Where is the innovation?–Russia

Nadezhda Nosova, Risk Manager at Sistema, said that she has not seen a great deal of innovation from the insurance market in recent times and, like many of her peers across Europe, is clearly not impressed.

“Imagine, 10 years ago we were already talking about BI. Most of the leading Russian companies have progressed in buying insurance programmes. And I must say, some of the brokers have helped a great deal. Yet, companies still cannot rely on the Russian insurance market. We usually buy something which is offered by the international reinsurance market via national brokers,” she said.

But, Ms Nosova did concede that the Russian insurance market has improved and its capacity has increased. “The quality of Russian insurers has improved, too. It also depends on the company’s philosophy and their knowledge of whether to choose a Russian or an international insurance company. Some of them still want to see everything reinsured outside Russia, while others believe that they can rely on certain Russian companies,” she said.

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Igor Mikhaylov, Head of Risk at Mobile TeleSystems, said that, generally speaking, there are ‘interesting’ offers to be considered that affect business interruption insurance and policies for cyber risks and logistics on a global scale

“There is one problem: you need to know all the partners of the partners. Even if your partner is strong, but they require a single piece of equipment from another supplier that is not sustainable, it could become dangerous if the supply chain is not diversified,” he said.

As a result of this, companies therefore have to be more transparent, said Mr Mikhaylov. “This is a controversial topic because we’re discussing the core of their business. They want to keep their business and operations secret, fearing that otherwise everything could be replicated. However, I think it’s easier for large companies, such as we are, to speak openly and call for greater transparency than it is for smaller companies,” he said.

“Nevertheless, I would say, insurers should be more innovative and provide more complex customised offers,” he added.

Mikhail Rogov, advisor to the CRO at RusHydro, said that currently insurance buyers need a more extended version of business interruption cover because the insurer does not compensate the loss of profit and the loss of market share and associated fines.

“Insurance only compensates physical damage and some other costs. For a company like ours such business interruption programmes without compensation for fines and profit losses possibly are not of such interest and are not sufficient.

Nikolai Ivanov, Risk Manager at Polyus, said that the Russian insurance market is not very advanced and that insurance managers face the problem that if they do business in Russia they can only apply to Russian insurers. “You can get cover only from Russian insurers,” he said.

“We can obtain reinsurance on the London market; however, primary insurance must be bought from a local company. This has to change. The regulations are going to have to become more customer-friendly,” said Mr Rogov.

The risk manager also pointed out that the insurance market is also changing. “A new law came into force this year which applies to companies with dangerous production plants. So starting this year, every producer has to insure their liability. During the next few months conferences, forums and seminars will be held where the government and insurance companies will explain how the new regulations affect our insurance needs,” he said.

But Mr Rogov said that unfortunately Russian companies always try to save on insurance premiums in an effort to lower their expenses.

“Sometimes companies try to do this by finding loopholes or by circumventing regulations. For example, when a company has three dangerous production plants, each has to be insured separately. But if the company claims that this is just one plant, it can save the premiums for the other two plants,” he explained.

Mr Rogov said that his company is highly dependent on a constant supply of energy and so it needs to insure this ‘vital’ factor.

“If you have an aluminum production plant and nearby a hydro electric power station which suddenly breaks down, there will be a blackout and the company will suffer due to the interruption of production. The same is true when you produce glass. You need a constant supply of electricity because the glass is liquid during the production process; and if this process is interrupted, the glass freezes and has to be thrown away,” he said.

“We want to insure these interruptions, not only the property damage, but also the ensuing loss of profit as well,” added Mr Rogov.

Victor Vereshchagin, President of RusRisk, was pretty damming when he said there is no innovation from Russian insurers.

He said they have ‘little potential’ and added that there are many international insurance companies which hope to extend their worldwide business.

“Russian insurers are still weak. There are some exceptions, three or four companies, which get some support from the state, like Rosgosstrakh, Ingostrakh or Zagas. But there are analyses that many other Russian companies will have to close down, and only the large ones will survive. We have many insurance companies in Russia, more than are really needed,” he said.

The next obvious question posed by CRE was how the insurance market could and should improve the service they offer to risk managers.

Ms Nosova said that companies that are active in the Russian market and already know how to deal with the brokers have become very demanding.

“They want to be part of the brokers’ negotiations with the underwriters. They want to understand who is underwriting their risks and under what conditions and at what price. They want to understand how business operates. Companies also want to understand what extra services they provide and what fees they calculate for such extra services,” she said.

Mr Ivanov, Risk Manager at Polyus, said his company used to work with Marsh and also with Aon but believes, with experience, a risk manager can go it alone.

“When you are buying insurance for the first time you need a broker, because only they know the business and can recommend insurance companies and also organise reinsurance cover. They can help with claims management as well. But if you are in the market long enough, you can do without a broker. It just becomes an extra fee you have to pay. So now we have cancelled the cooperation agreement with brokers and do business directly with the insurers,” he said.