The prospects for the brokerage market of insurance in Russia
Our expert – Andrei Denisov – General Director of Marsh – Insurance Brokers JSC, Russian Unit Marsh McLennan – the biggest worldwide consultant on insurance and risks management. Andrei has been working in the insurance market for more than 30 years. That means that he is well acquainted with all the stages of the formation of the brokerage industry in Russia.
Member of the Association of Professional Insurance Brokers (APSB), Head of the Subcommittee of the Russian Union of Industrialists and Entrepreneurs (RSPP) on the mandatory types of insurance, he has a broad examination and excellent understanding of the insurance market.
– Andrei, first of all, we want to thank you for participating in an interview in our informational and analytical portal – Calmins.com – a considered insurance! And our first question: who is an insurance broker?
– A Broker is a longtime and reliable participant in insurance markets all over the world. The main task of the broker is to help the client – various companies and even households – manage their risks, find and create solutions for them, including insurance, and to submit and protect the client’s interests in the insurance market. This is the main difference from an insurance agent, who works on behalf of the insurance company.
– Sorry to interrupt. And if the agent has agreements with several insurance companies, is he also a broker?
– Unfortunately, this is a frequent misconception. What you are talking about is an example of a so-called multi-agent, who can be an individual and self-employed entrepreneur, and the organization. In addition, the insurance broker represents a client – this is the main difference. The insurance broker is an organization that should have authorized capital or a bank guarantee for more than 3 million rubles, the license of the Central Bank of the Russian Federation and comply with many other requirements and laws. The activities of insurance agents and brokers are governed by the Civil Code of the Russian Federation, the Law on the organization of insurance affairs in the Russian Federation and other legislative and subtitle acts.
– Our today’s conversation is about insurance brokers, so tell me, please, what does this market represent in Russia?
– Within the last 10 years the number of insurance brokers in Russia dropped from 300 to less than 60 A similar decrease occurred in the ranks of insurers, the number of whom contracted from more than 2,000 to about 150 companies.
But this testifies not to the decline of the industry, but is due to legislation, which is designed so that companies who are engaged only in straight forward insurance sales find it easier to operate in the status of an insurance agent with significantly less legislative requirements and risks.
Licensing in the Bank of Russia is not only additional responsibility, but also a great reliability for the clients, since the organization complies not only general legislative requirements, but also with other applicable requirements for us (CBR, Rosfinmonitoring, Roskomnadzor, etc.).
– And besides the Bank of Russia, are there any other organizations that insurance brokers report to, and what is their role?
– Such an organisation is the “Association of Professional Insurance Brokers (APSB)“, a self-regulating non-profit professional organization. Thanks to the APSB in 2020, it became possible to sell electronic policies on insurance intermediaries’ sites. It was truly a turning point for the insurance business in recent years.
In addition, last year, the APSB came forward with an initiative of a pandemic insurance for small and medium-sized businesses. This initiative implies the use of public-private partnership mechanisms and keeps apace with the world practice, where a similar initiative is being considered at different levels.
To further simplify the insurance process, the brokerage community defends the possibility of the so-called simultaneous representation, that is, the ability to represent both parties of the transaction – the insurer and the insured. Now the legislation only provides the brokers with intermediary function. But it will certainly be changed to align the reality and the legislation.
– And in which market, does the insurance broker mainly work: is it corporate or retail segment?
– Of course, for an insurance agent it is easier to work in the retail market. However, for an insurance broker there a number of legislative barriers that make it harder to work in retail insurance, for example, as an aggregator.
Therefore, such a small number of brokers in Russia is due to the volume of the corporate client market, where mainly he largest brokers are operating. In connection with such specifics, the brokerage market itself in the Russian Federation is quite small – about 50 billion rubles or about 3-4% of the total insurance premium.
However, the entire market of intermediaries, including insurance agents, who predominantly work in the retail market, is much higher. Therefore, the potential for further growth of the brokerage market is very significant.
– What are the advantages of cooperation with a broker, compared with work via agents or directly with an insurance company?
– An insurance company is a rather conservative institution which comes from the essence of the insurance portfolio resilience. The experiments here are fraught with bankruptcies, which the history is constantly reminding us about by the loss of major world brands. In this market, the client always feels a certain lack of flexibility from the seller.
In addition, insurance is a comprehensive discipline with a large practical aspect, where it is quite difficult to be on the edge of the progress, without being inside. Insurance is difficult to just learn and know without practicing it. For this and other reasons, the client always has the need for someone to help them understand insurance, to protect their interests, to see a more holistic picture, to help build the right strategy and ultimately assist them in getting the indemnification minimizing losses of businesses and people from various incidents.
The greatest value of a broker for any buyer is that they can find the highest quality products and even create new ones that would address the interests of the modern buyer, to protect them from risks, to create ease of use and experience, that hasn’t been in the DNA of retail insurance before. In addition to this, brokers operating in a large corporate segment, using their experience and market leverage, create products significantly superior to ones of the traditional retail market.
– What important changes in your opinion have taken place in Russia’s insurance market during recent years?
– The most interesting changes in the insurance market are associated, of course, with the development of technologies. These are not only sales technologies, but also technologies that allow you to create new products that were not previously possible. For example, products with instant payment and verification of the insured event, products with usage based price, etc. This market has not only appeared, but also showed a very sustainable development of a new type of intermediaries – insurance online aggregators. They create the convenience of buying products and the ability to compare different market offers. That is exactly what brokers have been doing for centuries while complementing it with their professional expertise. Therefore, for example, , digital insurance solutions from Marsh as a leading broker a more comprehensive than just an aggregation of standard market offerings.
The main challenge that technologies have put in front of all sectors, including insurance, is the use of big data. This means not only the ability to adapt the product and raise sales, but also opens up the possibilities of managing client’s risk and even its prevention.
For most brokers, this challenge is no less important than building a digital sales channel. No matter how transformed insurance is, customers will always have a need for risk management. And this means that brokers who can adapt to change and create up-to-date solutions will always be relevant for both businesses and private consumers.
– “We know that Marsh is celebrating its 150 anniversary this year, and for many decades has maintained world leadership in the brokerage market. Please tell us and the readers, how such stability is possible for a broker?
– The goal of Marsh experts is still the to pursue clients’ interests, not selling insurance. As the founders of our company Henry Marsh and Donald MacLennan said, “We do not sell insurance, we buy it with you.” And it was this the concept of a professional buyer that became revolutionary for that time in history and is still helping us lead the industry for many decades. What is interesting is that there are only few other industries where a similar market role exists..
The ability to dive deeper into the interests and business of our client allows us to be more innovative, to react sharper and faster to changes in demand and needs than the insurance companies. This is expressed in the emergence of new products, in increasing the availability of products and the convenience of buying and using, etc.
– And in conclusion of our interview, we would like to know how you see the prospects for the development of the insurance brokers’ market and intermediaries in 2021 and the next three years?
– As I said earlier, the potential of the broker insurance market should grow. Great potential is in the retail market – that is, work with individuals, middle and small business. However, without relevant legislative initiatives, including tax and insurance legislation, there will be no significant growth in this market while it is easier to work here being simply an insurance agent.
The insurance broker is a more reliable organization licensed by the Bank of Russia and is more transparent for all the participants in the insurance market, including insurance companies, regulators and customers. Therefore, there is a high probability the presence of brokers will grow in the SME segment and individuals, but probably not so much in 2021.
In our forecast, the growth of the insurance brokers’ market should overtake the growth of the entire insurance market in Russia.
Proper correspondent LS
We want to thank Andrei for an interesting dialogue and wish the company stability, new customers, growth and prosperity.