Insurance system needs image overhaul

Monday’s Moscow's subway bombings have brought insurance issues into focus with analysts saying a lack of trust in the system needs to be addressed.

Compensation for the victims of the metro terror attacks will be paid from the federal budget, as terror risks are not covered by the Metro's insurance policies. However, the amount of money paid out might have been higher if the passengers were insured by private companies.

The Transport Ministry has been working on a bill for the last 18 months that would make it mandatory for all transport operators to insure their passengers. Initially it was meant to set the limits of insurance claims in different types of transport, and did not include compensation arising from terrorism.

However, Vladimir Kozlov, deputy executive director at the Insurance Association, says the question whether terror risks should be included is still open.

“There are several nuances here, like what is the price of terror risk? How will the insurance companies cover those risks? Because in practice the insurance companies and the State are partners on terror risks – the State gets involved when the damage is too high.”

Government compensation can have its disadvantages – it can fail to cover a victim’s costs, it can put a strain on the budget and create bureaucracies that deliver funds less efficiently than the private sector.

On the other hand, taking out a private policy also has its problems. In the event of a major terrorist event the insurer may not have the capital to cover the liability. But because the statistical probability of an individual being involved in an attack is extremely low, most people would not want to pay a significant premium.

But Mikhail Kukhtar, an insurance analyst at Finam, says the main problem with insurance in Russia is that people simply don't trust it.

“A whole range of measures is needed to change the poor image of insurers – a law covering the extent of possible risks, a proper tax policy, and what is most important, people should get their money with a minimum of fuss.”

In most instances a terrorist attack is perpetrated against innocent citizens, but targets the State. It is also argued that the State has failed to protect the people and is therefore liable for the damage. How private insurers should be involved is likely to be discussed in the State Duma when the transport bill goes before it, but at the moment the sector seems too immature in Russia to accept such a responsibility.