State Insurance Challenges Commercial Sector
21 February, 2013
State Insurance Challenges Commercial Sector
insurance system that is based both on state and commercial insuranceBy creation of State Insurance Fund, Georgia moves to the European

The to be created State Insurance Fund taking all the state-based health-insurance programs off the hands of insurance companies challenges the commercial sector to keep floating at the market. Sector pundits do not rule out that the insurance market may get more consolidated.
The overall state health insurance project initiated by new government and aimed to cover 2 million
people starting this February, throws down the gauntlet to the commercial sector as it deprives it off the guaranteed state-financing completely. Hence forth the State Fund of Overall Health Insurance will be in charge of medical insurance of socially vulnerable people including children, pensioners, pedagogues, students and those who live below the poverty level – all who enjoyed the state-financed health-insurance packages through insurance companies since 2010.
In 2010, the libertarian-economy-inclined ex-power decided to reform Georgian insurance system and hospital sector by handing the operation and administration functions to commercial industry completely. To this end, the state divided Georgian regions as separate lots, held the tender on obtaining the three-year exclusive right of hospitals construction-rehabilitation-management in each lot coupled with the exclusive right to be the health-insurance provider to the state-supported beneficiaries in the auctioned regions. By handing the state-insured people to the commercial sector the ex-authorities hoped to develop the sluggish insurance market on the one hand, and provide regions by 100 new state-of-the-art hospitals’ service.
As a consequence health insurance became the leading insurance product, making approximately 70% of total insurance premium portfolio. The share of the state-financing channel also stood around 70%: by data of 2012 out of 2.4 million people holding health insurance packages in Georgia 1.775 494 were the state-beneficiaries. On the other hand, granting exclusive rights to insurance companies on both hospital-management and health-insurance deprived consumers of the right to choose a provider that led to market monopolization, violation of consumers’ rights and corruption schemes thanks to which certain insurance companies enjoyed 60% of profit in 2010.
However, as the awareness of consumers increased the profit figure decreased that hardly might offset the burdensome investments of GEL 180 million made in construction of 100 new hospitals. Consequently, some companies went bankrupt and merged with more successful peers starting 2011. More market consolidation and mergers are expected now when insurance companies are cut out of the guaranteed 70% of the state-money injections as new government decided to adopt the mixed European health insurance model based on both state and commercial sectors alike.
According to the new system, the State Fund takes charge of the state-supported beneficiaries number of which enhances to 2 million in 2013. Initially the State Fund will provide them by minimal insurance package worth of GEL 5 per person [since February] securing just emergency medical aid and ambulance service. This package will transform to basic GEL 15 worth package starting July 1st that includes free childbirth service in addition. GEL 505 million will be spent on this kind of the state health insurance this year. More detailed information on the State Fund administration and insurance service mechanism will be disclosed later, government says.
What is completely clear at the moment is that the commercial sector needs to develop its creative skills to find a way out to reimburse the 70% loss in medical insurance financing that helped companies to balance the burdensome investments in hospital sector. Sector pundits recommend development of other insurance product specifically agriculture insurance that is so insignificant at the moment that companies cannot name its share in their product portfolio. Agriculture insurance seems promising after government made agriculture as a key priority starting this year and plans to invest hundreds of millions in this sector that cannot be done without proper insurance. Consultations have already started between the state and insurance sector to this end.
According to Giorgi Gigolashvili, Head of Georgian Insurance Institute, the change may be more afflicting to insurance companies that were focused on health-insurance alone. However, situation is not hopeless as the state takes over just insurance of the cheapest basic packages while the most demanded packages start from GEL 35-40 and going as high as GEL120-150 providing with bigger insurance limits, better service and broader choice of provider hospitals.
“Insurance companies may work on better quality service packages in health-insurance and be focused more on corporate insurance and go gradually on the underdeveloped private insurance too. They need to be more creative and attract consumers by high quality service,” Gigolashvili said.
He expects the market to become healthier as a result of the change that draws a clear line between the state and commercial insurances for the predecessor system [that made kind of addicts of insurance companies dependent on the state injections] was extremely sophisticated and confusing.
Tinatin Stambolishvili, Marketing Manager of GPI Holding, one of the leading insurance companies, expects the change to be less painful to GPI Holding as health insurance covers just around 30% of its portfolio and the company thinks of other products development, especially agriculture. However, Stambolishvili acknowledges that pay-back of the investments made in the hospital sector remains the key problem.
“We invested GEL 30 million in construction of 16 hospitals and our interests should not be overlooked,” she said.
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