Interview with an insurance market expert: Russian life insurance market analysis, current agency sales, trends and prospects.
Our expert, Denis Lebedev, has worked in the Russian insurance market for 20 years, including 15 years in top positions in ROSGOSSTRAKH. He was also the CEO of the Italian insurance broker LLC Insurance Brokers General – Russia and CIS.
– Our first question is how has the insurance market changed after the pandemic and quarantine restrictions in 2020?
– The pandemic has hit the economy not only in Russia, but also all around the world. Of course, the insurance market has not been spared. However, by the end of the first quarter of 2020, the insurance market had not changed much, and the total gross revenue (not including MHI market) was about 740 billion rubles. The decline occurred in the “life” segment (about 5 billion rubles), while the “non-life” segment conversely showed a small increase – about 5 billion rubles, thereby compensating for losses in the life insurance market.
– There were restrictions imposed in the country, enterprises and organizations stopped working…
– The insurance market was affected more significantly in the second quarter of this year. It was good that during the first months of the year it managed to increase fees which almost compensated for the losses of the second quarter. However, the voluntary auto insurance market, the voluntary personal property insurance market, and the life insurance market declined. The main driver in the CASCO market is the new car sales market. According to the Association of European businesses (AEB), it fell by almost a quarter in the first half of the year (car dealerships and car manufacturers were not working). Some recovery occurred in June, primarily in the used car market.
As for the apartments and household property insurance market, agency sales play a major role here. The agency channel was based on offline meetings with clients. Unfortunately, the market was not ready for the restrictive measures implemented. It makes perfect sense that the share of new business attracted by insurance agents decreased (equalling about 10-20% of their fees), there was only prolongation (the usual level is 80-90%), moreover with a reduction in the breakeven rate, this led to a decrease in the individual property market (IPM). One of the IPM sales channels, banks and partners, fell significantly, as apartment insurance policies were sold in the bank’s offices “on stream”, as a cross-sale when issuing loans and providing any services. Since this stream has fallen, sales have also declined.
The life insurance market has declined, as the main sales channel is banks. The main fall was in investment life insurance. There are two reasons for this: the first is directly related to lockdown, and the second is related to the Central Bank’s regulation of the life insurance investment products sales. For more than a year, the Central Bank of the Russian Federation has carried out a number of “reforms” to discourage unfair sales (so-called mis-selling) associated with the transfer of Bank deposits to the ILI. The main issue is that investment life insurance did not guarantee the return claimed by sellers when talking to customers. Many of the clients were able to return the money paid only after 3-5 years, even without taking into account inflation, meaning they actually lost money. Therefore, numerous complaints forced the regulator to step in and take action. Now, when selling investment insurance products, the seller must disclose full information under the insurance contract. In addition, the concept of a financial consultant who must pass the relevant training and work only on accredited software has been introduced.
– What is the life insurance market now?
– At the end of 2019, according to the Central Bank of Russia, the entire personal insurance market amounted to more than 950 billion rubles, or more than 60% of the total insurance market (including AHI and accident insurance).
The total market for life insurance and accident and disease insurance amounted to about 780 billion rubles, or more than 50%. If we look directly at the life insurance market, taking into account contracts for a period of three years or more (cumulative and investment life insurance – CLI and ILI), it amounted to about 600 billion, or about 40% of the entire insurance market. Taking into account the emerging trend on cutbacks and the possible second wave of the pandemic by the end of 2020, the market could decrease by 5-10%, depending on the course of the situation.
– Let’s clarify: only banks work in the life insurance market? In the USSR, almost every family had a life insurance policy for children and adults. And only insurance agents worked on this type of insurance.
– The average number of life insurance policies per family in the USSR in the 80s was 2-3. In other words, almost everyone had such a contract.
And you are absolutely right, in Soviet times, life insurance policies were sold only by Gosstrakh insurance agents. Then everything changed.
Fortunately, there is now an “agency” market for life insurance. According to various estimates, it accounts for about 10% of the entire life insurance market, or about 40 billion rubles. The average term for contracts concluded by insurance agents is 10-12 years.
The largest “players” in this market are Capital Life Insurance, PPF life insurance, Rosgosstrakh-Life, Renaissance Life and Met-life insurance. According to our estimation, the share of these 5 insurers’ fees in the Agency market is about 80-90%.
Capital Life life insurance had about 80% of such sales for 2019 (about 17 billion rubles), PPF life insurance had in its portfolio more than 90% of such sales (a little under 4 billion rubles), Renaissance Life – about 10% (about 3.5 billion rubles), Rosgosstrakh Life (formerly Ergo-Life) – 15-20% of the portfolio (3-4 billion rubles), Met Life life – about 2.5-3 billion rubles.
A simple calculation gives the amount of about 30-33 billion rubles. Taking into account the market margin +10-20%, we have reached 35-40 billion rubles per year in insurance premiums.
“Currently, there is an “agency” market for life insurance. According to various estimates, it accounts for about 10% of the entire life insurance market, or about 40 billion rubles. The average term for contracts concluded by insurance agents is 10-12 years.”
– How many insurance agents, in your opinion, sell products “for life”?
– A lot or a little – it depends, but there is data from the Central Bank, where we can see the number of insurance agents declared in the register from insurers.
For example, Capital Life Insurance in 2019 had more than 7500 insurance agents. About 2000 people in Rosgosstrakh-Life, Renaissance Life. Slightly less in the PPF life insurance. Again, here we are talking about the “registration” of agents. It should be understood that the number of so-called “active” agents is less than 50% of those registered.
– Among the noted insurance companies there are none so large as Ingosstrakh, RESO-Garantia, VSK, which also have large agent network.
– Indeed, these companies work in various areas of the insurance business, but they are mainly engaged in life insurance through their subsidiaries. About 95-100% of their fees are sales of short-term products of 3-5 years of CLI and ILI through the Bank sales channel.
In my opinion, for such strong Agency networks as Ingosstrakh, RESO-Guarantee and VSK, the development of life insurance is the right direction and an important step to maintain the agency network. Every year, insurers fight for customers and prolongation of contracts, since the term of insurance for classic types of “non-life” is 1 year. The life insurance policy allows the agent and the company to become a so-called life-time partner for the client. That is, to go together with him through life. Yes, it is expensive. Yes, not everyone is ready. But this is the right direction. It is important to motivate the client with life insurance, to show them their additional benefits, but not to “transfer” them.
My experience in ROSGOSSTRAKH insurance company, where we successfully “restarted” sales of life insurance through a universal network of agents, as well as my experience in the international insurance group Generali, suggests that this is the right direction for the company’s development. The agent is not “tied” to the company, only to the client. And the client for 10-15-20 years becomes not the client of the agent, but the client and partner of the insurer. For their first problem related to insurance, they will contact “their” insurer, and only then to other insurance companies or insurance aggregators.
– What is the difference between the sale of insurance products by an insurance agent and, for example, by a bank employee in the office?
– In one word – quality. The bank sells banking or close to “banking” products. Employees are sharpened for them. Therefore, the CLI and ILI resembles a deposit or mutual fund with a small risk component. They need to execute the plan here and now, and customers are not tied to their manager in any way, but only to the bank. The bank receives its clear commission income, in addition, the money under life insurance contracts lies partially in the bank and balances their portfolio by liabilities (money on accounts from legal entities is more attractive for the portfolio than deposits from individuals, which require compliance with many regulations). The average insurance period for such products is 3-5 years. For the bank’s clients it is important to get more money through the insurance product than through deposits, the interest rates for which have fallen rapidly due to the reduction of the key rate of the Central Bank of the Russian Federation (currently 4.25%) and the monetary policy of the regulator.
The situation with insurance agents is different. First of all, they sell their trust, their trust in themselves. Insurance agents trust the insurance company and sell long contracts for 10-15 or even 20 years. It is important to note that this is, first of all, a risky product, and only then – accumulation. The set of covered risks is significantly higher than the bank one. It may include risks such as insurance against accidents and diseases, the risk of diagnosis of deadly diseases (cancer, heart attacks, strokes, etc.), telemedicine, tax support, and much more. Under such policies, the client usually pays a small part of the premium here and now but is insured for the entire insured amount from the first day. The only point is that a temporary deductible is applied for risks such as cancer and other deadly diseases. That is, risk coverage occurs after 3-6 months, in order to exclude insurance of a client who is already ill with this disease.
Insurance agents “sell their trust, trust in themselves. Insurance agents trust the insurance company and sell long contracts for 10-15 or even 20 years. It is important to note that this is, first of all, a risky product, and only then – accumulation. The set of covered risks is much higher than the bank one.”
– You mentioned a service related to taxes. What does this mean?
– Under current law, there is state support for a refund of previously paid personal income tax in the amount of up to 15,600 rubles per year with the insurance sum up to 120 000 rubles. This provision has not been revised for many years and includes tax refunds not only for cumulative life insurance contracts for a period of 5 years or more, but also for medical services, a AHI policy (purchased at the client’s own expense) and training costs.
The insurance company helps to draw up a declaration for the return of personal income tax to its client, often through a remote service.
– If there are such support measures, why isn’t life insurance as widespread as it was in the Soviet years?
– There are several reasons:
- the sad experience of the 90-s, when there was hyperinflation and the denomination of the ruble and savings on the CLI people decreased sharply, or rather they devalued 100-1000 times.
- low tax motivation of individuals to return personal income tax, since a large list of services is included in this 120,000 rubles. In addition, in comparison with an individual investment account (IIP), where the amount for calculating tax compensation reaches 400,000 rubles, this amount is not high.
- the difficulty of selling long cumulative products. It is related to the mentality of people. For example, it is believed that cars should be insured, and they are more important than people’s lives. Further, people are confused by the so-called “overpayment” under this insurance contract. If you add up all payments, for example, for 10 years, then there is an overpayment. But it is connected with a simple easily explained factor: the CLI is a risky product, and only then – a cumulative one. Moreover, the insurance amount for risky areas may differ significantly from the cumulative amount. For example, it is common practice when in the event of death, it is higher than the risk of accumulation (survival) by 2-3 times. Hence this “overpayment”.
- the population does not believe in products with a long insurance period, relying on their own experience (hyperinflation of the 90’s, denomination, etc.). they do not see them. Most people in Russia have a maximum planning horizon of 3 years.
– So, such a small market for classic life insurance, about 3% of all insurers ‘ fees over the past year, is associated with the mentality of people? Are there any other factors affecting the development and prospects?
– As I have already said, the number of insurance agents engaged in life insurance is an order of magnitude less than for the autotypes. In addition to the mentality, an important factor is the agents themselves. These are great sellers who believe in life insurance. In their own way, in a good way, they are “other” people. They are inspired and know how to find the “keys” and the right approach for customers. They do not sell products, but sell and convince, because they sell themselves, their trust. A client is not a company’s but an agent’s client. As you can imagine, there are not many such people.
To find such people, train them and constantly motivate them (rewards, performance bonuses, hosting clubs for the best, etc.), resources are required. Previously, it was assumed that the payback period for a life insurance project is at least 7 years. Now, most likely, it is about 10 years. Now the question is who is ready to invest in this for this period. The answer is simple – units. It is important to note that the average age of agents is more than 50 years old. Accordingly, new technologies, “digitalization” and online are quite difficult for this generation to understand and accept, but many manage.
“The market needs not just life insurance consultants, but financial planning consultants. But this is a new level.”
– What are your expectations for the life insurance market and prospects?
– Let’s go point by point.
The life insurance market, as I said earlier, will fall in the near future. How hard will depend on the overall macroeconomic situation, the situation in the country’s economy, on the dollar exchange rate and quarantine restrictions. How long will the pandemic last… We will not assess its consequences soon.
The second important point. To stimulate the accumulative life insurance market, state support measures are required: an increase in the amount of the insurance premium per year for the return of personal income tax for the population and a guarantee of the safety of funds, at least for deposits – 1.4 million rubles – for individuals. For legal entities – reduction of social contributions in the amount allocated by enterprises and organizations for voluntary life insurance for employees, within the framework of social package and not just the reduction of income tax treaties CLI 5 years and above.
“The new generation is the one-button generation. They need a ready-made solution, not to think, but just to choose “yes” or “no”.”
Third, the market is changing – everything is gradually moving online. Digital transformation of companies’ work, not only with agents, but also in insurance and services in general, should take place and is gradually taking place. In fact, a virtual digital insurance agency should become a certain standard of work in the new market.
How long it will take is a complex question, but even such a negative factor as the pandemic played a role in this case as a driver for the rapid transformation of the market. Many processes have not yet been set up. There are few places where you can sign an agency agreement online. You need to come to the office in person. Also, not all insurers have fully functional online accounts for insurance agents. In addition, the culture of online insurance is being instilled long and hard, but so far success is only in OSAGO (E-OSAGO).
Fourth. The market needs not just life insurance consultants, but financial planning consultants. But this is a new level.
The fifth factor. The new generation is the “one-button” generation. They need a ready-made solution, not to think, but just to choose “yes” or “no”. And to find a solution, you need to understand how to make a product and through which channel to send it, how it should look and what to include to convince the customer. This is a long and expensive process.
– And a conclusion to summarize it all?
– My expectations for the insurance market:
- gradual transition online B2B for agents.
- Growth of the market for online sales of insurance products (in general) in 2020 and 2021 – annual doubling.
- A low-key rate can stabilize the market for bank sales of CLI-ILI, and with guaranteed profitability, products can become more attractive to customers.
- Without tax privileges and protection of savings accounts by the state against the background of stricter regulation of savings products (in fact, the right decision), significant sales growth should not be expected. Stabilization at the achieved values will already be the result.
- For clients, I expect modifications of insurance products (for example, the possibility of partial withdrawal of funds from the account, the inclusion of additional services, for example, for the convenience of payment – installments by subscription – up to debiting from the card daily, etc.)
- Due to the closure of many businesses and organizations, layoffs and a decline in income during the corona-crisis, the population is looking for an additional source of income. And somewill become insurance agents. And the work of an insurance agent, if it is properly organized and available online, can become an important factor for the growth of the agency’s sales direction.