Afanasoglu V., PhD Kukhareva O.O., Mudrenko A.A.
Oles Honchar Dnipropetrovsk National University, Ukraine
THE INFLUENCE OF THE FOREIGN TRADE CAPITAL ON THE INSURANCE MARKET DEVELOPMENT IN UKRAINE
The issue at a hand is the contribution of the foreign capital to the insurance market development in Ukraine and the major advantages and drawbacks of the presence of the insurance companies with the international capital in the Ukrainian insurance market.
Globalization processes in the insurance market of Ukraine determine the gradual increase in the presence of the foreign capital in the national insurance system. In fact as experience of Central and East Europe testifies the presence of foreign insurers on the initial stage of the expansion results in positive consequences for a financial sector, but when the certain limits of the market saturation are reached, it doesn’t give a primary effect and acts in the interests of the countries which provide capital and compromises the Ukrainian insurance market security. There is a dynamic of the presence of the foreign investors in the insurance market of Ukraine given in the Table 1.
Table 1. Dynamics of the presence of the foreign investors
in the insurance market of Ukraine [3]
Years |
Total number of insurance companies |
Total number of insurance companies with foreign capital |
Growth rates of the number of companies with foreign capital |
Specific weight of the insurance companies with foreign capital, % |
Percentage of the foreign investors in the authorized capital, % |
2005 |
398 |
58 |
0,98 |
14,6 |
13,4 |
2006 |
411 |
66 |
1,14 |
16,0 |
13,0 |
2007 |
442 |
78 |
1,18 |
17,6 |
20,7 |
2008 |
469 |
82 |
1,05 |
17,5 |
25,1 |
2009 |
450 |
82 |
1,00 |
18,2 |
29,9 |
2010 |
456 |
115 |
1,40 |
25,2 |
32,8 |
The indexes in the table show that 115 insurance companies with a foreign capital operated in the insurance market of Ukraine in 2010, which was almost four times as many as in 2005. The specific weight of the insurance companies with a foreign capital grew from 14, 6% in 2005 to 25, 2% in 2010. According to the market analysts’ forecast it will keep growing during the next few years.
Entering a new market for foreign investors is a necessity. Over 90% of risks are insured in most western countries, so there are hardly any opportunities for the development of the insurance companies there. In this case entering new foreign markets is simply unavoidable, taking into account that only about 10% of risks are insured in Ukraine, and in the life-insurance market only 1% [1].
The systematized information about the main expectations of foreign investors and domestic insurance companies is presented in the Table 2 below.
Table 2. Expectation of foreign investors and national insurance companies
Expectations of foreign investors |
Expectations of domestic insurance companies |
A company is granted the status public |
Flow of investments for a further company’s development (IT-technologies, processes automation, strategy realization) |
Healthy financial state (profitable activity, adequate levels of product unprofitability) |
Brand support, technologies, know-how (especially in the activity actuary, distribution and sale management) |
Quality of a client base |
Skilled reinsurance |
Expansion of the existent network of branches and increase in efficiency of the insurance products sale structure |
New parameters and a wide client base (especially from transnational companies) |
Recruiting an experienced and highly- motivated team of managers (skilled actuaries, presence of average commissioners, agreements with assistance services) |
It is an advantage if there is a shareholder among the company proprietors with an international name and beautiful reputation as it can guarantee companies access to cheaper credit resources. |
High standards of management and accounting (MSBO, business plan for 3-5 years) |
|
Growth which exceeds an average index on a market |
|
Quality of investment portfolio (average profitability of investments) |
The following problems can arise when foreign insurance companies break into the domestic market. It is necessary to single out some of them: complication of insurance supervision over the insurers’ operations; probability of strengthening of foreign interference in the Ukrainian insurance system which can a negative impact on its economic security; the interests of the countries which provide capital may have an advantage over the interests of the domestic market; short-term relations, etc.
Also we can’t help mentioning the fact that a high concentration of a foreign capital in any market is dangerous in connection with the loss of control and the growth of risk of external influence which is observed in the market during a financial crisis. The negative consequences of globalization related to «flight of capital» are taking place now, as some insurers find it difficult to recover from recession [2].
Globalization processes can cause substantial risks in the national insurance system that is why the degree of openness of the national economy must correspond to the level of its development. It is necessary to define the progress of modern outer space and insurance market trends on the whole; to form the system of new control instruments, which would react efficiently to the possible substantial changes in the insurance activity; to provide the maximal diminishing of the tax burden on insurers’ financial activity; to implement the principles of taxation which operate in the countries of the EU.
Eventually in order not to lose competitive edges, domestic insurance companies must constantly perfect the operations and services, increase the level of the insurance system capitalization and the domestic insurance business consolidation, to introduce progressive technologies of management in order to increase their effectiveness.
Literature:
1. Пластун В.Л. Іноземний капітал на страховому ринку України / В.Л. Пластун, В.С. Домбровський // Актуальні проблеми економіки. – 2007. – № 3(69). – С. 182–189.
2. Журавка О.С. Вплив іноземного капіталу на розвиток страхового ринку України / О.С. Журавка // Наука й економіка : науково-теоретичний журнал Хмельницького економічного університету. – 2008. – № 1 (9). – С.277–286.
3. Інформація про стан і розвиток страхового ринку України [Електронний ресурс]. – Режим доступу: http://www.dfp.gov.ua