The President stressed that a situation where people rely on government aid rather than insurance payments is not a normal state of affairs, and called for reflection on how to develop the insurance system so as to place the insurance burden primarily on the insurance companies.
* * *
President of Russia Dmitry Medvedev: Colleagues, we are here today to discuss the insurance market’s development. This is obviously a topical issue. A developed insurance market and insurance institutions are manifestations of a civilised country, and have direct importance for our companies’ operation and for ordinary people’s lives. As we saw from recent events, only 15 percent of the homes destroyed in the wildfires were insured. The fact that a good number of these homes were rural dwellings and not in the best of states is another matter, but this statistic nonetheless reflects general attitudes towards insurance.
Regarding the crops that were destroyed, I met with agriculture sector representatives recently and was told that at most 20 percent of these crops were insured. When I asked why this is, I was told: “It’s not advantageous, we don’t understand why ourselves, while the insurance companies won’t take on these risks at all, and it’s very hard to arrange any reasonable reinsurance of these kinds of risks.” These are fresh examples we have before us.
This is obviously a topical issue. A developed insurance market and insurance institutions are manifestations of a civilised country, and have direct importance for our companies’ operation and for ordinary people’s lives.
Clearly, in both cases, our people and our companies, including agricultural producers, should be insured as is the practice all around the world. The principle kinds of risks should be insured, and people must be sure that they will receive real compensation in the event of losses and damage covered by insurance. But achieving this requires us to develop our insurance market and our voluntary and compulsory insurance institutions.
Of course, there have been a number of positive changes in this area in recent years, in particular, new laws have taken effect that forced dishonest companies out of the market and reinforced protection for those who take out insurance. In a few areas, car insurance, for example, we have managed to establish perfectly civilised and modern working standards, international standards. Insurance policies no longer look exotic today, but have become a totally normal part of buying a car.
According to the data I have, total insurance premiums came to 521 billion rubles [around $17 billion] at the end of June. This figure is up on last year, with an increase of almost 6 percent. This represents the overall value of the entire insurance package. But the overall number of insurance contracts is not growing. What’s more, the number of property insurance contracts fell by more than 4.5 million since the start of the year, and the number of life and health insurance contracts has also dropped. We need to analyse the reasons for this. This is not just due to the crisis, though the crisis has without question had an impact on people’s attitudes and their readiness to conclude insurance contracts. But the crisis is not sole cause here, and this is clear. Obviously, part of the reason also lies in a lack of incentives for this kind of activity, above all a lack of incentives to sign insurance contracts.
Overall, therefore, insurance is an institution working in our country, but this work is far from the level we need, to put it mildly.
To give another example, less than ten percent of real estate is insured at the moment. I can not think of any country in the world with such a low figure. In any country proudly proclaiming itself civilised practically all real estate is insured, except, perhaps, for property no longer in use. But here only ten percent is insured. What is the result? We see it when houses are destroyed, no matter whether by fires, floods, or other natural disasters (this year was abnormal, but we realise that the future will bring more such cases. The insurers here know that these are all typical insurance risks overall). Anyway, what ends up happening here is that instead of insurance payments people receive government aid. We end up spending billions of rubles from the state budget. Of course, we will pay this money, because we cannot leave people without roofs over their heads; we take the money from other programmes and from the national reserves. We are able to do this. I just heard a report from the Regional Development Minister on how the rebuilding work is progressing, but overall this situation is not right. We should look at how to develop our insurance system so that the main burden for these kinds of risks lies primarily on the insurance companies.
Another aspect to consider is that investors, when looking at potential investment in this or that business, carefully evaluate the financial market’s reliability, of course, and this reliability is determined in part by the level of insurance institutions’ development. We realise that the level of development here falls far short of world standards. What do we need to do?
First of all, we need to move as fast as possible to set the priorities for our insurance market’s medium-term development. Second, we need to reflect on how to improve the functioning of the mechanisms that protect the rights of the different parties in insurance relations, above all, those protecting insured organisations and individuals from the action of people manipulating the insurance market, and unfair insurers, which, as we know, also exist. This is a subtle and cunning business, and, to be honest – I don’t think I will offend anyone – the percentage of swindlers on the insurance market is traditionally high not just in our country, though in our country this is particularly true.
There are a number of sites damaged by accidents and disasters that we have had to rebuild using public money even when insurance contracts do exist (I was speaking just now about cases when there are no insurance contracts). The ministers present today could tell us about these cases when even though millions of rubles, perhaps even billions of rubles in total, have been spent on insurance, insurance payments were not paid out. Why does this happen? We are all experienced people here, lawyers, economists, specialists, in short. We realise that insurance contracts, and the attached conditions can be drawn up in various ways. In a number of instances there are some provisions and circumstances that are clearly not covered by insurance. Our organisations sign these contracts under such conditions. This is a question of course for the people working in these organisations’ legal services, but overall, we must take steps towards each other and make the rules more civilised and understandable.
Of course, the aim of insurance is to cover potential risks, the risk of losses, or damage to property, life or health, and not simply to collect money from clients.
We should look at what kinds of checks and inspections could be carried out in this area. It was proposed to me that this task be given to the Presidential Control Directorate, but I will need to think some more about whether we are to get the Presidential Control Directorate involved in this. In any case, we have supervisory bodies, and we need to discuss this matter and look at the possible monitoring measures that could be taken.
Probably, we also should take another critical look at our insurance laws, and these are living laws, and not a body of legislation that we cannot change. And so if the insurance company directors and representatives here today think the time has come to make some adjustments, let’s discuss this.
Whatever the case, given that we have set the goal of becoming an international financial centre (and this is what has brought us together today), we need to develop a normal insurance market, or else we will never develop a normal international financial centre, no financial centre at all. We will successfully develop a financial centre only if we build a developed insurance market.