Some Key Features and Trends of the Ukrainian Insurance Market in 2007

By Anna Kozhemiachenko and Viktor Kharchenko
Spenser & Kauffmann

The following key features and trends on the Ukrainian insurance market could be traced in 2007:

• big increase in the authorized capital of insurance companies;

• increment of actuarial reserves of insurers;

• continued filling of the actuarial reserves of insurance companies with highly liquid assets, in particular, not with one-time borrowings just to provide a positive record, but with cash;

• increment of bank deposits’ segment in insurer’s actuarial reserves;

• growth of traditional insurance portion in gross income earned whilst carrying out insurance activity;

• aggressive entrance to the market of new insurance companies or intensive rise in the companies’ market segment by insurers whose owners or management have recently changed.

It is important to note that foreign investors significantly increased their equities in the authorized capital of national insurance companies. A number of agreements on the acquisition of controlling equity interests in the authorized capital of domestic insurers were concluded, and others, which had been concluded before, were completely fulfilled.

The shares of large national insurance companies as well as of smaller ones were actively purchased by foreign investors. For instance, one investor purchased a controlling stake in an insurer, which is among the top 10 Ukrainian insurance companies, and furthermore, has one of the most developed regional networks; the second one purchased a controlling stake in several small insurance companies, which perform non-life insurance activity, the third — a minor share in the authorized ca pital, etc. The circumstances concerned are mostly beneficial for those insurers, whose stake in the authorized capital were purchased by non-residents. The fact that the new shareholders of a national insurance company are both owners and highly skilled insurance business managers at the same time is of great importance to such companies.

Additionally, the purchased insurers now not only have a new owner, but also a number of unique opportunities. For instance, resident insurers can use and implement foreign experience in carrying out traditional life insurance activity as well as other types of insurance activity, experience in selling insurance products, etc. They also learnt about new insurance products, some special features of insurance services, unknown to domestic consumer and others know-how of organization and operating in the insurance business. Unfortunately, many such innovations are unacceptable or just incomprehensible and strange to the domestic consumer. The reason for this is that many national insurers literally copy the insurance products of the controlling foreign company without adjusting it to the characteristics of domestic consumers and peculiarities of regulatory grounds of insurance activity in Ukraine. As a result, an insurance product, which is very successful abroad, remains beyond the demand of consumers in our country.

Resident insurance companies whose shares were purchased by non-resident companies also received a number of advantages regarding risk reinsurance, performed abroad by a controlling company. The terms and conditions of such reinsurance became more favorable with respect to cost of reinsurance and reduction of penalties for non-fulfillment or inappropriate fulfillment of reinsurance agreements. Unfortunately, all the factors mentioned above have not resulted in the expected reduction in the rates charged by resident insurers. Because of higher reliability and financial stability of the insurer, the insurance rates of such companies remained at the same level or even rose by comparison with average rates on the market.

Another trend of 2007 is that some insurance companies started to introduce and others kept developing CRM (Customer relationship management) strategy whilst promoting insurance products. Due to to this strategy some insurers managed to increase their sales volume, gain a positive business reputation among domestic consumers, fixed relationships with customers, which resulted in the conclusion of more than one insurance agreement with one customer. A number of insurance companies succeeded in increasing the amount of their authorized capital to a considerable sum. National software product for introduction of CRM technologies in promoting insurance products has also undergone further development.

The next essential feature of the Ukrainian insurance market is formation and development of insurance brokerage activity, carried out in the form of so-called insurance supermarkets. An insurance supermarket is an organization which arranges conclusion of insurance agreements between a person or a company and insurer. An insurance supermarket acts as an intermediary between clients and insurance companies. It is also very convenient to a client, who can choose from a wide variety of similar insurance products and find the best offer and to receive a broker’s help and advice.

The competence of the intermediary is formed by an insurer in various ways, depending on the terms and conditions of the agency agreement in question. An insurer can entitle a broker or an agent simply to conclude insurance agreements or, in addition to this, to receive insurance payments under insurance agreements, to repay the insurance indemnification, to investigate the causes and circumstances of insurance events, to perform recourse against the person or a company, who caused the damages, etc. Such mediation is most common for types of insurance like car insurance, apartment or other real estate insurance, insurance of tourists, who travel outside of Ukraine, mandatory civil liability insurance of the owners of transport vehicles. Some agents also offer assistance in choosing a credit establishment for obtaining a necessary loan, provide help in obtaining a banking loan, etc.

When dealing with such intermediaries, it is highly recommended to make sure that a broker or an agent is permitted by the insurance company to carry out a part of its activity. Following this recommendation can save an insured from entering into an insurance agreement with a broker who overstepped his powers and lost insurance protection under such an agreement.