Time to insure

Only four to five years ago, the Russian insurance market was existing in an absolute information vacuum. Both the State and the society did not take any interest in the problems of insurance. As for the insurers, they did their business: somebody was quietly cashing the salaries and wages, and somebody else was trying to develop the classical insurance.

The former were pleased with such a situation absolutely as the tax provisions and the silence of the State favored the development of "grey" insurance market. The latter were interested in the popularity growth of insurance services but they had neither instruments nor financial resources for forming the public opinion.

By the beginning of 2001, the situation changed. The society and the authorities began to take an interest in the insurance market. The insurance entered the list of widely discussed subjects.

A keen interest of the tax authorities in "insurance schememakers" was no surprise. As always, the representatives of the authorities divided into two camps about the way to resolve this problem: conditionally speaking, those were "partisans of power politics" and "economists". The former's motto is to punish all the participants of the pseudoinsurance process and to adopt regulations covering all the holes in the tax legislation. As the tax officers admit themselves, the problem is not so simple since to formally find fault with the activities of that kind of insurers is not so easy (though the "classic" insurers insist that there is not a single completely legal insurance scheme available here). The "economists" think that these schemes could eliminated only at the macrolevel. The first step in this direction has already been made - the introduction of a uniform income tax rate should bring a part of salaries and wages out of the shadow, which , however, will hardly constitute a real big part. The point is in the social tax, the debate focusing not so much on its size as on its "addressless" character. As soon as personal pension accounts appear and the managers of the enterprises and the workers begin to understand where the funds of the social and mandatory medical insurance are going to, the schemes would wear off by themselves.

One topic more discussed by various branches and levels of the authorities in 2000 was the adoption of the law on mandatory insurance of the motor car owner's liability. The Duma deputies begin to perceive the insurance as a normal mechanism performing not only a stabilizing but also the most important social function in the economy. So, the law was adopted in the first reading already in the spring of 2001. Last year resulted in yet another good thing for the insurers - increase of the attribution of insurance to the prime cost up to 3%. Chapter 25 of the Tax Code and nine bills drafted and introduced to the Duma by the All- Russian Insurers' Union are awaiting their turn. The importance of the insurance mechanisms is much spoken about both in the Government and in the Presidential Administration. The last example could be a meeting held at the end of April under the title "The Role of the Insurance in the Development of the Central Federal District" in the course of which managers of the leading insurance companies, officers of the All-Russian Insurers' Union, executives of the Department for Insurance Supervision and the President's Plenipotentiary envoys discussed the problems of developing the insurance and came to a decision to set up a consultative working group on the problems of the insurance to work out a Program for the Development of the Insurance Service Market on the Territory of the Central Federal District.

The second year result brought around a greater level of "intimacy" between the insurers and their clients. The majority of the inhabitants of large cities can already name some insurance companies they know. The car insurance and the motor car owner's liability insurance became a hot topic in the conversations between the car owners. According to questionnaires, a good quality health service and long-term accumulation instruments are the two most important unrealized requirements of the currently emerging middle class. Thus, a potential demand for the program of individual voluntary medical insurance and the long-term life insurance are secured, too.

The enterprises and companies are showing interest in a comprehensive insurance package. An ordinary practice is to hold tenders when choosing an insurer. The problem of selecting authorized companies is not less important for the local bodies which begin to actively implement program for protecting the State and municipal property, mortgage financing as well as home insurance and insurance of leased buildings. Unfortunately, a good and generally accepted idea of choosing authorized companies for taking part in insuring specific and socially significant risks is acquiring unnatural forms. Observing the fair rules of the competitiveness is the responsibility of the Ministry for the Antimonopoly Policy and the President's Plenipotentiaries. And the mass development itself of analogous program and the contracts concluded by the regional authorities with the leading Russian insurers are an illustration of how the interest in the insurance products is rising.

The informational vacuum is shrinking - splendid!. But, figuratively speaking, only that air which has filled the insurance information market is for the time being of little use for a normal functioning of all the mechanisms of vital importance.

Why are the tenders often won by insurance companies are far from being really the best ones? The most wide-spread reason is that the administrations and departments, organizations and regional authorities know in advance who will be a winner when they are announcing a contest. But it is not always this way. Often, the essence of the matter is in a banal absence of the adequate information.

What kind of information is available to a person who has to make a decision to conclude an insurance contract? As a rule, very little. There is no official information about the activities of insurance companies. The suspension or the revocation of a license are taking place only when nothing is possible to improve in the company, and the information "leak" from the supervisory bodies about inspections and audits or other measures does not add to objectivity in the informational field.

In Russia, there are no able public organizations of insurers and consumers which could disseminate information on poor-quality products and companies with problems, too. Well then, the insured person is disposing of three unofficial sources of information.

The first source is "hearsay knowledge". This way of cognition, being rather effective when buying consumer goods, could be erroneous in the insurance business. The matter is that very few contracts contain an insured loss provision. There is a substantial time period between buying an insurance policy and real presentation of an insurance service. Thus, there is no reason to speak about the competence of one's acquaintances' opinions.

The second source is "reading a newspaper, listening to the radio". Here, too, an objective information is rather scarce. The air is congested with advertising insurers' information, the majority of press publications are also of a distinctly advertising character (one should note that the situation began to change lately, and more and more publications "are joining" the "Expert" in departing from the direct dependence "advertising - text"). The RuNet has little informational about Internet-resources aimed at consumers of the insurance services. The best insurance Internet site of the "Business-Service" company is of great interest rather for the insurers themselves than for the insured persons. In the insurance conference at the Auto.ru, the advice is given, as a rule, by the representatives of insurance companies but not by real unbiased car owners.

The third source of information comes from the agents and specialists of insurance company themselves. In this case, it would be natural to mistrust the statement about 100% authenticity of the data offered.

Thus, the development of the insurance information market is substantially lagging behind the development of the insurance market itself. Now, it became evident that the demand for the objective data on insurance is very large. Moreover, the need to disclose real information on their activities began haunting insurers, too. The banal advertising fails to fulfill its function. The mutual interest of the two parties in the insurance process in an authentic information is leading to changes in the information market. Now, there are only some principal facts. The daily economic newspapers ("Vedomosti", "Kommersant") begin to consider the insurance as a topic for their publications. The insurance news appear on the pages of these media practically every day, publications in the lead article not being a rare case either.

At the beginning of 2001, the "Center of the Insurance Information", a non-commercial organization, was set up in Moscow. This structure was founded by the Insurance Information Institute, the largest American infrastructure organization possessing the Internet-resource www.iii.org, one of the best in the USA, the All-Russian Insurers' Union, the "Expert" magazine, the Confederation of the Consumers' Societies of Russia and the Bureau of Economical Analysis. The project is patronized by the RF Ministry for Economical Development and Trade and the US Department of Commerce. One of its first projects is to create a site for the consumers of insurance services. The information on the Russian insurance companies and their products is planned to be placed on this site. An insurance supermarket enabling the visitors to order appropriate insurance products from insurance companies chosen will be on the site, too.

The start of the third project was also be announced in the spring of 2001. The "Expert RA" Rating Agency has developed methods of attributing a rating to insurance companies. The Agency's experts will thoroughly investigate each insurance company interested in obtaining a rating evaluating its financial flows, investment and reinsurance policy, results of its activities in various insurance branches. The investigation shall end with a full rating report (intended only for the company being rated) and a rating itself (A1, A2, A3, A1, A2, A3, N or D), a comprehensive description of the company's business solvency and financial stability.

The details of the rating assessment procedure and rating attribution are in the Provisions published in the "Aspect" issue. Here, there are only a few remarks about its expediency. The rating is performing several functions. It delivers an objective information on the activities of an insurance company in a clear, ultimately compressed form to the consumers of the insurance services. Consumers do not have to know the particulars of the financial reporting of insurance companies - they can entrust themselves to specialists, having obtained an instrument of an independent professional assessment of the insurance companies' activities at last. The federal and municipal authorities, administrations and departments, industrial and financial organizations holding tenders among the insurance companies for insuring definite risks can also be guided by the rating as an objective assessment of an insurer's reliability.

And, finally, the insurers themselves are interested in a rating. There is no doubt that a rating report for the insurance companies' managers represents a serious statement about the company's standing as well as an assessment of its activities by an outside surveyor. But a rating should be considered also as an instrument of a more clear-cut positioning on the market. Irrespective of the kind of a rating received - high or medium one - it describes the insurer's openness, his readiness to discuss all his problems (if any). It enables the company to declare that it is operating honestly, is engaged in the classical insurance branches that the aim of its development is not "grey" schemes (it should be understood that they are practiced actually by all the companies but the serious insurers should consider them only as an additional financial opportunity for developing the risk insurance instruments) but hard work in a competitive insurance market. In the months of May and June, the "Expert RA" Rating Agency is planning to issue ratings to five or seven insurance companies, with this number growing to dozens of companies by the end of 2001. We would like to hope that this rating would very soon become a generally accepted mechanism in the Russian market, and it will be far better for an insurance company to have a medium rating than to have no rating at all.