Insurance Sector To Be Consolidated
13 October, 2011
Insurance Sector To Be Consolidated

Georgian insurance sector is supposed to shrink under the merger process and new market players will emerge in the development process of the insurance industry facing a 27% loss compared to the past year. 

“Development of state implies that there is a chance that new players will emerge in the sector, mergers of companies is also a possibility, “Giorgi Kadagidze, President of the National Bank of Georgia (NBG), said to media prior to his meeting with the insurance industry on October

5, 2011 during which the NBG discussed its plan of the insurance sector development closely pursued by the central bank.

According to him, a 10-20- person company is already a past for the business as far as it is crystal clear that demands of today cannot be met by such companies  and therefore  consolidation process of companies will go ahead and the number of Georgian insurance companies consisting of 15 companies will decrease.

As Kadagidze maintains, Georgian insurance field has a great potential and is currently following a similar development path that banking sector passed to become a stable and sustainable institution of today.

He promised that not a single consumer’s interest will be harmed in the questioned process and stressed that the most important challenge in the insurance industry at present is to achieve the increased transparency.

Later on certain regulatory norms already in place in the banking sector will be enforced in insurance sector as well aimed at protection of customer rights.

Both the sector representatives and their regulatory body find the company merger process positive to the country of Georgia’s size and see no fundamental problems in the insurance industry despite the 27% higher loss in this past six months compared to the similar period of 2010.

According to official statistics, the insurance industry faced GEL 116 841 080 loss since January of 2011 to June 30, 2011 while the loss figure totaled to GEL 91 842 423 in the similar period of the past year.

The sector representatives downplay with the loss in two quarters as find it not sufficient to estimate the real state of the sector and expect the situation to be improved by the end-year.

Nika Gamkrelidze, head of Aldagi BCI insurance company, finds no reason to worry as far as the industry achievements are estimated on year-over-year basis. He expects the sector data to be recovered by the end of the year.

“Some companies are at loss and some stable at profit,” he said.

According to Kadagidze, one of the reasons the insurance sector faced the loss in the first two quarters is that the health market that is the key part of Georgian insurance sector increased significantly jacking the loss figure up accordingly.

“Awareness in population [of healthcare insurance] increases daily and more and more people appeal to insurance companies each day, that is very positive and accordingly the loss figure increased,” Kadagidze said. “Besides one and two quarter data is not sufficient to dramatize process this is very natural in the phase in which Georgian insurance companies are at the moment.”

However the statistics aired by the NBG shows that the health insurance market rather shrank than increased by roughly 10%  [from 73.18% of the past year to 63.77% this year] and the total premiums attracted by insurance sector during six months through healthcare product reduced by more than 26% from GEL 162 942 966 in 2010 to GEL 120 000 242 this year.

According to Nika Ramishvili, top official of Archimedes Global Georgia, a company focused on healthcare only, this here loss is an aftermath of big investments made by Georgian insurance companies in hospital sector development this year. He does not estimate this year loss as a loss in fact as far as generally the investment year is non-profitable for it is calculated on long-term profit and it should not be compared with any other year.

“This [loss figure] is a medial datum and not alarming at all as far as the insurance industry invests GEL 180 million in hospital sector this year and therefore this year will be non-profitable at any rate. However we should not consider the issue in this short period because when you make big investments you should not expect it to be paid off within a year and go on profit, it is a long-term investment,” he explained to Georgian Journal.

According to Ramishvili, investments made in hospital business generally are paid off in 20 years however Archimedes Global Georgia expects its GEL 5 million [invested in hospital sector development] to be paid-off in 7 years.

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