Insuring against financial risksContract and customs bond insurance will attract more investors to Georgian construction and infrastructural projects, believes Vasil Akhrakhadze, Director General at insurance company Unison. With more than USD 40 48million, Unison advanced its position in the country from 8th to 3rdin 2014, taking 19% market share. Isolation from universal healthcare insurance and good management are what helped Unison to end the last year with profit. The separation of insurance companies from other sectors and implementing compulsory types of insurance are the main challenges that the Georgian insurance sector currently faces.
“Since its establishment Unison has always chosen the right strategy. That led to it passing through this difficult period successfully. We have gained the status of an important player in the market. The proper approach of the management is based on 15 years of working experience in the insurance field. Having a diversified portfolio has always been our main strategy. We never depend on just one source of funding, even if it is state funding. We were initially against involvement in theuniversal healthcare insurance project. It was clear for us that it would not be profitable. In our case, this strategy worked. Our company is growing, andturninga profit from year to year. Profits, as well as the gross premium, are increasing,” Vasil Akhrakhadze, Director General at Unison, told The FINANCIAL.
Unison was established in 2011. The company soon managed to become one of the most prominent players on the Georgian insurance market. The company is leader in the property insurance business segment and positions itself as pure insurer, with a 35% market share.
The company is a partner of strong international financial institutions and cooperates with leading and well-known reinsurers such as (Lloyd’s Syndicate, Hannover Re, Polish Re, Allianz, SCOR, Transatlantic Re, Lloyd’s of London, Ace European Group, VIG Re) which ensurestheir reliability and gives the possibility to provide full coverage for high capacity risks.
“The reinsurance of contract and customs bond insurance financial risks is one of the most difficult areas. It is linked to the stability of the country. Georgia is theexceptionand pioneer among its neighbours in that it managed to achieve this deal with its foreign partnersespecially on UK (London) market. A good accounting system of the banking and insurance sectors contributed to it. Our cooperation with premium list reinsurance companies is not only our advantage, it is a big benefit for the whole country. Contract and customs bond insurance Financial risk insurance simplifies the relationship between investor and developer. It encourages investors to issue funding for a project which exists as a draft of a business plan. The investor receives a high level of performance guarantee, which significantly minimizes the risks. It is in essence equivalent to the guarantee provided by a first class European bank. This service is a great benefit for the state as well, because it is more flexible and better than a local bank guarantee,” said Akhrakhadze.
Over 85% of Unison’s customersare from the corporate sector. For 2015 the company plans to increase its market share in the retail as well as corporate sector. Modern and technologically developed services will be issued soon. Offering more flexible services to its consumers is the main goal of the company.
In his exclusive interview with The FINANCIAL, Akhrakhadze evaluated the insurance market of Georgia and namedthe main steps that need to be implemented for the development of the sector.
Q. 2014 was difficult for insurance companies. Many of them ended the year with losses. How would you evaluate it for Unison?
A. 2014 was a challenging year for Unison. Great changes on the financial market, as well as the legislative level,took place. However, we managed to strengthen our positions on the corporate and retail levels. It was a year of success for us. Unison improved its position in therankings and went from 8thto 3rdplace overall. This was achieved by a growing portfolio. We attained a market share of 19%, which is significant.
Q. What was the volume of attracted premiums?
A. The volume of attracted premiums exceeded USD 40 48million in 2014. The largest part wasmade up by reinsurance premiums. Unison is one of those companies which collaborates with reinsurance companies in a big way. We are named as the most reinsured insurance company in Georgia.We onlycooperate with ‘A’ class companies. Our principle and strategy lies in having a more balanced portfolio and beingclosely linked to financial institutions. It ensures we are able to compensate any loss when it becomes necessary. So compensation does not carry any significantrisk for our portfolio. It is provided by our reinsurance partners. All this provides maximum harmonization. On its side these benefits extend to our consumers. This is how we understand implementation of global practice locally. So, with our standards we are close to European practice.
Meanwhile, we should not judge a company by its gross premium alone. The number of complaints and cases of suing and compensation for lossare what determines the success of an insurance company. Unison has one of the lowest numbers of complaints. In our practice we have compensated GEL 1.5 million per policy. It was linked to a huge infrastructure project which was not completed on time.
Q. Which are the most popular insurance products amongst your customers?
A. Corporate Pproperty insurance is dominating in our service portfolio. It is followed by health insurance and auto insurance. Unison is the rare exception in that it has big experience in cooperation with the energy sector.
Property insurance even on the corporate level is fairly low. Companies founded with foreign investments are rare. They make up over 90% of this segment. I would like to see more local companies and individuals using property insurance. We live in a highly seismic zone. We all remember the incidents that took place in our neighbouring countries several years ago. Accordingly, property insurance in such a region should be compulsory like it is in Turkey, Iran and etc..
Q. You support the implementation of compulsory insurance. Meanwhile, the general solvency of Georgians is quite low. Therefore don’t you think that it is a little too early?
A. On the contrary. Not being insured contributes to impoverishment. Healthcare insurance is a good example of that. Today it is clear to everyone that medical treatment with insurance is much cheaper than without it.
Insurance companies are living in an unstable environment as the legislative level is quite weak. Bills are made without any consultation with the representatives of the sector. There is still theopinion that compulsory insurance will be a heavy burden for the population. This is absurd. There are various types of compulsory insurance in all developed countries. There was the same opinion regarding the state’s compulsory healthcare programme which was initiated in 2007. Although it did have some faults initially, it did a really great job of developing awareness, the culture of the insurance sector and trust towards companies involved in this business. Eight years later, we can say that medical insurance is a useful product. Today we cannot find a company in which the health insurance of employees is not on the agenda. However, eight years ago it was unimaginable that it would develop onsuch a scale.
Currently we hear the same concerns about whether third-party car insurance should become compulsory.We hear the same arguments – that an additional USD 1200 per year will become a heavy load for citizens. However, we need to realize that insurance brings relief to its owners especially those who have low incomes. Over 50% of Georgians presently live under the poverty line. The latest statistics show that the number of car accidents has increasedapproximatelyby 23% during last 4 years. So, let’s imagine a person responsible for compensating not only his car, but the damage of a second party. It directly contributes to impoverishment. This can only be solved by state regulation. Therefore, I believe that our new regulator has a very positive attitude on this issue. There is a promise from his side that the case will be solved with the Government.
Over 5-7% of the private auto park is insured for now. More than 90% of vehicles are not insured. This is a catastrophe. Implementing this law will be a calling card of our country,aidingintegration with the EU. Compulsory auto insurance will increase the industry by USD 1050 million and .will create many job opportunities.
Q. Have the reinsurance companies revised their tariffs due to the ongoing instability in the region?
A. The rating of Georgia has not been downgraded. In general, the revision of tariffs in the field of insurance takes place when talk worsens in respect to a particular danger. Today we have very good status, and therefore it does not touch us.
Q. How would you evaluate the insurance culture of the population?
A. The culture of insurance in Georgia is on a lower level than in developed countries as well as solvency. Moreover, we are even behind our immediate neighbours. State regulations are the main determinant of insurance culture in any given country. In Georgia there is no mandatory insurance law. Meanwhile, some types of compulsory insurance do exist in our neighbouring countries. It providesserious insurance compensation for the population and entrepreneurs. The low solvency of our citizens also contributes to the low level of insurance culture.
Q. Which exact regulations need to be implemented for the development of the insurance sector?
A. A regulating sector with clear and transparent law is essential. We should move from superficial regulations to fundamental initiatives and changes. The separation of insurance companies from the banking, medical and pharmaceutical sectors is also necessary. This system firstly diminishes the quality of the insurance sector. When a consumer borrows from a bank, he becomes obliged to get insured by the company stipulated by that very bank. So, consumers are left no choice, which is againsttheir rights.
Today, we have leading companies which are affiliated with one of the groups, which include a bank, insurance company, the hospital sector and pharmaceutical group. In this case, these financial institutions are guided by their own financial interests. There is no link remainingto protect the rights of consumers in the event they complain. Each of the fields will protect the other as they are guided by one holding. All the above mentioned not only damages the insurance but medical service quality and other services as well. Lots of mistakes which occur in the medical sector are as the result of that. Problems are not dealt with on a proper level. Such interventions in the insurance industry should be carried out.
The advantage of Unison is that we are independent decision-makers in the market. We offer wider choice to our customers. We have a lot of providers, so consumers can freely choose and get the highest quality. We cooperate with all providers of high-quality service. Those individuals that are insured with usdo more than just make a choice, but are free in their decision-making.
Q. What are the main challenges of the insurance sector in Georgia?
A. Separation of the insurance field from other sectors is necessary at the moment. Otherwise we will face dire consequences. The insurance industry is gradually coming out of the previousrecession period. One of the requirements of EU integration is the significant growth of the capital of the insurance sector. A large number of insurance companies are still not managing to generate profit. This is being made with their non-core assets. It means that insurance business is not profitable, and this is the main challenge of the industry. Mandatory insurance products should be implemented in the country, this will result in massive development of the industry. Finally, this will encourage businessmen to invest in the sector.
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