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Hungary’s SMEs Remain Largely Uninsured

Most Hungarian companies seem to put price ahead of other aspects when it comes to insurance. While some global trends are apparently reaching the Carpathian Basin, the lack of foresight among local SMEs still leaves a lot of room for the Hungarian corporate insurance sector.

Just as with several other business areas where the country reacts to intercontinental trends with some leeway, Hungary has its local specialties regarding corporate insurance, too. 

On a global scale, business disruption is still what companies fear the most and, as a relatively new trend, businesses pay increasing attention to the risk of non-physical damage, data from the Allianz Risk Barometer 2017 shows.

By the same token, an unpredictable business environment is considered to be a growing risk throughout the world; a danger not only fed by market volatility, but also fueled by political risks such as strengthening protectionism or increasing terrorist threats, the survey concluded. Cyber risks, whether caused by a technical breakdown or human failure, are considered the third biggest threat for businesses on a global level.

In Hungary, however, this is the first year in which digitalization issues appear among the top ten, debuting as the 5th biggest risk.

Still, there has been some other significant realignment in the country, too. While a couple of years ago force majeure and a break in the supply chain were among the most feared events, nowadays they are not even mentioned among the biggest menaces. At the same time, the unpredictable legal environment, which previously was seen only at the end of the list, is now the leading risk and is followed by market insecurity and uncertainty about macro-economic developments.

Environmental Risks

Nonetheless, environmental risks are still taken seriously both globally and locally, perceived as a threat that is already causing an increasing amount of damage, but which is expected to show its full strength only in the future due to global warming.

This is encouraging insurance companies to be proactive in finding solutions in advance, market players report. It also makes cooperation with clients even more essential, although in truth this fits into the reforming marketing strategy of the sector anyway: the emphasis is relocating from a practice of “push” marketing to “pull”.

This means that convincing clients about what they need is slowly being replaced by insurance providers finding out the current demands of the companies and offering ultra-customized solutions, while also keeping close contact to be able to react quickly to any instant need in the future. This is the only way of providing really valuable solutions, sector players argue.

With human interactions to the fore – staying in touch and giving personal support is vital – online solutions are rare in the corporate insurance sector and mostly appear only in administrative tasks, corporate insurance providers told the Budapest Business Journal. The only exceptions to this are micro businesses, which more or less act like the household market.

While Hungarian companies tend to go for 100% coverage when it comes to property insurance, for liability insurance they usually set very low limits, even when dangerous activities are involved.

The number of liability insurance policies has been on the rise recently, but market players argue that the reason behind this tendency is the increasing number of business activities that are obliged by law to be backed up by insurance, rather than any growing sense of responsibility among Hungarian businesses.

Meanwhile, the insurance sector reports that fulfilling these legal requirements often poses a huge administrative burden on them. “The purpose of most regulations is fair, yet the effects are often counter productive,” Edit Dervenka head of PR at Aegon tells the BBJ.

Least Insured

According to a survey by UNION Insurance, SMEs are the least insured in the Hungarian corporate sector. Almost one-quarter of the country’s 1.15 million micro-, small- and medium-sized enterprises had no insurance at all in 2016, even though “they are the most vulnerable in the case of an unexpected incident”, Gabriella Almássy, head of non-life insurance segment at UNION argues.

To give an example, contrary to the global trends, only 4% of the property insurance in the Hungarian corporate sector covers business disruption. That might well represent unwarranted optimism given the fact that, for instance, an incident making a restaurant suspend its services for one or two months while still paying

salaries and other fixed expenditures could easily mean the end of the business. However, a well-structured insurance would refund not only the unexpected costs of the incident but also the profit lost.

“Hungarian companies are anything but provident,” Dervenka says, adding that they usually have a follower’s mentality and often act only at the very last moment. They also tend to spend smaller amounts of money on insurance than their peers in Western Europe.

However, changes could well come with time (and market experience). Insurance fees have been dropping for a decade already, although that pace is now slowing down somewhat. Still, Almássy estimates that if the price tendency carries on and is combined with the ongoing economic growth, the proportion of non-insured SMEs might decrease to one-fifth by the end of the decade.