The insurance market in 2022 may decline by 15% or more amid the “black swan theory”. In connection with the latest changes in the geopolitical situation (which is essentially a certain “black swan” for the market), the imposition of sanctions against Russia, the growth of inflation and the key rate of the Bank of Russia, it is obvious that the domestic insurance market will also feel significant pressure. However all previously forecasts will require a revision.
Forecasts on the insurance market in Russia for 2022 before…
According to a conservative forecast based on the results of the Calmins.com study in December 2021, the forecast growth of the Russian insurance market in 2022 – about 10% compared to the previous year. At the same time, we expected fees even above the forecast – over 2 trillion rubles. NRA had similar forecasts, and also correlates with the expectations of Expert RA and All-Russian Insurance Association.
However, the events of the last week of February have made significant changes to all spheres of life and will still have quite lengthy consequences.
Forecasts on the insurance market in Russia for 2022 now…
It is safe to say that the current economic situation, the high dollar exchange rate, high inflation and the key rate of the Central Bank will put 20% on the previously rapidly growing life insurance market, especially credit insurance (and mortgages), which have actually become uninteresting.
It is also difficult to sell long-term life insurance contracts amid constantly rising consumer prices and high inflation. In this case, we can expect reformatting the line of bank short products of the type of accumulative life-insurance deposits with rates higher than banking for up to 1 year. The most important plus of such contracts is that income is not subject to personal income tax, and at a higher rate such a product will be in demand.
Also, a certain pressure is exerted by the Bank of Russia 5968-U Direction, which should come into force in April 2022.
According to our estimates, the total decrease in life insurance as a whole can be about 30%, but with a more serious pressure there is a chance of a decrease in fees (especially in terms of credit insurance) to 30-50%.
However, during the rapid restructuring of the product line by insurers with a priority of high yield of 30-40% (in comparison with deposits with banks, which at the beginning of March offer an annual rate of 20-25%) for a short period (up to 3 years), allow insurers to successfully resume ending contracts in 2022 and even show an increase.
Recall that life insurance is not taxed on deposits, although in essence, with proper structuring, it can be a good substitute. However, funds allocated to life insurance are not insured by the DIA – the Deposit Insurance Agency. The solution to the issue by the Central Bank of the Russian Federation on savings insurance in life insurance products will make this segment attractive.
For auto insurance (motor third party liability insurance plus fully comprehensive insurance), an increase of 10% is expected due to an increase in the average contribution and average tariff, and for fully comprehensive insurance due to an increase in the average insurance amount. At the same time, there is a possibility of a decrease in the total number of concluded agreements on voluntary car insurance.
There is a chance that the market will not fall for insurance of legal entities and liability, since the Russian National Reinsurance Company will be able to largely cover the requirements for reinsurance under sanctions and the transfer of risks abroad.
For VHI insurance, it is possible to maintain growth trends of about 10%, as in the initial forecast. The main driver remains the care of the population about their health amid the coronavirus pandemic and the desire of the population to receive quality assistance in addition to compulsory medical insurance. In addition, it is expected to increase tariffs for voluntary medical insurance in connection with inflation and the increase in the cost of medicines and the maintenance of medical equipment.
Most likely, there will be no large growth for property insurance of citizens (this is due to a decrease in the number of loans and, accordingly, cross-sales), but there should be no drop due to the increase in the average cost of buildings and, probably, a small increase in tariffs.
Accident insurance can also be expected to fall around 30%, since a significant part of these fees is credit insurance.
To maintain corporate insurance, the Bank of Russia promptly increased the authorized capital of Russian National Reinsurance Company to 300 billion rubles (later it became known that it was increased to 750 billion rubles). We are sure that with the lack of capacity, the Central Bank of the Russian Federation will be able to increase the capitalization of the state pre-trains to more significant values. In addition, it will save money within the country.
The Russian National Reinsurance Company, together with the Bank of Russia, announced that they would take measures to stabilize the domestic insurance market in new realities.
Three forecasts: conservative, negative and optimistic,
According to our estimates, the general decline in the insurance market in Russia (in rubles) in 2022 could be about 10-15%.
The main decrease is likely to be in the life insurance segment. In the non-life segment, in our estimation, there may not be a decrease in the accrued insurance premium, or it will be insignificant (due to a drop in accident insurance and disease and corporate insurance), with a negative forecast, there is a chance of a market decline to 15-20% relative to the results of 2021.
In case of further escalation and delay of the conflict, aggravation of sanctions, in the case of low influence of countermeasures adopted by the government, and as a result, acceleration of inflation in the country, a decrease in the solvency of the population, the search for other options for maintaining funds by individuals (rather than life insurance), reducing the budgets of enterprises for insurance and more selective acceptance of objects and segments for segments setting significant (“barrage”) tariffs for certain types of insurance (for example, fully comprehensive insurance), market decline can be significant.
However, with high inflation, insurance amounts will grow sharply and are going to be constantly reviewed, which will compensate for the general drop in fees by a sharp increase in insurance amounts and contributions. Therefore, one can expect a general decrease in the accrued market premium of no more than the same 15%.
For you, we can prepare a detailed analysis and justification of all three forecasts that may be required to adjust the company’s strategy. You can order a report that we will promptly prepare by contacting us or ordering us via e-mail mailto:email@example.com (firstname.lastname@example.org).
Forecasts on the insurance market in Russia for 2022 after…
Obviously, more accurate forecasts for the current year on the insurance market of the Russian Federation can be given only after the situation in Ukraine is stabilized. Most likely, this can be done closer to the end of the first half of the year.
While there is significant pressure on the entire economy of Russia, chains, logistics and communications are collapsing, primarily in international relations. Given the fact that foreign business is massively leaving our country, labor will be significantly released in the labor market, which will make it possible to choose new employees for the employer.
IT transformation will not end, and more opportunities will appear for its implementation, since IT specialists will implement projects not on the open market, but within the country. Moreover, the government has already approved a number of measures to support IT companies and IT professionals, including reducing the tax burden and soft mortgage loans for employees (3% per annum). New preferential programs will appear that can partially support the insurance market.
The online market, as we expected earlier, will grow, but forecasts will also require significant adjustment.
With a quick resolution and completion of a special operation in Ukraine, there is a possibility of a decrease in the volatility of the ruble exchange rate, and as a result, faster stabilization of the ruble exchange rate, slowing down inflation and adjusting (downward) the key rate of the Central Bank of the Russian Federation. All these factors will contribute to a smaller and milder impact of negative factors on the insurance market in Russia, which may allow to pass 2022 in the numbers of 2021, or slightly smaller (optimistic forecast).
We will keep abreast and share with you an expert opinion on the situation in the Russian insurance market!
The article was approved by the expert of the insurance market Lebedev Denis