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06.02.2018
1832
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The insurance market expects important innovations that should accelerate the development of all business segments. Auto insurance will continue to lead the traditional business.
Insurance companies today are partly hostage to the real sectors of the economy. They reflect trends present on the global economic map: modest growth in traditional insurance and the gradual development of a new economy with high-tech products.
With inflation at around 13% in 2017, growth in the insurance market is quite modest. According to InsuranceTop, gross insurance premiums for the first nine months of 2017 increased by 17.6% to UAH 7.4 billion, of which UAH 6.9 billion was for non-life insurance. Net insurance payments over the same period increased to UAH 7.2 billion.
The market is likely to maintain similar growth rates in 2018, according to Andriy Peretyazhko, First Vice President of AXA Insurance. "There is cautious optimism; the classic market will grow by around 15%. On the other hand, with double-digit inflation, this is not enough to speak of significant success," Peretyazhko explains.
Vyacheslav Chernyakhovsky, Chairman of the Insurance Commission of the Ukrainian Society of Financial Analysts, is less optimistic. "To our great regret, we note that in 2017, the insurance market continued to be in a protracted crisis due to general economic problems and extremely low demand from citizens, as well as an almost complete absence of mortgage, car, and consumer lending. For example, only 3% of individual car owners who had compulsory motor vehicle liability insurance (OSAGO) purchased a CASCO insurance policy for their car. This indicates that the problems in the insurance industry are not solely rooted in the financial market itself, but depend on the macroeconomic situation in the country," says Chernyakhovsky.
According to him, market stagnation has not been overcome and will continue in 2018, as there are no systemically important factors in the economy that would allow people to free up a slightly larger portion of their income for insurance.
The largest retail companies in Ukraine by collections are Unica, Arsenal Insurance, and AXA Insurance. PZU Ukraine, INGO Ukraine, Providna, TAS Insurance Group, and Credo. Most of these are businesses with foreign capital. For example, AXA is part of a major international financial group with roots in France, while Unika is owned by Austrian investors. Among the Ukrainian insurance market leaders are TAS and Arsenal Insurance. Experts predict that in 2018, market leaders will focus on revenue growth. "The largest market players will continue to compete, but overall, their focus will be on increasing profitability rather than increasing market share, as was the case in previous years," says Marina Avdeeva, board member of Arsenal Insurance.
In terms of regulation, the main risks for the insurance market lie in the possibility of its transfer from the National Commission for the Regulation of Financial Services Markets to the National Bank. As a reminder, approximately 100 banks have been closed in the banking sector for various violations since 2014. A similar purge could occur in the insurance market.
"The market purge of dead souls will likely continue in 2018, and a number of more insurers under the supervision of the National Commission for Financial Services Markets could join the 27 companies that already disappeared in 2017," says Nikolai Burtovoy, an attorney at Ilyashev & Partners Law Firm.
Meanwhile, there are predictions of the market being subordinated to the National Bank. "The transfer of supervision to the National Bank is causing concern among companies in the so-called black zone. This includes more than 100 companies that are essentially inactive, meaning they are license holders. These are companies involved in schemes related to tax optimization and money laundering, as well as companies that are de facto bankrupt in their financial standing. The experience of the banking market cleanup shows that their concerns are not unfounded," warns Andrey Peretyazhko.
According to his forecasts, there will be a transition period for companies in the gray zone—those that have liquidity and capital deficits but generally meet their current obligations. "Such companies will have the opportunity to make the right decision, capitalize, and remain in this market, or reorganize. No one should doubt that the NBU's institutional capacity as a regulator is many times greater than that of the existing National Commission," says Andriy Peretyazhko.
Motor insurance—CASCO and OSAGO—will drive the growth of the risk market. According to Arsenal Insurance, the new car sales market in 2017 totaled more than 80,000 units, a 25% increase over 2016. One of the reasons for this growth was the resumption of lending. "The growth in credit sales in 2017 compared to 2016 was over 60%. Banks such as Ukrgasbank, OTP Bank, Oschadbank, Globus, and Pravex Bank have resumed car loans. Auto importers have begun to restore their financial programs. Thanks to joint programs between auto importers, banks, and insurance companies, financial programs for clients with 0% interest rates have been restored. For clients, this means an installment plan of up to two years for the purchase of a new car," explains Arsenal Insurance. The share of such purchases in the credit sales portfolio is enormous, amounting to over 40%. As in 2016, Toyota, Renault, Volkswagen, Skoda, and KIA remain the top five sales leaders. They account for over 40% of new car sales.
"The growth in car sales and the resumption of auto lending have also led to a revival in the insurance market. During the 2014-2016 crisis, unsecured vehicles predominated in the portfolios of insurance companies active in the auto insurance market. In 2017, insurance companies that worked actively with partner banks and dealerships experienced a significant change. The structure of Arsenal Insurance's portfolio in this area more than doubled," says Marina Avdeeva, member of the company's board.
The most important trend for the insurance market is digitalization. On the one hand, this is the development of electronic services that insurance companies serve. On the other, it is the insurers' own skill in finding common ground with the new economy and high-tech markets for joint ventures. It's safe to say that those companies that successfully build such relationships with innovators today will likely benefit tomorrow. Insurance companies are gradually developing partnerships with the high-tech industry, for example, introducing gadget insurance or negotiating a partnership with UBER.
The market expects the government and insurance regulators to facilitate the rapid implementation of necessary innovations. "There's an expectation that we'll receive an electronic MTPL policy and that the project, which has been ongoing for almost three years, will finally become a reality, offering drivers 24/7 access to an electronic policy. This will encourage the insurance industry to innovate, introduce new online services, products, and offer new products," says Andrey Peretyazhko.
"The level of insurance companies' technological sophistication, their ability to work online, and the launch of electronic policy projects will help attract new clients and reduce insurers' costs," concludes Vyacheslav Chernyakhovsky.
The visa-free regime also influences market development, as international regulations require travelers to have insurance. However, their presence isn't checked at the border, leaving it up to travelers to ensure they have it. "The increase in travel on visa-free passports will lead to a change in the structure of tourist insurance," says Vyacheslav Chernyakhovsky. He adds that any positive changes in the insurance market will depend primarily on citizens acquiring new property—apartments, houses, cars—that they risk losing or damaging, as well as having the funds to pay for insurance.
Source:Business Capital
Author:Margarita Ormotsadze
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