Download Legal framework for insurance activity

Legal framework for insurance activity
The general areas of Russia’s insurance system development are set out in the Concept of the
insurance business development. The priority areas are as follows:
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development of the market for compulsory classes of insurance, in particular,
improvement of the compulsory health insurance;
development of the life and pension insurance market and encouragement of long-term
investments in the Russian economy;
increase in the insurance market capitalization;
modernization of taxation and regulation of insurance activity.
The Concept set the task of achieving a 5 percent share of aggregate insurance contributions in
Russia’s GDP by 2007.
Some representatives of insurance and business communities have a slightly different view on
priorities: they suggest that the focus should be laid on updating and improving a procedure and
rules for establishing insurance reserves and insurance assets as well as on a wider application of
actuarial methods and on the switchover by Russian insurers to IAS. Although the Concept has
been approved by the government, it should be noted that the industry development is not
planned from the top – it is governed not so much by directives, which only set the frames and
general terms, as market incentives themselves.
The bill “Amendments and supplements to the Federal Law “On organization of the insurance
business in RF” had been developed and prepared since 1998 and was introduced by the
government to the State Duma for its consideration early in 2003. The amendments to the Law,
drawn up taking recommendations of the International Association of Insurance Supervisors into
account, provide for:
 considerable (by 10 times at the least and with the increment of 2-4) increase in the size of
authorized capital and a new procedure for its formation;
 separation of life insurance companies from those engaged in other classes of insurance;
 increase the authority of the regulatory body.
The issues connected with the terms of execution of these provisions and a new classification of
insurance (life insurance falls under a category of personal insurance for the present with the
latter covering medical and bodily injury insurance) remain in abeyance.
Observers believe that the market supervision and regulation system has to be improved and
completed in connection with other problems as well. The licensing system under which one has
to go through a long procedure of licensing for each insurance product (it can take from 6 to 12
months to get the licence) gives rise to a lot of censures; the rules for forming insurance reserves
are out of date, and the State policy with respect to compulsory classes of insurance is uncertain
(it is often criticized from directly opposite stands).
The degree of transparency of the Russian insurance business and its assets is totally insufficient,
which makes it impossible to evaluate a real market value of insurance companies and serves as
an obstacle to attract direct foreign investments. In this respect, the insurance business is behind
other industries of the economy. This is largely an internal problem of the insurance industry.
Therefore, insurers are paying more and more attention to imposing IAS, which will clear the
way for more rapid growth of the insurance business. Introduction of the automated systems of
finance management serves the same end.
Among other proposals is application of actuarial methods of computing insurance reserves in
accordance with the international standards. Under the new edition of the Law “On Organizing
Insurance In The Russian Federation”, an actuary is to become a member of professional
insurance market participants alongside with insurers and brokers. An actuary is expected to get
a licence for carrying out his/her activity and to have a special professional education.
Since January 2003, insurers must submit to ISD information about their direct shareholders,
including data on their affiliates with foreign investors (subsidiary relations).
Introduction of standard insurance rules, which would to a greater degree comply with the
internationally accepted norms is a separate and, by the way, long debated issue.
Lawmaking activity along with supervisory and control functions (let alone fiscal powers) is a
channel and a leverage of the State’s influence (through its legislative and executive bodies) on
development of the insurance market and business. At the same time, the State has the right to
use financial mechanisms as well for providing direct support to specific areas of the insurance
business.
For instance, the government is working out a new mechanism of insuring agro-producers
against risks, which provides for a pool of insurance companies covering as many agroproducers as possible to indemnify them against a damage caused by Acts of God. At that, the
government is to partially subsidize insurance premium to be paid by agro-producers. The
amount of funds earmarked for this purpose is to increase threefold – from 300 million up to 900
million roubles.