The Bank of Russia is preparing to launch a new type of insurance products on the market – equity life insurance. Differing from the existing policies of life insurers, they will be more risky investments and the absence of guarantees of a full return of the deposited funds to the client. To start selling new policies, the Central Bank proposes to unify the licenses of insurers and management companies (MC). Experts do not expect a redistribution of the trust management market, but they assume a significant – up to 80% – decrease in sales of investment life insurance (LIH).
As it became known to Kommersant, within the framework of the licensing reform, the Central Bank plans to combine licenses of management companies and life insurers. This is stated in the regulator’s letters sent to market participants and to the Ministry of Finance (Kommersant has it) on the development of the institution of equity life insurance in the Russian Federation. The “road map” for the formation of affordable finance for launching an investment boom in Russia, which the government and the Central Bank are working on (see Kommersant, May 17), involves the launch of equity accumulative (investment) life insurance (unit-linked) instruments until the fourth quarter 2022 – “in order to attract individuals to finance projects with the exclusion of regulatory arbitration with other investment products.” For the development of the institution of equity life insurance in Russia, the Central Bank “offers to provide the life insurer with the opportunity to obtain a license of a management company to carry out activities for the management of investment funds, mutual investment and non-state pension funds (hereinafter referred to as the MC license), and the management company – to obtain a voluntary life insurance license” said in a letter to the regulator.
Equity life insurance is a combination of insurance and investment services. Such a policy has four fundamental differences from the life insurance programs existing on the market, Viktor Dubrovin, vice president of the All-Russian Union of Insurers, explains to Kommersant. The first is a significant expansion of the list of assets in which the insurer can invest the client’s money (now – only in securities of the highest level: government, municipal bonds, corporate securities with the highest ratings). “Higher-yielding investments are fraught with risk, hence the second feature of such programs,” says Mr. Dubrovin, “capital protection does not work”. Now it is “sewn” into all life insurance products and means the return to the client of all or part of the funds contributed by him to the insurer upon the expiration of the contract. The third difference is that since the new product is more risky, it will only be available to qualified investors. Finally, the fourth – unit-linked policies have a longer contract period, during which the client can change assets: buy in addition, get rid of them, manage the size of the insurance component – shift investment income into it. Ultimately, this allows, having made money on investments, transfer them to the insurance part and receive survival payments or medical services.
For 15 years, insurers have been trying to convince the state to allow them to sell such products, but this requires a global revision of not only insurance legislation, but also the Civil Code, the Tax Code, and accounting, while the authorities have only begun to stimulate the entry of a private investor into the market in the last few years.
Management companies are not afraid of the appearance of such products and a general license. According to Vasily Ivanov, Managing Director of Otkritie Management Company, a number of leaders in the asset management and life insurance market belong to the same financial groups, and the consolidation of licenses will not lead to a redistribution of the market, but will contribute to the consolidation of subsidiaries (management company / insurance company) and, accordingly, increase capitalization, operational efficiency and reliability of management companies. “Competitive products are likely to be excluded, making it easier for customers to choose,” he concludes.
“Mixing licenses is not a threat,” Vladimir Kirillov, general director of TKB Investment Partners, agrees. “It can be said unambiguously that this will lead to a significant increase in the assets of mutual funds, to a variety of insurance products, and to attract more clients. This creates new opportunities and flexibility in the creation, product management and promotion of mutual funds, ”he told Kommersant.
“Unit-linked products cannibalize not the trust management market, but the ILI market,” says Viktor Dubrovin. “They can“ eat off ”70-80% of it, since they will be spared all ILI diseases – purchases without understanding the essence of the product. In addition, they will allow the novice investor to take a little more risk, counting on a higher return. “