“Aviva came to Poland quite early after the fall of communism. This gave us first-mover advantage – we opened our offices in 1992 as one of first insurers coming from abroad to get a Polish insurance licence. We quickly gained scale, starting with life insurance. By the end of the 1990s, we started to add on other businesses like general insurance – motor, home, travel and commercial-lines business. We added a pension company in 1999 at the time Poland undertook pension reform; again, we had first-mover advantage, quickly becoming number one in that space. At the turn of century, we set up a Lithuanian subsidiary of Aviva Poland. Ten years ago, we created what is now Santander-Aviva bancassurance joint venture tailored for customers of Santander bank. And finally, three years ago, Aviva acquired Expander, a network of financial advisers, that advise customers on the best solutions for them in terms of loans, investments and other financial instruments. Expander collaborates with 20 different banks.
“Today Aviva has seven licenced entities in Poland and Lithuania, employs 1,600 people directly and a further 4,000 indirectly as insurance agents and Expander advisers. Last year, Aviva made 950m złotys operating profit across all our businesses in Poland – that’s over £200m. We are the largest financial institution in Poland with British roots. Across the Aviva group, only the UK, Canada and France are bigger businesses, Poland is a strong number four. Each year somewhere between 7% and 10% of Aviva’s global results in terms of profits or cash contributions comes from Poland. We are a significant player in the Aviva family. We are seen as a big economy with good prospects.
Plans for the future?
“Our plans are to grow our existing businesses organically and to grow through acquisition. Employees’ capital plans (PPK or pracownicze plany kapitałowe) are important and a very interesting opportunity for us. From next year, all seven million eligible employees across Poland will be able to take part in PPKs. A significant part of this market involves our group life business which sells life insurance products to employers; we have our own sales network, we visit and educate companies about what those pension plans are, and once the programme starts, we should be selected as a PPK provider by a good portion of Polish employers.
Then there is digitisation. This goes across all of our businesses. In general, Polish insurers are significantly behind Polish banks when it comes to digital offering. Only 5% of general insurance and 1% of life insurance business is done online as end-to-end digital sales. This will change as a young generation comes onto the market, who are used to dealing with everything via their laptops or smartphones. Aviva aims to be the digital leader, with all of its products available online. Set up in April 2017, MyAviva is a digital platform where our consumers can manage all their products – life and general insurance policies, pensions and asset management. Through MyAviva, customers can buy and renew their policies, make claims, request pay-outs, check the value of their investments. We have been investing in this platform for the past two years. If we look at non organic growth – the Polish insurance market is made up of around 70 companies; it is a crowded market, too big for the size of the population. A number of companies will be exiting the market and we consider ourselves to be a consolidator. We want to acquire competitors in the general insurance area, as we’d like to balance our portfolio where at present we have more life insurance than general.
In terms of how the Polish economy is growing, where are the challenges and where are the opportunities?
“The Polish economy has been developing very strongly since 1990, in particular after Poland joined EU. This growth has completely changed how Poland looks today. In the early 1990s, very few could afford our products, now the financial barrier is less of a problem. Rather, it is the relatively low levels of financial education if we compare Poland to the UK. The Polish economy is quite robust – it is based on large numbers of privately owned small- and medium-sized businesses. There are not too many national champions around – and most of these are controlled by state. The fact that Poland did not experience recession due to the global financial crisis in 2009, is down to a large part to those Polish SMEs; they are very flexible in allocating resources and investment, they can quickly adapt to the changing tastes of consumers, they are very agile and they make the Polish economy so resilient. As Poland grows its foreign trade, the Polish economy becomes more and more dependent on what goes around us. We are unduly dependent on the German economy; many of the small Polish family businesses manufacture parts for cars, furniture, electronics, household appliances that are assembled in Germany, so our dependence on the world around us is growing as the Polish economy becomes increasingly integrated into global supply chains. Yet I believe that the strength of those SMEs will withstand any shocks. I see Poland’s economy growing this year at between 3.5% and 4.0%.
“The biggest threat to Polish economy may emerge from the fiscal policy, in particular from funding of planned social programmes. Yes, the grey sector is shrinking, due in part to the introduction of the single audit file – tax (JPK), but there is an increasing fiscal pressure; the taxable rate, inter-company transfers, more restrictions on what can be classed as business expense to be offset against corporation tax. The asset levy on banks and insurance companies has doubled our tax bill since 2015. These measures are not helping the economy to grow. So far, we have managed to maintain healthy financial position, but there are some warning signs that this fiscal pressure might hurt – and customers will pay for that. We’re trying to avoid price increases on our insurance products, but it is a competitive market. Of course, if everyone is suffering from the same fiscal burden, they will end up passing on to the customer in time.
“Looking at Brexit, Aviva in Poland will not be directly affected, as the Polish business is regulated by the Polish financial watchdog, the KNF. However, with the UK out of the EU, we will need a second EU regulator; it is likely that France will become the so-called lead regulator for Aviva’s EU companies. Aviva’s business in Ireland will have been more affected by Brexit. In general, the UK will face a long slow decline in its financial services sector after Brexit. It won’t happen overnight as the infrastructure – the laws, the skills, the contacts, the people – that you find in London cannot be replicated instantly. For Dublin, Luxembourg, Paris or Frankfurt to grow to London’s current stature will take time. However, unless the UK finds new sources of business in financial services outside the EU, its balance of trade and current account will suffer greatly. This scenario might not materialise if Brexit turns out to be softer and if part of the agreement is maintaining the UK’s access to the single market in financial services. Today it looks like the UK wants to leave the single market… it’s difficult to forecast in this space.
Looking ahead at future developments in IT, how are they affecting insurance sector?
“In addition to the front-end that interacts digitally with our consumers, there is the back office; there are several areas where change is happening. Big data, for example. We have a whole team of data scientists looking at our own internal data that we generate and also at external data. For example, in the old days, to give a quote for home insurance, we’d ask a lot of questions about the place, address, what kind of roof it has, whether the building is more than 50 years old. At the moment our algorithms just need to know where you live. They can deduce how close you are to fire station, to an industrial facility, to busy roads, rivers – all the factors that are related to damage to a property – and what it would cost to rebuild. The only thing we don’t know is the exact plan of your house; we ask which floor you’re living on and the number of square metres. And we’ll give you price. Everything else is in databases.
“Another example, we’ll be launching soon a new way of quoting motor insurance where you scan the registration document of your car with your phone. All of the data is there, we will automatically contact databases of your claims history and will be able to give a quotation for your car. Complex algorithms will work out your premium precisely. We launched black boxes in cars in UK, but we backed out because we concluded that whether you are an aggressive driver or more subdued driver is not a good indicator of whether you’ll have an accident. Telemetrics is more a marketing tool. So many factors are involved in an accident, other parties’ role is too significant. We do have an app that customers can download – it gives you the ability to rate your driving, how good a driver you are.
Is recruitment and retention an issue for Aviva?
“Just like everyone else, we face the same problem – it is difficult to recruit talented people to our organisation. Tech is difficult, as are actuarial sciences – the two most important areas where gaps exist. We are quite lucky, a few years ago it was difficult to attract such talent to the insurance industry. The changes in the way our organisation is perceived by young people is the result of three-four years of employer branding work. Aviva is the most desirable employer in insurance and in the Top 100 of all employers in Poland. We offer flexible working hours and encourage work from home. We now have an award-winning office, with flexible and friendly open space, with facilities for meetings, relaxing and eating; a 700m2 terrace where people can work, loft space – this doesn’t look like financial services at all! We are investing in image of dynamic innovative company, we offer yoga, sports, external speakers. It’s a space which talented people don’t view as an old boring financial services space, but a living space with extra-curricular activities, training programmes, open days. For example, we organise digital days showcasing what tech can do these days, electric cars, VR, talk to experts in digital development. Those things have paid off, we’re lucky that people consider Aviva one of those names where it’s worth spending part of their careers. This has been a big success story for our HR people.