Banks Continue to Seize Non-Profile Businesses

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It is said that Bank of Georgia is going to establish its 4th insurance company and permission is on its way from the respective authorities.

On the issue Insurance Companies Association and Insurance Union called upon urgent meeting where attendees declared the news as the expansion path Banks are following in insurance sector. Insurers are addressing Government and Parliament of Georgia and Supervisor authorities to carry out respective actions to ensure competitive environment in the insurance market.

Insurance Union, where insurance companies and insurance brokers are united, is actively working for competitive environment in insurance market. Its Co-Chairman and CEO of Insurance company Unison Mr. Vasil Akhrakhadze is going to explain Bank of Georgia’s recently made decision about new insurance company.

Mr. Vasil, you often declare your negative position against the problems Banks are causing to insurance sector. What is your position about the current news?

This is continuation of the path that we call “Predator Policy” of Banking sector and that gave us current disturbing situation with 7 insurance companies directly or indirectly owned by banks.

The news is one of the chain of problems and would not be on the table if insurance sector’s development and future plans would be given even minimal attention. There are black holes in our legislation that gives banks opportunity to capture insurance sector and make it their own satellite.

Instead of professionally managing risks in the society and supporting sector development, banks are using insurance sector for their narrow, financial interests. The result is the weakest insurance sector in the region and 85% of the industry’s total profit is unfairly captured by banks.

What do you think, is there any positive development in the sector?

Mandatory insurance programs, that are implemented according to European Union association agreement, are very positive for the sector, though planned outcomes are seriously distorted by the banks through their affiliated insurers.

They are capturing strategic sales channels and preparing for compulsory insurance of motor transport liability that is thought to create 200 million Gel additional market. Recently, for this purpose, daughter company of insurance company Aldagi got one third of technical inspection lines all over the country with the help of ministry of economy; several weeks ago TBC insurance signed the agreement with Georgian post, state owned company, without any tender, and is going to use post offices as its sales points. There is not going to be any place on the market for standalone insurers soon.

What is your explanation, why Bank of Georgia has decided to establish new insurance company?

I think, the role of catalyst in already unhealthy environment was played by compulsory insurance of motor transport liability for cars that are registered abroad. Income from this program is divided equally among experienced and newly established insurers (the latter’s were established purposely for this program).

Therefore, instead of encouraging insurance sector development this program attracted banks. They are establishing new insurance companies on daily bases and putting required minimum amount of capital for insurance license on their own accounts. This way they are employing the same asset for two purposes and can establish new insurance companies with minimum effort, therefore get easy income from various compulsory insurance programs.

The result is increased expansion of the banks in the insurance sector. Nowadays we have 7 insurers directly owned or affiliated with the banks, for the next year we are expecting several more. Bank of Georgia in this process is the most successful actor with already 3 insurance licenses and now getting fourth one. This means millions of easy money for them and lost business for standalone insurers.

Compulsory insurance projects are intended to support insurance sector development, though Georgian Banks are the only entities that get benefit from them while the sector is severely damaged. It’s already 10 years’ sector is not attractive for foreigner investors, like in case of banking sector, where foreign direct investments such as HSBC, SOCIETE GENERALE and etc. where forced to leave the country.

In developed financial markets mostly insurers are acting as the biggest investors, but in Georgia there is no insurance company presented at Georgian stock market. As insurance sector is not profitable and banks are capturing most of the profit of the industry, insurance companies do not have funds to support their investment activities. We ask Government of Georgia to take required actions to save the industry.

Mr. Vasil, you often declare that customer rights are violated, what do you mean?

Banks are actively passing their clients personal and confidential information to their own or affiliated insurance companies to use in sales process. We have cases when their sales agents contacting our customers, having information about clients’ expenditure on insurance products and making them better offers. They tell “we know you have paid in your insurance policy this amount and we can make it for less”.

Furthermore, banks are forcing customers, while taking credits, to buy insurance policies from their own insurance companies for much worse conditions than free market offers. We face cases when banks are putting pressure on their corporate clients to insure property and employees in their own insurance companies.

In all developed markets, such attitudes from banks side is strictly prohibited. We can refer to several cases like: Wellfargo case in USA, current case in Great Britain on PPI mis-selling from banks side. All this info is official and easily available on public web sites and banks are highly penalized for violating customer rights, while in our country as it seems,. banks are encouraged for such actions.

What do you see as the solution?

For a long time, we are asking for full demerger of banks and insurance companies and any kind of investment in insurance companies by banks to be restricted, as it happened in other business sectors. Moreover, banks should be asked to place their credit insurance portfolio in minimum three different insurance companies as insurers are asked to place their assets and capital in minimum three different banks in order to diversify portfolio and provide financially stable service. This is necessary for risk minimization and market diversification. If already mentioned changes take place, highly concentrated market structure will become more diversified and customers’ rights protection will be enforced.

Unfortunately, instead of positive changes, the situation in the sector is worsening. The problems are left without proper attention from the respective authorities. This is encouragement for Banks.

We need urgent measures in respect of legislation and insurance supervisor authority reform. The supervisor should be able to provide effective support to the sector, especially now, when insurers have increased financial support to the supervisor three times.

Finally, I would like to mention on behalf of Insurance Union, that with the support of local and international experts, we are ready to work actively with Government and Parliament of Georgia to reach positive outcome for the industry and therefore, for the country.

source: Insurance Company Unison


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