Expert RA

Expert RA has studied markets of agriculture and aviation risk insurance

March, 20th, 2008

The Expert RA rating agency has reviewed markets of agriculture and aviation risk insurance in the framework of the Insurance Panorama project. Our analysts singled out main obstacles in the way of progressive development in the industries and mapped out possible solutions. In 2008 markets of agriculture and aviation risk insurance may get a new boost. But full-fledged development of the insurance sectors would need large-scale financial and political state support to the corresponding economy sectors.

According to Expert RA analysts, the agriculture market potential presently approximates 50-60 bln rubles. Our experts estimated the 2007 agriculture insurance collections to be about 7-9 bln rubles. Thus, the agriculture economy is presently ensured by at most 15%. But since the state prioritized the agro-industrial complex development, agriculture risk insurance may be fairly considered as one of the most perspective sectors in the insurance market.

Expert RA specialists note: absence of unified insurance and-re-insurance base in the area seriously hinders the agriculture risk insurance development. Another vital problem: in certain regions established state-supported insurance conditions are not observed by managers of agro-industrial complexes. Some of insurance companies, involved with agriculture, also featured unfair competition and damping policy. State-supported insurance of agricultural crops and perennials is often accompanied by financial scheming. The above factors may mostly be attributed to the absence of adequate norms and standards.

According to Expert RA analysts, to form an association of agriculture insurers would be an efficient way to resolve the agro-insurance market problems. Well-established foreign practice in developed countries has proven efficiency of such entities for resolving issues of methodology, re-insurance, loss settlement, interaction with the state and development of normative base. Besides, numerous agro-insurance problems may be resolved by making agro-insurance mandatory. Presently such proposals have been initiated by many insurers. But the real mandatory insurance is still beyond the hill. First, we need uniformity in the insurance system, risk assessment system, insurance approach and claim settlement.

The aviation risk insurance segment is expected to expand in 2008. The Aviation Code amendments, approved in December 2007, will seriously increase liability of air carriers towards passengers. Life and health insurance coverage would hike by 20 times to total 2 mln rubles. Besides the increased coverage, insurance compensation was amended to be paid within 30 days. Not all insurers would be able to live up to new standards. As of June 2008 to pay timely in keeping with insurance cases, the aviation insurer liquid assets should be no less than 300 mln rubles (insuring air-carrier liability to one hundred passengers). Considering brief time period for settlement (30 days), re-insurance would hardly be efficient and reliable way out. As a result, the number of aviation insurers would decline.

Plight of aircraft construction industry seriously hinders development of the local aviation insurance market. Russian air carriers have to take foreign jets on lease. Under such agreements re-insurance, underwriting and damage settlement is mostly the domain of foreign insurance groups. Without a planned resolution of the Russian aircraft industry crisis and encouraged demand for local airliners Russian insurers are at risk of losing the aviation insurance market altogether.