- Yermek, why upon entering a medical institute where you needed to study not less than 6-8 years for graduation, in the end, did you went to insurance?
“As to 7 years of studying at the medical university, for me they were not spent in vain. In parallel with my studies, I worked as a programmer. I loved computer games since my childhood and in the 80s there was very little opportunity to play them. Therefore, I went to information science club at the Palace of Pioneers. I was lucky even more when the school where I studied became a branch of the Republican Physics and Mathematics School and my class acquired an emphasis on computer science. This sounded like a dream, that’s what I thought at the time! By the end of the school, I already had good programming skills, as I thought then. This was what allowed me to earn extra money while I was at university. Later an old acquaintance of the owner of our IT company requested us to develop a trivial program. At that point only the first life insurance company was formed in Kazakhstan and they built an agent-based sales channel through the network marketing system, it was necessary to check their calculations of agency commissions. I was instructed to do this and as a result I was offered a permanent employment in the company. This is how I got into insurance.
I starting as a programmer and in parallel dealt with technical support of users, because the company was then small. Gradually I became responsible for customer service, commission, payment control and statistics. For two years of work in the company, I passed training on actuarial courses, passed exams and became a licensed actuary.
- You continued your career in Ukraine. Even then there was quite a tough competition given the large influx of foreign investors into insurance. Will you share your first impressions?
- The owners decided to expand their activities beyond Kazakhstan, for which they acquired the largest insurance group in Ukraine at that time. The general insurance company was the successor of the USSR Gosstrakh and had about 10,000 agents throughout the country, but life insurance company was nominal and practically did not conduct any business.
In Ukraine, already then there were large international life insurance companies (ALICO AIG, GRAWE, Generali, PZU, Fortis, VIG, etc.) and our company was not even among top twenty companies. It took six months to create a business plan, we began to build everything from the scratch. We decided to develop several sales channels at the same time: bank insurance, agency sales, sales through retail brokers and through the agency network of general insurance company. I must say that the latter failed. Although the idea of using one distribution for selling different products (banking, insurance products, etc.) is very attractive, but it does not always work. We managed to launch a good long-term product in combination with a system bank and it was an extraordinary success, before the international credit crisis struck.
We cooperated with several small brokers and they gave a stable, but not a large amount of sales. Therefore, we counted heavily on our own agent network. This is, perhaps, the costliest sales channel, because in addition to direct commission costs, you need to pay an additional compensation, salary to your full-time employees, overheads for offices, etc. During the year we deployed an agent network throughout Ukraine and recruited several hundred agents. All this allowed to increase the sales by 9.8 times and come close to TOP-10 on the market.
After that, I was invited to head a life insurance subsidiary, a member of the Swedish financial group. This was a recently-founded company and had one working product for life insurance of bank borrowers, but these sales stopped due to the crisis, we had to build it again from the scratch. For 5 years, by selling only 1 product through its own agent network, it was possible to take the company to TOP-10 on the market of cash-value insurance and build one of the most effective agent networks in Ukraine (as of 2012). But, unfortunately, the shareholders decided to withdraw from the Ukrainian market and leave the corporate bank only.
How do you assess the development level of the life insurance industry in Kazakhstan and Ukraine?
- Although life insurance is quite conservative, there are differences between the markets. It depends on many factors: “maturity” of the market, legislation, taxation, etc. Both these markets began their newest history after the collapse of the Union and are classified as “emerging” markets. Both have a negative experience of loss and depreciation of savings, low level of confidence in insurance. All of those things leads to a low level of trust of both consumers in insurance companies and of international players in country’s industry.
- What developed country’s life insurance market do you think is efficient? Why?
- As an example of market efficiency may be taken the United States, not least because the way the business reacts to regulator actions. As a result of the latest 2008 crisis, the state has learned the lessons and approved a number of changes. In particular, the regulator identified a number of large companies and ranked them as “systemic” for a number of characteristics. They considered that if these systemic financial institutions fail, entire economy will suffer. This is exactly what happened to the American economy as a result of mortgage market collapse - Lehman Brothers, Merrill Lynch, etc., when the state had to save AIG, America's largest insurance company.
But what does this mean to the systemic financial institution itself? This means that it needs to have an additional pillow in its capital, “just in case” so to say. This is certainly a forward-thinking way, but not likable by their investors, because, as a result, profitability drops. That makes it less competitive with smaller players. How can an “efficient” market react to such a challenge? It is quite logical that the “systemic” company attempts to get rid of its “honorable” title in every way. Therefore, the largest life insurance company Metlife plans to abandon retail business in the United States, which is no less than a quarter of its employees (28,000 employees in total) and a significant share of assets (240 out of 880 billion dollars).
- Which life insurance policies are sold better in Ukraine?
- Risk insurance in a package with other financial services and goods (lending, sale of cars and household appliances). But the way in which such sales are often carried out, causes even more negative feeling for the consumer.
- Studying the Ukrainian life insurance market, we have noted one detail - the population, including the show business stars, trusts insurance brokers, agents, rather than the companies themselves. How can that be explained?
- They are characterized by the fact that new agents are recruited from among clients, and often this is descibed not only as a sale of financial services, but as an input to a successful business. The idea is that the newly-qualified agent gives access to his “warm” circle of close contacts (the so-called “natural market”). By doing so, the issue of generating contacts of potential customers (leads) that is pressing among professional agents, which are at lower levels, is solved. On the other hand, life insurance in Ukraine is quite expensive service (about $ 400 premium) and ever-smaller number of people (income level of $ 4,000 per year) can afforded it. Consequently, the agents themselves, because they are not poor people, most of them have another basic income and a corresponding position in a society. So it turns out that cash-value life insurance is a kind of ticket to a special circle of successful and respected people who trust each other so much that they even bought insurance.
- Based on your experience, what aspects do you recommend for our clients should pay attention to when concluding a life insurance contract?
- The most important thing is to understand what and from whom you buy for your money. Since the product is long-term, it is extremely important to know who is going to fulfill the obligations to you for many years. In other words, this is the case here where a well-known name with a long history that matters. Even if such a player decides to leave for some reason, he will do it without compromising the customers and transfer his obligations to a reliable and trusted company, as it was in our case.