President of UFU: We are on the verge of rebirth of the insurance market

Exclusive interview with the president of the Ukrainian Insurance Federation, the first vice president of the company "AHA Strahovanie" Andriy Peretyazhko to "Interfax-Ukraine" agency

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You have worked for many years in an international insurance company and head an insurance association, often communicate with foreign colleagues. Has their attitude to the Ukrainian insurance market changed in recent years?

- Today, the main question for partners: "When will Ukraine begin to realize its huge potential in the insurance sector?" " The level of insurance penetration in our country is less than 1% of GDP, compared to 3-4% in Eastern Europe and about 7% in Western Europe. The opportunities in this market are huge: after all, about 40 million people, a diverse industry, a large retail market, export and transit flow. We practically do not insure property or professional liability, the agricultural insurance market is negligible, there is a huge unused potential in the market of life insurance, medical insurance, and pension insurance is completely absent. In this regard, the main open question that arises for foreign partners is the realization of this potential.

In addition to the improvement of the political and economic situation, professional insurance investors expect to see a clear representation of the development of the insurance services market from the state, which could give confidence that this market will develop ahead of the pace of development of the country's economy, as it was in many countries of Eastern Europe. For example, if 10 years ago in Poland, after the reforms, GDP growth was 4-5%, then the insurance market grew by 15-20%. It seems that the moment has come when we stand on the threshold of the rebirth of the insurance market. As soon as investors receive a signal about the beginning of real reforms in the insurance sector, their interest in the market will appear.

- Most foreign companies evaluate the work of their subsidiaries in Ukraine according to three main parameters. The first is that the company has won the trust of clients, which is expressed in a fairly large market share, the second is that it demonstrates a professional approach to management, and the third is that the company generates profits and does not require serious investments to maintain operations at this stage.

As a rule, for large international companies, the amount of investment in Ukraine – these are insignificant figures, and the sale of the Ukrainian "daughter" will not affect the financial result in any way. If, in the long term, shareholders see Ukraine as interesting for themselves, and if the above conditions are met, they are ready to wait and start investing when clear signals appear.

The regulator is constantly tightening the requirements for insurance companies, but, as we can see, there are no special changes in the market. Why?

- The regulator really demonstrates a desire to make the market more transparent, predictable, solvent, which fulfills its obligations to clients. But the actions that have been taken over the past two years are definitely not enough to consider these requirements strict enough, and the market – cleared of insolvent players. We still have about 300 companies, most of which are not engaged in real insurance.

The main tools for clearing the market are always economic. It all starts with shareholders, with business owners who must understand and accept the new rules of the game that exist in the civilized market. If we take the banking market, then the reforms carried out by the NBU were primarily motivated by an understanding of the situation and the motivation of the owners. Thus, the problems related to the disclosure of information about the owners, and the responsibility of the management and shareholders for artificially leading to bankruptcy were solved. The NBU also banned transactions with related parties and insider loans, increased requirements for the minimum amount of authorized capital, increased responsibility for the quality of reporting and auditing, made changes to the reserve policy, and so on. At the same time, insolvent banks and banks that actually engaged in illegal operations were removed from the market. Therefore, we saw the so-called "bank collapse", and the issue was not only in new requirements for the minimum amount of authorized capital, but in new, uniform for all and transparent conditions of the game, which did not satisfy the owners of many banks.

For the insurance market, it is necessary to build the same approach as soon as possible, with an emphasis on solvency, liquidity and minimum capital, which will be the basis for fulfilling obligations even in a crisis situation. This will greatly change the motivation of the existing owners, for whom the quality management of the company and the profitability of operations will be equivalent to the question of earning or losing their money invested in the insurance company. So the insurance market will have to go through this difficult path of changes and renewal in the near future.

How quickly can this happen? How much more time is needed for the Ukrainian market to start trusting everything?

- Unfortunately, this process cannot be quick, even if we follow the path of the banking sector. It took them more than two years, but at the same time, each task was solved within the framework of a separate project, with the involvement of the best specialists of the regulator, international donors and market representatives. At the same time, even now, when the market is cleared, confidence in the banking sector is returning very slowly. Therefore, the sooner we start work on cleaning up the insurance market, the sooner we will have a chance to see positive dynamics. In any case, this is a step-by-step process, and it will take several years just to update the regulator and amend the legislation. As soon as confidence returns, it will allow the market to fight for the transfer of part of the social functions from the state to insurers. We are talking about medical and pension insurance, about professional liability insurance. For example, professional liability insurance of entrepreneurs, on the one hand, will allow to protect consumers from the errors of the executors, and on the other hand, it will help the state to waive many control bodies and numerous business inspections, such as the fire inspection. Another example – giving enterprises the opportunity to independently choose a private insurer for industrial accident insurance instead of a state fund.

Why can't insurers unite and come out with a single position, each of the three united lobbying for their interests?

- Like our colleagues, we have no contradictions and we very often find a common language when it comes to professional issues related to insurance - actuarial calculations, reserving issues, settlement of losses and many others. Positions differ only on how quickly and in what sequence the market clearing should take place, and when players will be able to meet the minimum solvency requirements.

And the question is not even whether we should move towards European standards. The main problem is how the transition period should look like in order to give many companies a chance to stay on the market and continue to work. As soon as this stage ends, and the market will work on uniform rules, the question of association of insurers will be resolved by itself.

- After the shocking situation in which we found ourselves from 2012 to 2014, when insurers were practically excluded from participation in the management of the Motor Bureau, the last three years can be estimated at "5" on a five-point scale. A lot was done during this time. We returned to the basics of the Motor Bureau: this is a self-regulating association of insurers that is engaged in the development of the OSAGO market. Among the key changes – reorganization of the Bureau's organizational structure, involvement of international audit, transition to transparent coverage of all financial information, open investment policy, increased responsibility for the speed and quality of reporting, launch of direct settlement and many other things. The electronic European protocol is already working, and the project to introduce an electronic policy is ready to be launched. Of course, it is impossible to say that we have completed the entire road map and everything is fine. We understand that there are 55 companies in MTSBU, among which there are very stable, client-oriented companies; companies that strive to be such; and frank temporaries who will leave this market anyway. Our task is to work with the regulator to create conditions that will eliminate the third group of companies and prevent new pyramid schemes from appearing on the market.

And how can this be done?

- The regulator plays a key role in this process, as it must effectively monitor the solvency of companies. If a company creates sufficient reserves for future liabilities, everything falls into place. Ensuring this approach is the main task for this market today. But there are other tools as well. For example, to make the market more transparent, it is absolutely necessary to switch to online policies. Today, about 10% of motor vehicle liability policies are counterfeit. In addition, companies sometimes go rogue and fail to deliver policies, which then circulate throughout the market. Insurers often fail to monitor their agents and do not receive information about sold policies in a timely manner, or receive it with a significant delay. If an online policy registration system is introduced, with policies issued automatically with a number from the Central Database, we will immediately gain access to real-time online reporting for each player and for the entire market.

The second tool is direct settlement. As soon as 100% direct settlement is implemented, with all Motor Bureau members participating in the process, a competition for customer service quality will immediately emerge and the opportunity to exert economic influence over the company will emerge. If a company cannot pay its debts within two months, its membership in the Motor Bureau will be called into question. This would again force insurers to properly approach reserve formation, acquisition costs, pricing, etc. Currently, only 50% of the market participates, and less than 20% of all insurance claims are settled using this method. Experience from two quarters has shown that everything works almost perfectly, so there are no questions about this model, borrowed from Belgium. We simply need to increase the number of players working with this technology to achieve economies of scale, and for customers to experience a significant improvement in service. We are already seeing that with direct settlement, customers receive compensation three times faster than with the standard process.

I very much hope that the positive experience of participants in the voluntary pool for direct settlement will attract more and more participants. I believe that in the near future, the MTIBU will decide that 100% of companies will join direct settlement. This, in turn, will dramatically improve the image of this service and the industry as a whole.

What is your opinion on the regulator's much-publicized actions to check the deadlines for bureau members to enter information about their MTPL policies into the Central Database, and has AXA Insurance complied with its order?

- Such shake-ups are sometimes necessary; the message received from the regulator improved the time it takes to enter information into the database by about a quarter in just one month. At the same time, target indicators should be more realistic. Today, almost no company is able to enter data into the Central Database within two business days. In any case, if we, like most countries, switch to online policies in the medium term, this problem will be automatically resolved.

Could you provide a brief forecast for the Ukrainian insurance market?

- The good news is that the market has stopped declining and is finally showing positive dynamics. The traditional insurance market will grow by approximately 12-15% in 2017. On the other hand, taking into account inflation, this growth is insufficient to make up for the volumes lost during the crisis years. Without a strong regulator and without additional investments in improving the industry's image, it is very difficult to expect significant growth.

There are perhaps two remaining significant problems in the market. First, if we talk about risk insurance, this is compulsory motor third-party liability insurance. This is more than 7 million car owners; it is a mandatory type of insurance, and the quality of insurers' work in this type greatly affects the image of the market. OSAGO does not operate purely on a market mechanism, because the very structure of this type of insurance is built on different principles than, for example, CASCO, when the client is focused primarily on the company's reliability.

There is a second market, also very sensitive, albeit smaller in volume - endowment life insurance. Here, a mechanism similar to a banking one is more at play and has the same problems when companies go out of business, and people lose savings under long-term programs.

Everything else, with the exception of a few mandatory types that do not significantly affect the overall figures, is a real market, regulated by a simple method - the price/quality ratio and positive customer experience. And everything is fine here; here we depend only on the economy. If the economy grows, insurance will follow this trend at an accelerated pace.

And the last question: what is the key to a successful company?

When I came to AXA Insurance 10 years ago, I was pleasantly surprised to read its philosophy and strategy. It completely coincided with what I had deduced for myself as the "formula for a happy manager." AXA's strategy states that a company should be the best for its shareholders, clients, employees, partners, and society. This means that shareholders should receive the profit they expect from investing in shares, clients should be satisfied with the highest level of service, employees should be involved and loyal, and partners should trust the company 100%. The company should be socially responsible, pay taxes, and actively participate in market development.

Therefore, any manager is happy if he sees that he manages to correctly balance all these positions and achieve good results. If the indicators for all participants are in the "green" zone, then the manager can consider himself a happy leader, and the company successful.

Source: Interfax-Ukraine

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