Yuriy Yavtushenko - about the culture of the insurance business in Ukraine

Businessman Yuriy Yavtushenko is one of the most prominent figures in the Ukrainian insurance market. His main asset, the insurance company "Salamandra-Ukraine", is considered the fastest in settling insurance claims under the Civil Liability Insurance Act. He recently began developing the company "DIM Insurance". His sphere of influence also includes the assistance company "Finance Line" (which settles losses arising from insurance claims) and the factoring company "Marks. Capital". Yavtushenko is also the founder of the public association "Ukrainian Insurance Ombudsman", which helps accident victims to receive payments from insurance companies if they refuse to pay, free of charge.

Yuriy Yavtushenko became the author of a rather unusual scheme of work in the domestic insurance market. He buys insurance companies that are on the verge of collapse and pays off their debts at a discount. Since the MTIBU procedures stipulate that payments from the Bureau's funds for bankrupt insurance companies can begin only after their complete liquidation, the victims have to wait for their money for years. The alternative was the opportunity to receive a payment from Yavtushenko's factoring company in the amount of 30-60%. Later, he - in theory - should receive these funds from the Bureau's funds, but this has not yet happened.

Yuriy Yavtushenko's reputation in the market is ambiguous. Some consider his business to be an aid to MTIBU, while others believe that with his efforts he is pushing some insurance companies into bankruptcy and shaking up the established order of things in the insurance market.

At the same time, the latest deal involving Yavtushenko led to the resignation of MTIBU President Yuriy Hryshan. Grishan managed the insurance company "Illichivske", which belonged to "Metinvest". "Illichivske" was experiencing growing financial problems, and therefore needed additional capitalization.

Yuri Grishan apparently even managed to find the necessary funds - the company officially announced that it would be bought by a hedge fund from Belize. However, Yavtushenko offered more favorable terms to the owner of the company. As a result, Grishan was first removed from the company's management, and later - was recalled from the post of President of MTIBU.

In his first interview for the media, Yuriy Yavtushenko told a Forbes journalist about the details of the agreement on the insurance company "Illichivske", the specifics of the insurance market in Ukraine and why he personally considers such work immoral.

– Is the purchase of the insurance company "Illichivske" a business or a consequence of a personal conflict with Yuriy Hryshan?

– What kind of conflict is it, it's pure business. I have a normal relationship with Yuriy Hryshan. But everyone thinks that I was "abandoned", and I think that I earned it. The whole difference is in the wording.

– But Yuriy Grishan would have remained to manage the company if the previously announced non-resident investor had bought it…

– I don't believe in foreign investors. Today, large Ukrainian companies are not buying anything, and foreign investors are leaving. Banks and insurance companies are leaving. The investment climate in Ukraine is bad for various reasons. The consumer today is not ready to consume quality products, and if he is not ready, how can he make money?

If there was a real buyer for «Ilychivskaya», he would have come and proved that he wanted to buy it. And so there were two offers – mine and another from some hedge fund, I don't even understand who is behind it. It's a long story: negotiations lasted for more than six months, but no one from there came. There was no other offer better than mine.

I wouldn't have been able to beat some real big company, they would have had more resources. Financial business – this is a business of big money. An insurance company cannot start a business with $100,000. You need at least $10 million. This is the starting position. Today, there is no normal company that would buy this business.

– And why do you need this company, given that it has serious financial problems?

– There are people there. First of all, it is excellent management. I know for sure that medical settlement at «Ilychivskaya» is better than at other insurance companies in Ukraine. They have experience, knowledge. And how much does a trained specialist cost? People today – this is a great resource…

– But sources inside the company know that you came in – and immediately started firing many people…

– Let's be honest. Where did the money go? There's a "hole" and everyone knows it. If "Ilychivskaya" has a part [of the business] that makes money, then there must be another part that absorbs it even faster than it is made. There is "good" and there is "bad". The "bad" must be cut off. But the "bad" is not a problem of "Ilychivskaya", it is a problem of the entire insurance market.

Today, you cannot enter the market with an offer to sell a motor vehicle policy with an agency commission of 20%, as stipulated in the legislation. There are companies that pay agents a 60% commission, but agents don't go there very often, because they understand that these are one-day companies. There are insurers that pay 50%, but not many agents go there, but more than where 60% - such companies have a longer life span. There are those that give 45% - and almost everyone goes there. And there is an agency level of 40%, but not all agents agree to such conditions.

All insurance companies, including non-residents, - are hostages of this state of affairs. If the OCACV market has a commission rate of 60%, then how to attract normal employees and agents, on what basis? What culture to motivate them with? We have only one culture - money. Agents don't give a damn whether companies will pay something to clients or not.

Most people employed in the insurance business don't understand how it works at all. There should be a reserve in the bank, and payments come from this bank. But if there is a "hole", then someone "took it out"? And if Yavtushenko decided to keep at least some staff - but not those who "took it out", but those who at least earned something - then, probably, it is worth something.

There are companies that pay agents a commission of 60%, but agents do not go there very much, because they understand: these are one-day companies. There are insurers that pay 50%, but not many agents go there, but more than where 60% ─ such companies have a longer life span. There are those that give 45% ─ and almost everyone goes there.

– Why did the acquisition take place through 11 transactions to purchase shares, in packages of less than 10%? To avoid obtaining permission from the Antimonopoly Committee?

– Yes, because in fact it is the purchase of a "hole in the bagel". If Serhiy Protsyk brings this company to the proper level, then we will have to invest, and that's when I will ask for concentration.

– And if he doesn't?

– Then we will most likely merge it with "DIM Insurance". And the merger will not take place based on its own authorized capital. "DIM", for example, has an authorized capital of 20 million hryvnias, "Illichivskaya" also has a capital of 20 million, but it will not be a 50% to 50% merger, but 95% to 5%.
That is, we will reduce the capital and "collapse" it as a company without capital. I paid, first of all, for the clients.

– Did you conduct an audit?

– We are still conducting it, it’s too long a story…

– But still, where did these "holes" in "Illichivskaya"’s financial statements come from? Did the company spend too much or did someone withdraw something?

– No, no one withdrew anything. The problem is not with "Illichivskaya". This is the problem of all companies. 3 billion hryvnias in revenues from OSACV, 1 billion hryvnias in payments. Where did 2 billion go? Everyone is working in the red, having a business where they generate 3 billion hryvnias in payments and only pay out 1 billion. And everyone is in the red!

There is no culture of normal business. What is happening? They take 3 billion hryvnias, 1.5 billion "pour out onto the street" to agents, rudely and brazenly extracting funds from companies. Another 1 billion goes to payments and 700 million - to maintain offices. It turns out "minus" 200 million hryvnias. Then such companies say: "But raise the cost of OSACV for us by 200 million hryvnias." They raise it - and they "pour out onto the street" 1.8 billion!

Never mind "Illichivska", everything is the same for all insurance companies. The balance does not match not because "Illichivska" is not working well, but because that's how everything is organized in the country. Agents do not want to sell for a commission of less than 50%. And for 50% of "agency" this business cannot go "in the plus", unless clients and victims of road accidents are not paid anything. The problem is not in one company. Everyone is "burying" money, because they cannot sell normally. And I can.

– And how do you sell? What is the secret?

– If a new quality product appears today, the consumer gets in line. A quality product needs IT technologies, it needs a different service culture.

– According to our information, two insurance companies: ST "Illichivske" (risk) and SK "Illichivske" (life) - the financial "hole" already amounts to 140-150 million hryvnias. Are you really willing to give that much money for the sake of the staff?

– As for «Ilychivskaya», there is a partner whose employees are clients of this company, and he cares about his employees. We will solve this issue together. I have an understanding that the partner will not abandon me halfway and we will solve the problem together.

I will do it, and the number of my clients will increase. Add 100,000 clients to me now (and this is a huge number) – and these people, if the product is of high quality, will provide me with payments from year to year. I repeat, I bought the company precisely for the sake of the clients. But at the same time I also bought a problem that no one else is ready to solve, because everyone is only interested in money. And if I solve this problem in three years, then in four years I will have a net profit. I can wait these three years.

– Some believe that your business – assistance to the Motor Bureau, others – that you are "catching up with the lying ones"…

- I am not interested in the Motor Bureau, I am interested in the client. The client cannot receive money from the Bureau, because the Bureau does not want to pay him. And if he pays, then only to the chosen ones - judges, prosecutors or with a kickback through the service station, as it used to be...

There is a value for money. For example, there is the "Ukrainian Environmental Insurance Company". I started buying it five years ago, and I have not received anything from the Motor Bureau yet. Then the rate was 8 UAH/$, today it is 26 UAH/$. All normal people who know how to count think that I am "in the red". But I am "in the red": all these people whom I helped have been insured with me for five years in a row, because then I helped them. And so they would not have received anything today.

– And what percentage approximately goes to you?

– More than 50%, and the extension of insurance – approximately 80%. There are different cases. For example, a person’s car was broken into, and it – the last thing she had. I paid her and forgot about it. But she leaves here with gratitude.

No one forces people to receive part of the insurance payment in «Marx. Capital». There is a Motor Bureau, where you can get 100% of the payment, but there is a long queue there. That is why many people come back to me.

This business is not understandable to many. This model does not make money on buying, because investing so much money and not getting anything from the Motor Bureau sounds strange to many. Of course, I will get it someday, but it will be exactly as much as I put in there. The money I put there is a reserve, and then business begins.

In «Marx. Capital» I am the majority shareholder – it is a fact, and I will not hide it, but I am not alone there…

I am not interested in the Motor Bureau, I am interested in the client. The client cannot receive money from the Bureau, because the Bureau does not want to pay him. And if he pays, then only to the chosen ones – judges, prosecutors or with a kickback through the service station, as it used to be.

– As for the Motor Bureau… Are you dissatisfied with its work?

– This is not the Motor Bureau's problem, this is the problem of the insurers. They do not have money in reserves. This is a financial business: there should be money in reserves, living and real assets. And they do not have money. After all, as long as there is a flow, the insurers pay for insured events. The flow stopped - and they don't pay right away. This is a typical "Soviet" story in the style of "MMM".

If the regulator says: "Let's transfer 10% of your premiums to the Motor Bureau". What will insurers do, will they reduce agency fees? No, they will pay less to accident victims.

And if insurers are forced to simultaneously add what is missing to the MTIBU funds, then this is an immediate scandal. After all, as soon as the MTIBU funds decrease after payments for bankrupts, insurers will have to contribute their own money, and as I said, they have no money.

Yuriy Grishan is a good guy, he defended the position at the time that reserves should not be increased to 500,000 euros, and everything was left at the old rate. But this business is not built like that. You have to have money. And we need a normal regulator.

The same «Ilychivskaya» has no money. We are now doing a stop-sale: all the agents have fled, there is no money, and the obligations are hanging, and they need to be paid to someone.

– Two years ago, you were sure that 20 companies would remain on the market. Has this assessment not changed? Do you still believe that forty companies have no money? That there are no living assets in reserves, and we need to reduce sales?

– Yes, there is no money due to the wrong business model. The companies have no reserves. Now «Ilychivskaya» has no reserve to cover its obligations. What should I do? Stop-sale, because if there are no normal assets in the reserves, then you need to reduce sales volumes so as not to take on new liabilities.

As soon as sales have stopped, I have to replenish the reserves, and then accept only the amount of payments that will be enough for me to cover the liabilities. I have such a reserve, but I have it in other companies - in "DIM Insurance", in "Salamandra-Ukraine", in the same "Marx. Capital".

I can put this reserve in "Ilychivskaya", but I want to understand what is "in the closets" there... For example, recently a contract was found for one person - for 9 million euros for life insurance against an accident. Excuse me, if something happens to her, I will have to pay 9 million euros for someone's stupidity? And this risk is not reinsured.

– And how much did such a contract cost?

– One or half a percent... I will count all the assets and liabilities to the end, but the fact that we will stop this «festival» with large agency commissions – is a fact. We will continue selling where it has a «plus». As soon as we clean up the company and understand everything, we will merge it with «DIM Insurance» (which we have already «cleaned up» and in which everything is fine now).

– And why does «DIM Insurance» have such long settlement terms?

– Old debts. When we bought the company a year ago, we didn't know all the background stories. Everything was "on the accounts", no IT system, in a word - a complete "scoop". That's why we didn't see many insurance cases, and that's why people didn't receive payments and filed lawsuits. And until we get a writ of execution or are summoned to court, we don't even know that we have such a debt.

And how everything is happening there now: we collect payments from auto insurance conditionally for 10 million hryvnias, and we pay out 12 million. Yes, I don't invest in the company, because health insurance earns the same 2 million there. Again, conditionally, I "translate" them to where there is a "minus".

Now we will close all the old debts – and in a year we will have the same company in terms of payment speed as "Salamandra-Ukraine".

"DIM Insurance" – is a social company, and we will pay from the moment we collect the package of documents, as the entire market does, and the price will be slightly different.

– There is a company "Etalon" on the market, which is currently operating and which you probably were the only one who could not "absorb"&hellip I'm generally trying to bring all these "bagel holes" that are currently on the market to a state where they will either leave the market or they need to stop selling. As a citizen, as a participant in this market, it is beneficial for me that there are no such companies that do not pay. This is the reputation of the industry...

If I produced dairy products, it would be beneficial for me that other companies did not dilute washing powder with palm oil, because this is our industry reputation. My influence on this was, is and will be. And the Public Union "Ukrainian Insurance Ombudsman" - this is also my influence. We help to receive payments from those insurance companies that do not want to pay for free.

– By the way, what is the business logic of this project?

– None. I have no business logic. I just don't want to be told today that insurance companies are complete scammers, because that's the opinion in society today. That's what they say about everyone, but I don't want to be like that. And I invest money in projects like the "Ukrainian Insurance Ombudsman", which help to get insurance payments for free. And for that I am now considered almost a scoundrel.

Is "Etalon" an insurance company? If it is among the leaders in the National Financial Services Commission's rating in terms of the number of complaints, then it probably doesn't pay. This is an example of a negative impact on the reputation of the insurance market - because after communicating with such insurers, will an ordinary person want to deal with other insurance companies?

The regulator needs to enter such companies, make a stop sale, sell all assets and make payments. And if there are no assets there - therefore, redistribute the portfolio among other companies. Of course, I influence this.

As a citizen, as a participant in this market, it is beneficial for me that there are no such companies that do not pay. This is the reputation of the industry.

– Do you see such companies that you would like to absorb in the foreseeable future?

– When there is good staff, I sometimes come myself and buy. I came to «Dniprinmed». Others come to me themselves.

The question is that I see a couple of good companies on the market now. I will not mention their names. Their operating costs are crazy, and they serve some kind of captive, 2-3 enterprises. They are not profitable for the shareholder at all, he does not get anything from this, these are his additional expenses. It is easier for me to provide less expenses and more results for the same health insurance. And, of course, I will go to such ones.

And the fact that a bunch of shareholders will come to me who want to get rid of their "holes" - is a fact: there are already 18 of them. This means that there will be 19, 20, and 30.

– Over what period of time did you manage to "work through" 18 companies?

– The first was the "Ukrainian Ecological Insurance Company" in 2011. The model is this: we hire lawyers, transfer clients, and make payments for insurance claims.

– Your main asset is – «Salamandra-Ukraine». Do you want to increase it?

– There are two assets. There is «DIM Insurance» – a good, balanced business, a company with reserves. I am actually 100% the owner there for now, but I will look for partners. And there is «Salamandra-Ukraine» – I am the majority shareholder in it: I have 50%, the team has 24%, and Dmytro Firtash has 24%.

– Isn't it Firtash's money that you use when buying new companies?

– No, these are not big partners. You don't really need a lot of money. Everyone thinks it's millions, but "Ilychivskaya" is worth nothing.

– But you have to pay off the debts...

– This is understandable, but in this story of working capital, only 30-40 million UAH is needed. This is not much money today. This is a million euros. This is the owner of a pizzeria in a developed country. I'm just saying that people who have this money are ready to invest it, but Firtash is definitely not interested in it now. His turnover is billions.

– Is there any goal to enter the top in terms of size?

– We don't plan to occupy the top 5 today. As soon as you start buying such a large market, you can only buy it through agents, and they immediately "drown" company.

The goal is quite simple: I want to be the No. 1 direct sales company in Ukraine, without agents. This is – The culture that is currently in the insurance market has collapsed.

It is better to recruit people "from scratch", and in "DIM Insurance" it will probably be like that. It does not have a market share, there are 40,000 clients insured for health, I want half of them to buy property insurance, OSACV, the insurance products that they need.

We are ready to pay agents, but it will be 20%. I would rather recruit young people from school, but who will do everything honestly, than I would take a crowd of these... people with a different culture.

– Currently, a representative of "Salamandra-Ukraine" is in the audit commission of MTIBU. Are you going to introduce your person to the presidium of MTIBU from "Illichivskaya"?

– The presidium will include people who worked at "Ilychivskaya". I don't think it's necessary to come there and say that I'm a representative here now. If the company is cleaned up, reserves are normalized, then I'll be able to come and say that I'm a representative. For now, let's limit ourselves to crisis manager Serhiy Protsyk.

- You previously stated that you were going to file a complaint with NABU against "Arbuzov's accomplices". What are the essence of your claims?

- The issue is not with a specific person, but with old people with old principles who are concerned not with insurance, but with "providing tickets" for drivers. Unfortunately, even in the new government there are people who want to leave the "old insurance" and simply cling to the old state of affairs in the insurance market. I prevent them from living their lives as the "Ukrainian Insurance Ombudsman" and with my speeches, the essence of which is "enough to steal money."

And we filed a complaint with NABU so that experts could find out who from the previous and new government (and not only from the government) still influences the insurance market, the Motor Bureau, insurers, and the state regulator.

"Old insurance" will, of course, die anyway. The only question is how many more people will be deceived by then.

The new Ukrainian insurance already exists, and it works. And I'm not just talking about myself - there are insurers on the market who you can trust, and they demonstrate with their work that all is not lost for the Ukrainian insurance market.

– But how could Arbuzov's associates maintain a serious influence on the insurance market?

- Have the Communists gone somewhere? Did they die? They are in every house. Has the "scoop" from our country gone somewhere? Lenin has gone somewhere, but his cause lives on. It lives so much that we cannot even imagine. I am not going to say that Arbuzov is wrong. He had no chance - he had to rob and steal, he was put in this channel. 

Source: forbes.net.ua

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