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Analysis: Major events in the Russian insurance market in Q1 2012

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Problems in the motor insurance market, new legislation and major deals made the news in Russia for Q1 of 2012. Paul Koshik reports.

Changes in Russian legislation were the premier source for events in the Russian insurance market in Q1 of 2012. For example, on 23 March the State Duma passed the first reading of two bills which will see insurance companies forfeit their right to provide bank guarantees.

According to the sponsors of the amendment, an operative rule does not comport with the law on banks and banking activities, particularly as granting of the bank guaranties is included in the range of banking operations.

In turn, banking operations can be performed only by credit institutions, and insurance companies are not part of them. However, the revocation of the right does not prevent insurers from granting surety and other financial guarantees.

Hazardous facilities
Nevertheless, these bills did not arouse intense interest among insurance market participants, unlike two other bills that came into force on 1 January 2012. The first is a law on Compulsory Third Party Liability Insurance for Hazardous Facilities.

Under this law the process of insuring should be divided into two phases: all the non-state companies must insure themselves in 2012, and, starting from 2013, all government and municipal institutions also have to get cover.

The aim of the law is to reduce load on budget in case of technogenic catastrophes. The general market capacity for this type of insurance is priced at £425bn to £468bn.

However, penetration is low in this market and only about 30 000 insurance treaties of this kind had been made throughout the country by the end of March. According to expert estimates, it accounts for no more that 10% of all facilities that pose heightened danger to people and the environment on the territory of Russia.

Underinsurance
At the same time during the first two months of 2012 at least 76 insurable events took place on the hazardous facilities that are subject to insurance. Only in four out of 76 events was an object protected by the insurance policy for hazardous facilities.

Consequently, Rostekhnadzor, the Federal Service for Ecological, Technological and Nuclear Supervision, made a decision, starting from 1 April, to impose fines on businesses that possess uninsured hazardous facilities.

Fines range from £6400 to £10 600. This measure has proved to be very effective - with another 110 HF insurance treaties made in April, almost four times more than in the previous three months.

Vehicle inspection
Nonetheless, it was the second law, on vehicle inspection, that appeared to be the main subject of discussion during the last three months. According to these rules, starting from 1 January 2012, all drivers must pass vehicle inspection not in the subdivisions of State Road Traffic Safety Inspection, but in the offices of private operators that have obtained accreditation in the Russian Association of Motor Insurers.

This has touched directly on insurance companies - from now on they can give CTP car insurance policies only to those car owners who have passed vehicle inspection. However, the new system of vehicle inspection faced problems almost at once, and the knock-on effect was that insurance companies were unable to provide insurance policies without vehicle inspection cards.

System problems
Some operators lacked enough vehicle inspection report forms, while others began selling these forms illegally. This resulted in so many problems, all over the country, that premier Vladimir Putin had to make a personal appointment with the representatives of social organisations for drivers and take the situation with the new system under his control.

Meanwhile, it was reported that major Russian insurance company Rosgosstrakh began actively offering its compulsory insurance clients partly filled-out forms of vehicle inspection cards. Claims were made that clients' cars were not examined and cards were not active as they were not certified with a signature of a vehicle inspector.

Clients were informed against signature of the necessity to pass further vehicle inspection. Therefore, CTP car insurance policies were provided without a valid inspection card. This activity prompted storms of protest against Rosgosstrakh and other insurers and inspection operators.

Violation of law
The Federal Financial Markets Service declared such behaviour to be a violation of the law. Federal and local authorities opposed Rosgosstrakh. For example, the public prosecutor's office of Velikiye Luki, a town in Pskov Oblast, Russia, initiated a criminal case against the company's officials, and the public prosecutor's office of The Republic of Bashkortostan demanded dissolutions of CTP insurance treaties made illegally.

The Federal Antimonopoly Service of Russia also spoke out against the insurer. FAS experts concluded that the system of providing CTP car insurance together with a vehicle inspection card, used by the insurer, contradicts antimonopoly law. At the moment all the cases against Rosgosstrakh are in the planning stage and none of them have yet reached trial.

Body for accreditation
RAMI, the body responsible for accreditation of vehicle inspection operators, was reportedly involved in this scandal as well. As a result, Pavel Bunin, the head of the Association, submitted his resignation. On 20 March, the Association Management Reform was approved during the unscheduled meeting of RAMI members. Under this reform representatives of small insurance companies are allowed to join the presidium of the Association.

FFMS and the General Prosecutor's Office of Russia launched large-scale checkups of vehicle inspection operators and insurance companies which provide CTP car insurance policies all over the country. Since this time the Russian Ministry of Finance has proposed some amendments to the law on vehicle inspection. They will be considered in the State Duma in the near future.

Share news
In other important news, Liberty ITB UK & Europe, part of the international insurance group Liberty Mutual, has bought 99,99% of voting shares of Russian insurance company KIT Finance Insurance. KIT Finance Insurance is in the top five largest Russian insurance companies, according to the Consumer Confidence Index.

Also, over this period the process of consolidation of three Russian insurance groups - ROSNO, Progress-Garant and stock insurance company Alliance - all belonging to international financial holding Allianz SE, was completed. From April 2012, the new company operates in the market under the name of OJSC Insurance Company Alliance. Hokan Danielsson has been appointed general manager.

In addition, Russian Insurance Company SOGAZ set up a subsidiary in Serbia. The leading Serbian gas company, SerbiaGas, entered into partnership with the insurer.

In other news
Finally, several representatives of the Russian insurance market were included in Forbes' rating of the world's richest Russians. They are Danil Khachaturov, general manager and co-owner of Rosgosstrakh (estimated fortune of £1.2bn), Sergei Sarkisov and Nikolai Sarkisov, co-owners of RESO-Garantiya (£740m) and Sergei Tsikalyuk, owner of insurance company VSK (£617bn).

In general, the Russian insurance market is experiencing some positive dynamics. During the first three months of the year Russian insurance companies have concluded over 30 big contracts, each amounting to more than £20m.

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