OREANDA-NEWS  On 23 October was announced, that conference “Goszakaz (State Order) 2008. Insurance in the system of state orders" took place on October 16. Deputy General Director of Ingosstrakh IJSC Nikolay Galushin spoke in the conference and said that insurance is not an efficient way to protect interests of the customer at the time of placement of  state and municipal orders.

In his speech Galushin said that at the moment in the insurance market there are no clear terms and conditions of liability insurance under the contract (list of insurance risks, exceptions, compensation due, etc.), the current legislation doesn’t regulate insurers in this area, and the methodological recommendations of the Federal Insurance Supervision Service envisage different options of insurance coverage. As a result, Russian insurers sign such insurance contracts based on their assumptions only.  State customers have no idea about when and to which extent they are entitled to compensation. Attempts of state and municipal customers to introduce their own requirements to terms and conditions of their insurance contract usually contradict antimonopoly legislation and in most cases represent an attempt of lobbying interests of specific insurance companies whose terms of insurance are taken as basic requirements.

Besides, today, any insurance company can enter into liability insurance contracts for state contracts for amounts starting from RUB 100 mln. Insurer, who wants to increase his insurance portfolio, can have a minimum authorized capital (RUB 30 mln), not reinsure such risks hoping there will be no losses, not have sufficient reserves for compensations and undertake obligations that can never be met.

At the same tame, there is still the same rate of non-fulfillment of state (municipal) contracts, and financial security in the form of insurance contract turned into a mere formality for executors. Therefore, liability insurance in the current situation doesn’t provide adequate protection to the interests of the state or municipal customers.

In his speech, Galushin referred to the international experience and said that some countries use this type of security for liabilities issued by insurers as insurance bonds. This is the same thing as a guarantee or a surety, they require security. In the European classification this type of activities was separated into an independent category of transactions. Besides, there are statutory requirements to issuance of such bonds and the level of financial stability of companies who work in this business.

As a way to resolve current situation, Galushin urged to suspend securities in form of state contracts until changes have been passed in the legislation, which may include:

definition of cases when it possible to use insurance contracts as security,

requirements to organizations that issue security,

definition in Law 94-FZ of main terms and conditions of insurance contracts,

approval of by-laws that explain provisions of the law with regards to insurers;

separating this type of activities into a single class of non-insurance transactions combined with the relevant legislative work,

introduction of a separate order of licensing of this type of activities,

development of tougher requirements to insurance companies, in particular, as regards authorized capital, structure of assets, etc.,

procedures and terms limiting issue of such insurance bonds with specific financial indicators of insurance companies,

possible to reinsure (redistribute) such obligations between insurers as a separate type of transactions.

“Without security, the insurance contract shall cover smaller amount of liability than its alternatives in the form of a banking guarantee or a deposit”, N. Galushin said.