Generosity of insurers: how much do people overpay for policies?

Services for the sale of policies to insurers themselves cost 241.4 billion rubles in the first nine months of 2019. Banks earned more than others, whose commissions reached 150.5 billion rubles - the same amount as for the whole of 2018. And they were ultimately paid by insurance buyers.

Consumers have a choice: they can buy a policy in the office of the insurer, on its website, from an agent or from a bank. The only difference is the price, which is made up of the basic cost of the policy and the commission of the agent selling it. It is higher with banks. For example, an accident policy with a payout in case of death of the insured of 750 thousand rubles can be bought from the insurer for 3.9 thousand rubles, while in the bank it will cost 4.9 thousand rubles.

Nevertheless, Russians often buy insurance in banks. First, because banks are trusted by 88% of the population, while insurance companies are trusted by only 26.3%, according to the Central Bank. Secondly, a person goes to a bank for a financial service on purpose, which means that he or she is morally prepared for additional expenses in the form of buying an insurance policy in addition to the loan.

"In the non-life segment (that is, excluding investment and accumulation life insurance), at the end of the first nine months of 2019, the share of the banking channel in life insurance was 87%, in accident insurance - 64%, in personal property insurance - 45%, - says the head of the insurance rating department of the National Rating Agency Tatiana Nikitina. - Although the cost of this channel for insurers remains very high".

It is all about the commission that banks receive for selling insurance products. Why is this happening and will the situation change?

Trust is expensive

Alexei Petrunin, the Head of the Department for Work with Banks of IC "MAKS", believes that consumers prefer to buy insurance policies in banks because they have a wide network of branches and multifunctional service. "Simplicity of registration and high level of competence of bank employees allow to offer a wide range of products: from box solutions to investment and accumulative life insurance programs", - he says.

According to Evgeny Sharapov, the director of rating of insurance companies of RA "NCR", in the structure of the tariff of insurance policies, which are sold together with credit products, the bank's commission can exceed 90% of the insurance premium. "If the decision to purchase insurance is linked to the receipt of a loan, policyholders are not tied to the brand of the insurer. In fact, the flow of customers to a particular insurance company depends entirely on the will of the bank that sells the main product - credit," he explains. - The bank forms and tariff formation in this segment: as a rule, in the structure of the insurance premium share of insurance payments (which the IC pays when the insured event occurs) takes a very small percentage, and the main - the commission".

The second type of insurance is savings and investment insurance. In this case, the bank receives money for sharing its client base with the insurer, determining the minimum amount of commission at which it is ready to cooperate. In this case, the commissions are also high, although not as high as in the case of credit insurance.

According to the Central Bank's estimates, bank commissions increased by 15.2 percentage points to an average of 38.3% in the first three quarters of last year. But the share of sales through this channel also grew - up to 47%. ICs collect only 25% of the total premiums through individual agents, 8% through legal entities, 6% through car dealers and 3% through brokers.

So even though insurers' expense ratios have been at their highest for a year and a half, they cannot abandon the bank channel. They cannot cut off the hand that makes the money.

Banks remain the most important partners for insurers not only because of the volume of policy sales. There is another reason, too - affiliation. "It is not very profitable for traditional insurers to sell policies through banks because of high commissions, unlike captive insurers that are part of a holding company," says Igor Yurgens, president of the All-Union Insurance Association. Over the past decade, the number of captive companies has grown significantly: Sberbank and Sberbank Insurance, VTB and VTB Insurance, Alfa-Bank and AlfaStrakhovanie, Tinkoff Bank and Tinkoff Insurance, and others. And it continues to grow: in late December, Sovcombank announced the purchase of the Russian IC "Liberty Insurance" from the American insurance group Liberty Mutual.

Pavel Samiev, CEO of BusinessDrom, explains that in such a bundle the insurance company is not the profit center, but this does not embarrass the owners and shareholders of the financial group, because the insurer pays high commissions to the bank and the overall financial result of the group is positive.

"Bancassurance is economically interesting for insurance companies, which is why the share of the banking channel in the sale of insurance products reached an all-time high last year," says Samiev. - Most types of insurance products sold through banks are profitable for insurers, even with rising commissions. Unlike banks, the situation in other distribution channels is more complicated: there are many ICs that cannot achieve a positive result either through agents or direct sales. But in bancassurance, it is positive for all products, from life and accident insurance to mortgage risks. And even high commissions are not a deterrent. In fact, they are high because it is profitable to sell insurance through banks.

As a result, non-captive ICs compete with each other for access to bank customers, offering higher and higher commissions. "The high level of commissions is also caused by dumping on the part of insurance companies", - notes Alexey Petrunin. For second-tier IC, the opportunity to be present in the banking network is not only an opportunity to increase sales, but also an image factor.

Banks are not at a disadvantage

Banks also benefit from cooperation with insurance companies. Initially, due to high commissions for the sale of policies and the lack of opportunity for consumers to refuse the purchase, they veiled the interest rate, limited to credit products. "Now some banks are also exaggerating the size of the commission in pursuit of high profits, so there are cases where insurers refuse to work with them. But in general, this does not radically affect the market because, I repeat, bancassurance is profitable for both parties," says Samiev.

Although the bankers themselves claim that the amount of commission is not the main criterion for choosing a partner. "First of all, we start from the content of the product, the reliability of the insurance company and the level of service provided to our clients," Lidia Kashirina, Deputy Director of the Retail Products and Marketing Department of Rosbank, told Banki.ru. - Insurance products organically complement the range of classical banking products and, in addition to being a source of commission income, are a tool for increasing customer loyalty. Access to the client base, the possibility of paying for insurance products with credit and the absence of costs for their own sales infrastructure undoubtedly make banks one of the most interesting channels for selling insurance products".

It is not yet clear whether the growth of commissions will be limited. Currently, the limit is set at 10% of the value of the policy only for compulsory insurance. The market regulator has repeatedly considered introducing it for non-mandatory types, but has never done so. "At some point, the whole story of bank commissions will be on the 'radar'," Igor Yurgens believes. - But at the moment it is impossible to talk about anything concrete. The Insurance Department of the Central Bank is 'fighting' with the Banking Department, and the outcome of this fight is impossible to predict.

Is the number growing or shrinking?

"Today, banks are the main distribution channel for many financial products," says Vladimir Chernikov, CEO of Ingosstrakh-Zhizn. - This is due to the existing model of consumer behavior - it is easier for a client to solve his financial problems through one service provider. However, the potential of alternative distribution channels is growing, and changes in customer preferences are becoming more noticeable. This is due to the mass digitization of global markets. Customers are increasingly buying or researching products online, and fintech has emerged as an industry in its own right, competing with traditional financial channels. This fact is also relevant for insurance products: the share of online sales of VZR, collision insurance and bank card protection products is growing every year.

Rosgosstrakh also talks about the growth of online sales. According to the company's press service, in the first nine months of 2019 it exceeded 230% compared to the same period of 2018, and at the end of last year this trend will continue. In 2020, the company also forecasts an increase in online sales.

However, statistics of the Central Bank show that in the overall market, the share of internet sales of insurance in the first nine months of last year decreased by 0.8 p. p. to 4.9% (from 54.7 billion rubles in the first nine months of 2018 to 51.05 billion rubles in the same period of 2019). Although it is direct sales that allow to reduce the distance between the provider and the consumer of services, removing intermediary links from it.

"Online sales developed mainly due to MTPL insurance in toxic regions, where the loss ratio is high and there is insufficient representation of IC. As well as the sale of TPL policies and other boxed products," Samiev argues. - Internet sales of boxed products will continue to grow, but it is unlikely that in a few years the segment will be able to reach a quarter or a third of the market - because of the existing restrictions. Intermediaries are not needed between the insurer and the policyholder, it will take time, a new generation of consumers who spend most of their lives on their smartphones, and the removal of legal restrictions, in particular, on the sale of online products costing more than 15,000 rubles.

What can an agent do?

Experts believe that in the medium term banks will retain the leading role in the sale of insurance products, at least those that are more profitable to sell through banks and are related to banking products. But it is too early to abandon other channels.

"In order to successfully compete for clients, insurers need to develop their own distribution networks for insurance products," says Evgeny Sharapov. - A very important condition for financial stability is good product control, including the level of commissions. There is already a clear trend in the market for large insurers to develop their agent networks. The leader is Rosgosstrakh, which last year increased its network by 40% to 38.5 thousand people. And it does not plan to stop, declaring plans to exceed in the next few years the bar of 50 thousand agents. In the press service of PJSC "IC "Rosgosstrakh" explained that the company is historically based on agents. "Thanks to the Internet you can get answers to questions, compare products, it is much faster to perform many actions, but quite often customers prefer personal contact with a specialist who can be trusted. It is the need for personal contact, attention and trust between the insurance company and the client that is the key thing in which the agent will remain indispensable".

Through agents, it is more profitable to buy insurance products that are not or hardly represented in banks. For example, car insurance for used cars or home insurance for emergencies. In addition, the agent's commission is almost twice as low as the bank's commission (17.6% vs. 38.3%, according to the Central Bank), so the policy can be cheaper. In addition, the insurer can get agents even in regions where it does not want to open offices and where there is no sufficiently developed banking network, making policies available to residents of remote regions. The press service of Rosgosstrakh said that in the near future they plan to launch a special software product whose task is to simplify for the agent the procedure of registration of the insurance contract, calculation and receipt of commission.

The addition to the existing distribution channels will be the Central Bank's marketplace, if it ever appears. "The marketplace will increase competition among financial organizations, as well as the availability of services for clients, their transparency and comprehensibility," says Vladimir Chernikov. - Among the advantages of the project, it is planned to improve the situation with financial accessibility - in particular, due to the removal of geographical restrictions. At the same time, users will be able to get remote access to financial services in 24/7 mode and a wide range of products. Marketplace can increase transparency and civilization of the market, especially in terms of customer value and healthy competition. But in order to assess the real prospects and draw the first conclusions, it is necessary to get the first experience and audience response".

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