The number of Russian insurers is on the decline and new capital requirements will only reduce them further.
Historically, it was difficult to develop an insurance business, explains Andrey Dolgopolov, board of directors chairman at Malakut Insurance Brokers, network member of Gallagher Global Alliance. In the early 1990s, large banks held a monopoly and made it difficult for smaller companies to enter the market. Those who had started businesses and modestly existed in the current conditions became uncompetitive. Further, the introduction of a law on compulsory motor third-party liability made it even more difficult for companies without large branch networks.
And as of January 1, 2012, new legislation is coming into effect requiring insurers to have a minimum share capital. Currently 387 of the 596 insurance companies do not meet these requirements, says Dolgopolov.
“People who leave insurance companies start new insurance brokerages or join existing ones, as this market is less competitive,” he says.
In May 2011, there were 165 licensed brokerages in Russia that have been authorized to do business, and the amount of commission and fees is steadily growing, according to Dolgopolov.
In terms of laws and legislations, Article 4 in the 1992 Law of Insurance states that Russian residents may only be pursued by insurers that hold a license.
Non-admitted insurance is not legally permitted, which includes difference in conditions (DIC) and difference in limits (DIL). All insurance must be purchased from locally authorized insurers.
Alternative solutions would need to be sought out to cover potential gaps between local policies and master policy coverages, say industry experts.
Also, premiums paid overseas for non-admitted insurance would not be allowable as a tax-deductible business expense, and any claim payment is taxed as income.
Additionally, certain types of insurance (e.g. kidnap and ransom) are prohibited in the Civil Code of Russian Federation and cannot be written in Russia, says Dolgopolov. The only buyers of this insurance are foreign enterprises and they have been insured on a non-admitted basis.
Other features of Russian insurance include: exported wordings on policies is typically not allowed and wordings in general must be approved by the insurance regulator, premium payment can only be in the local currency, and broker involvement is not compulsory, according to Zurich.
- 596 insurance companies
- Total authorized capital of insurance companies at end of second quarter 2011 was 161.2 billion rubles (US $5.7 billion)
- 285.5 billion rubles in premiums written first half of 2010 (US $10.2 billion)
- 134.9 billion rubles in claims paid first half of 2010 (US $4.8 billion)
- Examples of compulsory insurance: motor third party liability, aviation, professional indemnity for realtors, customs agents and auditors
Sources: Axco Insurance Information Services; and Malakut Insurance Brokers, network member of Gallagher Global Alliance
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the July/August 2011 edition of Canadian Insurance Top Broker magazine.