XPRIMM: How would you comment on the overall Georgian insurance market's performance in 2020?
David ONOPRISHVILI: 2020 was one of the most disturbing years for most countries of the world as well as for Georgian economy, even though local insurers managed to maintain their portfolios in most lines of business. Nevertheless, some significant lines were affected immediately. In particular, travel and hospitality related insurance business has decreased by more than 50%, border MTPL - by 45%, some other classes have also shown signs of slow-down in most undertakings. Following the COVID-19 related lockdowns, some business owners and many individuals applied to the insurers asking to suspend or cancel active insurance policies until they return to regular activities.
Our authority and the insurance sector jointly considered it appropriate to extend premium payment schedules and, in some cases, to suspend insurance coverage for a period of lockdown (e.g. for motor vehicles, not being used for that time). At the same time, our consultations with the insurance undertakings supported them to keep their staff employed and avoid the reduction.
We have proceeded with the exchange of specific reports and forecasts from the insurers and identified potential decreases in expected revenues.
But in general, having in mind all the difficulties that insurers might have faced during the last year, I can say, that the market has performed well. Gross Premiums Written have increased slightly, by around 7%, summary technical result was positive and have even increased by 10%, while the market remained profitable. Capitalization is also on a satisfactory level and has increased by 19% in local currency. But here we also have to take into account a devaluation effect, as Georgian Lari has depreciated by 25% to Euro and by 14% to USD in 2020.
Actually, net profit was higher in 2020, but this was the result of revaluation of cash, deposits and receivables held in foreign currencies, as insurers are highly integrated with global markets (e.g. by reinsurance arrangements) and temporary decrease in mobility of health insurance policyholders, where claims now have accumulation nature and will become active during the upcoming insurance periods.
XPRIMM: Health insurance holds a very large share in the market portfolio. Did the Covid-19 situation have a significant impact on the health insurers' business?
D.O.: Georgian insurance market is well known by a very active health insurance business. Currently this line of business holds over 40% of the market. There are many insurance products, developed over the last several years and local insurers are highly specialized in managing their existing portfolios. But as you could imagine, COVID-19 pandemic had a specific effect on the market. Some existing products were less active, due to decreased mobility for regular and non-urgent cases. Even though written premiums increased by 14%, an increase in incurred claims was only 4%. But we expect these cases to activate and be used on later stages. Nevertheless, we understand, that COVID-19 also brought some immediate healthcare issues and strain to the system. This will also rise some further concerns related to complications and post-COVID rehabilitation or treatments.
During the most stressful periods for the healthcare system insurance undertaking provided significant support by being involved in coronavirus case management with the help or their call centers and family doctors.
At the same time, they elaborated specific insurance products covering COVID-19 related risks and are now actively practicing in this direction as well.
So, using appropriate estimations and risk management techniques, worked out during the active experience, insurers managed to not only cope with the pandemic, but also to deal with it as with an opportunity of promoting their businesses for the better future in the long run.
XPRIMM: Just before the start of the pandemic crisis, your market was going through a process of modernization of the regulatory and supervising activity. Did the crisis put a halt to this project? If not, what progress did you achieved and what are next steps you plan on undertaking?
D.O.: We are implementing a TWINNING project funded by the EU started Fall 2019 in order to ensure fulfillment of obligation taken by EU-Georgia Association Agreement of 2014. Our counterpart is Spanish insurance regulatory authority for the implementation of Solvency II framework in Georgia's insurance industry. From the very beginning the project was started actively with planned missions and activities, but later, due to COVID 19 and travel restrictions we had to slow down for a while and we have agreed to proceed with online communication format.
The project is divided into two components, first component is more related to the drafting of the new legislation for implementation of Solvency II and the second component is more dedicated to the strengthening capacity of institutional and human resources, including capacity building of ISSSG staff and awareness raising of insurers.
Preparation of new legislation and appropriate online missions were more or less effective, but for the second component, there is a need to arrange interactive meetings with many stakeholders not only within ISSSG, but also from the industry and other institutions. In order to achieve set benchmarks, we have agreed on the extension of the project and have already resumed missions to host our colleagues and have been arrangeing all the necessary meetings with the stakeholders in due course.
Meanwhile, we are now also actively working on the implementation of reporting portal and relevant analytical software solutions for further collection and processing of far more complicated and sophisticated Solvency II regulatory reports. Here we are in active consultations with the professionals actually involved in such processes in EU countries.
XPRIMM: Climate change and the increased frequency and intensity of the severe weather events is a current hot topic worldwide. How much is Georgia affected by this phenomenon and to what extent the insurance industry is currently providing financial protection against the losses caused by NatCat events?
D.O.: Being responsible part of the worldwide community, Georgia is also taking actions for the improvement of the situation related to climate change. Many regulations are being introduced for that purposes in almost every field of economy.
As for the Georgian insurance industry, which is highly integrated and actively cooperates with global insurance and reinsurance markets, most insurance policies provide cover for catastrophic events, including natural disasters.
For the past several years we have State Agricultural Insurance Program (AgroProgram), providing a government subsidy for agricultural insurance products covering hail, inundation, storm and autumn frost. World Bank Group provided technical assistance under the insurance component of the Financial Inclusion and Accountability Project with the European Union. In support of this initiative, the report was elaborated reviewing agricultural insurance scheme in Georgia, highlighting challenges and offering recommendations. So, demand on agricultural insurance is increasing annually and there is more potential as well.
Major insurers, together with their regular reinsurance treaties, in addition have NatCat (or so-called Cat XL) arrangements, covering natural disaster events and with the limits, far exceeding the ones set by their standard treaties.
As to the quality of reinsurance arrangements, we take special attention and even introduced a specific regulation on net retention of the undertakings, also setting specific credit quality scores for reinsurance counterparts.
XPRIMM: What are the news on the introduction of the mandatory MTPL insurance topic? Is the implementation of the new law scheduled sometime soon?
D.O.: Draft law on compulsory MTPL is submitted to the parliament of Georgia and is being under discussions with different stakeholders. We expect it to be put under active discussion upon some relief for the population of the country from COVID-19 pandemic with lockdowns and return of the parliament to its regular working regime.
Meanwhile, we have a suggestion for the introduction of pooling mechanisms at the beginning to identify how the market will meet the capacity within set premium ranges.
Considering the above mentioned, the introduction of compulsory MTPL is expected to be into force in 2022.
XPRIMM: There was already a lot of talk about the challenges, but also the opportunities raised by the pandemic situation. Beside having to fully reorganize their activity on a "work from home" basis, what do you consider the most challenging aspect? What about the opportunities?
D.O.: During the last few months insurers learned to provide much more online services, studied how to manage emergency situations, have shown an impressive desire for improved social responsibility and a strong ability to perform in almost the same manner even in one of the most challenging times for our generation. The pandemic is very challenging but at the same time lessons learnt, which will bring much more and better results in better times yet to come.
In March 2020 we have issued an official paper with the recommendations on distance services and strengthening infrastructures to meet online service requirements and in in this process constantly communicated with the undertakings. This period had a positive effect on the services of insurance sector, as more and more insurance undertakings upgraded their services in order to ensure digital transformation and to be in line with the existing needs. The opportunities raised by the pandemic situation accelerated digitalization process in the field of insurance.
XPRIMM: What are your expectations for the year-end, in business terms, but also from a regulatory point of view?
D.O.: Insurance market is gradually moving towards the provision of online services on each stage of the business. It is integrated in many external systems with appropriate IT infrastructure. We expect new products to be developed in health insurance as described above.
Introduction of compulsory MTPL is just a matter of time, but during this year some more technical work and meetings with the insurance market and other relevant institutions will be held.
We are now actively working on the implementation of new, risk based supervisory framework. Our team of experts is revising the new draft of the insurance law, provided by our TWINNING partners from Spain.
And of course, the implementation of the reporting portal and integrated analytical system, will automate data quality and/or consistency validation process and speed-up background analytical work, performed by our employees. Our technical requirements are now being developed and will be announced soon.
We are closely working with World Bank in various fields of insurance within Financial Inclusion and accountability Project financed by the EU, which aims technical assistance to our authority in implementation and development of new liability insurance products on Georgian market, such as compulsory liability insurance for medical service operators, compulsory liability insurance for builders and architects, life insurance products and promotion of index-based agro-insurance.
Being a member of IAIS we are closely cooperating with the association in order to be in line with international standards and participate in many activities organized by them.
Interview conducted by Daniela GHETU