Yugoriya's strategy - outpace the market

16.12.2010 — Analysis

The Russian insurance market is still trying to survive the crisis recession. Experts expect that it will reach the level of 2008 only next year. At the moment, only few companies can operate at a profit. Yugoriya, a state insurance company, is one of them.

In November 2010, the company marked its 13th birthday. At present, it is the only composite insurance company in Russia that has the status of a state entity. Yugoriya's affiliated network is expanding year by year - it has gained a foothold in 59 regions of Russia. In his interview with RusBusinessNews, the company's General Director Alexei Semenikhin outlined Yugoriya's strategy for development and gave forecast for the Russian insurance market.

- Saying farewell to the departing year, most of the people heave a sigh of relief: nothing disastrous has happened, and they can make further plans. What did year 2010 bring those who insure against troubles?

- In 2010, our insurance company was growing, substantially outpacing growth rates of the Russian insurance market. Therefore, we have good results and a profit. The preliminary estimates show that over the last year Yugoriya's insurance sales increased by more than 10%. Voluntary insurance products will traditionally account for about 80%. For example, the increase was demonstrated by insurance of property, crop, equipment and machinery, aviation liability and aircraft owners' liability as well as voluntary automobile insurance. Among compulsory insurance, motor third party liability insurance retains the leading position both in terms of growth rates (more than 30%) and sales.

In 2010, the company continued to extend its affiliated network. We have strengthened our positions in Moscow and ranked 9th in the rating of insurance companies of St. Petersburg, having a more than 3% share of the market. We have opened our branch office in Usinsk (the Komi Republic) and a number of agencies in different regions of the country. In 2010, Yugoriya came to five Russian regions: Ryazan, Kaluga and Lipetsk Regions, the Mari El Republic and Mordovia. The affiliates will account for 85% in the total insurance sales of the company in 2010.

- Recently Yugoriya has announced its strategy for development for 2011-2015. What are its target parameters?

- First of all, it is a profit improvement strategy. By the end of 2015, we intend to raise insurance premium sales to 17.1 billion rubles and gain a 1.8% share of the Russian insurance market. The main objectives are to receive IFRS net profit exceeding 1 billion rubles and double equity capital of the company. Another quite an important target is to increase the number of renewed customer agreements to 70%. We will focus our promotion efforts on 20 prospective regions of Russia where Yugoriya will advance rolling out a forward strategy. In 2012, we intend to have the Far East joined the regional network. Thus, the company will be represented in all the federal districts of Russia.

To make the corporate insurance portfolio more balanced, we are going to change its composition gradually. For example, we are planning to downsize automobile insurance risks and to increase insurance for the agricultural-industrial sector and hazardous production facilities.

- Are there any plans about new products that will enter the market next year?

- We are continuously upgrading our product line and will keep doing it in 2011. For example, in January, Yugoriya will start selling new unique property insurance products for individuals: "Confidence - house" and "Confidence - apartment". These are packaged programs that include an array of different types of risks and insurance provisions. The customer can choose the required combination of possible risks to be insured against: fire, accident, explosion, act of nature, theft, robbery.

New policies will be issued following a simplified procedure - under the customer's oral application. No documents will be requested to confirm the right of ownership. Documents will be required only for insurance indemnity. Customers will also find rates and fees attractive. For example, coverage of a brick country house appraised at 800 thousand rubles, exclusive of interior finishing, will cost on average 3,200 rubles. Insurance of a 1.5 million ruble apartment will cost 4,700 rubles on the same conditions. Such financial terms are affordable to most of the Russian citizens, and I believe that new policies will be popular.

- What novel laws can Russian insurers expect in 2011? How will they affect customers of insurance companies?

- There are a number of legislative acts being prepared; these acts will have a substantial influence on the development of the Russian insurance industry. I would like to point out a few important projects - all of them are related to compulsory insurance.

On January 1st, 2011 a revised law concerning compulsory health insurance will take effect. At the moment, insurance companies are responsible only for issuance of compulsory health insurance policies and expert examination of quality of medical services. The existing law does not provide for us any other functions that relate to insurance per se - we act as intermediaries between health care institutions and citizens.

The revised law stipulates that each working citizen can make his/her own choice of a compulsory health insurer - previously, the choice was made by an employer. Besides, Russian citizens will have the right to choose a health care institution and even a doctor. The hospital that signs and agreement for health care services will not be able to deny providing services to the insured citizen: the residence and other formalities will not be taken into consideration.

We also expect the adoption of the federal law concerning government support of agricultural and industrial enterprises. The innovation will make insurance affordable to agricultural producers. Consequently, the percentage of insured crop areas will increase. We intend to participate in implementation of this law.

Another important law is the law "Concerning compulsory insurance of carriers' liability". It has recently been passed in its first reading by the State Duma of the Russian Federation. Previously, only airline companies were to insure their liability. The future law applies to all types of overland transport - trains, buses, street-cars, taxis, sea vessels.

Looking ahead, I would like to note that on January 1st, 2012, another law will take effect; the law provides for increased liability limits under motor third party liability insurance. The indemnity amount pertaining to life and health damage is expected to go up to 500-600 thousand rubles and in terms of property damage - up to 200 thousand. The increased liability limits will result in revised rates. Analysts anticipate that "motor liability" polices will increase by 20 - 30% in price.

- After the unprecedented summer wild fires, a lot was said about compulsory housing insurance. Do you think that the relevant law can be adopted in 2011?

- Yes, we can expect that; however, the draft bill is going to face a number of problems. The main issue concerns its legal compliance with the applicable legislation. The RF Constitution and the Civil Code do not allow any obligation in citizens' property insurance; therefore, first of all, certain adjustments must be made in the legal framework.

The issue of adequacy of insurance rates is of equal importance. Compulsory insurance will result in increased costs of housing maintenance, and for some categories of population they may be intolerable. Therefore, at the first stage of this law enforcement, a certain negative attitude of Russian Citizens should be expected.

There is no system for its implementation so far. In particular, there is no entity that would monitor whether home owners have or do not have such a policy, and would apply certain measures. In short, the questions in this field still outnumber the answers.

- If we look at the banking market of Russia, we can state that not everybody can survive. Do insurers face the same situation?

- In 2011 the insurance market is going to grow in money terms. This process will be greatly influenced by new compulsory types of insurance, which I have already mentioned. They are the driving factors of growth.

However, the efficient implementation of the laws we are talking about requires a high level of responsibility from insurance companies and strict requirements to such companies. Only stable and reliable companies should be allowed to operate on this market in order to prevent any occurrence of the situation when due to bankruptcy of a number of insurers their customers failed to receive compensation under motor third party liability insurance policies. Therefore, the number of insurance companies is going to decrease, whereas the remaining market players will reinforce their positions. Eventually, it will result in increased confidence in insurers.

Prepared by Maria Truskova