This document has been made available in electronic format by the International Co-operative Alliance (ICA) 

Speaker Andreas Weiss (1998)

March, 1998
(Source: Studies and Reports. Thirty-first in the series
The Impact of the European Union’s Enlargement on Co-operatives. Papers presented at a seminar held in Prague 3-4 November 1997,  p. 82-89)

The European insurance industry

Competition has been the guiding principle of the European Commission in the creation of the European internal insurance market by means of deregulation, i.e. abolishment of national restraints of trade, and by means of liberalization, i.e. facilitating entry into the market.

The emerging competition between companies and the competition of supervisory and regulatory systems was intended to lead to harmonization and increased efficiency which would work to the consumers’ advantage.

The deregulation and liberalization of markets have had three essential consequences: firstly, structural changes in the insurance industry; secondly, lasting influence on the strategies and results of the companies; and finally, changes in the consumers’ situation.

Changes in the market structure

Action parameters of competition have changed: The consumer benefits from a better price-performance ratio:

Summary for Austria since its accession to the EU
Austria’s accession to the European Union did not trigger the fundamental change in the Austrian domestic insurance industry that was expected by some. For insurers, the way into Europe’s internal market began as early as the mid-eighties, when the relevant EC Directives were continuously implemented in Austria in the form of numerous amendments to the relevant Austrian laws. Moreover, the major foreign insurers, above all German and Italian companies, had already been present on the Austrian market. Thus, no significant increase in insurance activities from EU countries has yet been directly noticeable on the Austrian market.

Austrian insurers will also be able to compete quite well in the tough European environment. This opinion is mainly based on the fact that the Austrian insurance industry knows how to offer modern and customer-oriented services, with co-operative and mutual insurers being the leaders in the field of personal insurance.

Service transactions which, in theory, are strikingly easy, according to the slogan “just register and go all over Europe”, are however faced with considerable obstacles in practice. Besides the above-mentioned “local ties” of insurance activities, especially in the private customers segment, there are legal aspects (e.g. lack of a harmonized insurance contract law) and tax regulations (e.g. like a few other EU countries, Austria levies taxes on life insurance premiums), and last, but not least, the question of distribution channels which are the main reasons why actual work on foreign markets often does not get further than the stage of registration as service provider.

Consequences and outlook for co-operative and mutual insurers
Co-operative and mutual insurers have gained a firm footing in the above picture of the pan-European insurance market. Almost 40 million European families are insured against the economic risks of illness or old-age by co-operative and mutual insurers.

Due to their enormous importance for the market and their traditional role as risk bearers, co-operative and mutual insurance societies, like stock corporations, have been defined in the EC insurance directives as permissible legal forms for handling private insurance transactions. Thus, the EU has demonstrated an explicit interest in the continuing existence of the co-operative and mutual tradition. In my view, this is a clear sign of support.

At the same time the European Union issues regulations referring to the quality of insurance cover and to safety standards, irrespective of the legal form. Thus one can notice a certain standardizing market trend, which will, as some say, bring about uniformity.

Recent developments seem to favour stock corporations. As an example, let me mention the discussion on the solvency regulations of insurance companies. A sufficient basis of equity capital resources will guarantee that the insurer can act as promised, i.e. make payments, in the event of illness, accident or other insured risks. Without doubt, this is the essence of the insurance industry.

In the seventies, the European Community introduced the solvency provisions with the aim of protecting consumers and guaranteeing comparable competitive conditions throughout Europe. Now changes are under discussion which are to bring about a manifold increase of current limits; at the same time, however, they fail to take into account the special features of the legal structure of co-operative and mutual insurers.

As you know, co-operative and mutual insurers are enormously disadvantaged, as opposed to stock corporations, in their possibilities of raising capital, because they have only limited access to the capital market. Apart from retaining profits, which are subject to tax in most cases, co-operatives and mutuals are permitted to raise subordinated capital or issue participating certificates as equity substitutes. However, these financing instruments differ greatly on the individual markets, as far as their legal structure, their recognition, and also their fiscal parameters are concerned.

Allow me to stress another consequence of this situation. Since the required solvency margins are usually calculated with reference to premium income, the question as to the chances of a healthy growth policy does arise. Is a co-operative and mutual insurer excluded from expanding the range of products offered, as equity financing is rather difficult compared to stock listed companies? One should think that our customers are entitled to comprehensive insurance coverage which is constantly being adapted to modern requirements. Who in the long term wants to be insured with an enterprise that cannot finance its business expansion, nor any strategic goals? Furthermore, who would like to work on such an enterprise? The recommendation sometimes made to forego an expansion of  business activities cannot, as an option, be taken very  seriously.

In the media the impression is created that stock corporations are considered to be best capable of running their businesses efficiently. Slogans such as “shareholder value” appear as stringent targets, while co-operative and mutual insurance companies are assumed to have no such comparable goals.

I am concerned about the way we react to this, since the mutual and co-operative philosophy is able to deploy a benchmark not only of equal value but one that reaches even further: the member value or customer value.

This element will guarantee that a stronger focus is again being put on the interests of the members/the policyholder and that the co-operative philosophy also becomes part of our marketing concept and thus part of the strategic objectives of our enterprises.

One could almost say that by recalling the traditional roots, a large step can be made in the direction of modern management and marketing policy, since “customer orientation, customer loyalty or customer satisfaction” are the criteria for success in the market. Those enterprises that succeed in achieving these goals will – despite all restrictions and legal peculiarities – be successful in the market.

The member value, or customer value, as the benchmark of the mutual and co-operative insurance business could become a slogan, the objective. Member value, as a service that can be experienced by the market and as a distinct counterweight to shareholder value, means a renewed awareness of the roots of the mutuality principle and, at the same time, the ability to deliver a modern marketing performance. Let´s be straight: The members have turned into mere customers as the material interests, such as favourable premiums and competent advice, have become of primary importance. To put it differently: the members react with their purchasing decision, not with their vote. This is our challenge, this is our chance.

Consequently, many enterprises have already commenced to modernize the services offered by them, for example, providing complementary assistance and support services at favorable rates, where co-operative and mutual insurers are often in the forefront.  Entire car repair shops have been set up for customers, as have consulting centres for home renovation.

Furthermore, member value is also being created by services provided for the community. Social services, school grants, support for disaster victims and similar matters are only a few examples that we are also aware of our responsibility to society as a whole. Unfortunately, this is often not sufficiently known about, and is not regarded by the community as added value. We must certainly do some publicity work here.

Allow me to give one more example that demonstrates that the insurance industry is certainly making efforts to preserve its mutual and co-operative tradition as a customer and member-oriented industry. On the European continent, as well as in the United States, the co-operative and mutual insurers are searching for legal constructions which either help to continue, at least in part, the legal form of a co-operative and mutual insurer, or those which uphold our traditional principles as a kind of business philosophy, even if the operative business is carried out in a different legal form, most often as a stock corporation.

Other possibilities contemplated are aimed at developing the membership position more strongly into a chance-and-risk position. This means that the member of the insurance society is to have the opportunity, by subscribing to certain financing instruments, to financially tie himself to the insurance society in a way that goes beyond the position of a policyholder.

One final reason for the positive answer given at the very beginning is that public tasks which cannot be carried out satisfactorily for lack of sufficient resources, can be supplemented through private initiatives by way of democratic self-help. History shows that co-operatives and mutuals have been on the rise in particular at times when urgent needs could neither be satisfied by the state nor by the market. By way of example, let us again go back to our roots. Upon the dissolution of traditional society and the family clans, co-operative associations were created in the Middle Ages for the common attainment of political, legal, and other societal purposes. Also today, we are able to respond to new needs, thereby further continuing the tradition of the innovator and the trendsetter.

Convincing cases in point are:

I would like to finish by quoting a statement made by former ICA director Watkins in the late fifties. “The true problem is not the preservation of co-operative institutions, as they have been or as they are, but the application of essential co-operative principles in appropriate forms for contemporary circumstances. The history of movements, as of nations and civilizations, is the story of their success or failure to rise to the challenges which confront them as the generations and centuries roll by.”

We must be aware of those changes in our environment. As I have tried to demonstrate, we are able to do more than follow trends, we can set trends. This is why we cannot but think ahead, into the 21st century. And this is also why I trust that we can in good conscience regard the future as a common, co-operative challenge, and not as a fate dictated by competition.

Andreas Weiss
Assistant to the Board, Wiener Städtische Versicherung, Austria