Unison CEO: Banks Continue to Capture Non-Profile Businesses
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Bank of Georgia is expected to establish its 4th insurance company and permission is on its way from the respective authorities. The Insurance Companies Association and Insurance Union called an urgent meeting to discuss the matter, with attendees declaring the news "the expansion path Banks are following in the insurance sector." Insurers are addressing the Government and Parliament of Georgia and Supervising authorities to carry out respective actions to ensure a competitive environment in the insurance market.
The Insurance Union, where insurance companies and insurance brokers are united, is actively working for a competitive environment on the insurance market. Its Co-Chairman and CEO of Insurance company Unison, Vasil Akhrakhadze, explained Bank of Georgia’s recently made decision about a new insurance company.
You often declare your negative position against the problems Banks are causing to insurance sector. What is your position about the current news?
This is continuation of the path that we call “Predator Policy” of Banking sector and that gave us current disturbing situation with 7 insurance companies directly or indirectly owned by banks.
The news is one of the chain of problems and would not be on the table if insurance sector’s development and future plans would be given even minimal attention. There are black holes in our legislation that gives banks opportunity to capture insurance sector and make it their own satellite.
Instead of professionally managing risks in the society and supporting sector development, banks are using insurance sector for their narrow, financial interests. The result is the weakest insurance sector in the region and 85% of the industry’s total profit is unfairly captured by banks.
Is there any positive development in the sector?
Mandatory insurance programs, that are implemented according to European Union association agreement, are very positive for the sector, though planned outcomes are seriously distorted by the banks.
They are capturing strategic sales channels and preparing for compulsory insurance of motor transport liability that is thought to create 200 million Gel additional market. Recently, for this purpose, child company of insurance company Adagi got one third of technical inspection lines all over the country with the help of ministry of economy; several weeks ago TBC insurance signed the agreement with Georgian post, state owned company, without any tender, and is going to use post offices as its sales points. There is not going to be any place on the market for standalone insurers soon.
Why has Bank of Georgia decided to establish new insurance company?
I think the role of catalyst in already unhealthy environment was played by compulsory insurance of motor transport liability for cars that are registered abroad. Income from this program is diveded equally among experienced and newly established insurers. Therefore, instead of encouraging insurance sector development this program attracted banks. They are establishing new insurance companies on daily bases and putting required minimum amount of capital for insurance license on their own accounts. This way they are employing the same asset for two purposes and can establish new insurance companies with minimum effort, therefore get easy income from various compulsory insurance programs.
The result is increased expansion of banks in the insurance sector. Nowadays we have 7 insurers directly owned or affiliated with the banks, for the next year we are expecting several more. Bank of Georgia in this process is the most successful actor with already 3 insurance licenses and now getting fourth one. This means millions of easy money.
Compulsory insurance projects are intended to support insurance sector development, though Georgian Banks are the only entities that get benefit from them while the sector is severely damaged. It’s already 10 years’ sector is not attractive for foreigner investors, like in case of banking sector, where foreign direct investments such as HSBC, SOCIETE GENERALE and etc. where forced to leave the country.
In developed financial markets mostly insurers are acting as the biggest investors, but in Georgia there is no insurance company presented at Georgian stock market. As insurance sector is not profitable and banks are capturing most of the profit of the industry, insurance companies do not have funds to support their investment activities. We ask Government of Georgia to take required actions to save the industry.
You often claim that customer rights are being violated. Please explain.
Banks are actively passing their clients personal and confidential information to their own or affiliated insurance companies to use in sales process. We have cases when their sales agents contacting our customers, having information about clients’ expenditure on insurance products and making them better offers. They tell “we know you have paid in your insurance policy this amount and we can make it for less”.
Furthermore, banks are making customers, while taking credits, to buy insurance policies from their own insurance companies for much worse conditions than free market offers. We face cases when banks are putting pressure on their corporate clients to insure property and employees in their own insurance companies.
What do you see as the solution?
For a long time, we are asking for full demerger of banks and insurance companies and any kind of investment in insurance companies by banks to be restricted, as it happened in other business sectors. Moreover, banks should be asked to place their credit insurance portfolio in three different insurance companies as insurers are asked to place their assets and capital in three different banks. This is necessary for risk minimization and market diversification. If the already mentioned changes take place, highly concentrated market structure will become more diversified and customers’ right of free choice will be enforced.
Unfortunately, instead of positive changes, the situation in the sector is worsening. The problems are left without proper attention from the respective authorities. This is green light for Banks.
We need urgent measures in respect of legislation and insurance supervisor authority reform. The supervisor should be able to provide effective support to the sector, especially now, when insurers have increased financial support to the supervisor three times.
Finally, I would like to mention that the insurance sector, with the support of local and international experts, is ready to work actively with Government and Parliament of Georgia to reach positive outcome for the industry and therefore, for the country.