Insurance Post

Europe: Russian insurance market, preliminary 2015 results and 2016 forecasts

russia-2015

Post asks experts at the Central Bank of Russia to share their views on how the domestic insurance market fared in 2015, and their predictions for the coming year.

Igor Zhuk, director of the insurance department at the Central Bank of Russia, explains: "The insurance market hasn't shrunk in volume; it has even slightly developed. On the one hand, it's a ‘Pyrrhic victory', because it grew by 2% while inflation was more than 2%. On the other, many other markets have sunk much lower.

"Besides, in terms of profitability, the insurance market showed good results, which means that it has internal reserves for development.

"The market concentration is increasing gradually. There are 22 companies that receive 77% of the incoming premiums. Of these 22 companies, 15 are in the risk zone. Also, among the top 100, there are 33 companies which are in the special control zone. It doesn't mean that these companies are bad. Still, we have questions as to their assets and risk management."

He adds: At the beginning of 2015, there were 404 insurance companies; now there are 356 of them and before the end of the year, several more will leave the market. The number of other market entities is also decreasing: out of 150 insurance brokers, 138 remain.

"The foreign owners' share makes up less than 20% of the aggregate authorised capital of Russian insurance companies. Some time ago, the foreign participation ceiling was raised from 25% to 50%. It hasn't been used up, so we are waiting for foreign capital to arrive and contribute to the development of our insurance market. However, for some reason, it hasn't arrived yet, although the market has started turning profits and its earning capacity has increased."

"This year, the Bureau of insurance history was established as a way to provide better conditions for law-abiding, unproblematic clients, while spotting the risks associated with other customer profiles. In banking, bureaus of credit history appeared long ago. For the insurance market, this mechanism is beginning to work just now, " he explains.

"In 2015, the Bank of Russia reviewed the tariffs on compulsory motor third-party liability insurance and hazardous industrial objects insurance. Raising CMTPL rates positively affected the profitability of the insurance market. As for hazardous industrial objects, the rate was cut by up to three on 1 September: for 19 out of 22 groups of objects, we considered the tariff to be redundant - for the other groups, we increased the tariff. As a result, even in the Kemerovo region where there are a lot of mines, there will still be on the whole a reduction in premiums paid out for all hazardous objects.

"Also this year, the Institute of Curators started its work, and I consider it a milestone event. A curator is not a supervisor, not an assault force landing on the territory of the insurance company; it's just a person that has an efficient information exchange channel with the insurance company.

"And finally, the last important aspect: this year saw the start of an active movement towards the development of self-regulation."


chistukhin-bioVladimir Chistyukhin, deputy governor of the Central Bank of Russia, says: "Today you can make money on the insurance market from CMTPL insurance, life insurance, as well as property insurance, albeit to a limited degree. Although the share of life insurance is still small - about 10% - it remains a stable driver of growth. As for CMTPL, the tariff rise had a big impact. However, it was more like a ‘flash in the sky', and the influence of this factor has already played its role. What hasn't played its role yet is the rise in liability limits; in the future, this factor will further decrease profitability and reduce earning capacity."

He adds :"It is evident that we should move towards a free CMTPL tariff. The chair of the Central Bank of Russia [Elvira Nabiullina] confirmed the possibility of discussing and preparing a road map on how to make the tariff free. But it's not a question of time, it's a question of quality. We can make the tariff free even tomorrow, but what would this lead to? It would increase premiums manifold, because a lot of problems haven't been solved yet.

!We will be able to initiate the tariff liberalisation of compulsory insurance only once the system is ultimately balanced, when the problems aren't being solved by means of tariff increase, and only when there exists a normal market model that suits both the business society and the consumer. With such balance, there won't be a risk of unfounded tariff overshooting. That's why today we need to solve the problems with legislation, fraud and the like, and in that case, we will achieve tariff liberalisation naturally."

he continues: "Something should be done about fully comprehensive motor insurance. It has decreased by 13% over the first nine months of 2015 and that is a dispiriting figure. The tariff rise and the reduction in real disposable income during that period have played a key role in this situation.

"Health insurance and agricultural insurance are still only potential growth drivers. There is a lot of talk about this but we haven't received serious elaborate proposals yet."

On the market overall he says: "Over the first three quarters of 2015, Russian insurance companies made good profit: about 95bn roubles. This profit should be treated carefully in such an unfavourable macroeconomic situation. Part of it should be transferred to reserves or channelled for capital increase. At present, companies should reinvest their profits in order to boost their financial sustainability.

"Another risk that worries us is a systemic type of fraud that has become regular in some types of insurance. It cannot always be called illegal because the legislation is quite often complied with. We have repeatedly discussed the problem with courts and lawyers, talking about legislation changes, but, evidently, we should make more efforts."

He concludes: "The last burning issue is the issue of imposed insurance. In my opinion, it is one of the substantial risks that to some extent undermine the insurance sector's image. I guess a better model is voluntary insurance, where consumers are given the obligatory disclosure of whether a particular risk is insured or not."

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