The Challenges Faced by Life Insurance Companies in the Baltic States

The Baltic life insurance market is a young steadily growing market. It began its development in the early 1990s when all three Baltic States, specifically Estonia, Latvia and Lithuania, have regained their independence. The Baltic life insurance market is limited due to a relatively small size with approximately six million inhabitants in all three countries. Additionally, the operations have deteriorated due to the low interest rates and the negative fluctuations in the financial market. The lessons learnt by the life insurers in the Baltic States are useful to other small countries in the European Union (EU) as well as to the larger States, to help bring to light the challenges of those members whose voice is not always heard, dampened by the larger States, so as to enhance the effectiveness of competitiveness, regulations and common policy within the EU. With this study we aim to lay out the trends on life insurers in these Baltic States, considered as small EU States, over the period between 2014 and 2018, and to uncover the challenges that life insurers in these countries are currently facing. Our analysis is based on the examination of aggregate statistical data of the insurance sector provided by the financial market regulators of all three countries, Eurostat data as well as annual reports of the insurance companies. The findings show that on average only 19% of the gross premium is related to the life insurance market. Moreover, the life insurance density figures are 20 times smaller when compared to the European average. In fact the analysis of the penetration rate indicates the ten times lower level of the life insurance premium to the GDP. Moreover, the life insurance companies in the Baltic States face a number of challenges related to the increased cost of compliance, necessity to operate in all three countries to ensure operational efficiency given the different levels of economic development in three Baltic States, low interest rates and therefore limited investment opportunities. The findings of this paper highlight the main trends and challenges in the development of life insurance market in the small European economies that is beneficial not only for other small European countries but also for the EU economic policy makers.