The “first floor”: continuous efficiency and profitability improvements in the core business
Five strategic initiatives in our core underwriting business build on the foundation of our strong capital base. These form the first floor of our House.
We have developed a programme aimed at safeguarding and/or increasing sustainable operating profitability in each of our three business lines of property and casualty insurance, health insurance and life insurance and have implemented these programmes under the responsibility of the competent expert Board Member. Two additional strategic initiatives with a Group-wide effect on the core business have been launched alongside this.
1. Property and casualty insurance: Further increases in earnings power
A significant increase in earnings power was one clear objective in the property and casualty insurance business segment, which is the segment from which UNIQA expects the largest amount of premium growth, especially in CEE. The combined ratio, i.e. the ratio of claims expenses and benefits to premiums written, is the index used to measure this. Using investment in operational excellence as a basis, we initiated a number of projects here aimed at reducing the combined ratio to below 95 per cent on a sustainable basis by 2020. Among other things, these projects focused on optimising premium calculation, portfolio management and claims management as well as on enhancing the efforts to fight fraud. Thanks to the measures implemented, we have indeed managed to significantly improve our technical profitability in property and casualty insurance, specifically in CEE.
Property and casualty insurance
We made further progress in 2019 on improving our combined ratio in property and casualty insurance: at 96.4 per cent, we are within touching distance of our medium-term target – a reduction to under 95 per cent – for the first time. The main drivers of this trend have been the optimisation initiatives that we have been implementing rigorously and that are now unleashing their full impact with increasing clarity. This is reflected primarily in a marked fall in so-called basic losses, i.e. the insurance benefits paid out to our customers excluding specific large-scale one-off effects. This even allowed us to offset the major snow pressure damage caused by the unusually heavy snowfall in January and February 2019.
Growth above the market average in our core segments, particularly in household and homeowner insurance and in the commercial segment, has been another pleasing trend. In addition to our strong presence on the market and good support from our own sales channel, new initiatives such as streamlining the product range online and at our partner banks have also been contributing factors. However, the trend has also been underpinned by efforts to fine-tune the sales process, such as allowing customers to sign electronically from the comfort of their own homes.
Across the board, we continued to focus strongly on improving the customer experience in 2019, and the significant increase in customer satisfaction with claims processing, amongst other things, is testimony to our success. Our pilot project – introducing the fully digital processing of property insurance products in CEE, from sales to claims processing – has also got off to a successful start. The project’s rapid development is a sign that we are meeting the expectations of our digital-savvy customers, a segment seeing strong growth.
2. Health insurance: Confirmation of our leading position
UNIQA is the clear market leader in Austrian health insurance. This business segment contributes 21 per cent of our premiums – 5 per cent more than when UNIQA 2.0 started – making it a key income stream for our company. This is why defending our leadership position in this profitable business segment has always been one of our most important objectives.
Further expansion in services to customers remains a key priority here. To this end, we are focusing on selective investments throughout the value chain in the areas of health advice and provision, health services and digital health solutions, so that we remain an expert partner for our customers in the future too. At the same time, we need to keep an eye on the persistently low interest rates in view of the very long terms that our contracts have, including in health insurance.
We rolled out our Akut-Versorgt (acute care) product, which offers our customers swift access to medical care on weekends or at night, to the Graz, Klagenfurt and Lustenau urban areas in 2019 as planned. This means that we now provide this essential service, which is attracting very positive feedback, in the major population centres of no fewer than five federal states. We are hoping to introduce corresponding services in Linz and Innsbruck in 2020.
Expanding our LARA partner network (the name comes from the German acronym for Labs, Doctors, X-rays and Pharmacies) is another key step in fulfilling our role as a provider of comprehensive medical services. For now, this network is available to customers insured with one of our comprehensive policies, i.e. primarily freelancers and students. The cost of medical services for these customer groups can now be settled with the medical partners directly. In 2020 we are planning to offer online services such as finding a doctor, making appointments and having telemedicine consultations also to those of our customers who have taken out additional insurance with us. These services are complemented by our medical information platform, which provides valuable answers to many medical questions at any time of day or night.
3. Life insurance: Repositioning of the product portfolio
The low interest rates that have persisted for many years have a particularly strong effect on life insurance. Earning capital costs over the long term is difficult under the current capital markets conditions, depending on the relevant investment strategy. The capital-generating life insurance, that traditionally dominates the market in Austria, is particularly affected by this. Low interest rates also mean much lower demand for provision products.
Our strategic initiatives in this business line were therefore targeted predominantly at refocusing the product portfolio on unit-linked products and increasing the profitability of existing contracts. One of the key concepts behind them was to design new life insurance products that provided a reasonable balance between return, investment and costs for both customers and UNIQA, and distributing acquisition costs fairly across the entire term was an important step in this direction. The result was a completely reworked offer in the unit-linked life insurance sector, which we launched in 2017. Transparent, affordable and flexible for customers, this new product also meets all regulatory requirements. Our efforts in this area have been supplemented by setting up what is known as in-force management to optimise the profitability of our existing life insurance contracts.
In early 2019 we rolled out the sale and full administration of our new unit-linked life insurance product via the UNIQA Insurance Platform (UIP), our new IT core system, for all other distribution channels, having already done so for banking sales. This brings significant improvements for both customers and sales staff. The switch of index-linked life insurance followed in late 2019, the first step in moving existing contracts over to the new platform. We also finalised the launch of our new life insurance product on all distribution channels just before the end of the year. With the new product proving very popular at bank sales channels, we are also expecting a similar level of success in UNIQA’s own sales.
The situation on the capital markets, which has been aggravated further with a renewed fall in interest rates, is likely to remain the biggest challenge facing life insurance in the medium to long term. Nevertheless, our new unit-linked life insurance allows us to offer suitable retirement provision to a broad range of customers despite this difficult environment.
4. UNIQA Insurance Platform (UIP)
The objective of the programme is nothing short of the renewal of the core system in all business lines and the associated organisational transformation of the Group. In the medium term, the UIP will replace the existing IT core systems that no longer map innovative processes, products and functionalities effectively. This project is designed to last for more than ten years and will put UNIQA’s business on a completely new foundation: the UIP will dramatically reduce product development time (time to market), create added flexibility in product design and, in the medium term, significantly reduce the operating costs of all data processing. Additionally, we will create the necessary conditions to better satisfy the expectations and wishes of our customers in future, which are changing ever faster and radically in an increasingly digital world.
Over the last three years, we have successfully installed unit-linked life insurance for all UNIQA sales channels on the UIP, and from June 2020, classic life insurance will also be sold via the new platform. This means that all our new business in life insurance will now be transacted via the new platform. Parallel to implementing the new business, we successfully migrated the first tranche of existing contracts in October 2019 and will complete the transfer of the remaining contracts by mid-2022. The next step will be to switch off the legacy systems.
At the beginning of 2020, in addition to life insurance, we started implementing property, accident, liability and motor vehicle business. Private customer products (excluding automobile and accident insurance) destined for Raiffeisen bank sales will also be available via the UIP as early as late 2021 or early 2022. By the end of 2022 or the beginning of 2023 these products will then also be available through all other UNIQA sales channels. The completion of this implementation is planned for mid-2025.
UNIQA Insurance Platform (UIP)
We reached the first significant milestone on the UIP roadmap in 2018 with the roll-out of unit-linked life insurance for Raiffeisen banking sales. The second came in June 2019, when we successfully introduced this product for UNIQA sales as well. In addition, we carried out the first major migration of existing life insurance contracts in October 2019. Since that time some 35,000 index-linked life insurance contracts have been managed in the new msg life and msg nexinsure systems.
As well as launching these new management systems for life insurance, work began in June 2019 on implementing property, casualty and car insurance from January 2020 onwards.
5. TOM – Target Operating Model UNIQA Austria
Since the beginning of the UNIQA 2.0 strategy programme in 2011, the Group has been working on making all of its customer processes more efficient, faster and less expensive. This modernisation and optimisation project, referred to as the Target Operating Model or TOM, mostly involves internal processes that are not visible from the outside. On the one hand, it focuses on bringing together settlement units in locations where high-quality services can be provided at low cost and, on the other hand, on standardising individual existing products and processes.
TOM – Target Operating Model UNIQA Austria
A major priority for TOM in 2019 was the strengthening of the cooperation between the Group Service Centre in Nitra, Slovakia, and our control and processing entities in Austria. This was possible after many process steps had previously been relocated to Nitra. Specific training measures were agreed and implemented in order to continuously improve processing quality.
We also introduced optical character recognition (OCR) for out-patient health insurance in 2018. A large proportion of the manual recording activities can now be saved through the potential for optical recognition of virtually all types of documents. We plan to increase the level of automation and therefore the effects of savings even further in 2019.
Having launched our optical character recognition project in outpatient health insurance in 2018, we increased the level of automation further in 2019. Besides the conventional input channels of post and e-mail, the UNIQA app was also linked to the system, allowing receipts to be submitted via any channel in future. Next on the agenda are optimisation measures in the individual channels and further standardisation steps across the whole of input management. Following the programme’s official completion at the end of 2019, we are now continuing to work on optical character recognition and other issues in separate projects.