Interview of Executive Director of “Cascade Insurance” Company Garnik Tonoyan to Mediamax Agency and Banks.am portal

- Most diverse opinions on life insurance are voiced today, at that quite frequently the occurrence of the insurance case is related exclusively to death of the insured. Can you, please, provide some clarifications concerning this?

- Of course, life insurance has effect also in case of death of the insured. However, compensation in case of occurrence of death is only one of the components of life insurance. For long-term types of life insurance, the second and no less important element is the accumulative component. It turns our that life insurance is considered not only in terms of gaining compensation in case of death, but also serves as a tool for accumulation.

As opposed to a banking deposit, the accumulative tool of life insurance is a longer-term investment, as a rule, calculatingly for up to 65 years for a particular person (the average statistical age, applied in international practice).

If, for instance, a particular insured person is 30-year-old and should enter a pension age at 65, two provisions are in the basis of the insurance calculation: 1) compensation in case of death, if the insured does not live to 65, and 2) payment of the accumulated sum after 65, at that both in the form of monthly pension payments, and as a lump-sum. That is to say, at the same time two problems are solved: by saving up means for tomorrow, the person is insured also in case of death before the pension age.

The considered example is to greater extent related to developed countries. However in other cases, in particular, in certain countries of the post-Soviet area, as a rule one can come across not accumulative, but term life insurance, which as to its essence is very much like insurance against accidents, leading to death. As it is known, this type of insurance functions in Armenia and enters the category of non-life insurance. 

In case of term life insurance, the insured concludes a short-term agreement with the insurance company, as a rule for a year, and receives insurance compensation, if death occurs in this period of time.

One can assume that the opinion presented in your question is related exactly to term life insurance. 

- Why aren’t there any insurance companies in Armenia, providing life insurance service yet?

- After approval of the law on insurance in 2007, insurance companies returned their licenses for life insurance. That is to say, one and the same company cannot provide two types of insurance at the same time: life insurance and non-life insurance.

Such division has a financial implication as well. In particular, insurance companies, functioning in the sphere of non-life insurance, carry out a short-term investment activity (as a rule, in the course of one year), while companies, providing the service of life-insurance, realize a long-term investment policy.

In fact, there is significant difference between mechanisms of company assets management. This is one of the main reasons for separation of the types of insurance and return of licenses for life insurance.

In developed markets, companies, which provide life insurance services, are large investors in the economy. One should simply note that about 40% of U.S. bond market is provided by life insurance companies.

But this way or another, before return of the licenses, life insurance functioned in Armenia. It made up to 1% of the services of our country’s insurance market. Corporate customers were mainly using this type of insurance, and individuals concluded agreements on life insurance while registering mortgage credits (the so called credit-life).

Concerning the prospect of establishing life insurance companies in Armenia, I believe that much time will still be necessary for the market to form certain demand and investments will start exactly in the accumulative component of life insurance, which is the most interesting in terms of business. This gives grounds to assume that formation of life insurance market should be considered in long-term prospect.

- It is planned that as a result of introduction of the component of accumulative pension system in Armenia, insurance companies will also be able to manage pension assets in addition to pension funds and banks. Taking into account the fact that pension insurance enters the list of life insurance, we would like to know whether preparatory works are carried out in the given direction.

- I would like to specify something: insurance companies have the right to manage pension assets only in terms of the voluntary accumulative pension system. This means that already today an insurance company may appear in the market, which will start dealing with management of those assets. Another question is whether there will be demand for that.

I believe that before introduction of the compulsory component of the accumulative pension system, which is planned to be carried out in 2014, the voluntary accumulative pension system will hardly be formed. To put it in simpler words, the voluntary accumulative pension system can become an alternative, or an appendix to the compulsory one. And only after introduction of the compulsory component will it become possible to expect any reviving in the sphere of voluntary accumulative pension system. This is why I believe it is yet early to speak of any preparatory works.

- Speaking of the accumulative aspect of life insurance, you focus attention on the pension system, but there are other types of life insurance with the element of accumulation.

- Of course, but management of accumulative pension assets is the most demanded product of insurance companies, working in the sphere of life insurance. In world practice, insurance companies can also manage accumulative funds of children before majority, before marriage, etc. 

- Earlier you noted that term life insurance is very similar to insurance against accidents, which is a class of non-life insurance. In connection to this, we would like to hear your assessment concerning the demand for this product in Armenia.

- In case of term/short-term life insurance, the insured receives compensation irrespective of what the reason of dearth was: an accident, or health state. However in case of accident insurance, the fact of death, which has occurred exclusively because of an accident, will only by compensated for. 

In Armenia, accident insurance is provided by all functioning insurance companies. In 2009, insurance companies collected AMD 219.2mln premiums as to this type of insurance, and for three quarters of 2010, AMD 219.5mln premiums were already collected (the annual data are not published yet). In general, accident insurance makes about 3.5% of the entire market.

Particularly from the part of “Cascade Insurance”, accident insurance is provided to 324 corporate customers and individuals; the total number of the insured makes 4270. The accident insurance products, provided by us, cover risks of death, disability, as well as bodily injuries as a result of accidents.