| Market participants are worried that their income is growing slower than their expenses. The Russian insurance market is close to saturation, and the insurance business is becoming unprofitable. The price of business - the cost of companies to promote their services in the market and maintain its share - is growing faster than premiums collected. The president of the Rosgosstrakh group of companies, Danil Khachaturov, shared these conclusions with reporters yesterday. Representatives of the insurance market are of a similar opinion.
According to Mr. Khachaturov, the cost of running a business last year compared to 2003 increased by 33%, and bonuses by 27%. At the same time, the share of wages in business expenses increased in 2004 to 43% compared to 40% a year earlier. Insurance agents' commission amounted to RUB 7.1 billion, an increase of 49% over the year. Based on the results of 2005, these figures are expected to increase. “Throughout the civilized world, insurers compete with tariffs, and in Russia with commissions,” noted Mr. Khachaturov. “We are also concerned about the race in commissions for sellers, which is organized by some fly-by-night companies. This mainly concerns compulsory motor liability insurance,” says Deputy General Director of RESO-Garantiya Igor Ivanov.
“Almost all insurance companies have now entered the retail business, and this automatically means an increase in the cost of doing business. The market is overheated in terms of salaries, commissions, advertising and other costs, says Danil Khachaturov. “Although it is obvious that any normal company cannot afford such expenses.” According to his forecast, companies that fail to plan their expenses will be forced to leave the market or transition to the status of insurance brokers in a civilized manner. “According to our estimates, investments in the sales network will be recouped in three to four years,” says Nikolai Klekovkin, CEO of Renaissance Insurance. -- Against the backdrop of a growing market, large investments are required to serve it. There’s no escape from this.”
“Every year the margin from insurance operations will decrease,” predicts the head of Rosgosstrakh. “Previously, the margin allowed insurers to develop and invest; in the coming years, the financial result from doing business will stabilize at the level of 2-3%, which, however, corresponds to classic global indicators.” “Probably, today in Russia one cannot expect any other margin in insurance; this is not an oil business,” agrees Mr. Klekovkin. “Insurers make money by growing market volume.”
According to Mr. Khachaturov, the source of income for insurers will mainly be investment income. “Western insurers receive almost all their income from investment activities; the result of insurance operations themselves is very small. The Russian market is moving in the same direction,” notes Mr. Ivanov.
“In Russia, the level of investment income is constantly decreasing - a year ago it was realistic to earn 15-20% per annum on the market, today it is a maximum of 10%,” says Mr. Khachaturov.
At the same time, according to the new order of the Federal Insurance Supervision Service on the placement of insurance reserves, insurers can invest money only in very conservative securities. “The new procedure for placing reserves will lead to a sharp reduction in the market, significantly,” says Mr. Khachaturov. — Some points of the rules should be softened, and after some time, I think the FSSN will come to this. Or we will all come to the FSSN and ask to expand the list.” Rosgosstrakh also plans to take advantage of the opportunity to transfer part of its reserves to trust management.
The company plans to expand the range of services provided by type of insurance. “We will deal with all areas of insurance,” says Mr. Khachaturov. Thus, Rosgosstrakh can create its own reinsurance company, which will also deal with international reinsurance. According to the head of the company, such a decision has not yet been made; this will be possible if the team of specialists who recently joined the company becomes strong enough. “In this case, we will catch up with Ingosstrakh in terms of business volumes in the field of reinsurance,” said Mr. Khachaturov. “For Rosgosstrakh this is a completely feasible task,” comments Mr. Klekovkin. “Reinsurance requires a lot of capital and professional underwriters, they have it all.” Gyuzel GUBEYDULLINA |
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