Georgian insurance sector faces new reality
15 May, 2014
The Georgian insurance sector faces a new reality which holds out the prospect of reduced incomes. But the future also holds an increased stability and higher profit if insurance companies maintain a good management, sector pundits say. The Georgian insurance industry is at a turning point. The state supported a four-year medical insurance program for socially vulnerable people which comes to an end this year and the private sector should go ahead with only the sale of corporate products. In
fact, this social medical insurance was quite a controversial product which led companies to high profits. Profits soured around 60% during its early phase, but eventually ended with huge losses fluctuating between 90-100%. The insurance scheme consisted of two major parts: one included medical insurance of pensioners, students and children less than five years old, and another included pedagogues, people with restricted abilities, and people below the poverty level. Both groups are estimated as at a high risk for health insurance products since the major part of the demand comes on them. Initially, companies were reluctant to participate in the tender, which was announced in 2010 by the previous authorities, to deliver healthcare insurance services to these risk groups.
The reason for this was that the authorities offered packages at an unreasonable pricing which was much below the market price for companies. However, after some blackmailing on the part of the state companies they agreed to it. Nevertheless, Giorgi Gigolashvili, Head of the Georgian Insurance Institute, believes that some agreed willingly to this because of the anticipated high profits they would receive out of guaranteed state funding while the demand was expected to be low because of a low awareness level of the targeted beneficiary groups.
As awareness increased, the demand went up and companies witnessed losses. Some went bankrupt and some merged with other companies. On the other hand, international research showed that they failed to deliver quality services. After the power shift in the fall of 2012, the new authorities decided to take responsibility for the medical insurance of socially vulnerable groups when the four-year program expired. In February 2013, the government started with an overall health insurance which only includes basic medical service to those who were not covered by either the state or a corporate insurance company. When, this year, the medical insurance of socially vulnerable people expires the overall state insurance will gradually take over by end of the year. Starting from April 1 it already took over the insurance of pedagogues, of persons with disabilities and of people living below the poverty level. The remaining groups will tentatively be covered starting from September. Commensurately, the private sector loses its high premiums averaging GEL 250 million paid by the state every year for the healthcare of socially vulnerable people. On the other hand, they will be free of the high losses they suffered due to the high demand of these state programs. The insurance industry earned roughly GEL 233 million in premiums over the past year through the state health insurance programs while they paid out around GEL 226 million in compensations. Lasha Nikoladze, Head of the State Insurance Supervisory Agency, believes the removal of risk target groups creates a new development opportunity for the private sector.
“According to the insurance companies, participation in the state insurance programs was financially burdensome. Accordingly, the volume of premiums for companies will also shrink but it will increase their profitability and stability,” Nikoladze said in an interview with Georgian Journal. “It is better to be a small and healthy company than a big one encumbered with liabilities.”
According to him, over the last 17-18 years the insurance industry could only insure half a million people out of the 4.5 million Georgians, while the recently launched overall state insurance covered 2.2 million people only in the past year. This is a potential market for the private sector too since the already performed basic packages give an impetus for the development of VIP packages.
“These 2.2 million people who could not afford medical insurance before are now potential clients for private companies if they can offer services beyond the basic needs. They can add money on basic packages and receive the more expensive service which they could not afford before,” Nikoladze elaborates. As a result, Gigolashvili expects healthier competition between companies on the market and foresees cheaper prices for consumers.