The market for insurance of property of individuals (other than hull and cargo insurance): smooth water

Safety cushion: a significant share of insurance of individuals' property (other than hull and cargo insurance) in the insurance portfolio of the insurer will help it to maintain the aggregate loss at a non-hazardous level. Zero rates of increase in premiums (at the background of the general decline in the market by 8%), low level of loss (loss for this type of insurance usually does not exceed 30%, while loss from motor hull insurance, voluntary medical insurance and compulsory motor third party liability insurance often exceeds 80%) and rare cases of damping make the market of insurance of individuals' property (other than hull and cargo insurance) a very attractive segment of the Russian insurance market. The problem of the market - a high level of underinsurance - covers huge perspectives of growth. Insurers who will manage to significantly go ahead in the insurance of individuals' property (other than hull and cargo insurance) will win in the long-term perspective.

According to Expert RA, the volume of the market of insurance of individuals' property (other than hull and cargo insurance) amounted in the first half of 2009 to 8.2 billion rubles. As forecasted by Expert RA, the amount of the market of insurance of individuals' property (other than hull and cargo insurance) in 2009 will decline by 6% (due to termination of contracts for hypothec insurance in the second half of the year) and will amount to 19.7 billion rubles. However, the share of this type of insurance in the total volume of the market will slightly increase (from 3.8% over 2008 to 3.9% over 2009).

Conscious market: unlike markets of motor hull insurance and insurance of property of enterprises, competition in the market of insurance of individuals' property (other than hull and cargo insurance) mainly concerns not prices but service. The low level of flexibility of demand for insurance of individuals' property (other than hull and cargo insurance) at the price (due to relatively low average value of the insurance premium), makes damping in this segment of the insurance market low productive. Another matter - the service component. The main tendencies - simplification of the procedures for conclusion of an insurance contract and settlement of losses, appearance of package products, internet sales and payment of premiums with installments.

Non-insurance event: the financial crisis and simplification of the procedures for conclusion of an insurance contract and settlement of losses led to doubling of the number of cases of insurance fraud. Expert RA prepared the list of the most popular schemes of insurance fraud in relation to insurance of individuals' property (other than hull and cargo insurance):

• Retroactive insurance of facilities which have become subject to an insurance event.
• Overestimation of the real damage upon occurrence of an insurance event.
• Destruction of non-useful, impaired and old property to get insurance payment. At that, the insurance amount turns out to be higher than the insurance value often.
• Simulation of an insurance event.
• Double insurance.

In 2008 the rating agency Expert RA together with the Association of Regional Banks "Russia" prepared the draft Strategy of development of the Russian insurance market until 2020 within the framework of development of the unified concept of development of the financial market of Russia. The concept of Expert RA and the Association of Regional Banks "Russia" was distributed among financial regulators and was widely discussed at the meetings of the Public Chamber and in the business community.

At the same time the Government of the Russian Federation adopted the variant of the strategy for the medium-term perspective (2008-2012) developed by the Ministry of Finance, aimed mainly at improvement of regulation of the insurance industry. The strategy of Expert RA and Association of Regional Banks "Russia", to the contrary, pays attention to development of the insurance market, efficient fulfillment by the insurance industry of the main macroeconomic functions of insurance.

It was noted in the Strategy of Expert RA and Association of Regional Banks "Russia", in particular, that the low level of reliability of Russian insurers may result in a system crisis in the entire insurance market. Today the global financial crisis has led to detonation of internal problems of the Russian insurance industry. This led to appearance in the domestic insurance market of a significant number of insurance and financial pyramids. Inevitable exit of these companies from the market will lead to the crisis of confidence in insurance companies, even more significant decrease in voluntary demand, increase in insurance fraud.

Under these conditions, suggestions stated in the strategy of Expert RA and Association of Regional Banks "Russia" are even more topical. Right now the state shall take efforts for suppression of actions of insurance and financial pyramids, on the one hand, and formation of preconditions for further development of the insurance industry, on the other hand. However, until present, almost nothing proposed in the Strategy of Expert RA and Association of Regional Banks "Russia" has been implemented. Only a small part of measures under the Strategy (inclusion into the capital of insurers of subordinated loans, introduction of the institute of the internal controller) will be implemented in the nearest half-year.