Chartis: 'Insurance in Russia still 'push' product'
RT: Russians often appear fatalistic…How difficult is it to sell them insurance?
CA:“Well, I would prefer to see the glass as half full! One could equally well argue that the Russians are too…optimistic, in that they think that nothing unfortunate can happen to them, and therefore don’t really need insurance! Whichever way you look at it, insurance penetration in Russia is still very low compared to Western Europe, about 1% of GDP against a European average of over 8%. In that sense, insurance is still a “push” product, a product (or concept) that is “sold” rather than “bought”, especially when it comes to consumers and small businesses. Right now, I don’t see much on the horizon that will give a rapid spur to the sales of insurance to these groups. So there will be growth, but mostly organic – let’s say “evolutionary”, brought about by the gradual maturity of the society. On the other extreme, one has to admit the large Russian insurance companies are very sophisticated buyers of insurance.”
RT: Do you think Russians understand both the mechanism and the purpose of insurance well enough?
CA:“Generally speaking, not yet; but increasingly – in certain circles. One example is the sales of insurance by the banks: the penetration rates that we see are quite high by any standards, implying that there is a slow change in the attitude of consumers towards insurance. Moving beyond the white collar population and the urban centers, most likely the picture is slightly different. In this context, probably the most striking thing is the very low penetration of Life and Pension insurance, which could be linked to generally low savings rates.”
RT: What type of insurance is the most popular one among Russians? And why, do you think?
CA:“Clearly Motor Third Party Liability (OSAGO) and, right behind, Motor Own damage (KASKO). All the rest – without exception are in fact a long way behind. Nevertheless, an interesting trend to observe is the growing penetration of simple, inexpensive “lifestyle” insurance products sold via banks (such as fraudulent use of credit card, simple travel insurance, etc), which seem to have growing traction with the – mostly urban – public.”
RT: What is the correlation between mandatory and voluntary insurance in Russia. How does it affect insurance companies?
CA:“All societies have to undergo some level of compulsory insurance, during which the notion of insurance gets entrenched, before the voluntary classes pick up. Usually it starts with classes that protect large parts of the population and/or financially weaker groups, such compulsory Motor Liability – as has been the case in Russia. The “compulsory” notion is initially alien, seen more as a tax rather than a protective social net, and typically there is a dose of push back until the benefits start sinking in and people start to appreciate the value of insurance. It usually takes between 1-2 years to achieve a good level of acceptance. Right now, the government is ready to roll out a new class of mandatory insurance, namely regarding the Liability Insurance for High Hazard Industries. The interesting feature here is that the limits per insured person are significantly higher than in the Motor Liability insurance and far closer to the true value of life in Russia.”
RT: Has the current crisis changed the trends in Russian market significantly?
CA:“We have not seen any major trends emerging as yet. During the 2008 crisis, insurance spending was one of the first areas that were cut in corporate operational expenses; also, Motor insurance being the main driver in consumer classes, the drop in new car sales had a severe negative impact on the insurance market. This time round, the indications are that Russia will, on the one hand, be more shielded from a global economic crisis; and, on the other, the growing insurance maturity of the population as well as the corporate sector, probably means that cutback on insurance spend will not be as deep.Overall, I am optimistic that growth will continue, albeit at a slower than originally anticipated rate.”
RT: How difficult was 2011 for a global insurance market? In this respect, how does the Russian market compare with the rest of the world?
CA: “There was a large dichotomy in how the insurance markets performed in 2011, largely reflecting the direction of regional economies. Based on 1 half or 9 months’ trends which are available, the US, Europe and Japan were static or, in some cases, even degrading, whereas the rest of the world was growing at reasonably healthy rates. Within the latter group, Russia at about 15% growth clearly stands out. This is a great achievement for the Russian insurance market!
In terms of bottom line, it has globally been a very bad year in the Consumer classes with negative technical profits and very low investment income to compensate. But the Corporate sector was better off, with not too many large losses from natural catastrophes, the Japan earthquake notwithstanding.”
RT: Are you going to launch any new insurance tools here in Russia?
CA:“Definitely! We have a big number of projects on the pipeline. Just to highlight a few: we have very ambitious plans both for our direct marketing operations as well as our Agency business, both of which we expect to grow significantly in 2012. Having a reasonably good footprint in the very large accounts segment, we expect to see bigger penetration in targeted segments in the “middle market”.And not least, we will continue our investment in brand recognition and brand awareness.”
RT: What new challenges will 2012 bring to Russian insurance market?
CA: “I see four main developments, which will largely define the direction of the market in 2012. First, the growth in new Auto sales. Auto insurance being a key determinant of the market dynamics.
Second, the traction of the new law on the Liability of High Hazard industries – which I see as a very positive development for the corporate insurance market as well as for citizens’ rights, in Russia. Third, the speed with which Bancassurance grows. Bancassurance being a relatively new but very dynamic distribution channel. Fourth, the pace of the market consolidation as new capital requirements set in from January. Overall, I would expect to see less but stronger companies, healthy premium growth even if at a slower rate than in 2011, and more professional, well organized distribution… in other words, a “win-win” scenario for all the market stakeholders!”
Robert Mckenzie, Anastasia Kostomarova, Business RT