Friday, November 29 2013 17:52
The process of consolidation on the Armenian insurance market continues
ArmInfoElita BABAYAN, Insurance Specialist, Agency of Rating Marketing Information (ArmInfo)
XPRIMM: Starting 1st January 2013 a system of bonus was introduced, and starting January 1, 2014 - one of malus. Was this system accepted by the insurance market? What has been the total amount of bonuses granted to disciplined drivers? What are the expectations of the market since the introduction of this system?
Elita BABAYAN: The bonus-malus system, or rather one of its components ("bonus") applies to contracts signed after December 31st, 2012. Thus, the system is already functional in Armenia; however, many drivers are still lacking knowledge about its details.
According to estimates by the Executive Director of the Motor Insurers' Bureau of Armenia, Anna VARDIKYAN, full implementation of the "bonus-malus" (BMS) in the next few years will lead to a reduction of the number of undisciplined drivers in Armenia by 6-10%.
The system, according to the Bureau will indirectly affect the behavior of drivers that pose a potential threat to the life and health of citizens, forcing the first to be more disciplined. "Bonus-Malus" also prevents fraud in the field of MTPL.
Since the date of implementation of the "bonus" component, the total amount of bonuses (3% of the premiums) issued to disciplined drivers amounted to about AMD 350 million.
With the introduction of the "bonus-malus" system, insurance companies are expecting to "save" the unprofitable MTPL segment, which seems to be very unlikely to independent insurance experts, given the presence of a number of unresolved problems related to the system of vehicle inspection, which in Armenia is considered to be very bureaucratic. It should be noted that the "bonus" of conscientious drivers will grow annually, and its maximum size reaches 50% of the insurance premium for a specific driver.
XPRIMM: Please assess the mandatory health insurance in Armenia: results, expectations, trend
E. B.: When evaluating the status of the health insurance segment in Armenia, it should be noted that the activity of policy holders requests for insurance compensation (most of them are government employees) is quite high. However, there is an extremely low level of awareness about the cases in which they can get insurance payments and what is not possible to be compensated. However, the government's initiative led to a noticeable (4 time) increase in the health insurance market in Armenia, and is intended to pave the way for the introduction into the social life of compulsory health insurance.
According to insurers, this product will become unprofitable business for the companies, but a good tool for the promotion and mainstreaming of insurance in society. So, annual payments in health insurance in Armenia increased by almost 10 times and reached, on April 1st, 2013, AMD 1.6 billion or 33% of the total payments. Thus, seven insurance companies collected AMD 2.052 billion premiums.
The capacity of the health insurance segment has grown rapidly after the introduction by the Armenian authorities of the social package for budgetary workers. Currently, the state program of "social package" includes 150,000 budgetary workers.
For the implementation of this program, the government has allocated this year nearly AMD 21 billion. It should be emphasized that the premiums collected under the program accounted for over 90% of health insurance premiums.
XPRIMM: Online sales are becoming popular in many countries. Are the Armenian market and population ready accept this innovation? What are the steps taken by companies towards the development of this trend?
E. B.: Online sales of insurance policies have become an ordinary procedure in Western countries. For Armenia, this is a new sales channel and it is not popular among the insured. The pioneer (and so far the only company) in this segment is ROSGOSSTRAKH Armenia. They will launch an online service for selling insurance policies for those who were traveling abroad in early 2013. Thus, the population of Armenia is not ready for the transition to the new (Internet) mechanisms for concluded insurance contracts. Insurers are also neutral to the online promotion services.
XPRIMM: The segment of agricultural compulsory insurance has become more common in some CIS countries, particularly in relation to natural disasters. Is Armenia, which has been affected by natural disasters, what are the losses of the latest date? What measures have been taken in this direction?
E. B.: about the topic of Insurance of agricultural risks is somehow quite abstract for the rural population of Armenia. And this is understandable, because the agricultural sector of our economy is extremely behind the global technical progress, and the rural population is hardly feeding the country with its gifts of their "modest" harvest. The practice of agriculture has become economically inefficient.
According to Ms. Babayan, in such conditions it is a bit premature for the rural population to talk about the possible development of agricultural insurance in Armenia, but on the other hand we are more likely behind the schedule. The management agricultural sector of Armenia has undergone a significant decline and is far from being effective, that's why today it needs a wide acceptance of the international practice of agricultural risks insurance. Such a system in Armenia can earn acceptance through appropriate development for agribusiness, which needs specific legislative initiatives and a consistent policy.
In Armenia not many insurance companies practice agricultural insurance business risks.
In practice, there are two known options of agricultural risks insurance. First - there is a classic option, when insurance protection guarantees a partial or full compensation for potential losses in the insurance case - crop failure, death of livestock or crop failures and other.
In Armenia, getting insurance for "farmers" risk without specific legislative initiatives in the field of agriculture is very complicated. Legislation in the field of agriculture does not determine the legal status of small farmers engaged in animal husbandry and cultivation of certain agricultural crops.
Beyond that, many farmers do not respect important rules for efficient livestock management conditions. On the farms there are no special pens and winterized facilities for cattle, no planned activities are carried out for monitoring the vaccination of livestock, and activity of veterinary services is not very effective. Such a system glitch makes insurance of agricultural risks extremely inefficient for insurers. But it also has the opposite effect - the insurance will encourage the introduction of these basic norms and procedures of management. Nevertheless, insurance of cattle is one of the potentially viable areas in the field of agricultural insurance.
If insurance of major livestock product is more or less clear, the insurance for agriculture is an even more difficult task, because it requires a methodological approach to the assessment of the possible risks and the probability of their occurrence.
The most likely and effective option for our market could be insurance of risks in the agricultural production. We are talking about food enterprises and food processing industry, especially the dairy industry. Players in the industry are interested to get insurance coverage, but they are also trying to reduce cost as much as possible. In insurance they would rather see an opportunity to protect their business from financial loss and they will often turn to insurers with a task difficult to prove for them. Thus, the development of specific mechanisms for these businesses requires a lot of time, the availability of qualified personnel, material resources for the study of the circumstances affecting the level of profits, etc. .
XPRIMM: Do you expect a merger or acquisition in the current year?
E. B.: The process of consolidation on the Armenian insurance market continues. ArmInfo has been informed by a reliable source that the largest insurance player, ROSGOSSTRAKH Armenia, a subsidiary of ROSGOSSTRAKH (Russia), is acquiring GARANT Insurance, which specializes in health insurance.
Editor: Olesea ADONEV
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