Expert word

Accreditation of Insurers: Axis of Evil?

August and September saw insurance companies and banks literally elbow their way to the Federal Antimonopoly Service (FAS) in a rush "to surrender". Every day brought new reports on the voluntary renunciation of “noncompetitive practice ". The repentant included among others practically all leading companies and a number of big banks. Now the market has somewhat calmed down. Both the FAS officials and the banks and companies have taken a time-out in expectation of a seminar FAS plans to hold soon to work out mechanisms for cooperation between the insurance companies and the banks. Does it all mean that our bankers and insurers en mass have been violating the laws to the detriment of their clients?

Insurance of the bank programs-related risks is the "hit" of the season. Insurers call this market highly promising. And for a very good reason. Its growth rates surprise even analysts who are quite used to record figures. With some of its segments (hypothecary insurance, for example) growing several times annually, the dynamics and prospects of this sector are amazing. However, as usual, there is a fly in the ointment. The debates on how well the participants’ principles meet the standards of “market" and competitiveness are now in their second year. Collusion, overpricing of tariffs, captivity, and imposition of conditions on clients are only part of the charges leveled at banks and insurers by the mass media and state agencies. Accreditation of insurers is, some believe, just a haven for of abuse.

There are slightly less than one thousand insurance companies operating on the Russian insurance market - and they all differ greatly in the reliability and quality of their insurance services. One can often hear that ‘if an insurance company has a license it means that it is reliable enough to deal in the insurance of pledges". Those who express this opinion are either mistaken, or deliberately lying. For the Federal Service of Insurance Supervision has recently withdrawn the licenses of quite a few companies and the process of clearing the market is still on. There have also been some shocking bankruptcies of insurance companies which had been excessively fond of dumping and the high agency commissions they had charged for CASCO (Motor Own Damage liability) and OSAGO (Compulsory motor third party liability), which is completely illegal. Even prior to their refusal to fulfill their obligations those insurers had licenses and did not formally differ from their competitors: they had licenses, clients, and they "worked" in the insurance market. Strictly speaking, if every company is allowed to deal in bank risks without any selection we shall get what will in fact amount to retrogressive selection, and, as a result of it, in the collapse of the market instead of healthy competition.

Banks must needs have an opportunity to select reliable counteragents. A transparent, market-oriented, objective accreditation is a recipe for the successful development of the market. There’s no need to re-invent the wheel. Ratings, financial stability parameters, work experience, geographical presence and service quality should form the basis for selecting insurers. Instead of putting spokes into their wheels regulators should offer their own version of rules for accrediting insurance companies (or selecting, evaluating, recognizing in case they disapprove of the term accreditation).

Russia already has an example of successful application of the rating system for selecting insurance companies. The Agency for Housing Mortgage Lending (AHML) expects insurance companies to meet a number of obligatory requirements including the presence of rating evaluation by an independent rating agency which enjoys high reputation and recognition in the market offering these services. This requirement allows it to exclude insurers with low reliability from dealing in hypothecary programs and at the same time it leaves the door open to any Russian insurance company that will be able to meet the reliability requirements for accreditation. The AHML-accredited companies include 27 insurance companies with individual Expert RА ratings and 3 insurance companies with ratings from international rating agencies. The place has been “cleared of mines".