The Ukrainian insurance sector has been going through constant change and evolution since 1991, growing in parallel to the Ukrainian banking sector. There have been periods of heightened turbulence during financial and political crises, but overall penetration rates have been increasing more or less consistently throughout the past two and a half decades. International insurance companies are currently the largest players on the Ukrainian market, leading the sector in terms of the implementation of best practices from the world’s most developed markets.
Orcun Gomec is Managing Partner of EUROP Insurance Brokers. He is a Turkish civil engineer with a Dutch MBA degree and more than 10 years of insurance industry experience. Mr. Gomec has been advising existing and potential investors in Ukraine on insurance issues for the past decade. These are his top five tips for businesses in Ukraine looking to explore the insurance market.
1. Trust the experts
Insurance products are highly complex. They generally consist of promises given in the form of technical wording set out in lengthy documentation. Every client and every case has a different risk profile, each of which needs to be assessed and put into industry-specific wordings and definitions. We believe that experts are required in order to cover your risk as effectively as possible. By working with qualified and experienced insurance brokers, you can make sure you experience a crystal-clear and understandable insurance purchasing process. In addition to this product purchasing clarity, insurance brokers can also use their negotiation skills and bargaining power with insurance companies in order to maximize your insurance indemnity and secure timely receipt of any due payments. In other words, if you want to get the best deal, let the experts do the work for you.
2. Study before you select
According to the Ukrainian State Commission for the Regulation of Financial Services, there are more than 250 insurance companies licensed in Ukraine. This number is far too high for the size of the Ukrainian economy and is a reflection of the under-regulated market conditions that have prevailed since 1991. Consolidation of the market is now belatedly taking place. The number of licensed insurance companies is now in a downward trend that began in 2014, but this over-fragmented market situation nevertheless creates considerable ambiguity for businesses because almost 90% of licensed insurance companies do not comply with mature market industry standards. Investors should be very careful in selecting their insurers in order to make sure they do not end up frustrated by the results of future insurance claims. In order to make sure you receive protection against future disappointment, the financial health and the key indicators of potential insurers should be the subject of careful study before making any decision. As per point one, this process should ideally be managed by your brokers.
3. Get political risk coverage
Events in eastern Ukraine since spring 2014 have shown how important it is for companies to protect their business against all kinds of unpredictable political violence risks. Risks such as terrorism, sabotage, riots, strikes, revolution, rebellion, civil war or war, currency inconvertibility and non-transfer, expropriation, nationalization, and confiscation are all insurable through political violence insurance programs. Political Violence insurance pays compensation for two types of losses: damage to covered tangible assets, and income losses resulting from damage to assets caused by political violence. We strongly recommend this coverage to corporate and institutionalized investors in Ukraine.
4. Insurance as HR tool
Every business owner would agree that your business is only as good as the people who work for you. Voluntary medical insurance is a very effective tool to foster employee retention and improve working conditions. We have noticed that in a diverse selection of industries ranging from IT to agriculture, companies that provide a comprehensive health insurance package tend to prove more successful in keeping employee turnover rates low. Among some top players in certain industries, voluntary medical insurance is now a “must have” element in all standard employee compensation packages.
In addition to medical insurance, there is also a rising trend towards corporate life insurance policies for employee retention purposes. Ukraine is lagging far behind many of Europe’s more mature markets in life insurance penetration, but some best-in-class Ukrainian companies are now offering life insurance for all or some of their key employees as part of compensation packages.
5. Insurance innovation and tech tools
As in many other sectors, technology is rapidly changing the rules of the game in the insurance industry. New investors should regularly communicate with their brokers and insurance experts in order to remain fully informed about the latest possibilities created by the digital revolution that is taking place within the insurance industry. From smart mobile apps measuring client risk profiles to creative and convenient insurance purchase and usage platforms, the insurance industry has been redefining its standards in recent years and will continue to do so. The productivity gains from these latest developments could create significant advantages for businesses and investors.