Insurance development tendencies on the international level
The modern level of development of insurance business in industrially advanced Western countries is characterised by enhancing the tendencies to monopolisation in insurance business and concentration of capital.
The new role of insurance companies is to pay more attention to crediting definite areas and branches of economic activities. Insurance companies play the leading role after commercial banks as to the amount of assets and possibilities of their using as a loan capital. The character of funds accumulated gives these companies the possibility to use these funds for long-term capital investments through the security market. Banks dealing with comparatively short-term finance don’t have such possibilities.
It is typical for insurance market to have a big part of insurance payments in gross national product. So, in the USA, Great Britain and Japan it makes up more than 8%, in Switzerland – 7.5%, in Germany and Holland – about 6% of GNP. Monetary funds accumulated through insurance serve as a source of large investments. The State regulation of insurance activities abroad means, in general, the control of financial operations of insurance companies.
The analysis of the position and the tendencies of the development of insurance in the USA and the European Community countries make it possible to note the process of active concentration of insurance capital and internationalisation of insurance business. The process of internationalisation spread all over European insurance market.
The legislative acts of Great Britain, Germany, Italy, France and some EC countries, which regulate the insurance activities, have some differences, but according to the EC Council directives these countries have to adapt their national legislation to general rules of common insurance alliance within the framework of EC. Specifically it relates to motor transport owners’ responsibility insurance.
Joint-stock companies are the main organisational form of insurance activities abroad.
In many countries the communities of mutual insurance are highly spread. As a rule they are organised according to production sign. For example, farmers of a definite region can organise such mutual insurance. Such communities act as mutual assistance and profit making is not their task as joint-stock companies do.
Some countries have different juridical organisational forms of organising insurance communities. For example in the USA and Germany joint-stock companies prevail, in France – the companies of mutual insurance, in Great Britain – the associations of mutual insurance function together with insurance companies. Insurance intermediaries have a strong position on insurance market of Great Britain. They operate in the form of a sole proprietorship. Cooperative insurance is widely spread in Italy and Spain; in Germany, Great Britain, France and Japan insurance companies operate together with state capital, whose activity is mostly restricted to foreign – economic sphere.
Despite the damage caused to the business world as a result of terrorist act of September 11, 2001, the insurance business in the USA and other countries won’t fail. The USA insurance market is amounted to $3 trillion. $40 – 45 billion which American underwriters should pay come to 3% of the total sum, which is comparatively small in general. However every insurance company reserves money necessary for current payments. If the volume of payment unexpectedly increases there arises the necessity to extract money invested into securities, bank deposits, etc.
At present many insurance companies experience low profitability. It is quite dangerous for other juridical persons of the market economy as underwriters play a very important role in their business. The West gets used to insure everything including bankruptcy consequences, that is why the legislation of any civilised country protects underwriters as a last instance in property protection.
World reinsurance companies such as “Munich Re”, “Swiss Re” tend to increase reinsurance to 15% for big risks. The largest European underwriter “Lloyd’s” in its turn changes its policy in the area of terrorist acts insurance. Now they establish the limit to $50 million payment under such kinds of insurance.
The Insurance Market of the USA.
There are more than 8000 property insurance companies and about 2000 life insurance companies in the USA, while in the countries of European Economic Community only 4200. The American insurance monopolies control about 50% of the whole insurance market of developed countries in the world.
The insurance industry of the USA is the only industry, which is not subject to antimonopoly legislation of the country.
Every state has its own insurance supervision and its own regulation body. There is neither a single federal legislation about the insurance and nor a single federal body on insurance activities supervision. Every state puts forward its own requirement to a minimum capital level, kinds of future companies; it regulates in general the insurance activity by giving licenses to brokers, agents and insurance companies themselves.
There are two types of insurance companies in the USA: joint-stock companies and mutual insurance companies. There are no federal insurance companies. The shares of stock companies may be acquired both by physical and juridical persons.
Insurance companies carry out three types of insurance:
Personal insurance is widely used in the USA. It is divided into life insurance, rent and pension insurance, accident and disease insurance. Life insurance in its turn is subdivided into death insurance and living till death insurance. The annual premium on life insurance makes up about 9 billion dollars USA.
The second important kind of insurance in the USA is credit – financial insurance. This importance is explained by a wide variety of credit payments in the field of trade and services in the country.
Property insurance and the insurance of responsibility of big trade and industrial companies in the USA bring about 8 billion dollars of insurance premiums every year.
A major peculiarity of big life insurance companies of the USA is the fact that billions of dollars from different pension funds are passed over to them. The task of insurance companies in this case is not only to secure these funds but to ensure the capital gain of these funds as well. The insurance premium interest is charged for operating these funds. Even a small amount of 0.1% interest charged from the sum being under operation brings about millions of dollar profit. Huge investment resources make insurance companies a major financial controlling centre regarding industrial corporations.
The insurance system of the USA is also characterised by the participation of different middlemen in the insurance, i.e. the Insurance Policy is not accepted direct but through an insurance agent or broker. The number of brokers and agents in the country makes up 0.5 million people. Both individuals and large specialised firms deal in brokerage. For example one of the largest life insurance companies – “Prudential” accounts for about 22 thousand insurance brokers. “Marsh & McLenan”, “Alexander & Alexander”, “French Hall”, “Fred G. James” and others may be enumerated as independent brokerage firms.
Some companies, especially brokerage companies, have special subdivisions dealing with the analysis of other companies’ activities. The major factors on which the analysis is made are: financial situation, claim payments, level of services, safety and loss prevention, flexibility in the activity of the company, cost of services (minimal prices).
The electronic bank of all insurance companies is widely used in the USA. It gives the possibility to divide the companies according to their risks, premium sizes and so on.
The largest insurance companies of the world and first of all of the USA are the financial conglomerates: besides insurance activities they can also deal with crediting, organising checking services for their clients, issuing credit cards, as well as operate with real estate, securities and capital through their branches on their clients behalf. The internationalisation of insurance business is going on.
The leading companies of the insurance market of the USA
The largest transnational property insurance company “State Farm Mutual Automobile Insurance Company” headed the list for premium collection not only in the USA but in the world as well. It was set up in 1922 in Illinois. This is a company dealing with mutual transport insurance, property insurance, accident and aviation insurance and reinsurance.
“Signa” is one of the leading widely diversified insurance corporations.
“American International Group” is one of the leading international diversified insurance groups and the largest underwriter against trade and industrial risks in the USA. It started operating in 1919 in Shanghai. Now it’s a holding company, which holds 44 branches in 130 countries of the world. Staff is about 28 thousand people.
The largest companies of the USA are also: “Metropolitan Life Insurance Co”, “Continental Corporation”, “Prudential Insurance Company of America”, “Allstate Insurance Company”.
The foreign business of American monopolies and foreign companies activities in the USA bring about 2 trillion $ premiums.
The activities of all underwriters in the USA are thoroughly analysed by consulting companies: “A.M.Best”, “Moody S.”, “Standart & Poors”, which issue their activities’ catalogues quarterly. They publish the official ratings of insurance companies relating to their reliability and payability. The major factors for analysing are: financial situation, payments of claims and the level of services, safety and loss preventing, flexibility and cost of services. The level of losses, income and the efficiency of investment interests and the level of debts are considered the main criteria of the insurer’s activities.
The Insurance Market of Great Britain
Within many years the insurance business of Great Britain is concentrated in London being the world financial centre. The largest London international insurance market services financial flows of a number of countries and companies. The representations and subsidiaries of the world largest insurance companies are located in London. Within many decades and up till now English insurance market dictated rules and conditions of insurance.
The English insurance market is unique on some criteria. So, having a comparatively small size of domestic insurance market (5.3%), its share in international operations makes up nearly 20% of total world insurance business. The British insurance companies operate in 43 countries.
Nearly the tenth part of all insurance premiums in the world enters the British insurance corporations’ accounts.
Personal insurance in Great Britain is concentrated in specialised insurance companies and pension funds, as well as in investment companies effecting the sale of real estate to the people. A stable increase of insurance premiums takes place within the recent ten years. It has happened thanks to the alteration of pension legislation in Great Britain, which, in its turn, has created economic stimuli to acquire Policies of private pension insurance by able-bodied population.
The property insurance among people is presented by a number of traditional kinds. They are the insurance of automobiles and house-holding property. The property insurance is also characterised by stable rates of development.
The basis structure of London insurance market “Lloyd’s” is presented by 400 insurance syndicates, which join physical persons – underwriters carrying out the insurance business of a corporation. The underwriters bear unlimited responsibilities for obligations under the terms of insurance contracts within the framework of the syndicate. “Lloyd’s” operates on 5 major markets – marine, property, aviation, automobile and short-term life insurance.
Marine insurance makes up 40% of all insurance premiums, received by the corporation, the biggest part comes from international operations.
Annually more than 5 trillion pounds are accumulated by insurance offices of Great Britain.
Insurance contracts in Great Britain are made by insurance companies direct, as well as through underwriters’ agents and middlemen.
Large international insurance brokers and independent insurance agencies, working on a commission basis, play an important role on the insurance market of Great Britain.
The legislative basis of insurance activity of Great Britain is the law about the insurance companies, which was passed in 1982, with further alterations and amendments.
The insurance legislation of Great Britain is in harmony with new insurance instructions of EC. The special Law of the “Lloyd’s” insurance corporation, passed in 1982, regulates the insurance activity of this corporation.
The functions of the insurance control body in Great Britain are performed by the Insurance Department of Trade and Industry.
The activities of insurance middlemen in Great Britain also subject to regulation and licensing. First of all it refers to the activities of insurance and reinsurance brokers. In accordance with Insurance Brokers Act, 1977 there has been established the Insurance Brokers Registration Council, IBRC in Great Britain. This body regulates and supervises the activities of insurance brokers operating on the British insurance market. The IBRC also holds the State Register of insurance brokers.
There is also a special organ of British insurance market – Policyholders Protection Board which has been established in accordance with the Policyholders Protection Act, 1975. Due to this Act there have been created all the necessary conditions for setting up a special compensation fund for insurers which is formed for the account of all monetary charges of insurance companies having licenses and performing insurance activities in Great Britain. In case of insurance company failure monetary means of the compensation fund will be used for full or partial compensating of their losses under the agreements of obligatory insurance.
Insurance Company Act, 1982 establishes minimal requirements to the level of underwriter’s paying capacity. The technique of calculation of the level of paying capacity corresponds to the requirements of EC directives on the matters of insurance activity. All insurance companies are obliged to make an annual financial report. The financial report by all means goes through the independent audit procedure.
There exists a compulsory responsibility insurance of car owners, air transporters, riders, domestic animals owners. Besides there has been envisaged a compulsory insurance of professional responsibility for lawyers, accountants, insurance brokers as well as for operators of atomic energy units.
The Insurance Market of Germany
The insurance market of Germany is characterised by its dynamical development. Annual increase of insurance premiums makes up 10% in Germany. Personal insurance accounts for 37% within the framework of National Insurance market. Medical insurance, which is less popular than in other European countries, accounts for 12% of total volume of insurance premiums. Property insurance makes up 51% of Germany insurance market.
The insurance market in Germany is divided into the system of State Social Security and private sector of insurance services.
Private insurance includes joint stock insurance associations which belong to their stockholders, associations of mutual insurance and state insurance corporations.
The private sector of insurance compete with commercial banks, which try to organise insurance service for their clients using operation halls of commercial banks. In general the profitability of insurance of physical persons is higher than that of juridical persons. The sector of private person insurance takes 87% of German insurance market, the sector of juridical persons insurance takes 13%. Dividends on stocks of insurance companies are rather stable, but a little bit lower than those in other West-European countries.
Federative structure of Germany is a very important factor to develop the channelling of insurance services towards consumers. Regional insurance agents are present in all federal lands of Germany. The main source of attracting clients are independent insurance brokers, working for different insurance companies. The direct sale of insurance policies from offices is also wide spread.
Compulsory insurance in Germany has a limited character. Federal legislation requires compulsory insurance of an employee by the employer for damage suffered from production trauma or harmful working conditions. It also requires compulsory responsibility insurance for car owners, air carriers’ insurance, accountants and hunters insurance and so on. Some federal lands require compulsory fire insurance.
Insurance business in Germany is strictly limited by Federal Insurance Supervision Act, 1983, with subsequent amendments adopted in December 1985 and October 1990.
All underwriters operating in Germany are obliged to follow the level of payability according to legislation adopted in regards to insurance companies of EC countries. There are additional requirements for foreign underwriters operating in Germany.
Germany has accumulated a considerable experience in reinsurance. The biggest reinsurance company is Cologne reinsurance company, whose premiums account for 2 billions Euro, and Munich reinsurance company, which is the biggest reinsurance company in the world. It offers reinsurance protection, and skilled assistance in the problems of insurance and reinsurance.
German insurance market is divided into 39 insurance groups. Ten of them collect 51% of total premiums. The first place is taken by insurance group “Alliance”. Its market share is more than 20%. “Alliance” company is included into a list of 10 biggest world companies. Other big insurance companies are insurance company “Colony”, concern “Gerling”. The “Folksfurzorge” group controls 5% of the total market. Companies dealing with reinsurance have higher concentration. In this field 5 firms possess almost 75% of total premiums.
The stability of these monopolists is based on accumulated financial resources. In general only 13% of companies’ financial resources are paid to policyholders, the main part of them are capital investments. Capital investments of insurance companies provide 25% of all investments into national economy, and their profit forms 1/5 of gross revenue of insurance agents.
The typical feature of recent years is international character of German insurance companies’ activities. The process of developing foreign markets began in 1950. Even then reinsurance companies were more active than primary insurance companies.
All operations abroad are executed by branches and through controlled foreign companies. The greater part of foreign branches is situated in West-European countries. In other countries there prevails participation in local insurance companies. In general, German insurance companies have representations in 17 countries.
The Insurance Market of Switzerland
Insurance market in Switzerland is highly developed. There are 117 insurance companies in the country, including 23 personal insurance companies, 82 companies of general insurance and 12 reinsurance associations.
The characteristic feature of Switzerland insurance market is a combination of national and foreign capitals. Insurance companies are often transnational corporations with vast foreign interests.
The biggest insurance company is “Zurich Ferziherungsgezelishaft”. The company is a leader of powerful insurance group including 34 subsidiaries in the country and abroad. The “Zurich” group also includes “Vita” – the third company for personal insurance, as well as “Albina” and “Turegum” – public insurance companies. “Zurich” concern occupies the strongest positions in the USA, 6 subsidiaries control practically all kinds of insurance there. There is “Zurich American” among them, its premiums allowed it to be listed in 40 main American insurance companies. There are subsidiaries in Germany, Canada, Great Britain and many other countries.
Swiss companies occupy the strongest positions in reinsurance business. They account for more than half of all premiums from abroad. Inside the country more than half of all premiums is from personal insurance.
Switzerland has the highest index of collecting premiums per capita. A Swiss family spends 15% of family income on insurance policies. It is the main item of family expenditures. An average Swiss family spends on insurance more money than on food. Entrepreneur insurance is also highly developed. Practically all industrial, trade, transport enterprises are the clients of insurance companies.
The successful activities of Swiss insurance companies are explained by their active investment policy. More than half of all assets of insurance companies is invested in loans and securities.
The Insurance Market of Russia
In 1992 “Rosgosstrah” was formed on the basis of “Gosstrah”. According to the President’s Act of January 29, 1992 all state and municipal insurance institutions were transformed into joint-stock insurance companies of open and close type and insurance limited partnerships. All insurance companies in Russia were divided into two types depending on the formation of authorised capital:
joint-stock, cooperative and other companies;
joint-stock companies with some participation of the state capital.
The legislative basis of Russian insurance market is Russian Federation Act “About Insurance” passed in January 12, 1993. The Department of Insurance Supervision of RF Ministry of Finance performs the control function for the supervision of insurance activities.
Public companies, more than any other companies, serve all categories of clients. The overwhelming majority of public companies serve and conclude agreements with physical persons, joint-stock companies of open type have clients both among state enterprises and commercial businesses.
The Russian market is as greatly monopolised as it was before. 100 companies account for 60% returns and two largest underwriters “Rosgosstrah” and joint-stock company “Ingosstrah” account for 25% of total insurance premiums.
The characteristic feature of insurance market is the essential exceeding of the amount of collected premiums over the volume of payments. The average level of payment works out at 70%, which is incomparable to the world level of 90% and more. In fact Russian underwriters exceedingly evaluate the undertaken risks and the probability of insurance incidents. The high share of insurance premiums remaining at the disposal of the company enables it not to search other variants of profitable and reliable investing.
Less than 10% of potential risks is being insured (against 90 – 95% in the majority of advanced countries), 90% enterprises property is not secured by insurance protection.
The most well-known insurance companies in Russia are “Rosno”, “Afes”, “Ingosstrah”, “Energogarant”, “Lukoil”.
The Insurance Market of Moldova
At present in Moldova there are about 40 insurance companies having licences to fulfil the insurance activities on the territory of Moldova. In general insurance companies were formed as multi-branch organisations and they have licences for different kinds of insurance activities.
For many years the insurance in Moldova was done by the “Gosstrah” that was the monopolist on the local insurance market. In the beginning of 1990 there was the demonopolization of the insurance market. The joint-stock insurance company “Asito” has appeared. Many private insurance companies began to be formed and by the middle of 1990 they have achieved big and essential results.
Now Joint Insurance Company “QBE-ASITO” possesses 70% of all operations effected on the National Insurance market of Moldova. Thus the majority of the underwriters are small and weak.
Eight insurance firms have approximately 9% of the market portfolio of shares that belong to private foreign investors (England, Ireland, Russia, Ukraine, Romania, Bulgaria, Malta). These companies are: “QBE-ASITO”, “AFES-M”, “ARTAS”, “ASSIND”, “BOIANA”, “DELTA”, “GALAS”, “PROTECT-IMPEX”, “SAIMEX” and others.
In accordance with the rating, being held by the insurance supervision of the republic, the most reliable companies of Moldova are: “QBE-ASITO”, “AFES-M”, “MOLDOVA-ASTROVAZ”, “CARAT”, “ORATEH”, “AUTO”, “DONARIS-GROUP”, “PROTECT-IMPEX”, GALAS”, “ASIVIT”.
The insurance activity in RM is effected on the basis of “The laws about the Insurance” and is controlled by the State Insurance Supervision.
Moldova Republic legislation stipulates for the contracts of insurance being concluded abroad only those kinds of activities which are not under national underwriters’ insurance. Foreign companies are allowed to open representations in Moldova which have the right to fulfil the insurance activities on the territory of the republic, having licences given by the State Insurance Supervision body.
In Moldova the Regulation of the insurance broker is established. It arranges relations between the insurers, underwriters and brokers. However, today only three broker firms have been established and registered, and the majority of policies are distributed through the insurance agents.