UKRAINE is expecting further reduction in the number of insurance companies

9 May 2013 — Olesea ADONEV
ukraine-statisticsAt the end of 2012, on the Ukrainian market there were 414 registered and active insurers, which were 28 less than in 2011. Last year, by decision of the State Commission for Regulation of Financial Services Markets in Ukraine were eliminated another 26 non-life and 2 life insurance companies. Moreover, about 200 companies froze their activity (they occupy not more than 1% of the market) and are not able to create any competition on the market.

alexandr_zaletov1"It is likely that in 2013 the State Commission for Regulation of Financial Services Markets in Ukraine will continue the strategy of reducing the number of insurance companies, which will allow to improve the quality of the supervision and the overall investment attractiveness of the domestic insurance market," said Alexandr ZALETOV, Deputy Chairman of the Council of the League of Insurance Organizations in Ukraine and Editor in Chief, Insurance TOP Magazine.

According to Alexandr ZALETOV, the concentration level of the life insurance market in Ukraine is higher than in non-life insurance. Thus, for the year 2012 the top 3 life insurance companies accounted for 44%, while the top 3 in the non-life insurance - 11% of the market. These indicators are generally typical of emerging markets.

Foreign capital interest in Ukraine

In the reported period, the number of companies with foreign capital was 112, representing 27.1% of the total number of companies in the field. Among these, 84 were operating in the non-life and 28 in the life insurance segment. Total foreign investment on the domestic insurance market is EUR 468.3 million. "However, an interest of foreign companies in Ukraine's insurance market is large enough, so that the country has a significant economic potential," added ZALETOV.

Therefore, in order for Ukraine to attract foreign portfolios and domestic capital in the insurance business, it needs to reform and create a transparent system of regulation and insurance supervision in order to ensure the stability of the tax laws and to implement reforms in areas that contribute to market capitalization (pension reform, compulsory health insurance, agricultural insurance, environmental risks insurance, online insurance, etc.).

Key areas of work

On April 10, 2012 the State Commission for Regulation of Financial Services Markets in Ukraine approved the main activities, which are primarily focused on the development of the insurance market. It is expected to move to prudential supervision, by the overall evaluation of financial situation of the financial institution, its performance and the quality of its management.

According to Alexandr ZALETOV, today it is very important to increase the level of capitalization of insurers, the introduction of the principles of insurance supervision in accordance with the standards of IAIS (Directive EU 2009/138/ES "Solvency II"), in particular through the adoption by the Verkhovna Rada in Ukraine of the new edition of the Ukrainian Law "On Insurance".

"Among the key tasks of the State Commission for Regulation of Financial Services Markets in Ukraine can be identified the support of insurers for the transition to international financial reporting standards, the promotion of the system of agricultural insurance with state support as well as the creation of a system to guarantee insurance payments under life insurance contracts", added ZALETOV.

Local market vs. the economic crisis

"Overall, insurance in the country is developing by inertia, passively following the fluctuations of macroeconomic conditions and bank lending. This is confirmed by the ongoing decrease in the share of insurance premiums in GDP: in 2008 it was 1.7% and in 2012 - 1.3%," added ZALETOV.

According to Alexandr ZALETOV, the economic crisis, though it did not lead to collapse the insurance market in Ukraine, caused the emergence of disturbing trends. The first market reaction to the crisis was expressed in the reductions of Motor Hull and Property insurance, primarily on the banking and dealer channels,. Then it has increased low-cost distribution channels for insurance products. Thus, this has become more of a current problem of one-sided development of the insurance market in Ukraine.

Motor Hull stagnates

In 2012, the Ukrainian households signed about 340 thousand contracts of Motor Hull, which represents 5% less than in 2011 and 2.5 times less than in the pre-crisis 2008 year. The main reason for the negative tendencies is that the Ukrainian car market dropped by 1.38%, according to the results of 2012. However, only 45% of owners of new purchased cars bought insurance policy Motor Hull. In 2008 the percentage was about 70%. In addition, there has been a significant reduction in the potentially insurable fleet. If in 2008 the average age of a car in Ukraine was 17 years old, in 2012 it was 19 years.

Taking into consideration the forecast for Motor Hull for 2013, in this competition will win only those insurers who provide customers with flexible and innovative insurance solutions.

Risks of MTPL development

The insurance companies in Ukraine in 2012 increased the amount of insurance premiums for MTPL by 4.5%, up to UAH 2.44 billion compared with the year 2011.

The sales of insurance policies of MTPL in 2012 decreased by 0.9% - to 8.3 million units. This comes in relation to the pronounced trend to conclude insurance contracts for a period of one year, which, in turn, is the result of entering into force of the changes in the Law on "Mandatory insurance of civil liability of vehicle owners." According to these changes, since September 19th 2011 the compulsory insurance contracts are concluded for 1 year. The average premium on the MTPL insurance policy amounted to UAH 293.5 or EUR 28, which is 5.4% more than in 2011.

In 2012, insurance claims for damages to health and life were 2% and losses to property were 98%. In 2013, it is expected that insurance claims for the reimbursement of injury to a third person will be 20%.

Talking about the development of MTPL in Ukraine, ZALETOV listed the principal risks, such as deterioration of the financial condition of insurers with a consequent loss of membership in the Motor (Transport) Insurance Bureau in Ukraine - MTIBU; bankruptcy, defaults and late payment of insurance claims; inadequate supervision by the relevant government authorities of the vehicles involved in road traffic; insufficiently controlled circulation of forms of insurance documents and the process of insurance payments received by insurance intermediaries; confrontation of individual members of the Bureau with preventive anti-dumping measures on the MTPL market and low quality of insurance services and its maintenance.

The increase in the capacity of MTPL insurance market is possible by renewing and replenishing the vehicle fleet.

For the further improvement of the MTPL insurance market it is necessary to prepare proposals for changes to the Ukrainian Laws on "Mandatory insurance of civil liability of vehicle owners," "On insurance" and other legislative acts for the implementation of the main objectives of MTIBU.

Therefore, it will be necessary to implement the practical arrangements for the implementation of the project on "Electronic policy" and the achievement of anti-dumping measures during the implementation of the MTPL, to introduce a unified system of settlement for the bonus-malus coefficient according to MTIBU and, if possible, the assistance of the traffic police database (drawn up by administrative protocols for violation of traffic rules), including control over the availability of insurance policy.

It is also important to ensure and promote amicable rapport and encourage insurers to settle insurance claims through it.

What shall be expected by the end of 2013?

"For Ukraine, the year 2013 does not predict anything positive in terms of economic growth. Our country's economy is highly dependent on the world's markets and the demands for commodity products on foreign markets are still fragile. Debt problems in the European region, political instability in the Middle East, the deterioration of trade relations with Russia, increased competition on export markets - these will all affect the Ukrainian producers in 2013," commented ZALETOV.

According to him, the deterioration of the investment environment and the resulting outflow of capital from Ukraine will also limit the pace of economic growth and the development of the insurance market.

The most sensitive external risks for the insurance market in Ukraine are: the debt crisis in the Euro zone; preparation of the European insurance market to work under the requirements of "Solvency II"; the uncertainty regarding the economic growth in the coming years; reduced access to the capital market; the leaving of more than 10 banks with foreign capital from Ukraine.

Access and download the FY2012 Ukraine insurance market statistics (in EUR and UAH):
  • Market indicators (GWP/Claims/Growth rates)
  • Life and Non-Life market rankings (GWP/ Growth rates/Market shares)

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