Best of insurance in Ukraine

How do the current political developments and economic conditions in Ukraine influence the insurance industry and clients’ risks?

LAUKART: I may say that it’s our local Ukrainian “tradition” to be in the permanent state of political instability and regular economic crisis. All this also deeply impacts our economy including insurance industry. Due to all these reasons the insurance industry is quite small for the biggest country that lies completely on the European continent. The insurance penetration rate in Ukraine is possibly the lowest in Europe. The local insurance market has been actively developing during the last years but is not yet “mature” enough to develop and implement a number of insurance lines and products and thus limiting the proposition and client’s potential needs. The financial capacity and resources of the local insurance market are quite limited and a big share of the risks is still going to international reinsurance market.

In which economic segments/industries do you expect increasing investments in the coming years?

LAUKART: Although the overall situation in Ukraine’s economy is not good, some industries are quite attractive and may provide good return to the potential investors. Ukraine is quickly regaining its position of being a Europe’s “grain basket” and agriculture is definitely a very attractive industry for investing. I am also pleased to admit that Ukraine is becoming one of the leading world IT/FinTech outsourcing services hub and this sector will be an active investment recipient for the coming years.

Being located on a crossroad within Europe with big transit potential, Ukraine may also anticipate big investments into its infrastructure i.e. railway network, road system, sea ports etc.

What are the biggest risks foreign companies doing business in Ukraine need to consider?

LAUKART: There are a number of factors that may prevent the foreign companies from launching their operations in Ukraine or that make their existing business operations in Ukraine not easy and risky. I mean political instability, changing legislation including taxation system, high level of corruption and very bad judicial practice.

What are the main facts of the insurance market in Ukraine?

LAUKART: The Ukrainian insurance market achieved the following results in 2019:The Gross Written Premium (GWP) is EUR 2 billion, that indicated a 7.4% growth including the life insurance share of 175 million EUR (18.4% ,growth). The losses paid of 542,7 million EUR including life insurance share 21,8 million EUR are rather low compared to the GWP. The dominant lines are Motor Insurance, P/C, Health and Life Insurance.

Due to the absence of the official information, it’s hard to say what share of the insurance market result is represented by intermediaries but I can estimate that in MTPL and life insurance agents/MLM sales share may reach 60%. In corporate insurance i.e. Health Insurance, Energy/Power, Aerospace, Financial Institutions the share of intermediaries sales may reach 50%. And, of course, multinational corporations that operate in Ukraine are mainly served by international brokers by their local representative offices and agencies.

Although the current local legislation that regulates insurance broking business is not good we can see many world leading brokers having their agencies and representative. offices here. We expect that our Parliament will soon accept a new insurance law and will introduce new legislation regarding insurance broking business regulation. This will lead to an intensive growth of the insurance and intermediary business in particular.

What specifics differ from those in other countries?

LAUKART: We’ve got some local specifics which are not helping the insurance industry to develop and grow quicker. The insurers are paying 3% insurance tax which applies to the insurance premium received. But at the same time the insurance companies are paying standard corporate profit tax, so in this case we may say that local insurers are double-taxed.

The current insurance broking regulation is not allowing brokers to develop their business in Ukraine. The number of broking operations in Ukraine is very small and international insurance brokers do not register broking companies but open agencies and representative offices.

Can international insurance programs be implemented? Which special features have to be considered?

LAUKART: One of our core business in GrECo Ukraine is the provision of our services to international companies operating in Ukraine. As we are not a part of Freedom of Services market and non-admitted insurance is prohibited in Ukraine the implementation of global insurance programmes as well as the issuance of the local insurance policies in full compliance with master policy terms & conditions and local legislation requirements is very important. We have a dedicated team of specialists who are in close contact with controlling brokers to provide excellent service in accordance with the agreed procedures and service guidelines. The average experience of our specialists in international client servicing and consulting is 10+ years. The main business language in the company is English.

What regulatory challenges are companies facing? What types of insurance are mandatory?

LAUKART: We’ve just currently had a change of the insurance regulator when the regulation authority was passed from the National Regulating Commission to the National Bank Of Ukraine and as a result a mega-regulator was created. We witnessed the process when NBU cleaned the banking sector and double reduced the number of commercial banks in Ukraine. The market anticipates that same cleaning process will be done with insurance industry and the number of insurers will be drastically reduced.

Currently we have 37 types of compulsory insurance, as stipulated in Insurance Law. But not all of them are implemented and the main of them are: Compulsory Liability of Car Owners (MTPL), Civil Liability of Nuclear Reactor Operator, Civil Aviation Insurance, Space Insurance, Hazardous Cargo Transportation etc.

The level of tax load – how seriously the tax burden affects the brokers’ activities?

LAUKART: The insurance broking business in Ukraine has the same standard taxation as any other corporate entity in Ukraine. The current corporate tax rate is 18% and insurance companies and intermediaries are not paying VAT. This taxation system is quite acceptable and does not prevent us from business development.

When was the last bankruptcy of an insurance company in Ukraine? How do you made preparations to minimize the effects on your clients?

LAUKART: The bankruptcy of an insurance company in Ukraine is not a rare and unique case. We used to have nearly 500 insurers and now as of end of 2019 we had 233 insurance companies including 23 life insurers. Some insurers have gone bankrupt and the rest had their license being revoked and cancelled. In the past we had the cases when big insurers went bankrupt and this had a tremendous negative financial effect on the clients and the insurance market. But currently we see a process of market cleaning.
This is one reason why we take market security very serious. Locally we are monitoring the local insurance companies. Our carrier risks are also monitored on a group level and we will not work with those companies who are not fulfilling certain predefined parameters. If the client wants to partner with such a company we strongly advise him about all possible negative implications this may bring.

What do you at GrECo Ukraine focus on when advising clients and what special expertise have you developed?

LAUKART: In Ukraine we have a dynamic team using their expert knowledge to advise international clients but also those of the local energy sector. Additionally, we arrange fronting solutions for large multinational firms with operations in Ukraine. We strongly cooperate with our colleagues in Vienna to advise our clients based on their risks and prepare insurance solutions using international markets.