F
ollowing periods of economic and social volatility following the fall of the Soviet Union, Russia has once again risen to be a major economic powerhouse. Economic growth has led to continued
development of Russia’s insurance and reinsurance sectors, which in turn has enabled companies to take on more risk, which ultimately has aided their growth.
Therefore it is important that while Russia continues to grow economically,
it also works to create conditions that allow the insurance and reinsurance sectors to flourish, which in turn will aid growth.
While some steps have already been taken to achieve this, there are
still many challenges to overcome, especially for insurers servicing the domestic market, one being the relatively low standard of living, which then leads to low insurance penetration, according to Vladimir Arefyev, deputy director at Alterisk Insurance Brokers.
“To improve the insurance culture in Russia, we need to increase
standards of living,” he says. “This will to increased demand for property insurance and other retail lines, including life insurance. Unfortunately, this is not a very easy and quick step.”
While agreeing that it is important to continue developing Russia’s
economy and to increase wealth distribution, Carlos Wong-Fupuy, senior director, analytics at A.M. Best Europe, does not believe that these steps will provide a panacea on its own.
“There is a need to develop a culture of confidence in the insurance
system and this is not something which I am aware of at the moment,” he says. “For example, from a life insurance point of view, you need to ensure that life and savings products offered by Russian insurance companies look as safe as investment in banks. The perception at the moment is that banks offer better protection than insurance companies.
“On the one hand, you need to improve affordability, but it also necessary
to develop a culture where there is increased trust in insurance.” Wong-Fupuy believes that
this can be done through improving the
transparency and credibility of insurance companies in Russia and also by introducing more compulsory insurance.
While Arefyev agrees that compulsory lines are showing growth in
Russia at the moment, he also points out that some insurers have faced problems when covering compulsory lines, such as motor and third- party liability.
“Currently, the retail market is developing mostly with the help of compulsory and imputed types of insurance such as motor and third-party liability,” he says. “However, on other lines, the demand from the retail market is not so significant. In addition, high competition on the motor insurance market has brought bad financial results and even bankruptcy to some insurers.”
The number of players in the Russian insurance market has also been
steadily decreasing over the last few years from around 1,000 a few years ago to around 600 now.
“One of the reasons is that several of these companies were not doing insurance, but rather business related to tax efficiency,” says Wong- Fupuy. “In other cases, there were small operations which were not very well capitalised.”
Wong-Fupuy believes that this consolidation will continue to happen,
but that it will result in a better domestic insurance market in Russia. “There is a trend towards more consolidation in the market,” he says.
“So hopefully there will be fewer insurers, but they will be reinforced by better regulation and will have a better capital position, along with clearer reporting systems. However, until that happens, there will be a significant number of small companies competing for market share, while not necessarily contributing to the transparency of the market.”
While this consolidation might be good in the long term, it is providing
problems for Russian reinsurers, who along with having to deal with a number of other challenges are also seeing their domestic market shrinking, argues Alexander Artamonov, general director at Moscow Re. However, he remains hopeful.
“One of the main challenges we face is the decreasing number of
insurers,” he says. “The decreasing number of Russian insurers could be compensated by the new market entries providing additional premium to collect.”
October 2011 | INTELLIGENT INSURER | 45
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