Interview of Executive Director of “INGO Armenia” Insurance Company Levon Altunyan to Mediamax Agency and Banks.am portal

- Once you expressed an opinion that insurance is the sphere, where the share of intangible assets is quite high, in the view of which you were planning to carry out reevaluation of the brand cost. What conclusion did you come to as a result?

- Probably, “INGO Armenia” is the only company, the assets of which have a certain share of intangible assets – intellectual property, know-how, which were assessed by the Union of Evaluators of Armenia and which were present in our own capital.

Yes, I remember that I spoke about prospects of reevaluation of the brand cost. However, some time later we received the instructions of the Central Bank, according to which we were suggested to get rid of intangible assets, so we did that, writing them off.

Coming to a conclusion that our country is not yet ready to perceive ideas of intangible assets, we decided to refrain for some time from this prospect, however the idea exists, and we can proudly state that the cost of our intangible assets increases. At a certain point, it will surely be reflected in our indices.

- Are you comfortable working with the Russian shareholder? Are there situation, when the stance of Moscow counters to your knowledge of the local market specificity?

- In reality, there is no particular specificity of the local market, if we speak of negative phenomena. It is not that Armenian doctors accept bribes and Russian doctors do not. Thus, we can speak of the specificity of the post-Soviet area, and in this sense we are quite comfortable with Russian colleagues.

One always wants to provide as little reporting as possible and receive as much profit as possible: this is the viewpoint of the executive and the executive power. And from the point of view of the shareholder and the owner, one always wants to strictly control the situation and receive maximum profit. So, the managerial ideal is built on the struggle of these two contradictions.

- But this is not absolute contradiction, taking into account the fact that you are a co-shareholder of the company.

- Yes, this is a factor, which smoothens up the contradictions.

- Do the guidelines come from Moscow in the process of making strategic decisions?

- I do not recall a case, when any guideline would counter to logic, and concerning making strategic decisions, sometimes one wants to secure oneself from the consequences of those decisions. This is why, naturally, all strategic decisions are made collectively, especially since all management mechanisms exist for that.

Moreover, as a shareholder of the company, I welcome the policy of collective management, meaning that I will not always do the management of this company. At a certain point I will take up another type of activity and our company should remain mobile and manageable and accountable to the shareholders.

- According to you, is it possible that there will be a scenario, according to which after the expected revival of the Armenian insurance market, related to the prospect of implementing compulsory products, your Russian colleagues will want 100% presence in Armenia?

- The wish to acquire 100% probably always exists, at that all shareholders have that desire, both “Ingosstrakh” and other shareholders. This fits well into the business logic, since if business is successful, there is always the desire to have as larger a share in it as possible.   

- Are you also inclined to the idea that CTP may become a locomotive for voluntary products?

- Yes, the phenomenon of CTP is exactly the fact that it stimulates growth of parallel product sales. Already today we observe the tendency, when customers, who visit us for CTP, insure their car from all risks and inquire about medical insurance.

- Then why this did not happen in case with insurances while registering a car credit, or for ones, leaving for abroad? Since, let’s agree, in both cases we deal with compulsory types of insurance?

- These products allowed the insurance market of Armenia forming. They created a particular ground, due to which insurance companies kept going over the past 10 years. But they did by no means stimulate the culture of insurance. The customers perceived these products as another paper, necessary for registering a car credit or receiving visas in Embassies.

Moreover, we had cases, when the customer, who received compensation, 20 times exceeding the sum of insurance, repaid the credit in the bank ahead of schedule and immediately came to the insurance company to terminate the insurance policy.

Insurance of people, leaving for abroad, can be put in the category of quite a developed institute of insurance with real compensation cases at the sum of USD 500-30 000. But here again, customers, who received compensation, further on did not get insured in our company under any type of insurance.

In both cases, contacts of customers with the insurance company are of fragmentary, situational nature. And in case of CTP, one realizes that if he/she drives a car, it is for a long time, and in this sense, compulsory action of the state leads him/her to the conscious choice of the insurance company. To put it in simpler words, CTP is the conscious choice of the insurance company.  

- Are you aware of the initiative of “Heritage” on abolishing CTP?  

- Really? Well, maybe the party has big problems with being original and it has decided to be original this way. To be serious, this is an exclusively populist step, which counters to progressive vector of development of our state.  

In any case, I don’t think that the Head of the party, whom I respect, knows or shares the initiative of his propaganda and agitation department.

- Did you bear volume expenses to get ready for CTP, and when do you plan to start getting profit?

- We did not make especially big expenses concerning preparation works. We simply took up the planned volume of advertisement, and the main expenses were made for twofold increase of the staff – from 30 to 62 employees.

This, as well as the write-off of our intangible assets, conditions the low profitability this year. Next year we plan to reach our usual profit level, which, as a rule, made 14-17%, at that this did not happen due to compulsory insurance, but due to increase in sales of voluntary insurance products.  

Concerning compulsory insurance, we will take all measures in order to service all insurance cases, reveal efforts of fraud in embryo, sending from our part a signal to the population not to deal with that. I believe that unprofitability of CTP will make 90-95%, and consequently, profitability will make 5-10%. Most likely, this is not gaining profit, but covering of CTP expenses.  

At the same time, I would not complain about absence of profit from CTP, since it will indirectly be expressed in development of the practice of insurance and consequently increase of professionalism among employees.  

We have established a wide institutional partnership network on CTP sales, which consists of 200 companies with their offices and branches in various regions of the country. There are 10 commercial banks among them. And the agent network, consisting of individuals, possesses about 700 people, about half of whom carry out active work.

Using the occasion, I would like to note that our labor legislation is by no means adjusted to the institute of insurance, in particular, the institute of agency. Judge it yourself. We have the desire to register about 1000 agents, but can you imagine if I pay minimum salary to 1000 agents, or if only 300 out of 1000 really work? It turns out that they all should receive salary and be provided all necessary social guarantees…  

- Recently you stated the intention to sell over 100 thousand policies: this is one fourth of the total number of CTP insurance policies. What is your optimism based on?  

- Before the start of the sales process, we came to work with the intention to cover entire 100% of CTP market. At that time we were full of optimism. Of course, this is a joke. If we speak seriously, the index I voiced is more realistic than optimistic. Although I should note that my forecast will depend on how strong the non-economic resource will be in the country. In all cases, we will work in the segment of retail sales, since administrative and other non-market resources easily spread on corporate sales.

My forecasts are based on the fact that in the course of recent 8 years we provided for about 25% of the Armenian insurance market. We are based on this very logic.

- There are few days left before January 1. According to the latest data, about 10% of transport means have been insured. Will our drivers meet the deadline you think?

- The activity of our drivers fully fits into the peculiarities of Armenian mentality, which is demonstrated in the spirit of post-soviet traditions. When CTP was being introduced in Russia, the date for it was again January 1, and parliamentary elections were appointed for December 8, many Russian parties acted like our “Heritage” today. As a result, not a single Russian driver had registered insurance by December 8, hoping for the promise of political forces to cancel it. The results of parliamentary elections were summed up on December 10 and since that day the process of insurance started in Russia, at that 98% of policies were sold in 20 days. This, by the way, is the highest index in Europe.

Concerning Armenia, I believe that by mid-February, we will have all 100%. But I find it difficult to answer the question on the number of our drivers, who will do it the purely “Armenian way”, falling under fine sanctions.

- How many policies have been sold by your company so far?

- Traditionally being the most transparent company, I will note that as of early December, “INGO Armenia” had sold about 7000 CTP insurance policies.

- There is an opinion, according to which already in 2012, increase in CTP tariffs will take place. How will you comment on that?

- As a rule, political leadership of developing countries approve a law on CTP not under the pressure of necessity, but with the aim  to establish civilized interrelations among citizens. As a rule, initially they establish tariffs, and later on, in order to do something popular, the tariffs are reduced, leading insurers to bankruptcy. MPs report to their electors that they “pressed the financial sharks”, and then under the pressure of necessity, tariffs are increased.

In Armenia this stage is practically classic: hardly CTP came into force, the process of tariff reduction was initiated. One should clearly realize that if this process is continued, or if the compensation system is liberalized, insurance companies will undoubtedly be sent to the edge of bankruptcy. As you understand, at the current stage the increase of tariffs is out of the question.

But in the course of time, they will be increased for sure. I will explain why. If, for instance, 10 years ago the average loss on one car made 150-180 thousand AMD, today that loss makes up to 3.5mln AMD. And this is because cars have become more expensive, the roads have become better, speeds have increased, and correspondingly, the consequences of crashes have become worse. 40% of today’s cars are equipped with air bags: opening of each bag makes USD 1000-1500 already.

Today’s tariffs are calculated on the basis of last year data. In 3-4 years, the prices for repair and spare parts will be completely different and naturally the tariffs should increase, but I believe this will not take place earlier than in 2014.

- According to you, which type of compulsory insurance will come after CTP in Armenia?

- I hope that in 1.5-2 years, CTP will be followed by compulsory medical insurance. Of priority importance for Armenia are also compulsory insurance of property from earthquakes and natural disasters, as well as compulsory insurance of enterprises against cases of ecologic catastrophes.