Russian Economic Academy named after G.V.Plekhanov Chair of Foreign Language REPORT on the subject: THE INSURANSE MARKET: STRUCTURE & SITUATION IN RUSSIA. student of 3 course IFB&IB gr.№ 2307 Serge Lotchan Moscow,1995. INTRODUCTION The term 'market' denotes a place where people buy and sell goods. There is, of course, no good reason why services should not also be sold in a market. For many years Lloyd's of London was the only place where representatives of buyers could meet sellers face to face but there are now similar markets in the United States. Most insurance today is arranged by intermediaries acting on behalf of clients. Their job is to arrange insurances on behalf of people who ask them to do so but also to encourage people to insure in respect of needs which the intermediary - being experienced in insurance and risk - makes them aware of. The diagram shows the general structure of the insurarice market. The buyers in the market are the public, industry and commerce as well as some local government and nationalised enterprises. Obviously there is a difference in the sizes of risks offered ranging from the contents of very small flats insured against fire, to large office blocks in the centre ot a big town. The people who offer insurance cover are the insurers who may be proprietary companies, societies, mutual indemnity associations or Lloyd's Undenvriters. Insurance may be bought directly from companies at their branch offices or through their represeptatives. Most insurance, however, is arranged through intermediaries who are approached by prospective insureds or bring the need for insurance to the notice of their clients. Intermediaries are brokers and agents who act on behalf of their clients but are usually paid in the form of commission by the insurers. PROPRIETARY INSURANCE COMPANIES Proprietary companies are owned by the shareholders whose liability for losses is restricted to the nominal value of their shares (basically that is the originally stated face value of the shares). MUTUAL COMPANIES Mutual companies have been formed by Deed of Settlement or registration under the Companies Acts. They are owned by the policyholders who share any profits made. The shareholder in the proprietary company receives his share of the profit by way of dividends, but in the mutual company the policyholder owner may enjoy lower premiums or higher life assurance bonuses tha would otherwise be the case. It is no longer possible to tell from the name of a company whether it is proprietary or mutual. Many companies which were originally formed as mutual organisations have now registered as proprietary companies. There are other ways of classifying insurance companies.
     (a) Specialist companies- are those which underwrite one type of insurance business only, e.g. life companies, engineering insurance companies. (b) Composite companies- are those which underwrite several types of business. INDUSTRIAL LIFE INSURANCE (HOME SERVICE INSURANCE) These are proprietary companies transacting "industrial" life assurance and increasingly, "ordinary" life assurance as well. Their activities in industrial life assurance are controlled by the Industrial Assurance & Friendly Societies Acts. Premiums are collected weekly, fortnightly or monthly. Collectors are employed to call at the homes of the policyholders and new business is also transacted in this way. Ordinary Branch life assurance premiums are collected quarterly, half-yearly or annually, or paid by Direct Debit monthly. If the premiums were physically collected more frequently than every two months the policies would be considered to be Industrial Life Assurance and subject to the appropriate laws. COLLECTING FRIENDLY SOCIETIES These societies are run on a mutual basis and are formed by registration under the Friendly Societies Acts. They transact industrial life assurance and, in some cases, personal accident and sickness cover. Friendly societies can issue specially attractive life assurances subject to an overall premium limit of quite a low level; this premium limit does not apply to Industrial Life Assurance companies. CAPTIVE INSURANCE COMPANIES Captive insurance is a method of transacting risk transfer which has become more common in recent years among the large national and international industrial compahies. The parent company forms a subcidiary company to underwrite certain of its insurable and sometimes otherwise uninsurable risks. Indeed the incentive to form a captive company for many large industrial concerns was that the insurance market generally was not prepared to write particular risks or provide full cover (an example would be insurance guaranteeing a product's performance). MUTUAL INDEMNITY ASSOCIATIONS Mutual indemnity associations differ from mutual companies in that the latter will accept business from the public at large, whereas an indemnity association originally would only accept business from members of a particular trade. Over the years many of the associations have had to accept business from members of the public in order to have greater financial stability and spread of risk and have been reformed as mutual or proprietary companies.Examples of trades which had such associations at one time were pharmacists, farmers, furntiure manufacturers and shipowners. LLOYD'S UNDERWRITERS There are just over 26,000 members of Lloyd's grouped into approximately 400 syndicates. The trend seems to be a reducing number of richer members (names) grouped into larger syndicates. These syndicates can be made up of only a few members or in some cases more than a thousand. We should note that the "names", the underwriting members, are not normally insurance professionals. They come from many walks of life including the professions, the world of entertainment, the aristocracy etc. ............