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The insurance industry has nowhere to go but up

Ukraine’s life insurance market is still in its infancy, with less than 5 percent of the population buying such policies – very low by Western standards. The low rates may be rooted in a general lack of trust among Ukrainians in financial institutions and in cultural attitudes that are more accepting of risk.

So the industry has had almost nowhere to go but up, which is exactly the direction it has gone in recent years, spurred on by a booming economy. Insurers enjoyed 70 percent annual growth rates in recent years, said Oksana Golenshyna, chairman of Ukrainian insurance group Life.

While the spreading global financial hurricane has snarled the market in the near-term, optimism remains for long-term growth prospects.

According to the State Commission on Financial Market Regulation, the life insurance business is still miniscule, but it has grown three-fold in the past seven years.

In 2001, there were only 24 life insurance companies in Ukraine. Today, there are more than 70 companies.

The insurance sector in Ukraine has a symbiotic relationship with commercial banks. The lion’s share of domestic companies’ portfolios is mortgage insurance policies on a borrower’s life, Golenshyna said.

When the credit crunch started to hit the country in May and banks tightened lending to a trickle, the revenue from easy premiums dried up.

Still, with several years of fast growth under their belts, the life insurance business is looking ahead past the world financial crisis and pending economic slowdown. They see lots of sharp growth as experienced in recent years still ahead.

From 2006 to 2007, the amount of premiums collected by life insurers more than doubled from $64 million to almost $157 million.

“Some of the younger companies’ portfolios are about 90 percent bank loan policies, because this is the first product line companies entering the market tap into,” Golenshyna said.

Mature companies were not immune to the impact, despite having somewhat more diversified portfolios. They, too, are heavily reliant on government mandated loan insurance policies.

“In our company, a borrowers’ life insurance is about 60 percent of the total amount of payments,” Golenshyna said. Meanwhile, classic life insurance products, such as retirement insurance, are slowly catching on with the public.

“Most Ukrainians still don’t see the value of insurance, but the trends are positive,” Golenshyna said.

“The industry is young. At this stage, companies are only collecting premiums, and there is suspicion among a population where people have not seen policies pay out. When the public starts the see the payouts, they will begin to trust the industry,” she added.

The country’s ongoing political soap opera is among the trouble spots on the horizon. The chaos might frighten off potential international insurance companies. According to industry statistics, foreign capital makes up less than 26 percent of the insurance market.

“From my observations, I can tell that many foreign investors are looking to establish their life insurance business in Ukraine or to buy a local insurer,” said Ludmyla Kosar, an insurance consultant.

“But by their very nature, insurance companies also seek to reduce risk as much as possible.”

“Coupled with Ukrainian disinterest in life insurance, the political situation could make potential investors turn to more stable countries,” Kosar added. “Ukraine’s leaders need to stop their squabbling.”