XPRIMM: How do you evaluate the development of the insurance market of Ukraine in the 1st half of 2014? What types of insurance were the most profitable or unprofitable?
Alexander ZALETOV: First of all, it should be noted that the insurance market of Ukraine is in a situation of stagnation. The leading players of non-life insurance recorded a decrease of 5% in terms of premiums and an increase of 12% of insurance claims. The category that declined the most: the Property insurance segment - 15%, Cargo - 9%, Accident - 8%, Travel - 5%, Motor Hull - 3%.

Traditionally, growth is recorded in the voluntary health insurance (about 27%), insurance in the international system Green Card - 26%, aviation insurance - 14%. On the other hand, there is insignificant growth in MTPL - 1% and life insurance - 0.5%. The possibility of capital entering the market is quite high, because the already existing capital was not moved out from the country. Investors still believe that the insurance market will be reestablished. This is confirmed by many factors.

By volume of transportation in the region of Central and Eastern Europe, we occupy the third place after Turkey and Poland. Ukraine is the second country by population after Turkey. The market is huge and insurance coverage, unfortunately, is insignificant. Moreover, those bills that are in review process at the Supreme Council of Ukraine confirm the investment potential of insurance market of Ukraine.

Insurance has its own development cycles. Today we are at a low point of development, but THE market has great perspective. In general, it should be noted that the market is in a situation in which an investor can enter "cheap".

Corporate health insurance may become one of the drivers of insurance development in 2015 because a draft law "On Amendments to the Tax Code of Ukraine (to promote the voluntary health insurance) №4164a from 25.06.2014" was registered in the Supreme Council of Ukraine.

The adoption of the amendments to the Tax Code regarding the deductibles of enterprise costs for health insurance of employees will improve the quality of medical services, increase the income of the state and local budgets, due to the formation of competition among healthcare providers and the development of voluntary health insurance as one of the civilized forms of ensuring of social needs of citizens in the health sector.

A key object of the law, proposed by Ukraine's League of Insurance Organizations, is to create a legislative framework for the introduction of an effective system of social protection of employees.

The project has proposed to introduce the concept of voluntary health insurance with tax facilities - a contract between the insurer and the taxpayer. This project includes provisions of health insurance services, permanent health insurance and/or health insurance in case of illness and/ or insurance of medical expenses, etc.

Moreover, the experience of other countries shows that after adoption of the proposed amendments, in the coming years the investment of Ukraine's insurance market in public health could grow to EUR 1 billion and will create an additional 5 thousand workplaces.

The system of voluntary health insurance, as an addition to the state system of social guarantees, would be a reliable economic mechanism directed to reducing budget expenses, because the voluntary health insurance is one of the financing sources of the health system.

XPRIMM: What are the main problems faced by insurance companies due to political changes in the country?
Alexander ZALETOV: Due to the annexation of Crimea by Russia, Ukraine has lost 5% of its market. Also, activity in the Donetsk and Luhansk regions has decreased. These regions represented about 15-18% of the total insurance premiums.

On the one hand, in these regions we see a decrease in the volume of insurance premiums, and on the other hand, an intensive increase in the volume of insurance claims due to cars theft, cases of fire and the effects of terrorist activities, etc.

The next factor that influences the further market development is the stagnation of motor insurance. In the past five years a significant decrease in sales of new and second-hand vehicles, as well as the decrease in loans and the reduction of the insured vehicle fleet leads to the drop in Motor Hull insurance, to 20-25%.

Moreover, the situation is such that the companies' portfolio of Motor Hull insurance is reduced, while at the same time the claims on this type of insurance are growing. The main reasons are the increase in the repair costs and the growth in the number of insured events.

Also, the corporate sector has faced difficulties, which have been related to actively buying health insurance programs, as well as to the property insurance program.

With regard to individuals, there has been a recent reduction in premiums on contracts of consumer lending.

XPRIMM: What are the main law projects the league is working on?
Alexander ZALETOV: In order to ensure reliable and efficient insurance protection of insurance consumers, the increase in investment attractiveness and competitiveness of the domestic insurance market and its integration in the international insurance and reinsurance industry, it is necessary:

1. To raise the level of capitalization and reliability of Ukrainian insurers, to reduce the number of insurance companies from 400 to 120, to reduce the consumer complaints and the settlement terms of insurance claims;
2. To create new jobs (50 thousand);
3. To constitute a long-term investment resource for the Ukraine economy (EUR 3-5 billion);
4. To attract foreign capital in the insurance sector (EUR 2.3 billion).

Thus, the work of Ukraine League of Insurance Organizations aims at:

• Creating a development program of the insurance market in Ukraine until 2020. The program provides enhanced insurance supervision, the introduction of the institute of self-regulation, the introduction of key performance indicators for the insurance business (KPI), the development of socially important types of insurance, the creation of the insurance market infrastructure, an increase in the level of trust and culture of the population;
• Adopting the draft law "On insurance" (new formulation) as a result of Ukraine's entry into the World Trade Organization and the signing of the Agreement between Ukraine and EU. The law aims at improving the protection level for consumers of insurance services, a higher control over the fulfillment of requirements by insurers in the field of solvency and financial stability, etc;
• Amending Ukraine's Law "On mandatory insurance of civil liability of owners of vehicles": the introduction of an electronic form for insurance policy and the direct compensation for damages, etc;
• Introducing changes into Ukraine's Tax Code regarding the transfer of the insurance to the general system of taxation;
• Amending Ukraine's Law "On Financial Services and State Regulation of Financial Markets"
• Working out a Ukraine's draft of Law "On mandatory insurance of civil liability of the carrier for damage to life, health or property of passengers"
• Working out a Ukraine's draft of Law "On Ukraine's Amendments legislative acts regarding the assistance to citizens to rebuild (purchase) property lost as a result of fires, floods and other natural disasters";
• Improving the mechanism for public financial support for agricultural insurance;
• Changing the license conditions such as: the harmonization of the registration and the licensing process of insurers;
• Introducing changes regarding the Regulation on the application of foreign currency in the insurance business.
  

XPRIMM: Expectations regarding the development of the insurance market in 2014
Alexander ZALETOV: By the end of 2014 we expect the decline in insurance premiums by 20-25% at the same time with the increase in claims by 10-15%.

XPRIMM: There have discussions on the possibility of eliminating the State Commission for the Regulation of Financial Services Markets of Ukraine and the transfer of functions of the regulator of the financial and insurance services to the National Bank of Ukraine. What is your opinion about this decision?
Alexander ZALETOV: Really, the transfer of the insurance market under the supervision of the National Bank of Ukraine has more advantages than disadvantages. The League of Insurance Organizations of Ukraine set out this proposal in an official letter at the beginning of this year.

However, recent events regarding the instability of the banking system and the absence of the position of the Chairman of the National Bank of Ukraine show the unreadiness of this institution to regulate the insurance market in the near future. Therefore, given that the insurance market accounts for less than 5% of the assets of the banking system, we cannot to expect the administrative reform to be successful.

A similar negative experience has occurred in particular in 2000, when UKRSTRAHNADZOR (the supervisor of the insurance market) was liquidated and transferred under the control of the Ministry of Finance, which led to the collapse of the management.

At this stage, it is more efficient to use the "tools" of self-regulation and public control over the work of the State Commission for the Regulation of Financial Services Markets of Ukraine.

In case of transfer of the insurance market under the supervision of the National Bank, it is necessary to evaluate the possible risks of creating a "mega-regulator" on the basis of the National Bank of Ukraine.