Standing in line at a Moscow traffic-police station, Andrei yearns for the days when no one in Russia had auto insurance. When they got into accidents, Russians haggled over the damages face to face and sometimes even duked it out -- or shot it out -- in the street. But life got more bureaucratic after a new law took effect on Jan. 1 requiring all Russian motorists to be insured. "Now there's a whole pile of paperwork," complains Andrei, who declined to give his last name. He is waiting for a police report to claim $400 in damages from his insurance company after a truck rear-ended his Zhiguli car.
The new law is part of a shift in government policy aimed at nurturing Russia's embryonic insurance market. The government also bowed to pressure from the European Union. On Jan. 16, Moscow opened the once-cosseted domestic insurance industry to foreign companies, which have been prowling Russia for new business. Despite Andrei's complaint, experts predict that, over the next five years, the demand for all types of insurance will explode. "The market is growing in leaps and bounds," says Erhard Joerchel, CEO of Ost-West Allianz in Moscow, the German insurer Allianz' local subsidiary. "It has nowhere to go but up."
True, there's not much money to be made selling insurance in Russia just yet. The value of new premiums came to just $5 billion last year. The average Russian pays a scant $40 annually in premiums; the typical American spends 100 times more. Even Poland spends 3% of gross domestic product on insurance, compared with Russia's 1%.
Only two foreign players have made significant investments thus far. Ost-West brought in $28 million in premiums last year, and Allianz owns 49% of Rosno, Russia's third-largest insurer. And American International Group Inc. (AIG ) set up a Russian subsidiary for corporate clients in 1991 that brings in $60 million in revenue.
But Allianz and AIG will soon have company. In a law that applies to European insurers and their U.S. subsidiaries, the Duma relaxed a ruling in place since 1992 that had limited foreign ownership of companies selling life insurance -- the most attractive product in the industry -- to 49%. Businesses with their eyes on the market include France's Axa (AXA ), the Netherlands' ING (ING ), and Metropolitan Life (MET ) of the U.S., say market sources. No wonder industry analysts predict the market will grow fourfold over the next six years, with annual premiums reaching $24.6 billion in 2010.
STEADY PROFIT-MAKER. In this market, foreigners generally view car insurance either as a low-margin business best left to locals or as a way to trawl for more lucrative contracts. "If someone who has never had insurance is now forced to take out car insurance, he may start thinking about insuring other things," says Joerchel of Ost-West. "His name is in a computer, so he'll start being bombarded with offers."
The steadiest profit-maker is expected to be life insurance, as a growing middle class looks for ways to save money over the long haul. Today, the average Russian spends less than a dollar a year on life insurance -- about one-fiftieth the average in Poland and Hungary. Ilan Rubin, an analyst at United Financial Group, predicts the life insurance market, now worth $115 million, will grow to $33 billion by 2016.
The challenge between now and then will be to build up sales networks from St. Petersburg to Vladivostok. Newcomers are expected to start forming more joint ventures, either with local insurers or with Russia's expanding retail banks, says Alexander Lorenz, chairman of the insurance and pensions committee of the European Business Club, a Moscow lobbying group. Sales agents will soon be knocking on Russian doors.
By Jason Bush in Moscow