The share of the brokerage business in CIS accounted for about 1-5%: the main issues, trends and forecasts

10 March 2014 — Olesea ADONEV
analysis-siteAccording to experts' opinion, the only member of the insurance process focusing on the development of needs perceived for an insurance service is the insurance broker, who is acting in the interest of its clients. Furthermore, the market's welfare of the broker depends on how professionally and qualitatively it will deliver its services to the customer.

Worldwide insurance brokers play an important role in the insurance industry. The classical model of conducting insurance business, adopted in the West, involves specialization. Insurance companies only develop their own insurance products but their implementation is carried out by insurance/reinsurance brokers.

According to XPRIMM, in 2013 the share of brokerage channel sales in premiums in Russia did not exceed 4-5%, and in the CIS countries, the figure was about 1-2%, whereas in Europe it ranged from 10 to 60%.

It should be mentioned that in the CIS brokerage channel sales are not generally quite developed. The main reasons for such a weak development of this channel sales specific of the CIS countries, which are at the incipient development stage, is the lack of regulations and a clear statement of the definition of an insurance / reinsurance broker and of the legal restrictions, high fraud and the fact that insurers often prefer to conclude large insurance/reinsurance contracts directly.

The future development of brokerage channel sales depends on the changes in the regulatory framework and the legislative recognition of the liability of intermediaries.



Russia: There is no such necessity of talking about the serious impact of the brokerage segment on the domestic market

Based on the statistics published by the Financial Markets Service of the Bank of Russia, in the first nine months of last year, Russian insurance companies collected RUB 685 billion (EUR 15.2 billion) in premiums, RUB 25 billion (EUR 555 million) was obtained through the insurance brokers. Insurance brokers received RUB 2.6 billion or EUR 57 million (10.4%) from insurers for their services.

According to the representative of MARSH Russia, Vladirim KLYUCHKOV, the broker's commission for large clients can be reduced by 2-3%.

According to the information portal MIG, as of December 2013, the number of broker companies was 162 in Russia.

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Evgeniya_SMIRNOVAEvgeniya SMIRNOVA, Director of the CIS Business Department, GLINSO Insurance Brokers


The development level of the brokerage segment of the insurance market in Russia can be illustrated by a simple amount of already existing brokerage licenses: there were 164 on 01.10.2013, then, in some regions, such as Kamchatka, there were no brokers at all, and on all the territory of Far East only three brokers were registered. The share of brokerage sales does not exceed 5% of the overall market premiums. There is no such necessity of talking about the serious impact of the brokerage segment on the domestic market.

In the reinsurance sector the situation is more favorable for brokers, but the ongoing market concentration reduces the potential for the development of the brokerage portfolio as market leaders tend to adopt the self-placement of reinsurance programs or use the leading European brokers. Moreover, the growing number of subsidiaries of foreign insurance groups leads to reinsurance programs usually being placed through the "parent" companies.

As to reinsurance tariffs, in the beginning of the year there was a tendency towards further premium rates reduction on the international reinsurance market for the first time in the last decade. The average level of price reduction for reinsurance was estimated at about 10%.

The final result is greatly influenced by the North American and London markets, where the rates drop is expected to be of around 15%, as well as the European (continental) reinsurance market whose results were close to the average around the world.

A possible exception may be only Germany and several countries of Northern Europe affected by natural disasters in 2013. Among the factors that contributed to this trend, the significant ones were the new investments in the global reinsurance market, which increased competition; the continued dominance of three "big" brokers and "push-up" reinsurers, and a relatively small number of catastrophic losses on the major markets - even typhoon Yolanda Haiyan, under the conditions of a low insurance penetration in the Philippines, did not have a decisive influence on the overall picture of losses.

The Russian reinsurance market is dependent on the international market which follows the global trends that cannot even change a single catastrophic event, such as: paid losses at the Sayano-Shushenskaya and Vivaldi Plaza in Moscow or the declared claims for Zagorsk PSP. In addition, even natural disasters such as flood Amur in the past year did not have a noticeable impact on the Russian insurance (reinsurance) market due to the low insurance penetration, especially in the private sector.

Similarly, in Russia we observe the trend of consolidation of the insurance business. Companies merge, increase their own retention, and buy up to high limits in order to protect themselves. This is the reason why competing on the Russian reinsurance market is becoming increasingly difficult.

The company's portfolio in volume of signed reinsurance premiums reached nearly RUB 900 million (EUR 20 million). It is not possible to provide more exact details because of the brokers which do not keep registration records of their written premiums. Geographically the company's reinsurance portfolio is distributed as follows: 72% of the incoming business comes from Russia and 28% goes to the placement of risks from abroad. Outgoing risks are placed in reverse percentage: 26% - on the international market and 74% - in Russia.

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GLINSO Company was registered on April 8, 2010 and the year 2011 was marked by the beginning of the international activities of the company. At present, in addition to Russia, GLINSO is present on the markets of Middle East, North Africa, South and Southeast Asia and Europe. We are glad to start our successful operation on the insurance markets of India, Africa and China. Being one of the fastest-growing brokers nowadays both in Russia and abroad, we note the trend of the growing number of foreign contracts signed. And it is already clear that in 2014 this figure will continue to grow even more rapidly. In this regard GLINSO expects a further increase of its international reinsurance portfolio.



Tsekalo_AlexanderAlexander TSEKALO, General Director, SKALA Insurance and Reinsurance Brokers

I don't think we can talk about the development of the brokerage market in Russia. For the moment, brokers' business is still shaping up and it has expanded for the last 17 years from the first Order in respect of the insurance brokers (1996).

Speaking about the reinsurance rates, on the international reinsurance market the rates for classic corporate lines continue to decrease (5-10%) in Russia and CIS in the current year.

All risks were placed on the Russian market although we tried to get alternative terms on London and Continental markets but high-ranking Reinsurers gave us non-competitive rates (2-3 times higher than the Russian Reinsurers provided). Russian Reinsurers put such risks into their treaty programs without any problem, in accordance with the declared premium level.

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The gross reinsurance premium volume of SKALA Brokers for 2013 is RUB 268.7 million including: Russian market - RUB 148.2 million and CIS market - RUB 121.8 million.

SKALA Insurance and Reinsurance Brokers is one of the leading Russian reinsurance brokers, which provides its Clients with various risks reinsurance, the development of reinsurance coverage and consulting services on issues concerning reinsurance. 2013 was a very successful year for our company. Brokerage increased almost twice and reached RUB 11.6 million. However, the share of our company on the Russian reinsurance market (gross premiums) may be about 1%. There are no official statistics on the total amount of reinsurance premiums, passing through brokers in Russia.




Ukraine: The share of the brokerage business over the past year has not been more than 2% of the collected premiums

In 9 months of the year 2013 the total amount of insurance and reinsurance premiums, obtained through the mediation of insurance and reinsurance brokers, increased up to 18%, to UAH 407.7 million (UAH 345.4 million in 9 months of 2012) according to the National Commission for the Regulation of Financial Services.

The commission of intermediaries and brokers amounted to UAH 17.5 million (UAH 13.9 million in 9 months of 2012). 60 insurance brokers were registered in the state registry of Ukraine in the year 2012.

Ibragim_GABIDULINIbragim GABIDULIN, Executive Director, GRAS Savoye Ukraine

The share of insurance / reinsurance premiums concluded by brokers in the past year was not more than 2% of the collected premiums, but more precise data was not available. The Ukrainian brokerage market was destroyed after the introduction of the Law "On Insurance" in 2001. This law prohibited brokers to receive commissions from the insurance companies. What was the result? This is another law, which, like many others, has been bypassed in Ukraine. Thus, only 12% of the customers agreed to pay a fee according to the intermediary brokerage agreement. Was it possible to introduce such a rule in a country that is facing with a low insurance culture and negative attitudes towards any kind of intermediation, educated by the Soviet system, and where everything was created under the coverage of the state and produced goods were distributed? As a result, broker's agencies had parallel structures where insurers got their commissions paid.

Therefore, in the report of the National Commission for the Regulation of Financial Services Markets all the data about collected premiums by brokers does not reflect the real picture of the market. Thus it can be said that received general market data does not reflect the real situation of the brokerage market in Ukraine.

Generally speaking, international brokerage companies have in their portfolio reinsurance business and also provide services to their international customers as it is done around the world.

As for the amount of this commission, the information remains under the seal of secrecy. None of international brokers within our Federation discloses such information; even our banks hide the size of their commission while in other countries, such as France and Poland, this information is published in the press.

The intermediary commission on MTPL is 15% -20%. The commission on property insurance and liability insurance is 15% -20%. However, in the interest of the client we often have to reduce this commission, because we want to work with our customers transparently and openly. Commission on voluntary health insurance is in the range of 10-15%.

I can say that the amount of the commission charged by GRAS SAVOYE Ukraine for selling Motor Hull policies is 15%. We often reduce the commissions for Motor Hull. Sometimes they reach 3%, especially in mass car sales through dealer networks.

For example, our company is the administrator of the sales of all types of insurance in the showrooms of "Peugeot-Citroen" for the whole territory of Ukraine. In this case, we teach sales representatives in showrooms to work with our information system, which allows the customer to choose, during the acquisition of an automobile, a Motor Hull policy provided by one of the six insurance companies available. The showroom employees are also trained to issue an invoice for the payment of the insurance premium through a partner-bank directly to the account of a broker. Naturally, the showroom officially receives most of the commission into their account. All is fair and transparent.

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In 2013 the company GRAS Savoye Ukraine collected insurance premiums in the amount of UAH 67.96 million (EUR 5.74 million), 46.81% more than in 2012. We place all the risks in the country. Risks are placed only in the leading insurance companies in Ukraine, each of them having their own reinsurance contract.

We specialize in motor insurance, serving the three largest leasing companies in Ukraine with a total fleet of more than 8 thousand cars. We not only place the risks of our customers, but also serve them during the occurrence of the insured events. Thus, we are only an intermediary in Ukraine, providing customers with full service insurance.

Moreover, it is important to note the fact that the share of GRAS Savoye Ukraine in the leasing business is 41% of the market of Ukraine. The agricultural insurance market share is 11% of the insured areas.

The company GRAS Savoye was founded in 1907 in France. Since 1992 GRAS Savoye has consistently occupied the first place in the ranking of insurance brokers in France, and in 2004 in Poland. From 2012 the company opened its office in Ukraine. Currently, GRAS Savoye Group has more than 3,800 employees. The year 1997 was notable for the beginning of a strategic partnership between GRAS Savoye and WILLIS. GRAS Savoye together with WILLIS has the most extensive network in Central and Eastern Europe, specializing in auto insurance, personal and property insurance and liability insurance.



Belarus: The role of insurance brokers in the country is minimal

Andrei_DANILCHYKAndrei DANILCHYK, General Director, StrakhExpertGroup

In Belarus, there are no specialized reinsurance brokers, for the following reasons: the operations on behalf of foreign insurers are forbidden by law; there is also a specialized state reinsurance company, which, in accordance with the law, is engaged in outbound international reinsurance.

Therefore, in practice, insurance brokers can conduct only reinsurance business on the domestic market, and occasionally transfer it abroad, but this is a insignificant volume of their business. The norm regarding the opportunities for brokers to work on the international reinsurance market is outlined in the draft amendments for the existing legislation that must be adopted in 2014.

Thus, the level of development of the insurance / reinsurance brokerage business in the country can be described as insufficient, as the role of insurance brokers in the country's insurance market is minimal for the moment. Moreover, a part of the traditional "brokerage" functions, as providing to clients offers from several insurers, is currently performed by companies licensed as insurance agents. However, planned changes in insurance legislation should regulate the activity of insurance intermediaries that operate as legal entities. If these amendments are adopted, the number of brokers on the market will increase (two brokerage companies are already in the process of registration) and their role will only grow.

At the beginning of 2014 10 brokerage companies were registered in Belarus and two of them have been registered in the last two months. An insurance broker can only act in the country as a legal entity.

Moreover, it is difficult to determine exactly how many insurance premiums were collected by brokers in 2013. We can only roughly estimate this amount, because statistics submitted by brokers to the Ministry of Finance, was not published in the public domain, and the Belarusian Association of Insurers has information only for 3 brokerage companies: StrakhExpertGroup, ALPHA Broker, and PROFIT Broker.

The total premiums collected by these 3 companies in dollars were approximately USD 1.76 million. It can be assumed that the total premium volume collected by all brokers was approximately 5-7 million USD.

If we talk about the share of the insurance/reinsurance premiums signed by insurers through brokers, the market data for the entire 2013 does not exist yet, but the final annual fee for "premiums signed", based on data for 11 months, can be estimated at USD 725 million. Taking this into consideration along with the fact that while referring to brokers we are talking about "premiums collected," we can estimate the brokers' business share and say that in total all "signed premiums" are not higher than 1.5-2.0%.

In accordance with the legislation, the maximum amount of the remuneration (commission) was settled. This is the sum which the insurer may pay the broker for each insurance contract up to 25% of the premiums. In practice, different remuneration amounts (commissions) are usually settled for various types of insurance products. The size of the commission is negotiated individually by the broker with each insurer. In recent years there have been no significant changes in this respect. In 2013, the average size of the commission of StrakhExpertGroup was 20%.

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StrakhExpertGroup is the first insurance broker in Belarus - founded in 1997. StrakhExpertGroup is a professional insurance market player. With our help there are more than 3 thousand contracts on 20 types of insurance signed by citizens and enterprises within the year. The main activities are: the selection of the best insurance options for the contract (insurance policy), including the assistance in obtaining insurance payments. The main types of insurance are: motor hull, property, accident, professional liability insurance. In 2013, the overall collected premiums of StrakhExpertGroup amounted to about USD 0.8 million.



Georgia: The broker's insurance commission ranges between 5-10%

Levan_JishkarianiLevan Jishkariani, General Director, MAI GEORGIA Insurance Brokers

Insurance brokers started to grow a few years ago and in 2013 there were 21 brokers registered in Georgia.

The supervisor registers the brokers, however detailed statistics is not requested. Therefore, information is estimated and based on the brokers' own calculations. The total brokers market roughly accounts for 20% of premiums (Excluding the State Social Health Programs), out of which MAI Georgia's market share is almost 7%.

Most of the brokers do not deal with reinsurance at all or do it at a minimum level; however, for MAI Georgia reinsurance accounts for 40% of its total revenue.

The insurance commission is quoted by the law (5% - 10%) in comparison with Europe and other FSU countries, where commission levels average 15%.

For the past few years Health Insurance has been the dominant line of the market and for this reason most of the brokers have focused on Health Insurance, which amounts to 60%-70% of their books.

Generally, rates are softening in non-life business and loss ratios are quite modest. However, due to changes in the Health Insurance system and the increasing number of losses, premiums for this line have leveled up and this trend may continue in 2014.

The Georgian Insurance market has been quite direct for a long period of time.

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MAI opened its office in Georgia in 2007, when the country's unique international intermediary - AON - was exiting Georgia. For several years MAI Georgia was the only international broker in the country. This position helped MAI to become the exclusive broker of the country's biggest and most significant companies and also to actively participate in reinsurance placements.



Moldova: Brokers mediated 28% out of the total premiums


The 76 brokerage companies active on the market in the Republic of Moldova mediated MLD 234.8 million - EUR 14.3 million, in the first nine months of the last year. The figure represents, according to the data published by the supervisory authorities in Chisinau, 27% of the total insurance market. Altogether, in comparison with the period January - September of 2012, the volume of premiums mediated by brokers grew by MLD 10 million.

At the same time, the revenue from the brokerage activities amounted to MLD 74 million (EUR 4.5 million), of which MLD 71.2 million (EUR 4.3 million) represent the commission collected from insurance premiums.

In the analyzed period of time, the portfolio belonging to the brokerage market consisted of the following: Motor Hull (MLD 75.2 million - EUR 4.6 million), Green Card (MLD 63.6 million - EUR 3.9 million), MTPL (MLD 43.2 million - EUR 2.6 million).

Rating brokers after the volume of premiums: PRODEVIZ Broker with a market share of 9.6%, EUROLIFE Broker (5.2%), BLAJCO Asist (4.7%), PARTENER-BROKER (4.7%) and NOVA Broker (4.4%).



Armenia: About 80% of all premiums collected through agents

elita_babayan1Elita BABAYAN, Correspondent, ARMINFO

Armenian insurance companies (there are currently 7 of them) collected premiums by AMD 35 billion (EUR 62 million) at the end of 2013. It should be noted that the main volume of insurance premiums (70%) was signed by the three leaders of the insurance market. In 2013, the insurance companies transferred AMD 3.2 billion in premiums to reinsurance, a growth of 2.6% as compared with the records from a year ago.

In Armenia there is only one brokerage company, PRIME Insurance Brokers, and no reinsurance ones. Thus, Armenian insurers pass their premiums for reinsurance to foreign companies. PRIME Insurance Brokers has provided brokerage and consulting services in the sphere of insurance and reinsurance, risk management and control since 1997.

Armenian insurance companies pay much attention to the development of agent networks. And for some companies, this channel (agency network) is the main, and in some cases, the only one in the promotion of insurance products.

At the end of 2013, 7 insurers were working with 7,830 individuals and 1,175 legal entities. It should be noted that the size of the insurance premiums (compulsory and voluntary) includes also agency commissions.

In different companies, agency commissions are different and vary from 10 to 15% of the insurance premiums. It should be noted that the collection of about half of all premiums in Armenia is provided by insurance agents. According to estimates of the insurance market expert, about 80% of all premiums are collected through agents.

ArmInfo News Agency is one of the key independent providers of impartial, full and reliable news on Armenia for the local and international political and business information markets. The Agency successfully cooperates with authoritative media-structures such as BBC, REUTERS, EUROMONEY, RBC, Dow Jones, LexisNexis,Yandex, Rambler, Redtram, and others. ArmInfo's hot news from Armenia and South Caucasus are present in the information markets of China, Iran and the Middle East. The Agency boasts its close and time-tested partnership ties with the news agencies in the neighbor-states: Georgia (Black Sea Press) and Azerbaijan (TURAN).




In Kazakhstan, the licensed activity is performed by 14 insurance brokers, of which AON Kazakhstan, MARSH and EOS RISQ Kazakhstan are part of the structure of international insurance brokers.



In Uzbekistan, as of January 1, 2014 there were 4 insurance brokers operating on the market, such as TAT-Reinsure Brok LLC, GrECo JLT LLC, Serious Aspect in Insurance LLC and Insurance Broker Consulting LLC. Only, GrECoJLT was engaged in reinsurance activities.



In Azerbaijan, the total number of brokerage companies is 46 and there are 800 licensed insurance agents. According to officials of the market, since 2011 the number of insurance agents is increasing. Currently, the license for operating as insurance agents has 52 legal entities and 748 individuals. According to experts, the number of agents will increase due to the development of the insurance market in Azerbaijan.

The number of insurance brokers on the CIS market is almost four times less than that of the insurance companies. The existence of a small number of brokers in CIS may be brought about by the low level of development of the insurance market, the misunderstanding of the insurance brokers' role in the relationship "insured-insurer". Insurers often underestimate the brokers' role, preferring to perform direct sales than maintaining a costly network of agents and sellers. At the same time, on the Western and North American markets the main sales channels for insurance products are brokers (40 to 80%).

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