UNREGULATED MARKET SHATTERS THE CONFIDENCE IN ITS PARTICIPANTS

Insurance market is a special social-economic environment, a definite sphere of economic relations, where insurance is an object for purchase-and-sale, where there is demand for it and supply. However, such definition is not characteristic to Armenia's insurance market that needs a tough regulation. At present, the Armenian Central Bank, acting as the mega-regulator of the country's financial market since the current year, tries to correct the situation. In an interview with ArmInfo, Vahan Avetisyan, Executive Director of one of the successful insurance companies in Armenian "Gosstrakh-Armenia," tells about the situation and the problems in the country's insurance market.

Mr.Avetisyan, "Gosstrakh-Armenia" company started insurance of professional liability of bankruptcy managers last year. Has the company reached the necessary results?

Yes, "Gosstrakh-Armenia" started insuring the professional liability for bankruptcy managers in 2005. However, I'd like to note that introduction of such service was necessitated by the legislation on bankruptcy of managers, which required a compulsory insurance of their activity. Under the law, bankruptcy managers are to insure their professional liability for 500,000 AMD. We have prepared contracts, created conditions and introduced a price system for a full-fledged work. Of course, we had a definite percentage of premiums, which was, however, insignificant enough.

What is the reason of such a low demand?

We have faced cheaper supply in the market, but we have left our conditions unchanged. We offered a high-quality, especially created product, but we have faced "cheap offers" in the market as insurers did not need a service that was legislated. If I am not mistaken, such a demand was made to the Institution of Surveys this year in order that surveyors insure their professional liability for mistakes in surveys. Taking into activity the last year's experience when we spent rather a long time to create and provide conditions and received an insignificant response for a sharp reduction of prices for this services because of competition, we have arrived at a conclusion that it is unprofitable to provide this services and we stood aside. The professional liability in our country is risked, especially appraisers' professional liability insurance. This type of insurance is characteristic to the countries where the given branch and the insurance culture are developed.

According to the Ranking of Leading Insurance Companies of Armenia prepared by our Agency of Rating Marketing Information (ArmInfo), property and vehicle insurance is mostly in demand in Armenia. What it is connected with?

The main types of insurance in our country are insurance of vehicle, property, cargo transportation, as well as traveler's accident insurance, medical insurance, and insurance against aviation risks. Insurance in the sphere of aviation is compulsory, otherwise, air lines will not get a permission to make flights. As of October 1, the insurance company "Gosstrakh-Armenia" insured 3 planes within 2006 and the insurance premiums totaled about 50 million drams. Alongside with compulsory insurance demands in several spheres, we try to achieve a situation when people voluntarily apply for insurance services. It is noteworthy that the people who voluntarily insure their property, vehicles and other property interest belong to the middle class of the population that have some incomes and think of protecting their property. Proceeding from this, we can state with confidence that the insurance market of Armenia directly depends also on the financial bases of the middle class. The practice shows that the greatest part of the rich sections of the population do not hurry to integrate into the insurance system. As regards the people who live from hand to mouth, they will not think of insurance, of course. Unfortunately, this category of people make up the greatest part of the population, even under official statistics.

In your last interview, you stated that the insurance life in Armenia is not in demand. Does it bear any relation to the country's legislation?

"Gosstrakh-Armenia" was the first among the present insurance companies to get a license for life insurance in 2001. However, we did not re-register the license in 2005 according to the new law on insurance. Here we dealt with serious, long-term and well-elaborated programs. However, it is early to speak of public demand for these services as long as the market, including the legislation, are not regulated and the institution of actuaries is not strengthened in the country. It is impossible to insure the lives of the people without exact cost estimates. Here, we need to find clear and unbiased answers based on the existing legislation to all the questions of potential clients of this product regarding the protection of the funds invested in long-term life insurance projects. I think, a company engaged in life insurance must not be simultaneously engaged on the non-life insurance. Insuring their life, people trust a company the sum they intend to get back in future with interests. This concerns also the voluntary annuity insurance. I'd like to mention that it is also a type of life insurance. Here people plan to get interests in future due to some premiums. The company had enough number of clients who were interested in the given service within 2-3 years. A well designed and competent policy is required in this direction like that of the Armenian Central Bank.

What new products will "Gosstrakh-Armenia" present in the insurance market within the nearest future?

"Gosstrakh-Armenia" has a program of "Insurance of travelers leaving abroad" except CIS. The program normally operated within 5 years. Clients were satisfied as all the payments were made timely. Our program "ROSNO-Gosstrah-Armenia-Assist 24," medical insurance of citizens and insurance of their medical and transport expenses when traveling in CIS, is ready for already 6 months. But we have not presented this product in the market so far. First, our practice shows that this products is not enough in demand in the market. Second, it is connected with the fact that "Gosstrakh-Armenia" moves to a new building by the end of the year. So, these policies will be presented in the market under the new address. At the moment, the prior task of the company is to meet all the economic norms dictated by the Central Bank. I'd like to mention that we have succeeded in this so far. It is first of all connected with the fact that during the whole period of its activity, our company have gradually improved its financial indicators yet without the norms set by the CB. First of all, we have considerably changed the structure of our assets raising the share of money and financial investments in it. However, the company is currently settling some technical problems connected with the improvement of the technical and information ties of the head office and the branches in order to have daily information on the place and settle down all the originating problems operatively, including regulation of insurance contracts. "Gosstrakh-Armenia" is the only insurance company in the Republic of Armenia to be represented in five Marzes of the republic. But, I repeat, these are only technical problems and not financial.

What are the factors restricting the development of the insurance market in Armenia?

There are great many reasons hindering development of the insurance market in Armenia. However, today the Central Bank displays decisiveness and consistency in establishment of a normal market of insurance services in Armenia. I think that our state policy in this sphere is left behind for at least 4-5 years by the insurance markets of other CIS member-states. Thus, already in 2000-2001, there was a real need for a rise of the state regulation of the insurance market and amendment of the first law on insurance, which was adopted in 1996 and showed all its lacks in the succession of time. But this process was protracted. The second reason is that the insurance market depends on the social level of the population. It is impossible to imagine a low social level of the public and a developed insurance market. On the other hand, the unregulated market shattered the trust in its participants. Its imperfection arose quite a reasonable question of potential consumers of insurance services: "What are the guarantees that you will fulfill your obligations?" The third reason is the lack of a coordinated policy between insurers. So, we as insurers are partially guilty in such development of the insurance market. In this aspect, I attach a great importance to the normal functioning of the Association of Insurers. It is impossible to continue the activity in the insurance market without the Association as a separate outsider. I think "Gosstrakh-Armenia" will become a member of the Association in future. However, it will happen later, when the members of the well-organized society of insurers are only the companies meeting all the key norms of the regulator. Hence, a favorable and healthy atmosphere will be in the Association with all the conditions necessary for discussion of general and important issues and for achievement of expected results. I think there is no such atmosphere at the Association so far. So, our participation in the Association at the moment is not expedient.