March 2018: Versatile Valuation of the Insurance Industry

March 2018: Versatile Valuation of the Insurance Industry

The FINANCIAL -- The future may be extremely difficult to predict but it need not be hard to foresee the key trends and proactively prepare for mitigating the associated risks. Insurance companies that can anticipate and plan for change can create their own future.

But how to pioneer in an everchanging technological era when just barely keeping up with the competition would already be considered as losing the game? The insurance industry has not always been rapid to pick up on novel technologies. The entire industry is fixated on how life was lived about ten years ago. A scrutinizing eye can already spot the signs of disruption in every link in the insurance value chain. Digging deep to extract truth by employing big data should become a regular, systematic activity.

Before tackling that notion, let us evaluate the situation of the Georgian insurance industry as per latest data. Currently, there are 17 insurance companies operating on the market, with the newest player – Hualing Insurance, joining in December 2017. Two of the seventeen players are international – GPI Holding and IRAO. Both are part of the Vienna Insurance Group and GPI Holding grasps the leading position of the Georgian insurance market. Speaking of international, the Georgian market also has two international companies carrying out the brokerage activities: Willis Tower Watson and MAI Georgia.

Back to the insurance companies and latest stats, the total amount of attracted insurance premiums via direct insurance activities amounted to GEL 441.40 million, a 12.3% increase compared to that of previous year’s indicator. Net profit of insurance companies amounted to GEL 20.34 million, while total assets of the sector amounted to GEL 580.28 million, with capital totaling GEL 154.25 million.

Health insurance premium amounted to almost GEL 198 million in 2017; transport insurance - up to GEL 75 million. Property insurance occupies the third position with total premium of GEL 72 million, leaving practically peanuts for all the other types of insurance products.

In 2017, the Insurance Mediation of the Georgian Insurance Association has received 484 complaints, 151 of which were of informative type and 333 – of dispute/disagreement type. In 24 cases, the parties failed to reach an agreement. 49 cases are still being processed while for the remaining cases, they were resolved relevantly.

The Law of Georgia on Insurance regulates and governs consumer protection mechanisms for the insured. Although originally adopted back in 1997, this law has been amended several times since then to comply with the EU standards and requirements for the insurance sector, including consumer rights and protection. LEPL Insurance State Supervision Service of Georgia, which is mandated with supervising the pension-related matters as well as insurance activity and regulation across the country, officially monitors and regulates the market.

Versatile KS held a thorough discussion with Mr. Konstantine Sulamanidze, Head of Insurance State Supervision Service of Georgia who is certain the market having enormous potential for growth has not yet reached its peak: “enacting compulsory liability insurance may be the catalyst for market growth as well as becoming the main contributing factor”.

When we spoke about the challenges the market faces, Mr. Sulamanidze explained that “currently, the overall insurance culture is still very poor in our society and this is natural, considering the hurdles the citizens face. When majority of population does not have significant tangible property, they cannot be expected to protect it from risks, especially when they are not insurance-savvy and any terms written in complex language scare them because of lack of awareness of the matter at hand. There are two proven/irreversible ways of developing the insurance market. One is the establishment and encouragement of the market by introducing the obligatory types of insurance and the second - to ensure economic growth when the gross domestic product per capita provides the possibility of solving social issues, primarily through insurance products. In fact, insurance penetration in high-income countries is much higher”. It is obvious, Georgia does not have the luxury time to wait for achieving the desired economic growth rate: “thus, our task is to fully facilitate the implementation of those products of compulsory insurance on the market that imply insurance of the third person”.

As of today, four compulsory types of insurance are valid in Georgia: the obligation of liability for notaries, accountants' responsibilities, and owners of public places (trade centers, fairs, petrol stations, etc.) to third parties, and responsibility for the drivers of motor vehicles registered abroad.

“The last two of these have been enacted very recently – on March 1, 2018 and we are happy with the rate of implementation of those novel to Georgia compulsory insurance policies” said the Head, who is certain that “the introduction of compulsory insurance for the owners/drivers of all vehicles registered in Georgia to third parties shall play a pivotal role in expediting the development of the insurance market; both in terms of raising the insurance culture as well as creating new impetus of development of the insurance sector and its players”.

The preceding legal work related to this issue is almost complete and the draft bill is practically ready. Mr. Sulamanidze is getting ready for initiating proper consultations and expects this bill to be passed by next year already: “Such approach will surely promote civilized settlements of socially important topics and in due time, I'm sure other, non-compulsory insurance options, such as property, financial risks and life insurance, will unquestionably be developed consequently.”

Naturally, the purpose of the Insurance State Supervision Service of Georgia is to ensure quality services of the players, irreversible growth of the market and, most importantly, caring for the interest of the insured. There is another body that for years has played a key role in the development of the insurance sector – the Georgian Insurance Association founded in 1996 that brings together licensed insurance companies in Georgia. The main objective of the association is to support the development of the insurance sector and to represent the industry in important negotiations with the government and across other sectors as a mediator.

We have looked at the market from the players’ perspective as well. Global Benefits Georgia is relatively new to the insurance sector, with less than one-year track record of operations. Despite being young, the company has already managed to attract over 70 private and governmental organizations and as of now, looks after more than 14,000 insured.

Ms. Anna Gvenetadze, Deputy Director General of Global Benefits Georgia revealed to Versatile KS that “the insurance sector in Georgia is a bit modest in development but full of untapped potential. Although still distrustful, public is gradually starting to understand that insurance in general is there to protect them from unseen medical and financial complications and therefore, we believe that the future is promising”. She sees immense potential for growth, especially in the direction of “non-life insurance, including business all risk, property, casco, etc.”.

Besides having the most diverse insurance products portfolio in the country, GB Georgia in cooperation with Farmers Association is developing an innovative product for agriculture that should substantially improve and support the development of this sector in Georgia. Ms. Gvenetadze further elaborated that “additionally, GB Georgia has become the first company which has accepted and reinsured specific risk from a local company. I consider this to be a positively significant fact for the Georgian insurance market and its development”. From her perspective, the most popular insurance product remains to be health policy with 47% of the market share – “this is largely because health costs are rising globally and there are increased health risks due to the environmental challenges as well as other health risk factors. On top of that, the state health insurance policy allocation system provided by the government was altered last year, which naturally supported the growth of private medical insurance sector”.

Global Benefits Georgia representative also touched on the matters of technological developments: “the insurance sector, although very traditional, is also evolving and embedding technological developments in the customer service and sales fields”. For instance, GB Georgia is the first insurance company in the country that is fully digitalizing the claims handling process. “This saves us a lot of time and our customers really appreciate this. We are also working on an entirely digital online sales platform on web and mobile, which will enable all customers to purchase desired insurance policy in a matter of seconds” she concluded with pride.

Versatile KS also got in touch with Ms. Tinatin Stambolishvili, Corporate Communications Director of GPI Holding who is certain the potential for growth is tremendous for the Georgian insurance market: “at present the penetration rate is quite low – the most popular lines of insurance are health and motor casco, leaving individual property and life insurance with the lowest level of penetration. Georgia is among the few countries in the world with practically no obligatory lines of insurance – would that be motor third party or other types of liabilities”. She believes major challenge for the sector is the immediate reforms that are necessary to encourage the growth and increase of penetration as well as other social and investment benefits. “The dynamics of growth tempo declined sharply after 2012 and this is mainly to the changes in the health financing scheme. Despite these radical changes we were able to offer competitive health insurance packages and our portfolio increased in this period – in terms of both written premium as well as number of insureds. Mainly, development is needed in non-life lines of insurance, as penetration rate is very low in this direction” explained Ms. Stambolishvili.

GPI Holding has adopted a digitalization strategy back in 2015 to automatize the processes and improve the quality of services. “We believe that digitalization is the future of this business and in Georgia we are in the leading position as in 2016 we have launched the first online insurance portal allowing our customers to buy insurance online as well as get claims reimbursement and all other services through our mobile app and/or website. MYGPI.GE now serves thousands of customers online and the rate of tested customer satisfaction is very high. We stay committed to this platform and are constantly developing upgrades and improvements to our digital system”, elaborated the Corporate Communications Director.

While traditional insurance data are heavily regulated to a certain extent, much of the data that should support new value creation of the insurance industry is practically not. Keeping in mind the recently revealed data-war whistleblower scandal allegedly involving Cambridge Analytica, Global Science Research and Facebook, regulators across the globe and in Georgia as well must start drafting policies that balance user privacy and innovation at a faster pace. With the proper use of big data, insurers should be able to discover interesting and accurate predictors of risk that do not involve asking people redundant and annoying or even demeaning questions. But instead, they ought to capture and analyze data about customers in a responsible and non-invasive manner. Well-connected data in turn shall pave the way to innovation and innovative insurance products. Insurers should already be looking for the magic ingredients for their own pavements, simultaneously acknowledging that high mistrust persists between insurers and policyholders inherently.


Keti Sidamonidze, Founding Director of Versatile KS

Versatile KS excels in tailored business consulting and export promotion services.