Russian Insurers: Who Will Survive Financial Crisis

15.02.2010 — Analysis

Survival school

The previous year has been hard for Russian insurers. The market manifested significant reduction; the drop in amounts of premiums collected had already started in the end of 2008 and has been getting worse during the whole of 2009. According to the Federal Service for Insurance Supervision in January-March insurers collected premiums totalling 139.1 billion roubles (not counting mandatory medical insurance), in the second quarter - 132.7 billion, and still less in the third - 121.3 billion. The results of the last three months have not yet been published by the FSIS while experts are not expecting the indicators to improve as the liquidity shortage problems are still a concern for the majority of insurance market players.

The crisis also has dealt a shattering blow to the Urals Federal District. While the fall in premiums averaged at 9% in Russia compared to the same period of 2008 in the Urals the amount of premiums collected in 9 months of 2009 has reduced by 23%. Moreover, six insurers in the Urals Federal District have not managed to survive in current economic conditions. Uralros, Belaya Bashnya (later rebranded as Yubileynaya), Koltso Urala, Neftegaz-Strakhovaniye, and Ural-AIL-Zhizn have left the market. FSIS has revoked licenses of 101 Russian insurance companies in the previous year, this included 25 organisations which ceased operating voluntarily.

According to Aleksandr Koval, the Head of FSIS, at least another hundred companies will go in 2010. Starting from January 1-2 companies lose their licenses each week and this trend is here to stay. All insurers who showed reduction in premiums collected last year are at risk. As of the end of 2009 there were 722 insurance companies registered in Russia, 60% of them showed the reduction of revenues. 

The majority of them are small regional companies. During the crisis legal entities have been buying less of insurance products as insurance budgets in the majority of companies have been cut down. Many Russians who were laid off or had their wages cut down had to stop paying for insurance. In this situation only big players working at the federal level still managed to get profits, all the rest, even if still surviving, carried massive losses.

Who is to blame and what should be done?

Hundreds of thousands of Russians may fall victim to bankruptcies. "The situation does cause concerns. Our market is not transparent, many companies carry losses while keeping appearances of successful work. The problems, however, like a pregnancy, can not stay concealed forever, sooner or later they become public knowledge and it seems 2010 will become the time of such lamentable discoveries," reckons Konstantin Selyanin, a stock exchange analyst from the Mid Urals.

Every month there are more and more clients complaining of insurers defaulting on their obligations. In the first 9 months of 2009 1700 people came to the Insurance Supervision Inspectorate of the Urals Federal District with complaints while in the same period of 2008 there had been 800 complaints. The key complaint is that insurers delay claim settlements. In 80% of these complaints rulings have been made against insurers.

Clients of bankrupted insurers find themselves in the most difficult position. "According to the law insurers are obliged to establish a certain reserve so as to be able to fulfil their obligations before clients in any situation, however, in the conditions of non-transparent market it is very difficult to assess whether a company has enough assets. As a result when many of them go bankrupt it turns out that people have nothing to rely on, organisations have no own property and the sum total of their assets is, in fact, tiny," Mr Selyanin explains.

So far holders of compulsory car insurance policies can rest assured that they would receive their payouts. In case of an insurance company's bankruptcy the client involved in RTA will have their claim settled by the Russian Automotive Insurers Union. The 2009 results show that the RAIU has paid out 3.2 billion roubles to clients of companies which went bankrupt. Experts are concerned, however, that the Union's money may run out by mid-2010.

"Very large sums of money are paid out. To date we paid about 52 million roubles just to clients of the bankrupt Uralros. Around 2,000 people received payments. But the process does not end there, clients of this company keep coming to us," Oleg Tsypulin, the Manager of the RAIU in the Urals Federal District, told RusBusinessNews.

In order not to allow the complete exhaustion of funds the RAIU is undertaking extreme measures.
There were two funds in the Union before, one for settlements of claims of compulsory car insurance when the insurer went bankrupt and the other for paying out compensations to victims when the accident culprit is unknown. The total sum of money in the funds amounts to 10 billion roubles and only 3.3 billion out of this is allocated for when players leave the market. Since in 2009 3.2 billion roubles have been paid out of the first fund there is virtually no money left in it. This is why a decision has been made to join these funds by 2011.

"I think that thanks to these amendments in 2010 we will be able to cover the losses suffered by all clients of companies which left the market. So far the issue of the lack of money has been off the agenda but everything will depend on how the situation develops in the insurance market," Mr Tsypulin points out.

Russian citizens who insured property or health in companies which went bankrupt have virtually nothing to count on. "It is very likely that there is no chance of getting money if you claim or even get back some of the premiums paid in when cancelling the policy. Bankrupt companies either have no assets at all or not enough to fulfil their obligations," reckons Ilya Zakharov, the Director of the Ekaterinburg Branch of Alpha Insurance.

The only chance of getting anything at all is to take the matter to court. The servants of Themis, however, will not necessarily always be able to help in these situations. "As a rule claims from individuals are considered the last which is why chances to receive payment in full are not high," Alexey Mishin, the Manager of the Car Insurance Department of the Mezhregiongarant Insurance Group points out.

According to him you can only protect yourself against the non-payment by the correct choice of insurer. "Now it is a very hard time for the insurance sector and many assessment instruments which used to objective do not work any more. For instance, the position of the company in terms of the premiums collected does not mean much today and definitely does not help to choose a company that fulfils its obligations entirely. It used to be possible to rely on experiences of people you knew personally, if a company paid out than you could go ahead and buy your insurance there. This no longer works as many insurers made their payout procedures much more rigorous; if some time ago the company paid on the dot it does not mean that you can predict how this company will behave in the current situation," Mr Mishin pointed out.

According to the experts, the only universal criterion which would help choosing a company capable of surviving the crisis with high probability is if the insurer is a part of a large holding. The diverse business of the parent company is a safe guarantee that you can trust the insurer in the time of crisis.

Maria Truskova