return to : MA Projects 


Monterey Institute of International Studies
Graduate School of International Policy Studies
Graduate Program in Commercial Diplomacy


Liberalization of the Russian Insurance 
Market in Light of
Russia ’s Accession to the 
World Trade Organization



MACD Project


Timour R. Karimov



Professor William Arrocha
Professor Geza Feketekuty
Professor Bill Monning

May 3, 2002

Table of Contents  



Executive Summary



Soviet Insurance Industry


Russian Stakeholders

Foreign Stakeholders

WTO Accession Process

Current Insurance Policies

Legal Framework


Economic Analysis

Example of Hungarian Insurance Market

Commercial Analysis

Legal Analysis

Political Analysis






Annex I

Annex II

Annex III

Annex IV



This Project was completed as part of the requirements for the program of Master of Arts in Commercial Diplomacy at the Monterey Institute of International Studies.  

For the purpose of this project, I will assume the role of an independent consultant to the Ministry of Economic Development and Trade of the Russian Federation . In light of Russia ’s ongoing insurance reform and efforts to gain access into the World Trade Organization (WTO), the Minister appointed me to develop a comprehensive strategy for reforming the regulation on the sale of mandatory insurance by foreign insurers.



American International Group


All-Russian Insurance Association  


Commonwealth of Independent States


Center for Strategic Research


Gross Domestic Product


Insurance supervision department of the Ministry of Finance of the Russian Federation


Organization for Economic Cooperation and Development


Russian Union of Industrialists and Entrepreneurs  


Self Regulating Body


World Trade Organization

Executive Summary


The Russian Federal Law on Insurance (1999) prohibits the sale of life and mandatory/compulsory types of insurance by majority foreign owned (>49%) insurers. Foreign participants in the insurance sector are unsatisfied with the level of protection for domestic companies. According to the Law, foreign insurers cannot make investments that would provide control over their Russian subsidiaries without losing mandatory and life insurance licenses. This issue inhibits Russia ’s WTO accession process.


It is recommended that the Ministry of Economic Development and Trade of the Russian Federation initiates a reformulation of Russia ’s WTO accession negotiating position with the view of allowing foreign companies’ access to the domestic non-state mandatory insurance market.  

Such a reformulation, conducted in accordance with the proposed strategy, will help the Russian negotiating team move forward accession talks with their WTO counterparts, while advancing the much needed modernization of insurance related policies and domestic legislation.  

The recommended timeframe for the implementation of the proposed strategy is 2002 through the first half of 2003. At the end of this period, Russian Federation legislation on mandatory automobile owners liability insurance takes effect. This legislation alone will expand the Russian insurance market by $1 billion. The ability of foreign investors to participate in such a large sector of the insurance market guarantees their active support for this proposal and guarantees more effective transfer of new technologies.

Benefits to the National Economy  

Foreign companies’ access to the Russian insurance market benefits the national economy in the following ways:

  • Inflow of additional capital to the insurance sector;

  • Transfer of advanced technology, experience, and education; and

  • Introduction of price competition.

The widely held belief that foreign companies’ access to the Russian insurance market will significantly increase outflow of the capital is disproved by examples in other transition economies. The protection of the domestic insurance market does not solve the problem of capital outflow from the country. Domestic insurance companies equally contribute to the capital outflow through reinsurance and placement of investments abroad. Further elaboration of legislation regulating placement of capital and reinsurance abroad is necessary to address the issue of capital outflow.  

Proposed strategy  

In order to reformulate the WTO accession negotiating position on insurance and to amend existing discriminatory insurance legislation it is recommended that the Ministry builds a coalition that includes the following: the All-Russian Insurance Association (ARIA), the Russian Union of Industrialists and Entrepreneurs (RUIE), the Ministry of Finance, the Prime Minister, and the President.  

The Ministry’s support for ARIA’s strive to become an independent self-regulatory body as well as the explicit intent of the proposed reforms to streamline the insurance regulation will guarantee ARIA’s cooperation. With respect to the matter of the proposed reform RUIE’s membership is interested in speedier accession to the WTO and in being able to bring their own captive insurance companies to the foreign markets. Considering the relationship between ARIA and RUIE, ARIA’s support for reform support of RUIE. The business community’s backing for this proposal facilitates the further strengthening of the coalition by engaging the Prime Minister and the President.  

A coalition built along the lines described above will make possible the implementation of the legislative strategy, that will secure foreign access to the Russian non-state mandatory insurance market. The strategy will ensure passage through the Federal Assembly of sufficient combination of insurance legislations: a) Law on Insurance; b) Law on Insurance Supervision and Regulation; and c) Law on Mandatory Insurance.  



The Russian Federal Law on Insurance (1999) prohibits the sale of life and mandatory types of insurance by the majority foreign owned (>49%) insurers. Citizens of Russia are obligated by law to insure certain types of risks, mostly third party liability. If the law stipulates that an owner or an operator must insure an asset or the liability that might arise  from operating this asset, then this type of insurance is called mandatory (or compulsory) insurance. Currently, mandatory insurance represents 14.6% (or 40.3 billion rubles, 2001[1]) of the total insurance market[2]. Foreign participants in the insurance sector are unsatisfied with the level of protection for domestic companies and their inability to acquire licenses for sale of mandatory insurance.[3]  

The mandatory insurance sector is poised to expand after the upcoming adoption of legislation on mandatory insurance. Foreign insurers invest in the established leaders of the Russian insurance market. Prohibition on the sale of mandatory insurance limits foreign companies’ ability to make additional investments that would secure their control over their subsidiaries.  

Mandatory insurance in the mind of many Russian legislators, government officials, as well as the general public, includes mandatory insurance for government needs; such as military and police force casualty insurance, state property insurance. Mandatory insurance also includes compulsory insurance to be paid by private citizens and corporations like automobile owners, auditors liability, liability from running high risk operations.  

This project addresses only the latter part of mandatory insurance: collected from the private citizens and businesses. This project excludes the consideration of mandatory government insurance for the following reasons: 

  • Such insurance represents part of the social security system of the Russian state, and therefore performs the function slightly different than traditional insurance. For example, social security represents pensions paid to the families of deceased military or police personnel.

  • Government insurance is paid out of the state budget (either federal, state or local level). Foreign companies access to this market is highly unlikely in Russia in the foreseeable future, since it would require the participation of the Russian Federation in the Government Procurement Agreement in some form.

Soviet Insurance Industry

There are two survivors of the Soviet era insurance sector: Ingosstrakh (International State Insurance) and Rosgosstrakh (Russian State Insurance). Over the years of economic reforms both of these enterprises have been privatized to different degrees. Due to the privatization that started in 1991 initial capital of the Ingosstrakh was diluted by 650%. Later, ownership of Ingosstrakh transferred from different industrial groups to a single majority owner Avtobank.[4] However, in late October of 2001 the companies of Nafta-Moscow, Millhouse Capital and SibAl formed an alliance to purchase Ingosstrakh.[5] The new alliance is closely related to the Russian Aluminum Consortium.  

Ingosstrakh has a widely recognized brand in the foreign markets. Ingosstrakh received the golden prize “Brand of the Year/EFFIE-2001” in the nomination “Insurance”.[6] Ingosstrakh has more than 50 years of international market experience. Before the reform, the company’s only drawback was limited to insufficient experience in working in the consumer sector. However, now the company is one of the leaders in all insurance sectors.

Due to numerous dilutions of company’s capital and government’s inability to purchase new stock in the company, the Russian State ’s share in Ingosstrakh has decreased to 2.55% in 2001[7].  

The future of the company’s ownership is indeterminate at this point in time. However, there are speculations that the final recipient of the company’s stock will be AIG.[8] AIG needs the investment in Ingosstrakh to be able to compete with its long-time rival in the Russian market German Allianz AG.  

Fate of Rosgosstrakh is quite different. The company has not been privatized since the beginning of reform. It was only in 2001 that the Russian Government decided to sell 50% minus 1 share of Rosgosstrakh. The Investment Company “Troika Dialog” purchased 9% of Rosgosstrakh for 201 million rubles on September 7, 2001 [9]. After the September auction, the privatization process stalled. However, on October 25, 2001 , the Russian Deputy Minister for Property Affairs of Russia Mr. Braverman announced that the Government will sell 39% of Rosgosstrakh in a single lot. Thus, the government will retain 52% of Rosgosstrakh.[10] The company is one of the leading insurers on the Russian market and it engages in the widest specter of insurance services, some of which are prohibited for distribution by majority foreign-owned insurers. The privatization scheme proposed in October of 2001 allows Rosgosstrakh to observe the prohibition stipulated in the Law on Insurance. Rosgosstrakh possesses a huge countrywide infrastructure – almost 100 branches and 40,000 agents. However, these assets have not been properly accounted for; therefore the company is valued only at $78 million.[11]  

Analysts conclude that Troika Dialog is working on behalf of a foreign player[12], in this particular case - AIG. In early 2002, Troika purchased a second lot in Rosgosstrakh during the privatization auction. Troika’s management introduced new members to the Rosgosstrakh’s board of directors. Troika’s president also admitted that AIG was among the investors who formed the coalition to purchase the Rosgosstrakh.



Russian Federation :  

Ministry of Economic Development and Trade, Minister Gherman Gref.

The Ministry of Economic Development and Trade is responsible for the development of federal socio-economic policy of the Russian Federation . The Ministry also supervises, coordinates, and executes the process of Russia ’s accession negotiations in the World Trade Organization.

The Ministry drafts laws and comments on the proposed legislation that affects socio-economic development of the country.

The Minister officially chairs the new independent think-tank Center for Strategic Research (CSR). CSR produces first-rate economic research on issues related to the ongoing modernization of the economy.


Ministry of Finance, Insurance supervision department ISD

Ministry of Finance through its executive by-laws develops the legal framework for the insurance sector. The Insurance Supervision Department is the main regulatory/supervisory body for the insurance sector.

ISD openly denounces its role in formulating insurance policies – it performs only the supervisory function. However, the Insurance Supervision Department is known for its opposition to foreign companies access to the Russian insurance market.

Currently, the ISD is staffed with almost 200 employees but is unable to successfully perform all its supervisory functions. For example, licensing a company for operations in a certain sector takes more than two months, certification of insurance companies’ managers also takes a long time. ISD used to generate insurance market statistics. All companies are required to submit information, financial statements, and to fill out special supervisory forms. ISD is the organization that possesses the most accurate and updated information about the conditions of the insurance market. Nevertheless, since 2001, ISD stopped providing statistical information about the insurance markets. ISD now only makes available the total numbers of premiums collected, and payments made in five insurance market sectors, as well as a breakdown of these numbers by the seven federal districts.  

Prime Minister

Mikhail Kasyanov, the Prime Minister, and the former Minister of Finance, exercises strong influence over all divisions of the government. At the economic forum in New York , in February 2002, Kasyanov did not exclude possibility of amending legislation prohibiting majority-foreign owned insurance companies from operating in certain sectors of the Russian insurance market[13].

If ISD cannot provide enough arguments for further protection of the insurance market, the Prime Minister will issue an order to reformulate Russia ’s position in the WTO negotiations.  

The President

The Russian Head of State has enormous power and political clout in formulating the policies towards specific sectors in Russian economy. Vladimir Putin is the President who set the Russia ’s accession to the WTO as one of his highest priorities. Liberalization of Russian insurance market is likely to take place within the context of the WTO accession process. President Putin believes that accession to the WTO will positively affect the Russian economy.[14]

Earlier in the 2001, President supported the new tax legislation that exempts insurance expenses from income taxes. This was the beginning of a new policy toward insurance. “The Kremlin started to adopt industry policies founded on a reasonable consensus of domestic interest, instead of the favoritism and privateering of the recent past… when a single American insurance tycoon could purchase letters of demand from the U.S. Congress and State Department, hand-carry them to the Kremlin and the State Duma, and cash them at Boris Yeltsin’s door into special favors for his Russian interest.”[15]

The President not only exerts political pressure in resolving policy issues, but his Administration possesses $600 billion in assets, some of that property requires insurance. The President’s administration is also a big buyer in the insurance market. However, the insurance expenses are to be paid by the enterprises servicing the administration, rather than from the state budget.[16]  

Federal Assembly

Federation Council

The Federation Council (the upper house of the Parliament) after 2001 reformed its procedures for electing its members, which consists of representatives from legislative and executive branches of power of the regions – subjects of the Russian federation . The executive branch appoints one senate member from each region, and the representative legislative body of every region selects another.

The Federation Council structures its work by committees, similarly to the work of the State Duma. The committee important to solving the problem at hand is the Committee of the Federation Council on Financial Markets and Money Circulation. Its chair, Serguei Vasilyev, was appointed by the government of the Leningrad Oblast’ in 2001.

The State Duma

According to the Russian Constitution, the Duma is vested with the power to adopt and change federal laws. In the present political situation in Russia , the Duma has been cooperating much more willingly with Putin’s government on the issues of economic reform.

The Duma structures its work, as any other parliament, by respective committees. The Committee on Credit Organizations and financial markets (CCOFM) deserves special consideration. Its chair, Alexander Shokhin, is a member of the Duma faction “Peoples Deputy”. The faction supports modernization of the Russian economy.

The Committee on Credit Organizations and financial markets contains the insurance Subcommittee. The Insurance Subcommittee is led by Alexander Koval’, a member of the Unity faction. Mr. Koval’ is also the president of the All-Russian Insurance Association.

With the exception to mandatory insurance, the issue of liberalization of the insurance sector is not subject to party politics. Party politics become important only to overcome the Communists’ resistance to the expansion of number of risks to be covered by mandatory insurance.  

Table 1. State Duma factions:


Number of deputies

Faction’s orientation



Pro-Kremlin, Supporting Government’s policies, organized and led by President Putin’s close ally S. Shoigu – Emergencies Minister of the Russian Federation

Fatherland- All Russia


Pro-Kremlin, organized by prominent governors, including Moscow Mayor Luzhkov and St. Petersburg ’s mayor V. Yakovlev

Union of Right wing Forces


Center-right, Supports the liberal economic reforms. Formed by the former Prime-Minister of Russia S. Kiriyenko, Former Deputy Prime-minister B. Nemtsov, and former Head of the Yeltsin Presidential Administration A. Chubais, current chair of the Russian energy monopoly Unified Energy systems.

Liberal democratic party Faction


Organized by the scandalous right-wing politician V. Zhirinovsky. Supports centralization, supremacy of the Russian ethnos.



Organized by the renown economist G. Yavlinskii who supports liberal economic reforms.

Communist party Faction


Supports strong government regulation in all sectors of the economy. Opposes adoption of law on mandatory automobile owners insurance.

Agro-industrial group


Representative of the farming community of Russia . Opposes liberal reforms.

Peoples deputy


Unites independent Duma members. Supports modernization of the national economy

Russian regions


Assembled of the deputies elected from the Russian regions. Interested in establishing effective federation.

Non-affiliated deputies




Russian Union of Insurers  - All-Russian Insurance Association (ARIA)

Russian Union of Insurers unites the best specialist in the insurance field. Many top managers of Russian insurance companies lead working groups within the Union . In July 2001 ARIA’s president Igor Yurgens was nominated as vice president of the Russian Union of Industrialists and Entrepreneurs (RUIE)[17].

In early 2002, ARIA decided to fight for status of independent federal regulatory body. ARIA proposes its own view of the appropriate policy toward the insurance sector. ARIA’s proposal does not contradict the policy proclaimed by the Government; however, it does not cover the introduction of free competition with foreign companies, or granting national treatment to foreign companies.

In February 2002, ARIA members elected a new president of the association – Alexander Koval’ – a current member of the State Duma. He belongs to the pro-president Unity party and does not plan to relinquish his Duma seat. In Duma he is an active member of the Committee on COFM, and a chair of the Insurance Subcommittee. Such a disposition provides ARIA with greater political leverage in the State Duma.

Russian Union of  Industrialists and Entrepreneurs (RUIE)

RUIE was created to represent interests of the largest industrial enterprises and financial groups. Two other industrial associations were formed: OPORA (Union of Entrepreneurial Organizations of Russia) to represent the small enterprises and “Delovaya Rossiya” (Business Russia) to represent the interests of the medium-size enterprises. However, both these organization continue to lack political clout with the executive branch.[18]

The strength of RUIE lies within its board members who are regularly invited to update the President on the current state of the Russian economy as well as the current policy needs of the business community.

RUIE vocally supports Russia ’s accession to the WTO. However, this support is not consensual; in RUIE there is a number of opponents to the WTO accession. The most vocal opposition comes from representatives of еру automotive industry, aerospace, financial services, telecommunications and agriculture.  


Past development of the Russian insurance sector allowed for creation of small regional insurance companies that serve a certain region or a group of regions. Some of those companies are likely to face tough competition from foreign insurers. Governors of Russian regions could be interested in protecting those companies.

Federal legislation assumes universality of federal regulation of insurance throughout the entire territory of Russia . Governors cannot adopt regional insurance policies. Now, after the reform of the Federation Council, Governors will have even less clout with formulating the federal legislation.  

Regulators of different mandatory insurance: firefighters, aviation safety etc. They are likely to be willing to retain control over the mandatory insurance flows associated with their agencies or the supervised economy sectors.  

Foreign stakeholders:

American International Group

AIG is one of the leaders of the global insurance market, which operates in 130 countries. In most of the foreign markets AIG is involved in the life-insurance sector. AIG-Russia was created in 1991 and enjoys full, unconditional and irrevocable guarantees of the parent company[19]. Amendments to the law in 1999 did not affect either AIG or subsidiaries of Allianz AG. Both of these companies were able to grandfather their rights of working in both mandatory and life insurance sectors.

However, AIG-Russia was only able to become a leader in the Moscow regional market for long-term life insurance in 2001. Even though the company has the guarantees of its parent it is only an average Russian insurance company (#56, total premium collected in 2000). It appears that AIG has not been able to become a leader in the Russian insurance market even with the grandfathered rights to work in protected sectors.

Furthermore, these grand-fathered rights do not apply to new investments that AIG has made, namely Ingosstrakh and Rosgosstrakh.

The Government does not plan to fully privatize Rosgosstrakh. Therefore, it is unlikely that AIG’s further investments will limit Rosgosstrakh’s ability to work in all licensed sectors of the market.

Ingosstrakh’s situation is different. Should AIG or other foreign investor acquire more than 49% of the company, Ingosstrakh will find itself excluded from both markets of life and mandatory insurance.  

Allianz AG

Allianz AG is Germany ’s largest and the world’s number three insurer. It has established a Russian subsidiary “Ost-West Allianz”. “Ost-West Allianz” ranks 93 (in total premiums collected, sales) among all Russian Insurers.

In late June 2001 Allianz AG purchased 45% of ROSNO (Russian insurer #3, total premium collected 2000)[20]. Allianz AG finds itself in a situation similar with the one AIG and Ingosstrakh have to face. According to the law, should the foreign-owned company acquire more than 49% in the insurance company, that company automatically is excluded from a number of lucrative sectors of the market.

Besides from purchasing 45% stock in ROSNO, Allianz purchased an option to acquire more shares[21]. Allianz would be willing to execute the option in case the limitation on foreign participation is lifted.

ROSNO represents not only wide client base but it also has quite elaborate regional network of branches.

Igor Yurgens, in November 2001, quit his position as the president of ARIA and assumed a post on the board of directors at ROSNO[22]. Igor Yurgens is considered the strongest lobbyist for the insurance sector. Such a move can be interpreted that foreign capital (Allianz AG – owner of 45% of ROSNO) is hiring the best Russian talent to lobby the Russian Government and the State Duma for liberalization of the insurance market.

Acquisition of ROSNO by Allianz brings qualitatively new client base for ROSNO: foreign companies and their Russian branches. However, it is possible that ROSNO might lose its stronghold in mandatory insurance for federal agencies like Ministry for Taxes and Collections. It is unclear whether the Ministry will favor the fact the foreigners will have access to the data about its employees.[23]  

Foreign governments – members of the working party on Russia ’s accession to the WTO. The most interested WTO members are the United States , Germany , and the United Kingdom , Japan and Switzerland have also voiced concerns about foreign company access to the Russian insurance market.  

[1] All-Russian Union of Insurers, Bulletin of the Committee for Foreign Affairs #3 2001, p.8

[2] Another insurance sector closed to the foreign insurers is life insurance. Markets for mandatory and life insurance develop differently. Life insurance market is qualitatively different form mandatory insurance in the way that life insurance is related to accumulation of long-term capital and is more pronged to perform savings function. For purposes of this project we will focus of access of foreigners only to the mandatory insurance market. This figure includes premiums collected for mandatory health insurance. At present there is a tendency to separate healthcare insurance from the rest of mandatory insurance. As economic and commercial analysis will show, presently, purely mandatory insurance accounts for roughly 1% of the market, however it is poised to expand with adoption of new legislation.

[3] List of national barriers to trade 2001

[4] Pavel Miledin, Ingosstrakh is up for sale again, Vedomosti #202 11-01-2001

[5] Interfax, October 24, 2001

[6] Sergei Ul’yanov, International prize for Russian insurers, Rossiksaya Gazeta #218 11-06-2001

[7] Pavel Miledin, Ingosstrakh is up for sale again, Vedomosti #202 11-01-2001

[8] Dmitri Sivakov Ingosstrakh’s fate, Expert #39 10-22-2001

[9] Pavel Miledin, Rosgosstrakh’s version, Vedomosti #197 10-25-2001

[10] Interfax, October 25, 2001

[11] Dmitri Sivakov, Intervention is continuing Expert #34 09-17-2001

[12] Dmitri Sivakov, Intervention is continuing Expert #34 09-17-2001

[13] Alexander Bekker Citibank and AIG want to expand business in Russia, Vedomosti #016 02-04-2002

[14] Interfax, Russian president about WTO, 10-16-2001

[15] John Helmer, “Putin bets on new policies for insurance”, The Russia Journal June 29-July 05, 2001

[16] Pavel Miledin Presidents administration is choosing insurers, Vedomosti #169 09-17-2001

[17] Pavel Miledin “Yurgens decided to leave”, “Vedomosti” #160 09-04-2001

[18] Alexei Germanovich “medium business behaves like big business” Vedomosti #191 10-17-2001

[19] Pavel Miledin, Sistema has given up ROSNO, Vedomosti #176 09-26-2001

[20] Western Insurance companies Start entering Russian market

[21] Evgeni Reshetin, Intervention, Expert #25 07-02-2001 p 18-21

[22] Pavel Miledin, Yurgens is leaving, Vedomosti #212 11-19-2001

[23] Evgeni Reshetin, Intervention, Expert #25 07-02-2001 p 18-21



Continue to Next Page