Insurance sector braces for consolidation
Insurance is a growth industry – often for the wrong reasons. People’s mishaps drive premiums and profits. But car insurance, which used to provide a stable income, now has become unprofitable due to low tariffs set by the government. And that’s driving talk of consolidation.
Industry players can not say whether Russia has too many or too few insurance companies, but Russian drivers and their accident rates have already contributed to keeping up demand
Until recently top Russian insurance companies were rocketing at an annual growth rate of 40%. At the time western counterparts thought 2% a success. As a result, a large number of new insurance companies appeared on the Russian market, according to Dmitry Markarov, First Deputy General Director at Rosgosstrakh.
“At the beginning of the century there were 1500 companies. Each year at least 100 would leave the market. It went in waves, due to increases in capital, and battles against illegal schemes.”
This brought the number of insurance companies to fewer than 800. However, market players are saying there’s already more than enough. Three quarters of the market is controlled by the top 10 companies. Now Markarov believes the economic crisis could lead to another round of changes.
“Due to competition and the need for income, insurance companies are dropping their rates. Now reserves don’t cover everything and that results in weak financial stability. Dumping only accelerates the company’s death. According to forecasts the number of companies will shrink by 50%. Other forecasts predict there will only be 200 players left.”
But others, like Sergey Tsikalyuk, Chairman of VSK Insurance House, are more optimistic and expect only an erosion of credit quality, with the number of companies barely changing. For evidence, they point to the US, which has over 7000 companies or Germany, with 2500 firms.
“The market should decide, it should not be done artificially. Healthy competition and the presence of hundreds, thousands of insurance companies tells of a healthy society and the right path of development.”