Task 19 These are the topics for further discussion. Choose one to prepare a PP presentation.
• Macroeconomic and firm-specific shocks
• Liquidity provisions
• Oversightofpaymentssystems
• Moralhazards
• IMF loans
• Marketdiscipline
UNIT 8
INSURANCE
LEAD-IN
Task 1 Read the quotation and answer the questions:
1. How does the company mentioned here differ from other companies selling insurance?
2. What did the customers most appreciate in Neoinsurance?
3. Do you agree it’s the greatest merit of the company?
I would like to express my appreciation to your organization for the professional and friendly service provided to me and my family. Each time we called everyone was pleasant, helpful and had a solid knowledge of your business.
Many of the companies we contacted treated us less than professionally because they knew if we didn't get the insurance our event would not take place. Your company Neoinsurance supplied quick responses and we were set. Thanks for being a company that believes in customer service and supplies it.Rickey F., Vallejo, California
Task 2 Read the following quotations. Which of them do you agree with? Choose one-two quotations and speculate on them.
1. Jim: Dwight: Don’t need it. Perfect immunity. I can raise and lower my cholesterol at will. Health Care (season 1, episode 3)
2. Pam: Why would you need to raise your cholesterol? Dwight: So I can lower it. Health Care (season 1, episode 3)
3. Fun is like life insurance; the older you get, the more it costs. Kin Hubbard
4. Everyone should have health insurance? I say everyone should have health care. I'm not selling insurance. Dennis Kucinich
5. Insurance business is about promises and trust. It is about delivering to the customer in times of need and if this cannot be imbibed in a professional neither him nor the industry will succeed. TapanSinghel
6. Unemployment insurance is a pre-paid vacation for freeloaders. Ronald Reagan
7. Taking care of your body is insurance for your soul. Toni Sorenson
8. Insurance companies don't make anything. James Dyson
9. Justice is the insurance which we have on our lives and property. Obedience is the premium which we pay for it. William Penn
10. It's very easy for trusted companies to mislead naive customers, and life insurance companies are trusted. Daniel Kahneman
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11. I was born on the other side of the tracks, in public housing in Brooklyn, New York. My dad never made more than $20,000 a year, and I grew up in a family that lost health insurance. So I was scarred at a young age with understanding what it was like to watch my parents lose access to the American dream. Howard Schultz
READING
Task 3 You are going to read an interview with Christos Adamantiadis about insurance in Russia. What is the main dilemma a business can face today? Read the text and give a brief outline of the problems.
Insurance in Russia needs “evolutionary growth” – says Christos Adamantiadis, General Manager at Chartis Russia. Few Russians choose the security of insurance, as it has not yet become a part of their everyday thinking, explains Adamantiadis to RT.
RT: Russians often appear fatalistic…How difficult is it to sell them insurance?
CA: Well, I would prefer to see the glass as half full! One could equally well argue that the Russians are too…optimistic, in that they think that nothing unfortunate can happen to them, and therefore don’t really need insurance! Whichever way you lookat it, insurance penetration in Russia is still very low compared to Western Europe, about 1% of GDP against a European average of over 8%. In that sense, insurance is still a “push” product, a product (or concept) that is “sold” rather than “bought”, especially when it comes toconsumers and small businesses. Right now, I don’t see much on the horizon that will give a rapid spur to the sales of insurance to these groups. So there will be growth, but mostly organic – let’s say “evolutionary”, brought about by the gradual maturity of the society. On the other extreme, one has to admit the large Russian insurance companies are very sophisticated buyers of insurance.
RT: Do you think Russians understand both the mechanism and the purpose of insurance well enough?
CA: Generally speaking, not yet; but increasingly – in certain circles. One example is the sales of insurance by the banks: the penetration rates that we see are quite high by any standards, implying that there is a slow change in the attitude of consumers towards insurance. Moving beyond the white collar population and the urban centers, most likely the picture is slightly different. In this context, probably the most striking thing is the very low penetration of Life and Pension insurance, which could be linked to generally low savings rates.
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RT: What type of insurance is the most popular one among Russians? And why, do you think?
CA: Clearly Motor Third Party Liability (OSAGO) and, right behind, Motor Own damage (KASKO). All the rest – without exception are in fact a long way behind. Nevertheless, an interesting trend to observe is the growing penetration of simple, inexpensive “lifestyle” insurance products sold via banks (such as fraudulent use ofcredit card, simple travel insurance, etc.), which seem to have growing traction with the – mostly urban – public.
RT: What is the correlation between mandatory and voluntary insurance in Russia. How does it affect insurance companies?
CA: All societies have to undergo some level of compulsory insurance, during which the notion of insurance gets entrenched, before the voluntary classes pick up. Usuallyit starts with classes that protect large parts of the population and/or financially weaker groups, such as compulsory Motor Liability – as has been the case in Russia. The “compulsory” notion is initially alien, seen more as a tax rather than a protective social net, and typically there is a dose of push back until the benefits start sinking in and people start to appreciate the value of insurance. It usually takes between 1-2 years to achieve a good level ofacceptance. Right now, the government is ready to roll out a new class of mandatory insurance, namely regarding the Liability Insurance for High Hazard Industries. The interesting feature here is that the limits per insured person are significantly higher than in the Motor Liability insurance and far closer to the true value of life in Russia.
RT: Has the current crisis changed the trends in Russian market significantly?
CA: We have not seen any major trends emerging as yet. During the 2008 crisis, insurance spending was one of the first areas that were cut in corporate operational expenses; also, Motor insurance being the main driver in consumer classes, the drop in new car sales had a severe negative impact on the insurance market. This time round, the indications are that Russia will, on the one hand, be more shielded from a global economic crisis; and, on the other, the growing insurance maturity of the population as well as the corporate sector, probably means that cutback on insurance spend will not be as deep. Overall, I am optimistic that growth will continue, albeit at a slower than originally anticipated rate.
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RT: How difficult were the recent years for a global insurance market? In this respect, how does the Russian market compare with the rest of the world?
CA: There was a large dichotomy in how the insurance markets performed in recent years, largely reflecting the direction of regional economies. Based on 1 half or 9months’ trends which are available, the US, Europe and Japan were static or, in some cases, even degrading, whereas the rest of the world was growing at reasonably healthy rates. Within the latter group, Russia at about 15% growth clearly stands out. This is a great achievement for the Russian insurance market!
In terms of bottom line, it has globally been a very bad year in the Consumer classes with negative technical profits and very low investment income to compensate. Butthe Corporate sector was better off, with not too many large losses from natural catastrophes, the Japan earthquake notwithstanding.
RT: Are you going to launch any new insurance tools here in Russia?
CA: Definitely! We have a big number of projects on the pipeline. Just to highlight a few: we have very ambitious plans both for our direct marketing operations as well as our Agency business, both of which we expect to grow significantly in 2017. Having areasonably good footprint in the very large accounts segment, we expect to see bigger penetration in targeted segments in the “middle market”., And not least we will continue our investment in brand recognition and brand awareness.
RT: What new challenges will 2017 bring to Russian insurance market?
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CA: I see four main developments, which will largely define the direction of the market in 2017. First, the growth in new Auto sales. Auto insurance being a key determinant of the market dynamics.
Second, the traction of the new law on the Liability of High Hazard industries – which I see as a very positive development for the corporate insurance market as well as for citizens’ rights, in Russia. Third, the speed with which Bancassurance grows. Bancassurance being a relatively new but very dynamic distribution channel. Fourth, the pace of the market consolidation as new capital requirements set in from January. Overall, I would expect to see less but stronger companies, healthy premium growth even if at a slower rate than in 2016, and more professional, well organized distribution… in other words, a “win-win” scenario for all the market stakeholders!
Comprehension
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