Insurance becomes fast growing industry in Russia

The rate of year-on-year insurance premium growth (222%) in the first half of 2009 exceeded the increase in consumer prices (210%), producers’ prices (145%) and GDP growth. Thus, the relation between the consolidated national insurance premium and GDP stood at 2.17%, compared to 1.5% in 2008, bringing Russia closer to the level of the most developed Western European countries, where the relation fluctuates between 2% and 3.5% of GDP.

This enabled Russia to fulfill one of the indicators laid out in a document on the development of the national insurance system in 2008-2010 early. The relation of insurance premiums to GDP is expected to stay at 2%-2.5% in 1999. Insurance, therefore, has made it as one of the most successfully developing industries in Russia.

A decline in the number of registered insurance companies and a reduction in actually functioning companies accompany the increase in the nominal amount of insurance operations. There are 1,724 working insurance companies in Russia, down by about 25%  from the beginning of 2008 to mid-2009. A total of 1,369 insurance companies provided information on first half results, 113 of these did not carry out insurance operations, making the total of functioning companies considered 1,247 or 73% of total registered companies.

Per capita insurance premiums remain extremely low. An increase from 124 rubles in the first half of 2008 to 275 rubles in the first half of 2009 cannot be considered significant enough to increase the level of insurance protection. Insurance premiums may have gone up to 2% of GDP, but that can be attributed to Russia’s relatively low GDP.

It is still early to start talking about the restoration of insurance premium and payment volumes in dollar terms. Insurance contributions totaled around $1.7 billion in the first half of the year, about 42% down on the same period in 2008. Insurance premiums per head dropped from $20 to around $12. Average half-year per head premiums top several thousand dollars in various developed countries and over $100 in East-European countries. Therefore, despite the relatively high rate of development in the insurance sector, the level of insurance protection for Russians remains low. INSURANCE COMPANIES SUCCESSFULLY COMPETE WITH OTHER FINANCIAL INSTITUTES FOR CLIENT FUNDS. The reasons behind production growth in export-oriented and import-substituting industries are clear, but the reasons behind growth in the insurance sector, which virtually does not export its services, are not so clear. Also, there are no nonresident insurance companies being forced out of the Russian market, as they are restricted from providing insurance services in Russia, apart from reinsurance. The volume of reinsurance services offered by nonresidents has probably even gone up in the first half of 2009, which has not only not hindered growth in the national insurance premium but is likely to have facilitated the process.

An explanation for the growth in insurance premiums lies in the analysis of their structure. Life insurance, which continues as in the last quarter of 2008 to account for the largest share of insurance premiums (39%), showed the biggest growth. The share of life insurance went up over 50% compared to the first half of 2008 and now exceeds the consolidated share of other voluntary insurance. Life insurance premiums probably increased less because people began to want to insure their lives or companies wanted to insure their employees and more because clients were interested in lowering tax and quasi-tax withdrawals from salary funds. Various points back up this theory, for example, the number of insurance agents through which classic life insurance policies were sold remained relatively unchanged. Also there were an extremely high level of life insurance payments (80%), just 10% under mandatory insurance and a seven-fold increase in life insurance loans, allocated by insurance companies to their clients. The share of personal insurance declined considerably probably due to the lower demand for voluntary medical insurance and accident insurance, that is, insurance which is most similar to life insurance. There was slower growth in private deposit account balances in commercial banks, whose salary payment services had been popular before the financial crisis.

Among the voluntary types of insurance, property insurance premiums also increased sharply. Center for Economic Analysis experts attribute the increase to the greater ruble insurance sums, as property costs and liability limits are usually fixed in dollar equivalent.

Mandatory insurance premiums went up 30%, due to slow growth in the national salary fund, the population’s high share of hidden revenue and the static minimum salary. Thus, the share of mandatory insurance in all types of insurance has virtually dropped to its 2004 level. LARGE INSURANCE GROUPS ARE BECOMING STRONGER ON THE INSURANCE MARKET. Russia’s market already has several dozen insurance groups responsible for the dominating share of assets and insurance transactions. Insurance groups usually come about through financial, industrial or financial-industrial groups, natural monopolies and regional administrations. However, there are at least two groups with ten-year histories. These were formed in a particular way.