Industry Attractiveness
The industry’s written premium increased from EUR2.0 billion (US$3.0 billion) in 2008 to EUR2.1 billion (US$2.6 billion) in 2012, at a CAGR of 0.4%, and it accounted for 6.2% of the country’s GDP in 2012.
The Slovenian insurance industry is regulated by the Insurance Supervision Agency, and having motor vehicle liability, health, pension and disability insurance is compulsory.
The non-life segment was the largest in terms of written premium in 2012, contributing 42.3%, while the life and personal accident and health segments contributed 29.1% and 28.6% respectively. However, personal accident and health was the fastest-growing segment, recording a CAGR of 3.7%. Life insurance was the only segment to record a decline, at a CAGR of 1.8%.
The decline in the life segment was primarily due to reduced demand for unit-linked products. The Slovenian stock markets declined in the period as a consequence of the eurozone crisis and the Slovenian banking crisis. The Ljubljana Stock Market’s capitalization decreased from EUR8.1 billion (US$11.8 billion) in 2008 to EUR5.1 billion (US$6.5 billion) in 2012, at a CAGR of -13.9%.
Growth in traditional products such as term life and general annuity insurance helped the life segment to offset the decline in unit-linked products. As companies change their product portfolios and move towards traditional products, the segment is projected to recover at a CAGR of 4.2%, increasing from EUR597.1 million (US$767.7 million) in 2012 to EUR733.9 million (US$1.0 billion) by 2017.
Non-life insurance recorded a marginal CAGR of 0.1% between 2008 and 2012. This was due to a decline in motor insurance, the non-life segment’s largest category in terms of written premium, due to low demand for automobiles. However, high awareness of property insurance, and a large number of compulsory insurance classes supported the segment. The non-life segment is projected to post a healthy CAGR of 3.8% up to 2017, thanks to growth in the automobile and property sectors,
Personal accident and health insurance in Slovenia was the fastest-growing segment between 2008 and 2012. The health insurance category is well distributed among compulsory and voluntary insurance classes. Compulsory insurance is supported by the public Health Insurance Institution system, while voluntary insurance classes are supported by authorized private insurers. Travel insurance also supported growth in the segment, a trend which is expected to continue over the coming years.
Government efforts to increase privatization are expected to increase employment and business opportunities in Slovenia. This is expected to attract foreign insurers, intensifying competition in the industry. Recovery in other European economies is also expected to support business activity in the country.
Solvency II, which is expected to be implemented in the European Union (EU) in 2016, is expected to increase the capital requirements for insurers and will increase entry barriers for new entrants. The Slovenian insurance industry is expected to grow at a CAGR of 4.1% to value EUR2.5 billion (US$3.5 billion) by 2017, as the country attempts to resolve its underlying banking crisis.
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Industry Size
The written premium of the Slovenian insurance industry increased from EUR2.0 billion (US$3.0 billion) in 2008 to EUR2.1 billion (US$2.6 billion) in 2012, at a CAGR of 0.4%.
The life segment accounted for 29.1% of the written premium of the overall Slovenian insurance industry in 2012. The written premium of the segment valued EUR597.1 million (US$767.7 million) in 2012, after recording a CAGR of -1.8%.
The non-life segment accounted for 42.3% of the overall insurance industry’s written premium in 2012. The written premium of the segment increased from EUR867.9 million (US$1,271.3 million) in 2008 to EUR870.2 million (US$1,118.8 million) in 2012, at a CAGR of 0.1%.
The personal accident and health segment accounted for 28.6% of the overall insurance industry’s written premium in 2012, with a value of EUR587.7 million (US$755.6 million), a CAGR of 3.7%.
Segment Outlook
The life segment was the only segment in the Slovenian insurance industry to record a decline in its written premium, from EUR642.6 million (US$941.4 million) in 2008 to EUR597.1 million (US$767.7 million) in 2012, at a CAGR of -1.8%. The segment comprised 29.1% of the industry’s written premium in 2012. The fall was primarily due to the banking crisis, which, by the end of 2012, had developed into economic recession. However, increased investment in fixed capital creation and the recovery of private consumption brought the country out of recession by the end of 2013.
Compared to its peer EU nations, the Netherlands, France and Switzerland, the Slovenian life insurance segment has a lower penetration. In 2012, life insurance penetration in the Netherlands, France and Switzerland stood at 3.17%, 6.3% and 5.25% respectively, compared to 1.68% in Slovenia.
The segment was dominated by individual life and endowment products, which declined at respective CAGRs of -3.6% and -3.5%. These categories collectively accounted for 78.2% of the segment’s written premiums in 2012. Pension products were also adversely affected due to an increase in unemployment; premiums posted a CAGR of -14.9%. However, the robust growth of traditional products such as general annuity and term life supported the segment from registering a major decline.
An increase in national debt led to a reduction in disposable income levels, and rising unemployment led to a further reduction in savings. Unit-linked products were key contributors towards the segment’s decline. Slovenian stock markets fell and the market capitalization of the Ljubljana Stock Exchange recorded a CAGR of -13.9%, to value EUR5.1 billion (US$6.5 billion) in 2012.
Pension premium contribution also fell significantly during this period, which was largely caused by an increase in the volume of policy surrenders and the withdrawal of pension policies, as pension companies completed 10 years of contracts in 2011. The high payout for companies ushered in a fear that they may need to be bailed out, but successful risk-management techniques and healthy returns from pension company investment portfolios helped insurance companies to sustain their businesses even after heavy pay outs.
However, in order to reduce the effects of the economic crisis and reduce the losses of pension companies, the government, under the supervision of the Slovenian Insurance Supervision Agency (AZN), implemented a new law on pension and disability insurance in January 2013. The law was immediately accepted in the Slovenian Parliament as labor reforms have been long-awaited. It included provisions such as an increase in the pensionable age of both men and women, and incentives for people who wish to work after the prescribed retirement age. These provisions are expected to increase the demand for retirement, annuity and pension products as they will lead to higher levels of disposable income.
The life insurance segment is projected to record a CAGR of 4.2%, as the demand for traditional life insurance products, such as term life and annuities, increases. New pension laws and amendments made in 2013 are further expected to support the segment’s growth, and the implementation of Solvency II directives is expected to increase the efficiency of insurers.
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By GlobalDataDistribution Channels
Slovenian life insurance policies are primarily dominated by agencies, which accounted for a 58.2% share of the life segment’s new written premium business generated in 2012. The new written premium business generated by the channel increased from EUR113.3 million (US$166.0 million) in 2008 to EUR156.6 million (US$201.3 million) in 2012, representative of a CAGR of 8.4%.
Brokers were the second-largest distribution channel in the segment, however, the channel’s share in terms of new written premium business fell from 17.6% in 2008 to 8.8% in 2012, due to a general slowdown in life insurance business and high insurance premium taxes applicable on insurance products. The government also introduced a 6.5% financial service tax on agencies and brokers in December 2012. The high tax rate on premiums and service providers is further expected to reduce brokers’ share to 5.1% in 2017, reducing the new written premium business generated through the channel from EUR23.7 million (US$30.5 million) in 2012 to EUR18.6 million (US$26.0 million) in 2017.
E-commerce was the fastest-growing distribution channel during this period. The number of new policies sold through the channel increased from 4,208 in 2008 to 7,024 in 2012, at a CAGR of 13.7%, supported by the increased penetration of the internet and mobile handsets in the country. Smartphone penetration in Slovenia stood at 27.6% in 2011 – the Central and Eastern European average was 14.2%. This motivated insurers to target consumers through apps. Triglav and Maribor launched mobile applications for Android and iPhone mobile users in 2012, allowing consumers to purchase policies, report claims, and enquire about agents and brokers.
Bancassurance was the second-fastest growing distribution channel in the segment between 2008 and 2012. The channel’s popularity grew when NLB Vita, a life insurer, sold its policies through its parent company, NLB Bank. The company developed products that were tailored to specific client needs and made them available in NLB Bank branches. The new written premium business generated through the channel increased from EUR13.7 million (US$20.1 million) in 2008 to EUR19.1 million (US$24.6 million) in 2012, at a CAGR of 8.7%.
Agencies are expected to continue their domination in the life segment. Cost-effective channels, such as bancassurance and e-commerce, are also expected to continue to increase their respective shares.
Porter’s Five Forces Analysis
Bargaining Power of Supplier: Medium
The bargaining power of suppliers in the life segment is assessed as low to medium. The main suppliers to the life segment comprise domestic banks, reinsurers, and private equity and venture capital firms. However, a number of multinationals and overseas companies also operate as life insurers. In such cases, the suppliers to the insurers are their parent companies. Consequently, the supplier negotiating power remains low. However, the minimum capital requirement for Slovenian insurers is expected to increase following the implementation of Solvency II norms. This increases the bargaining power of capital suppliers, as insurance companies will seek funds from them to meet the rising capital requirements. Furthermore, in order to reduce their exposure to insured risks, Slovenian life insurers are also dependent on reinsurance companies with high negotiating power.
Bargaining Power of Buyer: Low to Medium
The Slovenian life segment comprises individual and corporate buyers. Large corporate buyers have a comparatively higher bargaining power than individuals as they make bulk purchases. In order to minimize the impact of the ongoing financial crisis in the country and generate profits, life insurers are expected to provide discounts and offers.
Barriers to Entry: Medium to High
The barriers to entry in the Slovenian life insurance segment are assessed as medium to high. The segment is primarily dominated by domestic companies and is highly consolidated with the five leading insurers holding 77.3% of the segment’s written premium value in 2012. The segment is open to foreign insurers, particularly companies operating in Europe, due to Slovenia’s EU membership. Solvency II Directives, which are expected to be implemented in 2016, will increase the capital and solvency requirements of insurers, thereby increasing the entry barriers for new entrants further.
Intensity of Rivalry
The intensity of rivalry among Slovenian life insurers is assessed as high; the five leading insurers accounted for 77.3% of the segment’s written premium in 2012. The government’s agenda of privatization during Budget 2014 is expected to encourage the participation of foreign companies, leading to further competition among insurers already operating in the country.
Threat of Substitution: Low to Medium
The threat of substitutes in the Slovenian life insurance segment is assessed as low to medium. Life insurers offer a range of products to meet diverse customer requirements. However, products in high demand, such as term life and unit-linked, are at risk of being replaced by bank savings and deposits, mutual funds, and equity investments due to their easy availability in the financial market.
