Creditor Insurance in Eastern and South-Eastern Europe

Table of Contents

0.0 EXECUTIVE SUMMARY

• Creditor insurance in Eastern and South-Eastern Europe is worth in excess of €400 million…
• … although Greece alone accounts for a significant proportion of this market total…
• … and the percentage attributable to policies covering temporary risks remains very low
• Most policies classifiable as creditor insurance possess relatively basic characteristics
• Even when adjusted for inflation, retail lending balances have been growing at a breakneck speed…
• … with the markets of Ukraine and Romania having made the most progress over the 2002-6 period
• Credit and other pay later cards, too, have accelerated to around 60 million in issue
• The supply structure for creditor insurance partnerships is generally fluid and fragmented…
• … although leading international specialists are beginning to establish a regional presence
• A number of factors will propel the region' s creditor insurance market forwards in the future…
• … with more advanced policies backed up by improved cross-selling likely to be important features
• Consumer metrics gathered in Europe' s five largest markets may prove instructive in this respect

1.0 INTRODUCTION

• Rationale
• Mainstream bancassurance markets in Europe are comparatively well documented…
• … whereas creditor insurance is not for a variety of reasons
• Creditor insurance: a poorly understood ‘third’ bancassurance market?
• Finaccord
• PartnerBASE™
• Methodology
• The vast majority of lending institutions in the region are classifiable as banks
• Definitions

2.0 REGIONAL OVERVIEW

• Introduction
• Inflation rates
• Relatively high rates of inflation must be accounted for when analysing local lending markets
• Market analysis - lending
• In deflated terms, the region' s combined market is growing at an average annual rate of 38.6%
• Romania and Ukraine achieve the highest deflated average annual growth in mortgage balances
• Russia overtakes Greece in 2005 to become the region' s largest non-mortgage retail credit market
• Growth rates for total retail lending balances differ substantially from country to country
• Average retail lending balances per capita for the region reach a modest €713.0 in 2006
• … with mortgage lending account for less than 50% of this figure
• Rapid growth in non-mortgage lending in Greece helps it to overtake Slovenia in per capita terms
• Non-mortgage credit declines as a proportion of total retail lending in all countries except Greece
• Turkey accounts for 54.1% of total credit and other pay later cards issued in the region in 2006…
• … with the rapidly growing Russian market likely to have overtaken the mature Greek market…
• … although cards issued in Turkey are at least double the number in Russia
• In terms of credit and other pay later cards per capita, Greece remains ahead of Turkey
• Market analysis - creditor insurance
• A lack of definitional clarity and a dearth of data make creditor insurance difficult to measure…
• … with other comparable forms of protection policy often marketed by lending institutions
• Broadly defined, the market is worth slightly in excess of €400 million in gross written premiums…
• … although only a small proportion is due to insurance for temporary incapacity and unemployment
• Mortgage-related policies represent the largest component of the market when defined broadly
• There is ample scope for creditor insurance to advance in Eastern and South-Eastern Europe…
• … especially given the known market size in more affluent European economies
• The use of multiple partners for creditor insurance is most widespread in Russia and Ukraine
• Consumer data - benchmarks from Europe' s five largest markets
• Mortgage borrowers are most likely to contract insurance to protect loan repayments
• Customers often protect their loan repayments indirectly through other types of protection policy
• Even in developed countries, only a minority of borrowers are insured against unemployment
• The original lending entities and card issuers are in pole position to cross-sell creditor insurance
• Most sales of creditor insurance are realised in a face-to-face environment…
• … and at the same time that the underlying lending facility is being arranged
• While some consumers find creditor insurance to be expensive, very few are totally dissatisfied

3.0 BULGARIA

• Introduction to the banking sector
• Overseas banking groups control around 70% of banking assets in Bulgaria
• Market analysis - lending
• Mortgage balances grow at almost twice the annual average rate of non-mortgage credit
• Penetration of credit cards remains extremely low although the market is growing rapidly
• Market analysis - creditor insurance
• Payment protection insurance is most likely to be offered in conjunction with mortgages
• UniCredit Clarima is the first lending institution in Bulgaria to introduce cover for unemployment
• Customer take-up rates
• A majority of lending institutions oblige borrowers to take out creditor insurance
• Competitor analysis - creditor insurance
• Three lending institutions utilise captive underwriters for provision of creditor insurance
• Vienna Insurance Group' s Bulstrad has built up the most bancassurance deals overall…
• … although it will face competition from creditor insurance specialists such as AIG and Cardif
• Future outlook
• Although not the region' s most attractive prospect, creditor insurance should enjoy rapid growth

4.0 CROATIA

• Introduction to the banking sector
• The banking sector remains relatively fragmented in spite of the influence of foreign groups
• Market analysis - lending
• Non-mortgage loans outstanding reach CrK 58.8 billion in 2006
• Credit cards per capita in Croatia are only slightly over a half of that for neighbouring Slovenia
• Market analysis - creditor insurance
• Many of Croatia' s independent local banks have yet to launch creditor insurance programs
• Over two thirds of creditor insurance policies identified provider basic cover for death only
• Customer take-up rates
• On average, cross-selling rates for creditor insurance fall below the 50% threshold in Croatia
• Competitor analysis - creditor insurance
• Several important banking institutions collaborate with more than one insurance provider
• Most insurance companies in Croatia lay claim to at least one bancassurance partnership
• Future outlook
• Prospects may be brightest in the market for mortgage-related creditor insurance policies

5.0 GREECE

• Introduction to the banking sector
• Foreign influence in the Greek banking market is increasing steadily
• Market analysis - lending
• Non-mortgage credit achieves a slightly higher average annual growth rate than mortgage lending
• Of the eight credit card markets considered, that of Greece is the most mature
• Market analysis - creditor insurance
• Few credit card issuers in Greece have yet introduced payment protection insurance
• HSBC is the pioneer of unemployment cover in the Greek market
• Customer take-up rates
• A majority of lending institutions oblige borrowers to take out creditor insurance
• Competitor analysis - creditor insurance
• Seven of the lending institutions surveyed source creditor insurance from captive underwriters
• Numerous providers of creditor insurance are competing for mandates with Greek banks
• The ownership of both Alpha Insurance and ING Piraeus Life has changed in recent times
• Future outlook
• There are firm grounds for supposing that creditor insurance should make strong progress

6.0 ROMANIA

• Introduction to the banking sector
• Numerous overseas competitors have entered the Romanian banking market in recent years
• Market analysis - lending
• The value of long-term loans outstanding in Romania more than doubles in 2006…
• … with the number of credit and other pay later cards surging ahead in 2005 and 2006
• Market analysis - creditor insurance
• Many institutions active in non-mortgage lending have yet to launch any form of creditor insurance
• There is still plenty of scope for coverage for temporary incapacity and unemployment to grow
• Customer take-up rates
• A significant proportion of lending institutions compel borrowers to take out creditor insurance
• Competitor analysis - creditor insurance
• Most lending institutions collaborate with a single partner for provision of creditor insurance…
• … although a handful of banks work with captive or sister insurance companies
• Most underwriters of loan-related insurance possess a single bancassurance relationship each
• Future outlook
• An encouraging outlook for creditor insurance attracts Cardif to enter the market in early 2007

7.0 RUSSIA

• Introduction to the banking sector
• The top 50 banks control in the region of 80% of Russia' s banking assets…
• … with the influence of foreign institutions steadily increasing over time
• Market analysis - lending
• Unadjusted for inflation, retail lending balances in 2006 are more than 15 times their level in 2002
• Russian Standard Bank and other credit card issuers generate dynamic growth in 2005 and 2006
• Market analysis - creditor insurance
• Excluding credit cards, a majority of banks offering retail loans offer creditor insurance…
• … although Russia' s largest bank, Sberbank, had not initiated any activity by June 2007
• Only a small minority of lenders include cover for temporary incapacity as a standard feature
• Customer take-up rates
• Acquisition of creditor insurance is almost always compulsory for mortgage borrowers…
• … although is usually a voluntary purchase in the case of non-mortgage retail credit
• Competitor analysis - creditor insurance
• Most banks source creditor insurance policies from a panel of approved underwriters…
• … although a small proportion operate through captive insurance entities
• AIG Life is the current partner of both Citibank and GE Money for creditor insurance…
• … while Aviva' s Russian subsidiary holds a bancassurance portfolio of over 200,000 customers
• Future outlook
• Russia remains a problematic market in spite of some promising underlying metrics

8.0 SLOVENIA

• Introduction to the banking sector
• The indigenous NLB grouping controls over 40% of Slovenia' s banking assets…
• … with a majority of foreign entrants hailing from neighbouring Austria
• Market analysis - lending
• Mortgage lending balances grow at over four times the average rate of non-mortgage credit
• The number of credit and other pay later cards per capita is moving up at a modest rate
• Market analysis - creditor insurance
• Smaller banks and motor finance specialists have yet to introduce creditor insurance schemes
• Two banks have introduced cover for unemployment, albeit in a limited format
• Customer take-up rates
• Acquisition of creditor insurance among borrowers in Slovenia appears always to be voluntary
• Competitor analysis - creditor insurance
• Apart from NLB' s joint venture with KBC, all relationships are with single, external partners
• Most insurance groups in Slovenia possess one major bancassurance relationship each
• Future outlook
• Further consolidation among Slovenia' s banks could create greater bancassurance opportunities

9.0 TURKEY

• Introduction to the banking sector
• Three state-owned banks continue to exert a considerable influence on the banking market…
• … although the country has seen an influx of acquisitive foreign entrants since early 2005
• Market analysis - lending
• Mortgage lending balances surge at an average rate of 144.9% between 2002 and 2006
• The number of credit and other pay later cards issued has broken through the 30 million mark
• Market analysis - creditor insurance
• A quarter of credit card issuers have introduced creditor insurance in one form or another
• Most creditor insurance products in Turkey amount to no more than basic life insurance policies
• Customer take-up rates
• For mortgage borrowers, buildings cover is more likely to be compulsory than creditor insurance
• Competitor analysis - creditor insurance
• Banks utilise a variety of operating models in the context of payment protection insurance…
• … with Turkey characterised by a highly fragmented supply structure for creditor insurance
• Future outlook
• There is significant potential for the introduction of more comprehensive policies in Turkey…
• … although there are several barriers to overcome, such as an under-developed insurance culture

10.0 UKRAINE

• Introduction to the banking sector
• Until recently, Ukraine' s banking system was beset by a plethora of restraints…
• … although the growing interest of foreign entrants is helping to remedy matters
• Market analysis - lending
• Both mortgage and non-mortgage balances advance at an average rate in excess of 100%
• … with the market for credit and other pay later cards also booming from a very low base
• Market analysis - creditor insurance
• Mortgage lending in Ukraine is characterised by the ubiquitous provision of creditor insurance
• Cover for temporary risks can sometimes be incorporated on a negotiated basis
• Customer take-up rates
• Acquisition of creditor insurance is made compulsory by a majority of banks offering mortgages
• Competitor analysis - creditor insurance
• Most banks collaborate with a variety of insurers when it comes to sourcing creditor insurance…
• … although captive insurance entities are utilised in a minority of cases
• Several Ukrainian banks are tied to a single bancassurance partner…
• … and Uniqa Life may well become the preferred partner of Raiffeisen Bank Aval
• Future outlook
• For some years, the image of Ukraine' s insurance sector has been marred by prior mis-selling…
• … although development potential is now emerging, especially for the key 20-40 age bracket

GRAPHICS / TABLES

• Entities contacted for the research in Eastern and South-Eastern Europe, segmented by type and by country
• Inflation rates in Eastern and South-Eastern Europe segmented by country, 2002-6
• Inflation rates in Eastern and South-Eastern Europe segmented by country, 2002-6 (data)
• Total retail lending balances outstanding in E / S-E Europe segmented by country, 2002-6 (adjusted)
• Total retail lending balances outstanding in E / S-E Europe segmented by country, 2002-6 (adjusted) (data)
• Retail mortgage balances outstanding in E / S-E Europe segmented by country, 2002-6 (adjusted)
• Retail mortgage balances outstanding in E / S-E Europe segmented by country, 2002-6 (adjusted) (data)
• Retail non-mortgage balances outstanding in E / S-E Europe segmented by country, 2002-6 (adjusted)
• Retail non-mortgage balances outstanding in E / S-E Europe segmented by country, 2002-6 (adjusted) (data)
• Size versus adjusted growth in total retail lending balances outstanding in E / S-E Europe, 2002-6
• Size versus adjusted growth in retail mortgage balances outstanding in E / S-E Europe, 2002-6
• Size versus adjusted growth in retail non-mortgage balances outstanding in E / S-E Europe, 2002-6
• Total retail lending balances outstanding per capita in E / S-E Europe segmented by country, 2002-6 (adjusted)
• Total retail lending bals. outstanding per capita in E / S-E Europe segmented by country, 2002-6 (adjusted) (data)
• Retail mortgage balances outstanding per capita in E / S-E Europe segmented by country, 2002-6 (adjusted)
• Retail mortgage balances outstanding per capita in E / S-E Europe segmented by country, 2002-6 (adjusted) (data)
• Retail non-mortgage balances outstanding per capita in E / S-E Europe segmented by country, 2002-6 (adjusted)
• Retail non-mortgage bals. outstanding per capita in E / S-E Europe segmented by country, 2002-6 (adjusted) (data)
• Retail non-mortgage bals. outstanding as % of total retail lending bals. outstanding in E / S-E Europe, 2002-6
• Retail non-mortgage bals. outstanding as % of total retail lending bals. outstanding in E / S-E Europe, 2002-6 (data)
• Total number of credit / pay later cards in issue in Eastern and South-Eastern Europe, 2002-6
• Total number of credit / pay later cards in issue in Eastern and South-Eastern Europe, 2002-6 (data)
• Size versus growth in credit / pay later cards in issue in Eastern and South-Eastern Europe, 2002-6
• Total number of credit / pay later cards in issue per capita in Eastern and South-Eastern Europe, 2002-6
• Total number of credit / pay later cards in issue per capita in Eastern and South-Eastern Europe, 2002-6 (data)
• Approx. value of the creditor ins. mkt. in E / S-E Europe, broadly and narrowly defined, seg. by country, 2006
• Approx. val. of the creditor ins. mkt. in E / S-E Europe, broadly and narrowly defined, seg. by und. product, 2006
• Approx. val. of the creditor ins. mkt. in E / S-E Europe, broadly defined, seg. by country and und. lend. prod., 2006
• Approx. val. of the creditor ins. mkt. in E / S-E Europe, broadly def., seg. by count. and und. lend. prod., 2006 (data)
• Approx. val. of the creditor ins. mkt. in E / S-E Europe, narrowly defined, seg. by country and und. lend. prod., 2006
• Approx. val. of the creditor ins. mkt. in E / S-E Europe, narrowly def., seg. by count. and und. lend. prod., 2006 (data)
• Segmentation of operating models used for creditor insurance in Eastern and South-Eastern Europe, 2007
• Segmentation of operating models used for creditor insurance in Eastern and South-Eastern Europe, 2007 (data)
• Overall take-up rates for ins. prot. loan repays. among bwrs. in Eu' s five largest mkts. split by lend. prod., 2006
• Ove. take-up rates for ins. prot. loan repays. among bwrs. in Eu' s five largest mkts. split by lend. prod., 2006 (data)
• Types of policy held among bwrs. with ins. to prot. loan repays. in Eu' s five largest mkts. split by lend. prod., 2006
• Types of pol. held among bwrs. with ins. to prot. loan repay. in Eu' s five largest mkts. split by lend. prod., 2006 (data)
• Risks covered among all borrowers in Europe' s five largest markets split by type of lending product, 2006
• Risks covered among all borrowers in Europe' s five largest markets split by type of lending product, 2006 (data)
• Dist. chns. used by bwrs. with ins. to prot. loan repays. in Eu' s five largest mkts. split by type of lend. prod., 2006
• Dist. chns. used by bwrs. with ins. to prot. loan repays. in Eu' s five larg. mkts. split by type of lend. prod., 2006 (data)
• Dist. ints. used by bwrs. with ins. to prot. loan repays. in Eu' s five largest mkts. split by type of lend. prod., 2006
• Dist. ints. used by bwrs. with ins. to prot. loan repays. in Eu' s five largest mkts. split by type of lend. prod., 2006 (data)
• Time chosen by bwrs. to obt. ins. to prot. loan repays. in Eu' s five largest mkts. split by type of lend. prod., 2006
• Time chosen by bwrs. to obt. ins. to prot. loan repays. in Eu' s five larg. mkts. split by type of lend. prod., 2006 (data)
• Satis. levels among bwrs. with ins. to prot. loan repays. in Eu' s five largest mkts. split by type of lend. prod., 2006
• Satis. levels among bwrs. with ins. to prot. loan repays. in Eu' s five larg.mkts. split by type of lend. prod., 2006 (data)
• Size and growth of the retail lending market in Bulgaria, 2002-6
• Number of credit and pay later cards in issue and per capita in Bulgaria, 2002-6
• Approximate gross written premiums for creditor insurance in Bulgaria segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Bulgaria, 2007
• Risks covered by creditor insurance policies in Bulgaria, 2007
• Average customer take-up rates for creditor insurance policies by product in Bulgaria, 2007
• Operating models for creditor insurance in Bulgaria, 2007
• Partner market shares for creditor insurance in Bulgaria, 2007
• Size and growth of the retail lending market in Croatia, 2002-6
• Number of credit and pay later cards in issue and per capita in Croatia, 2002-6
• Approximate gross written premiums for creditor insurance in Croatia segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Croatia, 2007
• Risks covered by creditor insurance policies in Croatia, 2007
• Average customer take-up rates for creditor insurance policies by product in Croatia, 2007
• Operating models for creditor insurance in Croatia, 2007
• Partner market shares for creditor insurance in Croatia, 2007
• Size and growth of the retail lending market in Greece, 2002-6
• Number of credit and pay later cards in issue and per capita in Greece, 2002-6
• Approximate gross written premiums for creditor insurance in Greece segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Greece, 2007
• Risks covered by creditor insurance policies in Greece, 2007
• Average customer take-up rates for creditor insurance policies by product in Greece, 2007
• Operating models for creditor insurance in Greece, 2007
• Partner market shares for creditor insurance in Greece, 2007
• Size and growth of the retail lending market in Romania, 2002-6
• Number of credit and pay later cards in issue and per capita in Romania, 2002-6
• Approximate gross written premiums for creditor insurance in Romania segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Romania, 2007
• Risks covered by creditor insurance policies in Romania, 2007
• Average customer take-up rates for creditor insurance policies by product in Romania, 2007
• Operating models for creditor insurance in Romania, 2007
• Partner market shares for creditor insurance in Romania, 2007
• Size and growth of the retail lending market in Russia, 2002-6
• Number of credit and pay later cards in issue and per capita in Russia, 2002-6
• Approximate gross written premiums for creditor insurance in Russia segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Russia, 2007
• Risks covered by creditor insurance policies in Russia, 2007
• Average customer take-up rates for creditor insurance policies by product in Russia, 2007
• Operating models for creditor insurance in Russia, 2007
• Partner market shares for creditor insurance in Russia, 2007
• Size and growth of the retail lending market in Slovenia, 2002-6
• Number of credit and pay later cards in issue and per capita in Slovenia, 2002-6
• Approximate gross written premiums for creditor insurance in Slovenia segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Slovenia, 2007
• Risks covered by creditor insurance policies in Slovenia, 2007
• Average customer take-up rates for creditor insurance policies by product in Slovenia, 2007
• Operating models for creditor insurance in Slovenia, 2007
• Partner market shares for creditor insurance in Slovenia, 2007
• Size and growth of the retail lending market in Turkey, 2002-6
• Number of credit and pay later cards in issue and per capita in Turkey, 2002-6
• Approximate gross written premiums for creditor insurance in Turkey segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Turkey, 2007
• Risks covered by creditor insurance policies in Turkey, 2007
• Average customer take-up rates for creditor insurance policies by product in Turkey, 2007
• Operating models for creditor insurance in Turkey, 2007
• Partner market shares for creditor insurance in Turkey, 2007
• Size and growth of the retail lending market in Ukraine, 2002-6
• Number of credit and pay later cards in issue and per capita in Ukraine, 2002-6
• Approximate gross written premiums for creditor insurance in Ukraine segmented by underlying product, 2006
• Lender penetration of creditor insurance policies by product in Ukraine, 2007
• Risks covered by creditor insurance policies in Ukraine, 2007
• Average customer take-up rates for creditor insurance policies by product in Ukraine, 2007
• Operating models for creditor insurance in Ukraine, 2007
• Partner market shares for creditor insurance in Ukraine, 2007