The birth of their daughter Julia last spring prompted Joanna and Cezary Napiorkowski to get serious fast about securing their future. After watching TV ads from foreign insurers, the Warsaw couple bought a life insurance policy from London-based Commercial Union PLC. It promises $14,492 in case of death or a lump sum if the Napiorkowskis let it build until retirement. "That's important because I'm sure the pension system won't be there in 10 years," says Joanna.
The Napiorkowskis aren't the only ones buying. Hundreds of thousands of Poles are designing their own safety nets. Last summer, a state-pension-system crisis forced reforms that will create privately managed pension funds by 1999. Till then, "insurance companies are filling the void," says Grace Ziolkowski, managing director of insurance broker Sedgwick Polska. Western firms, armed with equity-linked products such as variable universal life policies, claim 30% of the market.
RIPPLE EFFECT. The potential is huge. Poland's $3 billion property, casualty, and life insurance market is growing by almost 25% annually, according to German insurer Allianz. Only 2 million of Poland's 13 million workers have life insurance. Experts say the market could quadruple in two to three years. Insurers are investing premiums chiefly in Polish Treasury bills, since equities are limited to 20% of assets. But with firms such as Boston-based Pioneer Group lining up to manage the new pension funds, industry experts think most insurers will eventually put the full 20% of premium proceeds into stocks.
Indeed, the effects of the insurance boom are likely to ripple outward. The equity market will probably benefit most from demand for insurance products and the investment of premiums. Until last April, Commercial Union had one investment fund, and more than 90% of its assets were in Polish Treasuries. But it then added three more funds. Although they currently total just $8 million, all three are intended to offer investors greater exposure to equities-- domestic and foreign. "This will increase the standard of living in general," says Janusz Staniszewski, president of Heros Life, a startup in talks with British insurer Royal & Sun Alliance Group PLC.
Foreign insurers are chiefly teaming up with Polish banks and newly formed private insurers (table). Last summer, U.S. insurer CIGNA bought big stakes in two domestic startups. And the earliest entrants are picking up steam. Commercial Union, which opened in 1993, had sold 625,000 life insurance policies by last October--half of them in 1997. CU Life President Martin P. Miziolek says premiums jumped 80% last year, to $180 million. ING Group's Nationale-Nederlanden has sold 125,000 life policies since it began three years ago. It expects new premiums to hit $165 million by 2000, compared with $33 million in '97.
Polish banks--private startups and those being privatized--are eager partners. When Bank Handlowy was privatized last June, Zurich Insurance Co. took a 6% stake. Zurich-Handlowy Life Insurance is already licensed, and a property-casualty venture is planned. In the privatization of Powszechny Bank Kredytowy last year, a 20% share went to Creditanstalt and 19% to Warta, Poland's No. 2 nonlife insurer, which then acquired PBK's two insurance units.
Even old-line state giant Powszechny Zaklad Ubezpieczen, which sold group life, property-casualty, and auto insurance, is tempting investors--despite being overstaffed and undercapitalized. Last November, PZU's outgoing president rejected a bailout bid from a consortium comprising Merrill Lynch, Pekao--Poland's largest retail bank--and BIG Bank of Gdansk. The new president, Wladyslaw Jamrozy, is investigating that decision, but he is mum as to how he will shore up PZU before its midyear privatization.
When it comes to insurance, Poles are clearly big spenders. Eighty-five percent of Commercial Union customers buy top-of-the-line retirement plans. "Ten years ago, the monthly wage was $35," says Miroslaw Kowalski, who recently jumped from CU to the presidency of Zurich-Handlowy Life. "Today it is $350, and in 10 years' time it will be $1,300." As doubts mount about the state pension system, that is likely to be good news for private insurers.