a three-pillar pension system, which is set to be voted on in parliament in early 2020. The first pillar would be a minimum national and guaranty pension. The second pillar would be an auxiliary pension channelled through pension funds or insurance companies. The third pillar, on the other hand, would comprise private pensions derived from insurance companies by way of bank schemes.

“The new government has announced its intention to proceed with a reform of the framework, which will support further private insurance involvement in the pension system. Such an initiative can help propel not only the business generated for private insurance companies by products adjacent to the secondary and tertiary pillar, but also the prospects of the entire private insurance industry,” says Kakatsis.

Within this scenario, private insurance plans can play a substantial role in the three-pillar system of pensions: as the second pillar of auxiliary pensions or pension fund schemes, and as the third pillar through personal plans. Insurance companies, through both life and pension segments, would be able to capitalise on what is seen as a huge opportunity to multiply their activities, premiums, as well as their earnings.

“In the long run, we expect the value of private pension funds versus GDP in Greece to increase from today’s 0.8% to close to 100%,” says Notis Mitarachi, former Deputy Minister of Labour and Social Affairs.

Initial estimates predict that a large- or medium-sized insurance company with a pension orientation and scope would be able to double or even triple its profitability by the end of 2025 should the new system come into effect in 2021 as planned.

Climate change: mitigating The Risk of natural Disasters

Natural disasters annually cause of an estimated $500 billion worth of damages and losses globally, a significant portion of which is indemnified by insurance and reinsurance companies. In Greece alone, insurance companies recorded a total of 24,106 claims between 1993 and 2018 with a total volume of approximately €359 million paid in indemnities, according to a survey by HAIC. With the effects of climate change being increasingly felt around the world, it is no surprise that the global insurance industry has flagged this as one of the most pressing issues for the sector writ large.

According to Notis Vagiakakos, Legal Representative and Managing Director of German-based HDI Global SE’s Hellas division, “the Greek insurance industry can be a key factor in the provision of financial protection from uncertainty, not only to the business and investor space but also to private individuals and the retail market.” While protecting assets and liabilities from traditional manmade calamities will be important, Vagiakakos highlights that the safeguarding of these assets from the accelerating risks of climate change and other natural disasters prevailing in the area will be key.

The Greek insurance industry is currently engaged in discussions with the Greek state with the aim of striking a public-private partnership. Targets are set on establishing a mechanism through which private homes can be protected from the risk of earthquakes. This would entail the creation and implementation of a national insurance providence scheme that would pre-finance Greece’s seismic risk on a permanent and ongoing basis.

Health insurance:
The biggest increase in average Premiums during the Crisis

The healthcare insurance segment is seen as a fundamental growth driver looking ahead. Budget cuts along with inefficiencies in Greece’s public healthcare sector during the crisis years are deemed the main reason behind the massive shift by many Greeks to private healthcare coverage.

From 2010 to 2019, average premiums showed a 20% year-on-year growth. This trend saw healthcare insurance companies better capitalised and with good cash flow during the crisis, especially in the 2015-2016 period.

In fact, demographic changes within the market are poised to propel the performance of the healthcare insurance segment even further.

According to Byron Kotzamanis, Directorof the Laboratory of Demographic and Social Analyses at the University of Thessaly, Greece is an ageing country: 22% of the country’s inhabitants are over 65 years of age, while the 85+ group makes up almost 3.5% of the population, compared to 0.04% in 1951.

For the first time in Greek demographic history since 1990, the 0 to 14 age range is less populous than 65 and above.

Copyright: Craig Whitehead/ Unsplash

It is, therefore, logical that we see a shift in the curve of longevity and an increase in medical and healthcare expenses over the years. Private insurance providers also have close ties with the major private clinics in Greece, which tend to have experienced staff and good infrastructure.

In healthcare insurance, the market leaders are both Greek and multinational companies, with Ethniki Asfalistiki, Interamerican, Eurolife, NN, Metlife, Generali, AXA, Allianz, Europaiki Pisti and Atlantiki Enosi holding 90% of all premiums.

Yiannis Kantoros, CEO of Interamerican (an Ahmea Subsidiary), says “Greece is facing new challenges concerning the ageing of its citizens. The private insurance system offers new opportunities within first degree (diagnostics) and second degree (health care), while the private insurance system can contribute to the public system by offering solutions through insurance products and better infrastructure.”

Vagiakakos is optimistic about the market potential, noting that the increasing use of new technologies and digitalisation – which are driving a profound change in business models –coupled with the already proven credibility of the insurance market are creating new, exciting opportunities, and challenges for all.

Speaking at an insurance conference in November 2019, Greece’s Minister of Economic Development and Investment, Adonis Georgiadis, said “the role of the state is to create a good environment for the growth of the Greek insurance market because this growth will offer multiple benefits for Greek society and the economy.” The political will to enable the growth of the sector is in place, and Greece’s economy is finally on the up despite the many challenges that remain. If private insurance companies are able to play their part, the sector could be a source of surprises in the years to come.

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