L&M Finance Group


The second of six planned sectoral documents called "The Future of Regulation of the Insurance Market in Ukraine" has appeared on the website of the National Bank of Ukraine. The book describes the current state of the market, problems and planned changes, as well as individual issues of market regulation. The ultimate goal of introducing a new model of market regulation, described in the book, should be the creation of a solvent, sustainable, competitive insurance market with proper protection of the rights of consumers of insurance services.
According to the information provided by the NBU as of September 30, 2019, 234 insurance companies were registered in the State Register of Financial Institutions. Nevertheless, a number of problems that have developed and have existed for several years do not allow the insurance market to develop effectively. Among the key problems, the NBU notes the following:
  1. Low solvency and liquidity (under current regulation, insurance companies can significantly lower reserves and overstate assets, which does not allow an objective assessment of solvency).
  2. Imperfection of business models of insurers (the vast majority of insurance companies in Ukraine operate without a clear development strategy and business model. Insurance activity is carried out more likely with the aim of withdrawing capital or optimizing taxes).
  3. Insufficient market transparency and problems in corporate governance (lack of mechanisms for monitoring the proper disclosure of the ownership structure of insurance companies, lack of standards and requirements for the business reputation of owners and persons performing key functions in insurance companies).
  4. The problem of protecting the rights of consumers of insurance services (in Ukraine there is no mechanism for guaranteeing insurance payments under long-term life insurance contracts).
The solution to these and other problems is proposed in the new model of market regulation, according to which such measures will be introduced:
  1. Licensing.
1.1. Changing the procedure for entering the market (reducing the number of procedures for the licensee).
1.2. Combination of activities (transition from licensing of certain types of insurance to licensing by insurance classes).
1.3. Compulsory types of insurance (a substantial reduction in the types of compulsory insurance, which are currently irrelevant) is planned.
1.4. Authorization of insurance intermediaries (implementation of authorization of insurance and reinsurance brokers, insurance agents and financial consultants).
1.5. Business plan (the regulator will evaluate the business plan before issuing a license).
1.6. Transparent ownership structure, obtaining approval for the acquisition of substantial participation (full disclosure of information about the structure and beneficiaries).
1.7. Corporate governance (assessment of the corporate governance system at the stage of obtaining a license).
1.8. Tighter requirements for key persons (governing bodies, financial monitoring and internal audit, accountant).
1.9. Creation of an effective system of internal control and risk management (the requirements for such components will be established by the regulator).
  1. Norms and solvency.
2.1. Requirements for capital (reduction of requirements for authorized capital).
2.2. Assessment of the value of assets and the adequacy of the formed reserves (increasing requirements for the acceptability of assets, development of recommendations and requirements for assessment procedures for required reserves).
2.3. Strengthening the role of actuaries (revision of requirements for actuaries).
  1. Prudential supervision.
3.1. Assessment of current and future solvency and identification of existing and potential risks for solvency at earlier stages.
  1. Consumer protection and proper market behavior.
4.1. Development of a system of legislative guarantees to avoid: the sale by insurers and intermediaries of products that do not meet the needs of customers; deceptive claims settlement practices; the promise of unrealistic benefits; incomplete disclosure of the real value of products; deceptive advertising and sales promotion practices.
  1. Financial monitoring.
Implementation of all necessary measures and actions for financial monitoring in order to prevent money laundering and terrorist financing.
  1. Reporting and external audit.
6.1. Simplification of the process of generating and reporting in a standard format.
  1. Termination of business and exit from the market.
7.1. The exit of the insurance company from the market should not violate the rights of consumers of insurance services and should be accompanied by the maximum possible volume of fulfillment by the insurance company of its obligations to customers and creditors.
  1. Legislative changes.
8.1. Development of a regulatory framework taking into account EU legislation, work on a number of new ones and improvement of some old legislative acts.
We remind you that from July 1, 2020, the NBU becomes a regulator and supervisor in the insurance market. The NBU is confident that through the implementation of the program "The Future of Regulation of the Insurance Market in Ukraine", the National Bank will be able to build a strong insurance sector that can qualitatively perform its main function - to protect the population and business from possible losses in the event of insurance events.