Insurance companies constantly complain about losses. Meanwhile, at the end of 2018, the overall increase in their premiums amounted to 15.7%, which is the highest figure in the last 6 years. Insurers’ net profit almost doubled.
Market Growth Rate
Insurance remains one of the fastest growing businesses. This is a fairly complex financial service, regulated by a dozen regulatory documents. At the same time, in practice, a system has developed that allows both large companies and small businesses to work in this market. Including individual entrepreneurs. To open your own insurance company, large financial investments are not always required, you just need to understand the specifics of this market.
Many market experts, including the All-Russian Union of Insurers, predict a 5-fold growth in the market. This is due to the large number of uninsured objects in Russia, bank lending, including for the purchase of cars, mortgages, and so on.
In addition, the rise in prices for medical services led to an increase in the percentage of insurance against illness and accident: 39.8% in 2018 against 12.3% a year earlier (data from the Central Bank). At the same time, the total volume of insurance premiums in 2018 increased by 15.7%, while payments increased by only 2.5%.
Meanwhile, the statistics for 2018 provided by the Insurance Department of the Central Bank may seem surprising at first glance. Obviously, the number of insurance companies and brokers has significantly decreased over the past three years. Why is the income of the insurance business growing from year to year? The answer is quite simple: this is the result of a thorough “purge of the ranks” carried out by the Bank of Russia. He really revoked licenses from a large number of insurers, weak players left the market, which increased the income of existing companies.
Types of companies and basic requirements for them
First of all, we note that the insurance industry has its own special terminology, without mastering which it is difficult to understand what relationships bind market participants, and who earns what (who!) Let’s name the basic concepts.
- Insurers (companies, ICs) are organizations and mutual insurance companies (OVS) that conclude insurance contracts on their own behalf and cover risks from their own funds.
- Brokers (SB) and agents – individuals, including entrepreneurs, organizations providing consulting services, concluding agreements with the UK. They are often referred to as intermediaries.
- Policyholders are ordinary citizens, enterprises, companies that insure themselves for personal or industrial reasons voluntarily or in connection with an obligation imposed by law.
The subjects of the insurance business (IAS) include licensed companies, brokers and OBC. Insurance agents, and this concept includes organizations, operate according to different rules, although they are legal representatives of the market. If we talk about small business, then most often it involves the opening of an agency firm. Below we will tell you what you need to do to do this.
These are the main players in the insurance market, their activity is regulated by the state represented by the Central Bank. They can work only on the basis of a license. To be eligible, an IC must meet the following requirements:
- The minimum amount of the authorized capital is 120 million rubles (from 07/31/2019 – 300 million, with the exception of medical organizations) when concluding insurance contracts:
- from accidents and illness;
- providing medical care;
- risk of loss (damage) of property.
- The authorized capital is not less than 450 million rubles for companies engaged in life insurance (survival to a certain period).
- You must obtain a license, for which you must submit an application to the Central Bank and attach documents confirming compliance with license requirements, including a business plan.
- Law No. 4015-1 dated November 27, 1992 – “On the organization of insurance business in the Russian Federation”.
- Instruction of the Central Bank of Russia No. 4993-u dated November 29 , 2018 – “On the requirements for information and documents provided for obtaining a license.”
It is clear that it is not possible for a small entrepreneur to open such an insurance company. On the other hand, the “giants” cannot do without intermediaries, given the territory of our country. It is not economically feasible to create representative offices or branches in a huge number of cities. They are forced to cooperate with insurance brokers and agents. The former most often work with corporate clients, and the latter with individuals.
Brokers are not independent participants in the insurance market, they perform intermediary services. This may be a legal entity (organization) or individual entrepreneurs providing services to both insurers and policyholders. In this case, the following conditions must be met:
- If the broker is bound by a contract with an insurance company, he must notify the client to whom he offers the service about this.
- The intermediary cannot receive remuneration simultaneously from the insurer and the policyholder within the framework of one contract.
- The money transferred by the insured person is sent by the broker to the company’s account within 3 days.
A broker can conclude contracts with various insurance companies, engage in reinsurance, advise applicants on choosing a more profitable option, conclude contracts and accept money. Since his activity is connected with financial obligations, he is also required to have a license. A brokerage insurance company will require a bank guarantee in the amount of at least 3 million rubles or the availability of its own finances in this amount.
Agents – entrepreneurs, organizations enter into an agreement with a certain insurer (IC), act on his behalf, on his behalf and account for his funds. That is, in fact, they provide representation, not intermediary services. The agent performs the functions within the framework of the assignment given to him.
The fundamental difference between brokers and agents: the former enter into civil law (brokerage) contracts with many insurance companies and policyholders on their own behalf, the latter work, as a rule, with one insurance company on the basis of an agency agreement (agency agreement).
Brokers have the opportunity to make a choice for the insured client from many different options – this is the essence of their advisory services. The latter work on behalf of and at the expense of a specific insurance company with which the contract is concluded. Theoretically (and in fact) an agent can conclude contracts with several insurance companies (this moment is not stipulated by law). This does not suit every company.
What is the earning scheme based on?
The profit of the companies is formed due to the redistribution of the funds of the insurers. The main source is profit in tariffs for services, it can be expressed as a percentage and a fixed amount. The cost of insurance operations is a set of expenses for ensuring payments, deductions to reserve funds and guarantees for the fulfillment of obligations.
The financial result for each type of insurance (personal, property) is expressed in profit or loss. Long-term life insurance is notable for its peculiarities: here the main result is an increase in reserves, taking into account savings against the tariff level of payments for loss of health and savings due to insurance operations.
Brokers and agents work for a fee, which is usually expressed as a percentage of the deal. Different types of insurance bring unequal income. According to the NRA agency, the maximum commission (CF) is paid under life insurance contracts – 61%, financial risk insurance – 56%, property of citizens – 46%. Under compulsory insurance contracts (OSAGO, pension, medical), according to the law, the CV cannot exceed 10%.
It would be incorrect to call such a firm a branch, since the latter is the insurer’s own division. Often, young entrepreneurs are interested in franchises – this is also not a completely correct expression in relation to this area. From a legal point of view, you can organize your business on the basis of an agency agreement with a major insurer. To do this, first of all, you need to register your organization in the form of an individual entrepreneur or LLC .
There are no special requirements for agents. Please note that during registration, activity codes are not selected from section 65. Insurance, but from section 66 ( OK 029-2014 Code of Conduct Rev. 2).
- code 66.22 – insurance agents and brokers;
- code 66.29 – insurance and other activities in the field of insurance;
- code 66.29.9 – the same, except for compulsory pension insurance.
Choosing an insurer
First, you need to think about who you will work with. There are more than 200 insurers on the market, but about a dozen major players have the lion’s share of the profits, with whom it is desirable to conclude agency agreements. The second task is to choose the most profitable types of insurance (see Table 1).
The third task facing an entrepreneur who, for example, wants to have an OSAGO insurance company (office, representative office) is to analyze the TOP-10 insurers in this area and compare the size of commission payments. It should be noted that the OSAGO market is very dynamic. Many insurers are consistently reducing the share of compulsory auto insurance in their portfolios, unable to withstand competition due to the unprofitability of this segment. Analysis for different types of insurance can be carried out even with the help of open sources since insurance companies are required to publish data on their activities (Tables 2, 3)
Conclusion of an agreement
- Contact the selected insurer, and offer cooperation.
- Prepare a package of necessary documents (passport, TIN, SNILS, registration certificate).
- Pass the interview, fill out the required questionnaires for the applicant. Experience in the insurance industry is highly valued.
- As a rule, the company conducts training for employees, after which they will need to pass an exam.
- A civil law contract (or instructions) is concluded, according to which the agent receives the authority to work.
Investments in business and income
You will need to rent space for a small office. If the agent is going to work alone, at first you can even do without him. For 3-5 people, it is desirable to have a working room, computers, a printer, a scanner, a small safe. Depending on the region, this will take from 50 to 250 thousand rubles.
It is necessary to provide for a revolving fund for a small salary for agents, rent, gasoline, stationery, at least for six months. The total amount of investments will be about 400 thousand rubles. The main part of earnings will be made up of commissions, on average it is 10-30% from each contract.
It is advisable to focus on the numbers for your region. For example, in Moscow a successful agent earns 50-80 thousand rubles a month, in the periphery a level of up to 30 thousand rubles is considered normal. In most cases, the payback period for a small office with three agents is 3-6 months, but of course it all depends on their activity and ability to work with people.
In conclusion, we note that in recent years, banks, medical organizations, car dealers and other companies that provide insurance services along with their core activities have been actively competing with agency firms. Nevertheless, for example, at the end of 2018, insurance agents received a total of about 58 billion rubles in commissions, they are in second place in this indicator after credit institutions. For comparison: the insurers themselves through their channels have earned about 1 billion commission payments.
The sale of insurance products through Internet channels is developing very rapidly, the volume of online premiums received has doubled over the year.