Recently the Government of the Republic of Slovenia issued a Decree setting the maximum price of the complementary health insurance premium. However, in the context of an announced wider health care reform in Slovenia, it also proposed the discontinuation of state-sponsored complementary insurance & its complete merging with compulsory health insurance.

In April, the Slovenian government proposed a draft law to discontinue state-sponsored complementary health insurance as well as its merger with the state’s compulsory health insurance, potentially starting as of September 2023. However, the actual implementation may start in 2024, which would be a worse scenario for Slovenian insurance companies (elaborated further below). In addition to this, the Government capped prices of complementary health insurance to prevent a spike in private insurers’ complementary health insurance prices.

What does it mean for Slovenian insurance?

First of all, this basically means that from September 2023 (or likely the start of 2024), the private insurance companies (Vzajemna, Triglav, and Generali) would cease their business operating in the complementary health care segment. In the past, this has been a stable driver of their top-line growth, along with the whole other portfolio of their products. However, soon, the insurers will have to leave this segment, as Slovenian Government will take over the operations. This is expected to be achieved by a complete merger of compulsory health insurance with complementary one, which was offered by the “private sector” so far.  We note that coverage in this segment was offered by three companies: Vzajemna with more than half of the market share and Triglav Zdravstvena zavarovalnica & GENERALI zavarovalnica sharing the remaining part of this segment, while this segment makes c. 14% of Triglav’s total GWPs.

Story goes on

Until the merging happens, Slovenian Government also put a cap on the prices of complementary health insurance to prevent a spike in private insurers’ complementary health insurance prices. Now, what does THIS mean and why was it implemented?

The price cap was implemented as Zavarovalnica Generali has announced a rise in the monthly premium for complementary health insurance by more than 30%, as of 1 May 2023. Both Triglav and Vzajemna have also announced the possibility of raising the premium in the coming months. The Decree sets the maximum premium for complementary health insurance at EUR 35.67 per month – the current price of the highest full premiums (without discount) on the market for complementary health insurance.  

The result of this price cap resulted in Triglav issuing the 1^st profit warning in a long time (you can read more about it here). Talking about the usual Government’s “efficient” market interventions… Does it ring a bell? You guessed it, this does sound pretty like Petrol’s situation of retail gas prices capping. So, to summarize the insurance price cap story and put it as simply as possible: until the Government completely merges compulsory health insurance with a complementary one and takes over the business operations, private Slovenian insurers are forced to be in the red territory for this segment. Also, it is important to note that activity in the health segment falls on average in July/August with fewer people going to hospitals/pharmacies. However, this effect evaporates from September on, so it would be a much better scenario for this thing to “unwrap” itself starting with September.  Overall, the combined ratio for Slovenian insurers should be weakened and amount to above 100% at the end of 2023.

Below we decided to present you with a total GWPs in Slovenia in the last 5 years. To get a feeling of the magnitude of everything above-mentioned, we also put a Health segment next to the total written GWP to put it in some context [EUR m]. Of course, only part of the whole Health segment will “evaporate” from the private sector. However, we note that for example in Croatia, the Health segment amount only to c. 6% of total GWPs, which is somewhat lower compared to Slovenia.

Total GWPs and Health Segment GWPs in Slovenia (2018 – 2022, EURm)

Source: Slovenian Insurance Association, InterCapital Research

The discontinuation will reduce the top line of the whole sector, but due to the cost competitiveness of insurers, it should not have a material impact on their net profit in the following years (except this one obviously). It is expected that no impact should occur beyond 2023.

Aftermath

The sooner the Government takes over the operations, the better. Until it does, this means that insurers and forced to operate in a segment that erodes their bottom line – hence the unfortunately and previously mentioned Triglav’s Profit Warning. However, to start concluding on a positive note, once the government takes over, the whole situation should stabilize. Slovenian insurers’ bottom line should suffer only this year. And on top of that, the faster the Government takes over, the lower the hit on insurers’ P&L will be. Besides the short-term shock on operations and P&L, the medium-term impact should be more than manageable.

We should be aware that the Croatian Government is keeping a close eye (as always) on what our neighbors are doing. And there is a solid chance to copy/paste it in the foreseeable future, when the debt becomes too high, or VAT revenue starts to decrease… 😊