Life Insurance Market in 2009: This is Hard Life

New life: notwithstanding the crisis and decline of real premiums for life insurance, companies operating in this segment of the insurance market continue to conclude new contracts - the volume of the new business for life insurance reached in 2009 to 8.5 billion rubles. In total, according to official statistics, the amount of life insurance premiums amounted to 15.7 billion rubles, less than in 2008 by 18.6%.

Decline of real life insurance premiums has been observed for two crisis years already: -2.6% in 2008 compared to 2007 and -16.8% in 2009 compared to 2008. The share of schemes in life insurance continued to reduce and reached 12.9% in 2009.

Notwithstanding decline in the life insurance market in 2009 more than a half of premiums in this type of insurance were received under contracts concluded this year. Positive rates of increase in insurance premiums in 2009 were demonstrated by the segment of retail life insurance not associated with lending.

According to forecasts of Expert RA, in 2010 the volume of the life insurance market will reach 14.6 billion rubles reducing by 7% in comparison with 2009.

Corporate life insurance will contribute the most into decline (-10%), volume of retail life insurance (including credit insurance) will reduce by 6%. At that, contributions received within the framework of the new business will not decrease by will remain at the level of 2009.

Support is needed: at present there are no internal preconditions in Russia for progressive development of the market of long-term life insurance. The crisis led to increase in uncertainty in economy and financial area, narrowing of the planning horizon and increase of the subjective discount rate with population. Bankruptcy of insurance companies and the tactic of deferral of insurance payments in types of insurance other than life insurance chosen by a number of insurers, deteriorated confidence of population towards insurers.

In the opinion of Expert RA, on the basis of the established situation, the Russian market of cumulative life insurance may develop only extensively - as a result of a decisive and successive policy of the state. The life insurance market shall be stimulated in two directions: creation of significant tax benefits and formation of the guarantee fund which will facilitate investment attractiveness of life insurance and reduction of risks associated with investments into this instrument at the same time.

Another condition for development of the life insurance market which is not less important is stabilization of economy and inflation level. So that all these measures would be implemented in a successive and balanced manner, it is necessary to adopt a long-term strategy of development of the life insurance market.

Planned loss-making: averaged indicator of profitability of assets of Russian life insurers amounted in 2009 to -19.0% having increased by 9.9 percentage points compared to 2008. The main specificity of companies - investment projects consists in extremely high expenses associated with conduct of the business, development of the agency and branch network, advertisement and marketing. In addition, in the area of long-term life insurance a material share of agency fees is paid at conclusion of the contract, and premiums are received throughout the entire period of its effectiveness. As a result, the averaged value of the share of life insurers' expenses associated with conduct of business is at the extremely high level although progressively reducing (95.6% in 2007, 85.6% in 2008 and 70.2% in 2009).

Averaged rates of return on investments of life insurers also significantly exceed similar indicators for non-life insurers (13.6 against 8.8% in 2009) since rates of return on investments for "life" companies represent the target indicator which may serve the basis for their competitive advantages.