Chairman of the Committee
Ukrainian Society of Financial Analysts
Vyacheslav CHERNYAKHOVSKY: The market results, in 2016, have given a timid hope for the industry's exit from the prolonged crisis.The number of insurers significantly decreased: in non-life from 312 in 2015 to 271 in 2016, in life insurance segment from 49 to 39 companies. The level of penetration of insurance in GDP remains at a rather low level of 1.5%.
Despite the 18.3% nominal GWP growth in 2016, with the adjusting to the official inflation rate (in 2015 and 2014), the growth rate was only 5% compared to 2015 and almost 22% less than the same adjusted figure in 2014.
In 2016, the nominal volume of gross payments increased by 9.1%, while in the adjusted form it decreased by 3% compared to 2015. Claims ratio in 2016 amounted 25.1% and 27.2% in 2015.
The market growth was conditioned by several factors:
- growth in life insurance segment
- increase in non-government compulsory insurance (MTPL, Green Card)
- increase in health insurance
- increase in property and cargo insurance
- increase in reinsurance insight of the country
The nominal growth was also facilitated by the currency exchange rate (weakening of UAH), where there is a high correlation of the cost of the insurance object with the exchange rate.
XPRIMM: In last years' foreign insurance companies' which were active on the Ukrainian insurance market have decided to give up their business and to leave country. The decision of liquidation of domestic companies was also observed in the local insurance industry. What is the main reason?
Vyacheslav CHERNYAKHOVSKY: There is a turning off insurance business, for both foreign investors and companies with national capital. If in case of the national companies it is more connected with obvious or provoked bankruptcy, while for foreign investors turning off Ukrainian business was caused by the high level of sovereign risk, low rates of economic recovery, insignificant (or even negative) return on capital, etc.
At the same note, due to the decrease of solvency of population, complete lack of lending of commercial and private sector, the largest losses of funds of businesses and individuals due to closed banks (note: during 3 year there were closed 90 banks) overall led to increase of competition in all segments of insurance market. Concentration of business is especially noticeable among the top-10 insurers (in life the market share is89% and 45% in non-life) and top-20 (in life the market share is 99.5% and 62.7% in non-life). The market share of Top-100 in non-life amounted 99% of the market.
XPRIMM: How do you evaluate the development of motor insurance types of business in Ukraine? What about the effectiveness of bonus-malus system, amicable report implementation? What measures have been taken in order to reduce MTPL loss ratio?
Vyacheslav CHERNYAKHOVSKY: The GWP on Motor Hull increased from UAH 3.8 billion to UAH 4.6 billion, up by 20%, while the paid claims went up by 13.7% and claims ratio even decreased from 47.1% to 44.5%.
A slightly different trend was in MTPL and Green Card insurance: GWP growth was 14.5% and 18.7%, respectively, while payments increased by 27.8% for MTPL and by 45.7% for the Green Card.
At the same time, the level of payments in these types remains rather small - 40.6% for MTPL and 34.1% for the Green Card, which indicates high tariffs set by the state, especially in the Green Card system, where tariff is calculated in EUR.
The structure of motor insurance market in 2016 was as follows: Motor Hull - 50%, MTPL - 37% and Green Card - 13%.
The bonus-malus system in Ukraine exists, but de facto, there is no control over the adjustment of the price with bonus-malus on concluding insurance agreement. On the other hand, the Motor Insurance Bureau of Ukraine - MTIBU requires additional contributions to the guarantee fund from the companies that provide their customers discount on bonus system more than 20%.
Taking into consideration the fact that according to the legislation, the company has the right not to use bonus-malus system on concluding insurance agreement, it is possible, that this year the insurers will start to refuse to use this system.
Regarding the amicable report in Ukraine, during 4 years, the number of insurance events settled through amicable report has increased by 325%, from 6.3 thousand to 20.5 thousand cases, while the claims paid under amicable report increased by 540% - from UAH 28 million to UAH 152 million. Today, every sixth insurance event is settled through amicable report and the growth of trend remains.
At the same note, one of the main factors which led to the growth of events settled through amicable report was the increase of the limit of payment from UAH 25,000 to UAH 50,000. This sum represented a half limit of payment on property damage.
In addition, the growth of number and share of the cases settled through amicable report in the total amount of payments (10.8%) is due to the consumers' understanding of this mechanism and the active explanatory work of MTIBU and insurers in this direction.
This year, it is expected to introduce electronic amicable report (software product for mobile devices), which will also simplify and popularize this product in case of road accident.
XPRIMM: What is the level of motor fraud in MTPL insurance compared to the previous period?
Vyacheslav CHERNYAKHOVSKY: The issue with motor fraud in MTPL exists, but not as catastrophically as in other CIS countries, and it is caused not so much by the amount of damages and penalties, but due to high level of uninsured car owners or false MTPL policies.
Due to false MTPL policies annual insurers' reach between UAH 150 million and UAH 300 million. MTIBU makes considerable efforts to combat fakes in motor insurance by increasing the level of security of the MTPL form; by informing the insured about the possibility of verifying the authenticity of the MTPL form at the stage of concluding the contract; by identification with competence institutions of the distributors of fake forms.
XPRIMM: How do you evaluate the development of life insurance in Ukraine? Which product became the main driver for life insurance? What is their potential in the future?
Vyacheslav CHERNYAKHOVSKY: In 2016, the biggest scandals in the insurance market were connected with life insurance companies, including foreign ones, who left the market, taking hundreds of millions of client funds each.
An insignificant growth of the segment is caused by the usage of MLM-structures (or multilevel marketing). Namely, a specific sales system of MLM-structures was marked by a very high percent of cancellation of insurance agreements and termination of contributions payment. For the year 2016, 1.379 million people were insured for life insurance, while the total number of insured at the end of the year decreased by 2.143 million.
Regarding forecast of life insuranceit will continue such trends as: the concentration of business among the top life insurers; the introduction of more stringent requirements in connection of the procedure of the conclusion and early termination of life insurance agreement.
There will be in demand products as insurance of critical illness, including coverage of treatment abroad.
Moreover, life insurance savings products from a financial point of view will continue to lose the interest of population due to inability of insurers to invest in alternative financial instruments, other than deposits and government bonds, as well as the lack of guarantees in the return of funds at the end of the contract.
XPRIMM: What are the main sales channels used by Ukrainian insurersto sell insurances products?
Vyacheslav CHERNYAKHOVSKY: In non-life segment, insurers actively use own offices and agent networks as a main sales channels (in case of private clients), much less on-line sales.Unfortunately there is noexact statistics regarding the structure of saleschannels on the Ukrainian market. At the same note, on-line sales are represented not more than 5% of the total volume of contracts. The main reasons are: distrust of the population for insurance companies, legislative requirements (note: insurance agreement must be concluded with customer identification).
The introduction of electronic policies is troubled by the inconsistency of Ukrainian legislation in terms of electronic commerce, financial monitoring and insurance legislation.
There is a certain progress only with the introduction of the MTPL electronic policy. According to optimistic forecasts, the system of electronic policy should be launched at the end of the third quarter of 2017.
A certain volume of sales is carried out through partner channels: for Motor Hull it was always banks or car dealerships. Also bank can act as a partner for selling other insurance products, for example, property insurance. Some insurance products, for example, travel insurance, in our country it is traditionally sold in a package along with voucher. In case of introduction of visa-free regime with the EU countries the travel insurance may be affected.