New Types of Compulsory Insurance to Develop Armenian Market

Deputy CEO at Sil Insurance Company Levon Mamikonyan’s interview to ArmInfo News Agency specially for Xprimm magazine

How would you estimate the 2014 developments of insurance market? What are the expectations of market insiders in 2015?

We do realize the market is in times of crisis, instability, that it lacks exact guidelines. In 2013 the overall volume of premiums totaled 86 mln USD, however, year-end 2014 resulted in about 64 mln USD. It is noteworthy that approximately 75% of the premiums are accounted for vehicle liability insurance. OSAGO has definitely served as an incentive for market insiders to develop the market. Nevertheless, the loss of this insurance type totals 70%, which is a high figure given that companies spend huge sums on ads, agent network and other operating expenses.

Premium reduction has been conditioned by two factors. First, the decline in service demand. Second, at the beginning of the past year the government declined insurance companies the compulsory health insurance within the package of benefits to civil servants and delegated those functions to Ministry of Healthcare. As a result, insurers suffered even more losses of about 20 mln USD in respect of insurance premiums. In Jan 2015 the government partially compensated the loss and provided grounds for insurance market to insure civil servants within the ambulatory package, as well as their family members within the institutional treatment package. Besides, the government is seriously considering the issue of turning medical services into the principles of compulsory medical insurance. However, it cannot be predicted when this concept will be carried out. I believe, by 2017. As you can see, 30% of collected premiums account for the rest of facultative insurance types.    

Which facultative insurance types are the most efficient ones nowadays?  

From the point of efficiency, it has traditionally been the property-casualty insurance. This insurance type loss totals about 1%, however, about 6-7% of charges in the total portfolio account for this very type. Therefore, even a single case of indemnity can make a difference in the market. Such a thing happened in 2014 – the volume of indemnities (4.8 bln AMD) exceeded the collected premiums more than twofold (2 bln AMD). Facultative insurance types total about 25 mln USD, which is too little and decreases due to the economic crisis. If we segment the market of facultative insurance we will see that bank loans for mortgage and car insurance dominate there. It will also comprise some corporate clients, mostly foreigners and so-called fronting policies of transnational companies that voluntarily insure their property. By the Armenian law, local companies are to issues these policies, thus becoming official insurers. Our companies carry out numerous fronting deals, including aviations operations. The market of facultative medical insurance is also relatively active.    

When OSAGO was introduced in Armenia it was predicted to push CASCO. Has this come true?

Partially, OSAGO has indeed pushed CASCO. The market trend is quite positive despite small volumes – only 2.2 bln AMD with 45% accounted for individuals. However, in 2014 the market segment was increased by 5.1%, which is quite good given the economic crisis. At the same time insurers seized the trend and offered many more interesting CASCO products with extra options.

According to you, which factors hinder the growth of insurance market, particularly facultative insurance types in Armenia? Does the population lack insurance culture? 

Both products and scope, as well as indemnities should be large-scale. Unfortunately, we do not have that. There are many factors – lack of insurance culture, low income. Let’s speak of facultative medical insurance – the sphere had growth, however, most clients were not individuals, but corporate ones. Last year’s crisis in Russia, the depreciation of the Armenian dram, reduction of manufacturers’ income resulted in some companies refusing to extend their insurance contracts in respect of medical services for their employees, as well as corporate property.

Central Bank of Armenia is known to be the main regulatory authority in the Armenian financial market. How would you estimate the Bank’s activities in respect of market development?

As far as I know, CB did not back the idea to dispose the insurance element in the bonus package for civil servants from the insurance sphere. That element was given back due to CB. It is important for the market can itself settle the shortcomings and get ready for the introduction of the CMI for all Armenian citizens through the practice of providing medical insurance to civil servants. At the same time all operating insurance companies are to undergo the ISSO-2008 certification this year. This is a great step for the regulatory authority to take for it improves the quality of companies’ work. Regulatory authority has some other demands – mandatory audit, technical re-equipment. I am one of those market insiders who believe that the 2011 introduction of OSAGO contributed a lot to insurers, however, it also relaxed them in respect of professional advancement. I believe that insurance companies should always face tough requirements.

Given the current situation and conditions, it is clear that the market can be developed due to the introduction of new types of compulsory insurance types. The crisis results in the reduction of facultative insurance types. The regulatory authority realizes that and toughens the requirements. At the same time Armenia faces the problem of insuring agricultural risks. German KfW bank has allocated 400 thsd EUR to create the concept of agricultural insurance both in Armenia and Georgia. It is already being implemented.  Notary officials’ liability insurance has also become compulsory.  Starting Jan 1 customs brokers are to have 150 mln AMD-worth policies. I wish the sector could be developed more dynamically, but economic problems seriously hinder it. As soon as the country overcomes the economic problems insurance will become more common for citizens and economic entities.