2017 is a revolutionary year for the Russian insurance market

2017 is an anniversary year. A hundred years after a series of key events in the history of our country and in one separate segment of the Russian economy such as insurance there will be also revolutionary events, after which the insurance market, apparently, will never be the same.

It is rather difficult to give a full summary of the all processes and events which took place in insurance, but some of them - the most significant or radical ones - were briefly analyzed and correlated in this article.

Self-regulation in insurance

On December 6, 2016, the Central Bank of Russia has registered the first Self-regulation organization (SRO) in insurance based on the All-Russian Insurance Association (ARIA). The Self-regulation organization (SRO) united the largest companies on the Russian financial market, except banks. The legislation covering the Self-regulatory organization (SRO) is quite strict. So, the decision to create SRO can be taken by companies if their number is higher than 26% of all companies in this segment. Membership in the SRO is mandatory. At the time the decision to create the SRO by the ARIA members was taken by about 120 insurance organizations out of 260. For the time being, their number has reached 135, while the total number of insurance organizations operating on the market has dropped to 250.

The fate of all other insurance unions is interesting. Presumably they will gradually join ARIA. At the same time, some of the unions whose activities are not regulated by separate articles of laws will join ARIA immediately. After the finalizing of the merger process, ARIA will manage the compensation funds of all three unions. Apart from ARIA, the Self-regulatory organization of insurance brokers will appear on the insurance market.

The main tasks of creating SRO in insurance are to improve the quality of control over the activities of insurance organizations, to organize a more effective dialogue between the authorities and the insurance community, and to protect the insurers' interests.

But one way or another a new very powerful and super-prestigious organization has appeared on the insurance market (as SRO-ARIA).

The reinsurance segment

The revolution on the Russian reinsurance market has begun a year earlier - in 2016. In October last year the National Reinsurance Company (renamed to the Russian National Reinsurance Company - RNRC) was licensed and started operating with a registered capital of RUB 71 billion (paid capital -RUB 21.3 billion).

RNRC is taking a very active position on the market.

Over the past six months (although it is more correct to talk about one quarter of the RNRC operating in full force), the company managed to implement many initiatives:
  • About 50% of concluded contracts were provided by insurance brokers
  • The state reinsurer will assume the risks of property loss of Russians in case of emergency situations
  • RNRC signed the first obligatory reinsurance contract (less than a month's work, by that time having received more than RUB 6 billion rubles under facultative contracts);
  • RNRC concluded the first international cooperation agreement signed with BelarusRe;
  • The national reinsurer plans to expand the geography of its operations (the company plans to diversify its portfolio, to attract foreign risks through foreign brokers);
  • RNRC plans to respond to reinsurance offers within 24 hours (note: in case of up to 10% of the risk);
  • Premiums of RNRC may total RUB 8 billion in 2017;
  • RNRC started to reinsure agricultural insurance risks;
  • RNRC is ready to reinsure cyber risks.
The creation of the RNRC not only shook the whole market but also charged it with new energy. RNRC pretends to be a direct agent of the state on the market - and actively enhances this role and uses it. If the RNRC is actively growing and developing, then, the fate of other reinsurance companies in Russia is difficult, unfortunately called enviable. Their number continues to decline steadily. Now there are only 4 of them left:
  • RNRC
  • RussianRe
  • Kapital Re
  • SCOR
Tab 1. Change in the number of reinsurance companies, by years



Thus, today everything goes back to the fact that, speaking of reinsurance in Russia, we will inevitably talk only about RNRC and it will remain the only company in this category.

And yet in 2008 their number reached 30! At present RNRC is managed by Nikolay GALUSHIN- an adherent to market development. The remaining insurers have nothing to worry about. However, if this powerful tool (RNRC) gets into other less skilled hands - we can expect interesting times...

MTPL insurance

The situation in this segment does not just continue to deteriorate: the MTPL crisis is becoming more and more large-scale and multifaceted, gives abundant "metastases" to almost the whole insurance system, and worsens the attitude of society and authorities toward insurers and the insurance industry.

The situation of non-insurance payments (under the form of various penalties paid as benefits to motor lawyers), as well insurance fraud, has not improved much.

Therefore, some of the insurers leave the "toxic" regions (with extremely high loss levels), while others leave the MTPL business as a whole.

The growth rates in compulsory MTPL were the lowest in the whole history (premiums grew by 7.2%), and the growth rate of payments (39.7%) was almost a record. The absolute record was established in 2016: the MTPL loss ratio was almost 74%!

Tab.2 MTPL in Russia




Currently, motor insurance companies place very high hopes on the introduction of a natural form of compensation, when the damage to the victim is not compensated in cash, but in the form of repairs to a damaged car.

Claims and Bankruptcies

In the past year, the government and the Central Bank submitted a draft law that stands for the changing of the procedure for considering disputes between insurers and the insured. It is supposed to legalize the institution of the insurance ombudsman that is already functioning de facto in Russia and give it a new status, similar to the one characterizing Western countries.

In the last decade of December 2016, amendments to the bankruptcy law came into force, providing for the transfer of powers of the arbitration manager in the insurance market to the Deposit Insurance Agency. The Deposit Insurance Agency becomes the only structure that will deal with the bankruptcy of all financial institutions, unable to fulfill their obligations.

Mandatory health insurance

The situation in the compulsory health insurance is subject to criticism from all sides. The state of insurance medicine is unsatisfactory on all levels - doctors, patients, government, and insurers. However, a satisfactory strategy for its development has not appeared in a quarter of a century and all these years there has been an almost continuous reform of the Mandatory health insurance.

Since January 1st, 2017 the requirements for the minimum size of the authorized capital of health insurers have been doubled - from 60 to 120 million rubles. The concentration on this segment has risen remarkably after the finalizing of the purchase transaction between VTB Insurance and ROSNO-MS (note: every third Russian citizen was insured by this company). And the growth of the concentration will continue in early 2017. It became known that RESO-Garantia is buying a health insurance company from the URALSIB Group.

Conclusions

Contrary to the expectations of insurers, large project that were supposed to activate the retail market - telematics insurance - have not been started. Almost all companies that were particularly active in its implementation are at the moment facing with circumstances that prevent the further development and the introduction of telematics products in their engine portfolio in 2017. The growth of telematics, strangely enough, also prevented the good situation with the Motor Hull segment in many large companies in 2016. As a result, instead of giving a discount for a smart ride (using telematics), insurers got involved in tariff wars and began to offer incredibly huge discounts to everyone, pulling each other's customers without taking into account their driving habits.

Despite this, a certain impulse for the development in this direction can be provided by the mandatory installation of telematics equipment - the ERA GLONASS system, going off in case of a road accident and based on an automatic call the emergency services at the place of the accident. Since January 2017, according to the law such equipment must be installed on all the cars produced or imported into Russia - not only new, but also second-hand cars.

The second disappointment of 2016 and the hope of 2017 are the mandatory property (housing) insurance for individuals.

Thus, summing up the events and processes on the Russian insurance market, we can confidently say that the market has been subject to powerful and multidirectional radical changes from inside and outside of the country.

Share |

Related articles

photodune-3834701-laughing-girl-xs

Are GDPR non-compliance fines insurable or not?

Complying to the EU General Data Protection Regulation (GDPR), effective from 25 of May 2018, is currently one of the most challenging issues for many organizations. Even in the absence of a personal data breach incident, companies may face regulatory assessments resulting in fines and penalties. Moreover, companies operating on several territories, including the EU, may encounter situations interesting several jurisdictions with different legislation. How much can insurance help organization to manage this kind of operational risks?

2018-06-14
photodune-3834701-laughing-girl-xs

HOPE DIES LAST

Such a reading is also the most recent report of the GENEVA Association (details on them, HERE), suggestively titled "Understanding and Addressing Global Insurance Protection Gaps". Summarily, the material analyzes and seeks solutions for the so-called insurance protection gap. The phenomenon of under-insurance, on a global scale.

2018-06-07
photodune-3834701-laughing-girl-xs

Lloyd's: Cyber-crime, interstate conflicts or market crashes yearly costs may reach USD 320.1 billion

Man-made risks like cyber-crime, interstate conflicts or market crashes are a bigger threat to economic output than natural disasters, putting an estimated USD 320.1 billion of global GDP at risk on average each year, according to Lloyd's City Risk Index. Built in collaboration with Cambridge University, the study measures the impact of 22 threats on 279 cities' projected economic output.

2018-06-07
photodune-3834701-laughing-girl-xs

Swiss Re's 2018 SONAR Report: re-emerging or new risks - mostly related to new technologies or lifestyle trends - pose the largest challenges for the re/insurance industry

"While our trust in assistance systems remains unbroken, and their usage increases, humans are still held accountable and are expected to be able "take over the wheel" any time. While the law treats drivers mainly as it used to, actual driving practice and alertness are decreasing. The consequent widening skills gap not only impacts insurance risk, but also operational risks." This is just one of the risk evolving trends identified by the Swiss Re's 2018 SONAR report.

2018-05-31
photodune-3834701-laughing-girl-xs

Challenges and opportunities of agricultural risks transfer

Despite the rapid movement of the modern world towards digitalization, high technology and process sophistication, the longtime existing agricultural industry remains important for satisfying the primary needs of humanity in food and basic material. In parallel with all technological development people are returning to forgotten principles of sustainable nutrition. Can agricultural industry support this trend? Which challenges agricultural industry experience itself in the era of climate change? We have discussed these and other questions with Olena SOSENKO - International expert in agricultural risk management.

2018-05-23
photodune-3834701-laughing-girl-xs

CEE, FY2017: GWP and paid claims increased at the same pace: 11.5%

The CEE insurance market saw a 11.5% y-o-y growth in 2017, statistical data gathered by XPRIMM show. Overall, GWP amounted to EUR 36.12 billion. With a similar increase, paid claims reached almost EUR 22 billion. The forthcoming issue of the XPRIMM Insurance Report for FY2017, to be launched on May 14, will present in depth information in this regard.

2018-04-19
photodune-3834701-laughing-girl-xs

SERBIA: New Law on Compulsory Traffic Insurance announced

By 2020, Serbia should adopt new regulation in the field of insurance, which would follow the requirements in the process of European integration. The biggest challenge will be the adoption of the new Law on Compulsory Traffic Insurance, to replace the current Law adopted in 2009.

2018-04-12

Europe's future may lie in its pensions

The EU is set to introduce an entirely new class of pension products, according to a proposal by the European Commission currently under debate. Here comes the... PEPPs.

2018-02-16

ON THE MOVE

Three new appointments at XL Catlin insurance operations

XL Catlin insurance operations announced on 4 June three appointments: Donnacha SMYTH as President Global Excess Casualty Insurance; Carla GREAVES as Chief Underwriting Officer, Global Excess Casualty; Aurelie FALLON SAINT-LO as Senior Underwriter, Environmental and Client & Distribution Leader for Western France.

07.06.2018

TOP EVENT

LIVE: BAKU: "Insurance in Azerbaijan: New perspectives" Conference

The annual and most important insurance event within the Caucasus region - "Insurance in Azerbaijan: New perspectives", started today, in Baku, organized by XPRIMM and Azerbaijan Insurers Association, with the official support of the Financial Market Supervisory Authority of Azerbaijan.

20.06.2018

5th Annual Insurance Business Forum "Challenges of the Year 2018"

will take place on September 17-21, 2018 in Sochi
The upcoming Forum, supported by the All-Russian Union of Insurers (ARIA), will logically continue a detailed discussion of the most pressing issues previously raised at ARIA events in 2018: Insurance and Reinsurance International Congress in Moscow and Insurance International Conference in St. Petersburg.

12.06.2018

See all