OREANDA-NEWS. March 3, 2010. Ingosstrakh OJSIC acted as a partner of Expert RA Rating Agency and took part in the conference ‘94-FZ: How to Improve the Law’, which was held under the auspices of the Public Chamber of the Russian Federation.

Tatyana Lavrova, the Head of the Liability Insurance Directorate of Ingosstrakh OJSIC delivered a report at this conference. Particularly, she noted that according to the Federal Service for Insurance Supervision, for 9 months of 2009 about 3 bln rubles had been collected as insurance premium and about 100 000 insurance contracts had been executed in terms of the liability insurance for violation of the government contract. Compensations amounted to less than 3%. Low loss ratio especially in comparison with payments under bank guarantees discredited insurance as a form of security in the eyes of regulatory authority. This in turn lead to the limitation of possibilities to use the insurance in terms of Federal Law No. 94-FZ– exclusion of insurance from electronic auctions, possibility to exclude insurance from the possible forms of security at the discretion of the state customer. The main reason from the point of view of the Ingosstrakh specialist is the wrong choice of the insurance type. Liability insurance primarily means relationship aimed at protection of interests of the insured, as opposed to a guarantee or a surety, which protects the interests of the creditor. This results in the absence of the recourse claim to the insured and in compensation being paid only upon infliction of damage to the insured itself and in the absence of its intent.

According to Tatyana Lavrova, one more problem is connected with lack of reinsurance capacity. Western reinsurance capacity is unavailable for the Russian companies as in the world practice such insurance is not performed as liability insurance but as financial risk insurance (insurance surety) with specific features of the underwriting resulting from this fact. The Russian capacity is rather limited – according to the expert assessment, in Russia it is not possible to allocate more than 0.5 bln rubles – and this is an upbeat assessment. Realistic capacity is from 150 to 250 mln rubles, all the rest is the insurer’s net retention. For comparison: net retention of largest insurance companies for property is from 1 to 3 mln dollars, for liability – from 500 000 to 1 mln dollars. The rest is reinsured. According to these criteria, maximum insured amount under the government contract insurance, which may be accepted by a large insurance company, is from 200 to 300 mln rubles. But even billion worth contracts are insured nowadays and often by the companies, which are not even in the first hundred of companies in the insurance ratings.

Also, Tatyana Lavrova stressed that insurers nowadays do not perform the function that, according to the plans of the legislative body, should be imposed on them, that is carrying out preliminary assessment. Ideally, the insurer shall assess the financial and material resources of the insured for performance of the government contract, find out information on its experience and reliability and only after that guarantee the execution of the government contract. If the insured has not passed the assessment the insurer shall refuse to insure it and the insured shall not execute the government contract. At present the primary criteria for the choice of the insurer are the low price of the policy and quickness of insurance agreement execution. No assessment is performed.

From the point of view of Tatyana Lavrova, the real way out in such a situation should be the introduction of a new type of insurance – surety bonds. As distinguished from liability insurance this type of the insurance is intended to protect the interests of the creditors, insurer shall pay compensation on breach of the contract and then if possible shall recover damages at the expense of the contractor. Moreover, in case of an insurance guarantee, a fundamentally new type of underwriting shall be applied, such as credit risk that shall be relevantly assessed. The possibilities for risk reinsurance abroad will be opened as well.