FINANCIAL BUSINESS WITHOUT FINANCES

SOFHICO SICHINAVA

On the one hand, any business and, on the other hand, life of any person is connected with much danger that can pose a risk for his business and life.

For natural persons this risk is deterioration of health, inviolability of property, damage of transportation means or bankruptcy and depreciation of accounts. Therefore, a person who lives and accumulates fortune tries to avoid the above-mentioned risks and live more safely. A person does not have the opportunity to cover great expenses unexpectedly and simultaneously so he tries to shift this risk to another person or to ensure that he would act as a warrantor of expenses.
In the modern world insurance is one of the greatest financial markets ranking with banks, pension funds and stocks and having social and economic significance. Its social significance lies in protecting person’s interests and rights for life. As for economic nature, insurance business is an accumulator of a great number of financial assets. It invests funds attracted in the form of insurance premium in different businesses thereby gaining profits and bringing circulation funds to banks, businesses, technological enterprises and savings to population.
Insurance is of both a voluntary and compulsory nature.
Very often people do not take decisions out of subjective or objective motivation. Compulsory insurance is established by state units so that to protect citizens’ interests in extraordinary cases. Therefore, compulsory insurance form is established in a whole number of states as well as in developed ones: fireproof, compulsory insurance of transportation means owners’ civil liability and health insurance. Another form of voluntary insurance includes any kinds of insurance.
Today, insurance business has gradually formed as an institution, but it is still weakly developed. The number of attracted premium is small. There is a deep economic crisis in the country. Nor the population has funds for paying insurance sum. The level of insurance culture is low. Organisations do not have funds for involving their businesses in insurance while running less risk.
Archil Tsertsvadze (head of insurance supervisory service): Since 1997 an insurance reform in our country has aimed at the formation and development of insurance system based on civilised principle. After summing up the recent on-going processes in the insurance sphere of our country, we could say that principal tasks of the reforms have been completed and in the shortest period an essential legal framework of insurance was formed in Georgia. Formation of relevant insurance infrastructure in accordance with modern standards is impossible without the legislative framework. As a result of reforms a consumer of insurance can enjoy a high level insurance product. Insurance market of Georgia is stable, a systematic work on perfection of law is performed with the purpose of meeting modern requirements and perfecting normative basis of life and non-state pension insurance as well as improving supervision of insurance companies’ activities.
Presently, work on the formation of stable legislative framework still continues. It will promote the development of healthy private pension insurance. The above-mentioned normative acts have been prepared by the World Bank’s recommendation. Fast development rate of insurance relations in Georgia makes it possible to form insurance market in accordance with international standards via the participation of leading western insurance and reinsurance companies. This was stipulated by the rapid growth of capitalisation and professional level of Georgian insurance companies. Nowadays, insurance companies of Georgia offer consumers service in almost any kind of insurance in compliance with the standards of European countries. This makes it possible to insure all potential insurance risks in the country.
After the growth of minimum capital in 1998 the process of companies’ expansions and merger took place. Several companies that failed to perform necessary measures for creating high-quality insurance product and attracting customers relinquished insurance business.
Different financial groups (commercial banks) have become involved in insurance business of late years. This led to the growth of insurance companies for the last two years.
The given table reveals that growth of total insurance premiums have been observed of late years. According to supervisory insurance service, this indicates at trends towards ongoing processes of further development of insurance market.
According to statistic data, improvement of finance indicators has been noticed in most kinds of insurance. There are the following finance indicators in accordance with kinds of insurance:
Archil Tsertsvadze – decrease of attracted insurance premiums in 2001 results from amendments in the law which led to significant decrease of tariffs in this kind of insurance. In 2002 discount in several companies as well as use of bonus-malus system has significantly reduced the number of attracted insurance premiums.
Archil Tsertsvadze – increase of attracted insurance premium in this kind of insurance results from activization of marketing activities and quality increase of insurance companies. For another thing, both organisations and some part of population has become involved in the voluntary insurance of property. This product helps them to insure not only their flats and houses, but also to avoid risk of fire, explosions, natural disasters, etc.
In 2002, decrease of attracted insurance premium was caused by the suspension of municipal medical insurance (see table 6).
According to insurance service, growth of insurance premiums attracted from insuring accidents and illnesses indicates at the improved efficiency of insurance organisations’ marketing as well as at the increased insurance cult of citizens that go abroad.
Archil Tsertsvadze: A positive trend towards the growth of both qualitative and quantitative characteristics of insurance market development has been observed in the insurance sphere on the whole. Its significant factor is cardinal improvement of marketing and management service in insurance organisations as well as gradual increase of both organisations’ and population’s level of insurance culture, which is a good pre-condition for the efficient functioning of insurance system.
The high level of insurance product reliability is stipulated by efficient reinsurance policy, which makes it possible to indemnify for all damages operatively through the use of the practice of balancing insurance portfolio. It is noteworthy that under the rating data, transportation companies being partners of Georgian insurance companies belong to world’s high-class reinsurance companies.
The analysis of main finance indicators of insurance market indicates at the right direction of current insurance reforms in Georgia that more and more approach the international norms and standards of insurance activities.
The ratio of reinsurance is also great, yet there is no result in the country. It is unimaginable that in the country with a great financial deficit such a resource as insurance should not be used for the improvement of country’s social background. To experts’ mind, insurance sphere itself requires qualitative development and, in particular, introduction of new kinds of insurance.
Data of the supervisory insurance service indicate at the gradual development of insurance and increase of attracted insurance premium in Georgia, but experts think, the number of attracted premiums is still small.
For instance, approximately 15-20% of the total insurance premiums falls at the share of compulsory insurance, with the rest falling at the share of voluntary one. Insurance in Russia is developed well, but in Georgia work on voluntary insurance develops at small rates. To insurance agents’ mind, institution of brokerage is weakly advanced. Table N19 shows that the great number of attracted premiums falls at the share of compulsory insurance (excluding property and medical insurance).
After using data of well-known firm and analysing its business, we will see that it exists by inertia and a great share of premium falls at the share of compulsory insurance.
Thus, it is important that in the modern stage insurance business should be developed not at the expense of compulsory insurance, but at the expense of voluntary one, insurance firms should start active work in the voluntary insurance market and as in other countries, derive a greater part of attracted premiums from voluntary insurance. The state should deprive insurance firms of compulsory insurance so that they would not be lazy to develop voluntary insurance market. Though, there are other examples: for instance, there are 11 kinds of compulsory insurance in Ukraine and more kinds of insurance in France.
Thus, there is a critical situation in Georgia – on the one hand, insurance business should be developed as a financial institution so that a Georgian citizen who lives in a dangerous country would have an insured property, business, health, but on the other hand, Georgian business requires floating assets derived from mobilisation of insurance premiums. Yet, state stands in the way of insurance business development by depriving it of market via amorphous state insurance form.
It is also necessary to introduce perfect pension insurance system in our country. Naturally enough, the latter is much opposed as sums transferred to pension funds would be taken from current social taxes. What should we do with pension liabilities of the country in this case? Nowadays, there are approximately up to 900 thousand pensioners in the country and pension funds need annually up to 200 million GEL to repay the sums. A perfect flexible law on pension insurance should be taken. The law will make it possible for us to settle problem of pensions 5 years later. Otherwise, with the current development rate and 3-5-7% GDP growth, Georgian pensioners will not have more than 50 GEL pension even in 2020. If now 14 GEL pension requires 200 millions, the 60 GEL pension that is not enough for existence either, will need 800 million GEL. This is 100% of our tax revenues. Therefore, we came in a deadlock; we start pension reforms yet, on the other hand, private structures do not have the possibility to form private pension funds. A person who works and receives 5 thousand laris’ salary, will have the same pension as the person who has 36 laris’ salary.
A person should have stimulus for having a normal pension in the future. Salary is such a stimulus for employees as health insurance card and pension insurance policy. In the whole world unity of the three parts constitutes labour stimulus. There should be the same situation in Georgia.
Compulsory health insurance is another topic of conversation. It is another kind of compulsory insurance. Its essence consists in it that administration and city executive board should transfer 20 tetris per head before 25 of each month from local budget. What will this fund be used for? It is likely to be used for the protection of nameless health programmes in the country. In any case, no citizen, at least 95%, are not aware of the usefulness of the fund. Any citizens of Georgia, in case they need medical aid, pay medical expenses themselves.
Besides, municipal agencies do not try to provide citizens with free medical aid and elementary health insurance card. Medical insurance is for all and for no one. Yet, great funds are accumulated. What are these sums spent for? For the financing of certain inexplicable medical programmes. We keep these non-existing institutions at the expense of people’s health due to the fact that there are 48 thousand doctors in Georgia with only 8 thousand doctors being required and 60% medical establishments – more than required, as we do not implement medical reforms properly.
Therefore, absolutely amorphous system is obvious. On the one hand, insurance business and business structure and, on the other hand, state compulsory health insurance in the form of insurance company (that joined social fund) the usefulness of which is unclear to everybody. There might be 5% that could use this sum with certain cars.