Life insurance: focus on development
The Bank of Russia has unveiled a range of measures designed to develop domestic life insurance - a sector that, despite its explosive growth in recent years, still occupies an insignificant share in the national economy (0.2% of GDP).
According to a consultation document drawn up by the regulator, the efforts to create a favourable regulatory environment alongside qualitative changes in insurers’ operations in the coming two to three years could bring about major breakthroughs in the life insurance sector, attracting more individuals and businesses. This would in turn foster the development of both the stock and debt markets.
Any further expansion of investment life insurance (ILI), the current market driver, is set to run its course in the near future. This is determined by the current customer base specifics: core ILI customers are fairly wealthy and the fact that the segment is rather saturated, offering a full range of products. As widely accessible ILI products are sold, there are growing risks that customers may be misled about their key features. The risk that customers develop unrealistic and false expectations about a product is seen as the main negative factor preventing life insurance from expanding further.
At the first stage of the effort, the package of measures would include: improving information disclosure procedures and minimising policy holders’ and beneficiaries’ misunderstandings of risks specific to compound insurance products. These would be addressed through developing self-regulatory organisation standards with their subsequent BoR approval.
The document looks into the potential rollout of unit-linked life insurance in the domestic market. Furthermore, it explores improvements in financial stability / solvency requirements for life insurance companies and the proposed qualification procedure for insurance agents and insurance company staff, as well as the introduction of prospective ILI client categories (qualified and unqualified) with the latter possibly subject to a ban or restricted access to several ILI products. .
According to the authors, the key organisational barriers to developing the life insurance sector are linked to online sales of insurance products. In particular, there are plans to explore the suggested repeal of the ban on online sales of life insurance electronic policies; in this case, fraud prevention measures would concurrently be enacted.
The Bank of Russia welcomes any feedback, including responses to the questions in the consultation document, as well as proposals or comments, before or on 17 November 2017 at: gma3@mail.cbr.ru