Insurance Sector Fancies Bailout
05 September, 2013
Insurance Sector Fancies Bailout
The final decision on imposing financial moratorium on the Georgian insurance sector as a state bailout will be reached only after the perusal of financial papers of insurance companies that are expected to be submitted to the Inter-Structural Commission by September 27.
On August 29, the government decided to announce a financial moratorium starting this September in order to assist insurance companies to escape impending bankruptcy on the one hand, and prevent escalation of problems in health insurance on the
other. The point is that insurance companies face penalties for unfulfilled obligations as of September 1, which is a deadline for completing hospital projects undertaken by the companies for the State in frames of the tender, which they won in 2010. Only two clinics are through out of the total 12 projects and the remaining part is still far from completion, which means thousands of fines to the already indebted insurance companies facing difficulties since 2011. However, if private insurance companies go bankrupt, the health insurance burden, assumed by the companies will automatically fall under the state responsibilities that require unforeseen extra state budget allocations and human resources. To alleviate the situation the state decided to give a certain preferential period to companies to enable them surmount difficulties that seems a win-win deal. The state howeven changed it mind on September 2 by delaying the final decision on moratorium by the end of the month. According to Lasha Nikoladze, Head of Insurance Regulatory Service of Georgia [an independent regulatory of the insurance sector], they will scrutinize on the financial papers of companies and outline recommendations on the basis of which the authority will decide whether companies deserve revision of contract terms.
“Companies have to make clear in their financial papers that they face losses and difficulties due to contract terms and if the state inspection agrees with their calculation, penalties will be suspended, whereas the entire contract terms will be revised,” - Nikoladze said in the interview to Georgian Journal. “Until making the final decision, insurance companies will pay no penalties as far as there was a kind of unfair approach built in contracts respective to penalties. Companies which took over the state property or land sites [for hospital construction] from the state free of charge [as far as they obliged to invest in construction and management of hospitals afterwards] a year ago are responsible for penalties; while companies who bought the lands and property from the state are exempted from fines. This kind of dual approach is weird and should be streamlined.”
Once the growing insurance sector has faced losses since 2011 due to the large portion of health-insurance making around 70% in Georgian total insurance portfolio and involvement in hospital sector construction/management taking around GEL 200 million of investments still pending for paying-back. In consequence, Alfa insurance company has already quit the market leaving its clients on behalf of the state insurance and more similar scenarios seem in store if no aid will be provided to the private sector. The sector pundits ascribe the problem partly to the state crack-down during the ex-power in 2010 that nearly blackmailed the insurance companies to participate in the social health insurance project, as well as rehabilitating the hospital sector. On the other hand, they believe bad management led companies to the problems which they face at the moment. As far as bankruptcy of private companies will bring a bigger headache to the State, analysts believe the State is better to provide a one-time bailout to companies in order to escape social and budgetary problems.
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