2. Purpose, Tasks and Measures of the Strategy Realization
UKRAINIAN INSURANCE MARKET DEVELOPMENT STRATEGY FOR 2011 - 2020
2011
TABLE OF CONTENTS
Introduction
1. Modern condition, problems and risks of the insurance market development
2. Purpose, tasks and measures of the strategy realization
3. Organization and stages of the strategy realization
4. Expected results of the strategy realization
5. Financial support of the strategy realization
Introduction
The Ukrainian Insurance Market Development Strategy for 2011 – 2020 (hereinafter referred to as “the Strategy”) was developed in accordance with Articles 2 and 20 of the Cabinet of Ministers of Ukraine Law of Ukraine. The Strategy is aimed at ensuring the transparency and predictability of the state policy with regard to the insurance market, and the coordination of the activities of government and non-government institutions and the participants in the insurance market.
The Strategy is a component of medium-term programs of the social and economic development of the State and formulates the peculiarities (the purpose and the main tasks and measures of the fulfillment thereof) of the state policy with regard to the insurance market in the near future.
The realization of the strategy must improve the quality of the insurance market, become a considerable step towards the implementation of efficient mechanisms of the State’s and private person’s risks management, create a proper interaction between the state and the insurance market in the process of paying indemnity for losses caused by natural phenomena and catastrophes, reduce the negative influence of their consequences by means of the institution of insurance and ensure the formation of a powerful source of internal long-term investments for a stable innovative development of the Ukrainian economy.
1. Modern condition, problems and risks of the insurance market development
During the last pre-recession years, the insurance market developed dynamically and the insurers' capitalization was growing. The level of ground vehicles insurance exceeded 50 percent and the ground vehicle owners’ civil liability risk insurance level was 70 percent. By the premium grown rate the insurance market was far ahead of the country’s other industries of economy. There have appeared insurance companies with both foreign and domestic investments which provide European-level services, introduce modern technologies, train qualified personnel, maintain the proper level of services, and abide by the liquidity and solvency indicators.
In connection with the financial crisis the volume of the classical insurance market reduced for the first time in the recent 20 years. The ground vehicles insurance accounted for the biggest drop; in 2009, this type of insurance amounted to 33% of the gross insurance inpayments (premiums and contributions).
At the same time during the period of development, and taking into account the financial crisis many problems of the insurance market remain unsolved. As a result the insurance market does not meet the needs of the society for modern insurance services. There are insurance companies in the market which practice dumping taking refuge in unreliable statements which make it impossible to estimate the actual financial position of such insurers and deprive a consumer of the possibility to make a conscious choice.
The development of the insurance market is hampered by an imperfect and obsolete legislation and inefficient, non-transparent, unpredictable and selective state regulation and supervision rules. The measures taken for the purpose of improvement of insurers’ financial position and driving the insurers who are unable to improve their unsatisfactory financial position in the near future from the market are insufficient. The level of meeting the market’s need for a competent personnel most of all insurance agents, underwriters, actuaries, insurance engineers, and insurance detectives is improper.
Because of a considerable volume of uninsured risks the State and the society lack for funds necessary for the indemnity for damages or there is a need to take funds from the state and local budgets and social funds. The share of the classical insurance market in the structure of the Ukrainian GDP is unjustifiably small since it accounts for only 0.9 percent while the average global indicator is approximately 7 percent.
At the same time the development of the insurance of big risks in particular in the energy and building industries and agriculture, the risks related to the mass insurance in particular the medical insurance and the life insurance and the formation of a powerful long-term financial resource by involving savings of households and corporations in the investment process is impossible without reforming the insurance sector of the economy.
The underdevelopment of the self-regulation institutions results in excessive, wasteful and inefficient interference of the state in the market processes and prevents a full-fledged involvement of the intellectual and financial resources of insurers and professional organizations.
The regulation of insurance brokers, actuaries, auditors, surveyors and adjusters is imperfect and insufficient.
The insurance market is influenced by considerable external and internal risks. The main of them are as follows:
global risks caused by the cyclic nature of development of the world economic and financial systems and the impossibility to foresee the time and scope of the next crisis;
macro- and microeconomic risks connected in particular with the remaining tendencies towards the slowdown of the growth rates of the national economy or separate industries, the investment activities level, the high level of inflation and interest on bank credits, the low living standards of the Ukrainian population, and the insufficient level of the internal infrastructure development;
financial risks including in particular the insufficient financial condition of a considerable part of the insurers, the low assets quality level, and the dependence of investment incomes upon the deposit policy of the banking system;
commercial risks which in particular include the toughening of the price competition and the threat of bankruptcy of a considerable part of the insurers, the growth of the volume of unfulfilled obligations among the insurers including those under reinsurance contracts and in relations with counteragents and partners (banks, investment companies, etc.).
2. Purpose, tasks and measures of the strategy realization
2.1. The purpose of the strategy is the revival of the original role of the insurance as a socially useful function of the protection of the property interests of individuals, business entities and the state on the basis of the development of a competitive, open and solvent insurance market having the state-of-the-art infrastructure and technologies as well as an attractive and broad range of high-quality insurance services and instruments, a guaranteed protection level of the consumers’ rights and modern regulation and supervision methods involving the self-regulation institutions.
The achievement of the purpose of the strategy is one of the most important priorities of the long-term economic policy of the state in the financial sphere.
2.2. The main tasks and measures of the Strategy realization are as follows:
2.2.1 rehabilitation of the insurance market and overcoming the consequences of the crisis which in particular requires the ensuring of the following:
a methodological unity of the insurance accounts;
implementation of the control of the reliability of the insurers’ accounts and assessment of the reserves and the quality and value of the assets involving an independent audit;
increase in the level of the requirements concerning the auditors auditing insurers and revision of the register of such auditors;
simplified procedures of the transfer of an insurance portfolio and the transformation of an insurer into an insurance broker;
introduction of the institution of subordinated debt;
support of a fair competition and resistance to unlawful preferences in the competition obtained as a result of a violation of the legislation;
introduction of the principle of priority of settling the claims of the insured in the general line of other creditors and exclusion of insurance reserves by all types of insurance from the bankrupt estate of an insurance company;
revision of the conditions of granting licenses to insurers by providing for a duty to prove an insurer's ability to fulfill its obligations in the future;
2.2.2 development of an efficient, transparent, non-discriminating, institutionally capable and predictable state supervision of the insurance market which in particular requires the following:
to ensure institutional capability of the State Commission for Financial Services Market Regulation of Ukraine (hereinafter referred to as “the Supervisory Body”) namely to deprive it of extrinsic powers and to give it the necessary ones; to improve the professional level of the employees including by fixing their salaries at the level of the salaries paid at the institutions subject to its supervision; to implement modern information technologies and in particular to introduce exclusively electronic forms of accounts in the institutions subject to its supervision, and to ensure the necessary sources of financing by introducing supervision fees in particular;
to ensure a political independence of the Supervisory Body by revising the procedure of appointment and dismissal of the Chairman and the Members of the Supervisory Body in particular;
to improve the distribution of regulatory and supervisory authority among the central executive bodies and the Supervisory Body;
to ensure the transparency of information and the predictability of the Supervisory Body’s activities;
to give the Supervisory Body the right to use compulsory recommendations for a prompt suppression of acts having signs of breaches of the legislation;
to systematize breaches of the legislation and to establish the responsibility for each breach taking into account the degree of their public danger;
2.2.3 introduction of a real protection of consumers’ rights which in particular requires the following:
to ensure the control of the reliability of the insurers’ financial accounts;
to ensure a regular publication of the information on the activities of the insurers and other participants in the insurance market in the electronic and printed mass media;
to introduce a system of prudential supervision for the insurers, requirements concerning shareholders (members) and the assessment of assets, and a consolidated supervision in financial groups;
to introduce an institute of an insurance ombudsman;
to introduce the regulatory capital requirements on the basis of the insurers' risks management system;
to standardize the activities of the participants in the insurance market other than the insurers, namely brokers, auditors, actuaries, average commissioners, experts, adjusters, and surveyors;
to introduce insurers’ corporate management standards;
to create an efficient system of resistance to fraud in the sphere of insurance;
to introduce a permit procedure with regard to transactions in assets of the insurers to which such measure as the financial strength restoration plan approval is applied;
2.2.4 improvement of the risks management system in the state and the society which in particular requires the following:
to determine the risks covered by the state and local governments, to form the sources of covering them at the expense of the funds of the state budget and local budgets as well as other funds e.g. those of the Stabilization Fund, etc., and the risks to be transferred to the insurers and to ensure an actual management of such risks. In this case the prohibition to use funds of the state and local budgets for the compensation for losses as may be indemnified for under insurance contracts made on usual market terms and conditions, by one taxpayer for the account of other taxpayers must be provided for;
to determine private sector risks creating a considerable danger to the society; to revise the spheres of obligation of the insurance thereof and the differentiation of the level of regulation of insurance conditions depending on the degree of importance of a risk for the society and the degree of development of the relevant market;
to improve the system of responsibility of entities belonging to the public and private sector for the damage inflicted including increased-danger facilities by using financial provision mechanisms in particular the insurance of such risks, determination of the limits of sums insured depending on the specificity of activities and the damage as may be inflicted;
2.2.5 assistance in the development of the main types of insurance which in particular requires the following:
involvement of insurers in the second-level pension system including as managers of open pension funds;
development of the legal basis for the introduction of the compulsory social medical insurance (CSMI) in which insurance organizations must participate and which must be based on competitive principles and an individual's right to choose a family doctor (a general practitioner), a medical institution, and an insurer;
development of a predictable, transparent, efficient and reliable agricultural products insurance system with a government support as an efficient instrument of the state policy in the sphere of agriculture which is not contrary to the WTO requirements, is based on market principles and the state and private partnership principles in accordance with which the state regulates, supervises and provides financial support (financing of insurance premiums and participation in the indemnity for losses) and the private insurance sector conducts directly the insurance and reinsurance and invests funds in the development of the insurance network and other elements of the system’s infrastructure;
improvement of the taxation of the participants in the insurance market, namely the legislative introduction of a stimulating tax policy concerning the development of the personal insurance, long-term life insurance, the insurers’ participation in the of non-government pension system and compulsory medical insurance by appropriating a part of premiums related to these types of insurance to total costs of legal entities and the improvement of levying taxes on individuals' incomes;
a staged increase in the limits of liability and transfer to a direct settlement of losses under the compulsory ground vehicle owners’ civil liability risk insurance, introduction of free tariffs under this type of insurance, and simplification of the procedures of payment of the insurance indemnity for the damage to the life and health;
2.2.6 integration of the Ukrainian insurance market into the global financial space which in particular requires the following:
to adapt the Ukrainian insurance legislation to the European Union legislation in particular by adopting a new edition of the Insurance Law of Ukraine;
to eliminated discrepancies between the current regulatory acts for the purpose of improvement of contractual relations in the sphere of insurance, and classification of risks and types of insurance;
to introduce international standards of insurers’ accounting and financial accounts;
to make bilateral and multilateral agreements for interaction in the sphere of insurance (reinsurance) regulation activities between the Supervisory Body and the insurance supervision bodies of other countries;
to introduce a mutual exchange of information concerning the activities of insurers and their branches as well as brokers and insurance groups (insurance holdings) between the Supervisory Body and the insurance supervision bodies of other countries.
3. Organization and stages of the Strategy realization
There shall be three stages of the Strategy realization.
3.1. The following top-priority tasks shall be fulfilled at the first stage (2011 – 2013):
rehabilitation of the insurance market and overcoming of the consequences of the financial crisis;
improvement of the state regulation of the insurance market in terms of improvement of the transparency and predictability of the Supervisory Body's activities and the insurers’ transparency as well as the awareness of the participants in the insurance market;
improvement of the distribution of regulation and supervision functions among the central executive authorities and the Supervisory Body;
introduction of the supervision fees;
improvement of the state risks management system in terms of the analysis and assessment of the risks to which the State is exposed by state institutions;
integration of the Ukrainian insurance market into the global financial space in terms of the international standards of financial accounts;
The first stage provides for an immediate development and adoption of a law concerning the rehabilitation and the overcoming of the consequences of the financial crisis, the development and adoption of a new edition of the Insurance Law of Ukraine and making amendments in the Financial Services and Financial Services Market State Regulation in Ukraine Law of Ukraine, and adjusting other statutory and regulatory acts in accordance with these laws. Also the laws concerning the insurance of agricultural products with the state support and the compulsory social medical insurance shall be developed and adopted and the institutional capability and political independence of the Supervisory Body shall be ensured at the first stage.
3.2. The statutory acts adopted at the first stage shall be introduced and the following tasks shall be fulfilled at the second stage (2014 - 2016):
improvement of the state regulation of the insurance market in terms of continuing the revision of the Supervisory Body's powers, introduction of the prudential supervision with elements of an economic estimate of an insurer's balance sheet, risk management systems of the insurer, regulatory capital requirements, control of the activities of persons fulfilling a part of the insurer’s functions under a contract.
improvement of the risk management system in the state and the society;
assistance in the introduction and development of the main types of insurance and in particular the insurance of agricultural products with the state support and the compulsory social medical insurance;
improvement of the consumers’ rights protection.
The fulfillment of the second stage tasks will facilitate the restoration of confidence in the insurance and will ensure a sufficient level of protection of the rights of the consumers of insurance services, approximate the conditions of functioning of the Ukrainian insurance market to the EU conditions, relieve the state and local budgets of unforeseen expenses and transfer them to stable (planned) even insurance costs;
3.3. The following tasks shall be fulfilled at the third level (2017 – 2020):
accomplishment of the improvement of the insurance market state regulation in terms of introduction of the regulatory capital requirements by virtue of a insurers’ risks management system;