Life Insurance in the United States of America
US Life Insurance
The US insurance market is the most developed insurance market in the world. Against the general background, personal insurance stands out, which has received sustainable development. It includes life insurance, annuity or pension insurance, as well as health and accident insurance.
Life insurance in the USA exists since 1830.
Now life insurance is a strategically important industry that provides investment in the economy and the solution of social problems of society. Since time immemorial, life insurance has become more than just an inventory, thanks to which people can save money, make a profit from investments, provide pensions and medical service has become a specific industry aimed at the most diverse needs of clients: buying a home, paying for children’s education, minimizing taxes and much more. . For the United States, it is typical that life insurance companies often trust more than banks.
An important area of activity for American insurance companies is life insurance. Life insurance, offering a wide range of insurance guarantees and investment services, allows a person to solve a whole range of socio-economic problems. Conventionally, these tasks can be combined into two groups: social and financial. The implementation of the former allows overcoming the insufficiency of the state social insurance and security system. The implementation of the latter, on the one hand, contributes to an increase in personal income, and on the other hand, provides the necessary guarantees for a number of financial and credit operations.
In the USA, there are various types of personal insurance contracts:
- · Ordinary life insurance provides for the payment of the insurance premium for the life of the insured person;
- · Life insurance, limited in term, provides for the payment of the insurance premium for a certain period in installments or in the form of a lump sum payment of the entire necessary amount, after which the insurance policy is considered paid. The amount specified in the insurance contract is paid at a time in case of death of the insured person;
- · Insurance, which provides for the payment of the entire insurance amount upon the expiration of the number of years specified in the policy or in the event of the death of the insured person;
- · Contingent death insurance only for a certain short period of time (usually several years). A typical insurance case is the life insurance of the debtor for the duration of the loan;
- · The most popular type of insurance is universal insurance. Its essence lies in the fact that the amount of annual payments is determined independently by the person who takes out insurance. The company distributes these payments into three categories: one part goes to the accumulation of the main amount of payment in the event of the death of the insured employee, the other to a special bank account, which accrues interest, and the third to cover the company’s expenses. In annual reports, the company indicates which accounts and what amounts were received during the year.
Here I want to say a few words about another type of personal insurance – medical insurance. American healthcare is one of the largest industries in the country. In the United States, health insurance is voluntary and almost entirely provided by employers. Health insurance is the most common type of insurance at the place of work, but employers are not required to provide it at all. Not all US employees receive such insurance. Nevertheless, in the largest companies, health insurance is almost an integral condition, and in 2005 it covered about 75% of the US population .
There are many types of health insurance. The most common is the so-called compensatory insurance, or “service charge” insurance. Under this form of insurance, the employer pays the insurance company an insurance premium for each employee secured by the relevant policy. The insurance company then pays for the checks submitted by the hospital or other medical facility or doctor. This way the services included in the insurance plan are paid. Typically, the insurance company covers 80% of the cost of treatment, the rest must be paid by the insured.
There is an alternative – insurance of the so-called managed services. The number of Americans covered by this type of insurance is growing rapidly. In this case, the insurance company enters into contracts with doctors, other medical professionals, as well as with institutions, including hospitals. For the provision of all services provided by this type of insurance. Usually, medical institutions receive a fixed amount, which is paid in advance for each insured.
The differences between the two types of insurance described are very significant. In case of “service fee” insurance, the cost of services that are actually provided to patients is paid. When insuring “managed services”, medical institutions receive only a fixed amount per each insured patient, regardless of the volume of services provided. Thus, in the first case, health care workers are interested in attracting clients and providing them with various services, while in the second case they are more likely to refuse to appoint additional procedures for patients, at least they are unlikely to appoint them more than necessary.
Currently, the US government also pays more than 40% of health care costs under the main programs – Medicaid and Medicare. In accordance with the Medicare program, insurance is provided for all Americans over 65, as well as those who are approaching this age and who have serious health problems. The Medicare program is partially funded by a tax levied on all employees — both wage earners and employers. In general, this tax makes up about 15% of the income of employed Americans. In addition, Medicare is funded from general income tax revenues. The Medicaid program provides insurance for low-income Americans, mainly women and children from poor families. The program also pays for staying in nursing homes for those
However, there are many Americans who are not covered by any type of insurance. Many of them work, but employers do not provide them with health insurance. At the same time, these people are too young to meet the requirements of Medicare, do not belong to the category of unsecured, and the Medicaid program does not apply to them. The number of uninsured Americans, according to various estimates, ranges from 20 to 50 million people. (8-20% of the population).
Most of the cost of medical services in the United States is covered by voluntary health insurance , which is paid by employers, as well as by the government. However, citizens account for a significant portion of the costs of medical services provided. These payments are considered to be a regulatory mechanism and a corresponding reduction in costs (if an employee pays part of the expenses on his own, he rarely visits a doctor).
One of the basic principles of medical insurance is the high efficiency of medical care. As for the costs of treatment, the insurance company covers the costs associated with the use of the only correct method of treatment with a high coefficient of positive result. Of course, the cost of heart surgery is very high, but still less than the cost of drugs that must be taken for a sufficiently long time. And the effect of conservative therapy is not always desired. Therefore, insurance companies prefer to bear high costs, but once.
Americans are serious about their health. On the one hand, insurance companies protect their clients from unprofessional medical care, on the other hand, Americans trust their doctors and do not buy medicines without the recommendation of a specialist. According to the latest data, 373.5 million insurance policies operate in the USA. But this is 100 million more than the total population of the country. The fact is that this number includes both individual and group insurance, and many Americans have both. The total amount for which the Americans are insured is 13 trillion. 200 billion dollars. The average amount that an American family is insured for is $ 165,800.
Life insurance in Russia.
Over the past seven years, life insurance has shown a discontinuous development dynamics. The drop in fees by 2006 was due to the curtailment of the insurers’ schematic business (according to experts, the share of schematic operations in life insurance continued to decline gradually and further, up to 12.9% in 2009). Market contraction between 2007 and 2009 occurred under the influence of the global financial crisis (in 2008, the life insurance segment dipped by 17%, in 2009 – by another 15%). medical insurance premium investment
In 2010, the downward trend in life insurance premiums was reversed: over the year, this segment grew by more than 6 billion rubles, demonstrating the highest growth rates (144%) among other types of insurance. In 2011, the trend of accelerated development of life insurance intensified: in the segment as a whole, the annual growth rate of insurance premiums increased to 153%. The volume of the life insurance market by 2012 increased to 34.7 billion rubles, having increased by 12 billion rubles over the year. Outpacing growth rates in life insurance led to an increase in its share in the structure of the total insurance premium (without compulsory health insurance) to 5.2%.
The life insurance market, as well as the Russian insurance market as a whole, is characterized by significant geographical imbalances. The prevailing volume of operations (52% in 2011) is concentrated in one constituent entity of the Federation – Moscow. Moreover, due to growth rates exceeding the average Russian level, there is a further increase in the concentration of life insurance operations in this region.
A very high level of concentration of operations is also characteristic. The top ten leaders accounted for more than 82% of insurance premiums, and it was during the last year that the concentration coefficient increased by almost 10 pp
The list of leaders has remained virtually unchanged compared to 2010, supplemented only by Raiffeisen Life Insurance Company LLC. All insurers included in the TOP-10 ensured the growth of their portfolios, but the growth rate of the insurance premium varied significantly: from 30% – OOO Generali PPF Life Insurance, up to 184%, OOO IC SOGAZ-Life, which led to a change in the rating positions of all insurers in the top ten leaders (with the exception of ZAO Russian Standard Insurance). An example of the company is especially revealing. “Rosgosstrakh-Life”, uv which increased fees by 1.7 billion rubles and moved from third to first place in the ranking, as well as SOGAZ-Life, which achieved almost three-fold growth in premiums and an increase in market share by 4.2 percentage points over the year.
Analysis of the structure of the life insurance market revealed three segments.
The prevailing volume of operations (84%) is insurance against death, surviving to a certain age or period or the occurrence of another event. This segment is developing at an accelerated pace and over the past two years has grown in volume from 12.6 to 29.1 billion rubles, increasing its share in the overall structure of the life insurance market by 4 pp. In 2011, the dynamics of operations in this segment ( + 158%) exceeded the growth rate of the life insurance market as a whole by 5 pp. The predominant part of insurance premiums (79%, or 23 billion rubles) in this segment comes from individuals. However, in 2011, a marked increase in interest in insurance against death and / or survival by corporate clients was expressed in a twofold increase in the insurance premium. The number of newly concluded contracts with legal entities exceeded the number of existing ones by 1.5 thousand. 54% death and / or survival insurance operations are concentrated in Moscow, where over the past year they have increased in volume by 69%. The leadership in collecting premiums in this segment, as in 2010, belongs to CJSC “Insurance Company ALIKO” (4 billion rubles, or 14% of the market), LLC Alfa-Insurance – Life (13%), CJSC Russian Standard Insurance “(11%).
The second largest segment is insurance with the condition of periodic insurance payments (annuities) and (or) with the participation of the insured in the insurer’s investment income. According to the results of 2011, the share of this segment in the structure of the life insurance market remained at the level of 2010 – 13%. The growth rate of fees in this segment, despite some lagging behind the previous year, was high (159%) and ensured the receipt of insurance premiums in the amount of 4.6 billion rubles. The premium structure is dominated by revenues from contracts with individuals (4 billion rubles, or 88%), which over the past year have grown by 71%, while revenues from legal entities – by only 7%. The low number of existing (1675) and newly concluded (542) contracts with legal entities indicates a decrease in their interest in these types of life insurance.
For the life insurance segment with periodic insurance payments and / or with the participation of the insurer in the investment income, smaller territorial imbalances are characteristic. Moscow accounts for only 34% of collections in this segment, but over the past year there has been a very high growth rate of 194%, due to which the region’s share has increased by 6 pp. Insurance Company LLC has been the undisputed leader for many years. Rosgosstrakh-Life, which raised 2.5 billion rubles, or almost 53% of the premiums in this area of business. In second place, LLC Insurance Company ROSNO Life Alliance (0.8 billion rubles, or 18%) ), and in the third – LLC Alfa-Insurance – Life (6.5%).
The third segment – pension insurance – has the lowest share in the volume of the life insurance market – only 3%, and compared to 2009 it decreased by 5 percentage points. The pension insurance market showed a decrease in contributions by 370 million rubles, or 27 %, compared with 2010, decreasing to 1 billion rubles. In contrast to the two segments considered, pension insurance is characterized by a predominance of revenues from corporate insurers (0.75 billion rubles, or 75%). However, over the past year, the volume of insurance premiums received from legal entities fell by 454 million rubles, or by 38%, while the fees under contracts with individuals increased by 81 million rubles, or by 49%. 8059 agreements were again concluded with individuals, while only 328 with legal entities.
Pension insurance is characterized by even greater regional imbalances: 76% of operations are concentrated in Moscow, but over the past year the share of this region decreased by 16 pp due to the presence of negative dynamics (-505 million rubles) amid the development of pension insurance in all other federal districts with growth rates from 181% – in the Volga and North Caucasus, up to 366% – in the Far East. But, despite the high positive dynamics, the regional pension insurance markets are very small, so their combined growth of 132 million rubles, or 120%, could not compensate for the sharp reduction in the volume of pension insurance in Moscow and restrain the narrowing of the Russian pension insurance market.
The difference in the pension insurance segment lies in the smaller number of insurers: the receipt of insurance premiums in this segment in 2010 – 2011. had about 20 companies. The top three insurers with the largest fees account for nearly 68% of operations. Last year, the leader of the pension insurance ZSAO Geopolis, which owned 64% of the pension insurance market, in 2011 had a premium reduction of 680 million rubles. (or more than 4 times), in connection with which the market share of the insurer decreased to 20% and it moved to third place. SOGAZ-Life IC, by contrast, achieved a 4-fold increase in revenues, securing 25% of the market and moving from fourth (in 2010) to first place. The second was retained by ALIKO Insurance Company LLC: revenue growth of 55% and an increase in the share of the pension insurance market to 23%. Thus, the current state of the Russian life insurance market is characterized by: 1) the presence of high growth rates, especially in the segments of corporate insurance against death and / or survival (202%) and retail insurance with periodic insurance payments and participation in the insurer’s investment income (171% ); 2) a significant predominance in its structure of operations for insurance against death and / or survival (84%); 3) a high level of concentration of operations in Moscow (52%); 4) a significant predominance of revenues under contracts with individuals (79%) and 5) a very high level of concentration of operations. especially in the segments of corporate insurance against death and / or survival (202%) and retail insurance with periodic insurance payments and participation in the insurer’s investment income (171%); 2) a significant predominance in its structure of operations for insurance against death and / or survival (84%); 3) a high level of concentration of operations in Moscow (52%); 4) a significant predominance of revenues under contracts with individuals (79%) and 5) a very high level of concentration of operations. especially in the segments of corporate insurance against death and / or survival (202%) and retail insurance with periodic insurance payments and participation in the insurer’s investment income (171%); 2) a significant predominance in its structure of operations for insurance against death and / or survival (84%); 3) a high level of concentration of operations in Moscow (52%); 4) a significant predominance of revenues under contracts with individuals (79%) and 5) a very high level of concentration of operations.
One of the main factors in the accelerated development of life insurance was the post-crisis recovery in retail banking lending, accompanied by borrower life insurance. The development of various sales channels (agent, corporate, partnership) and an innovative approach to the development and promotion of insurance products also had a positive impact. According to A. Bondarenko, managing director of Rosgosstrakh-Life, in the life insurance market as a whole, banks provide 70% of sales, their own retail chains of insurers account for no more than 15 – 20%, the remaining 10 – 15% come from corporate contracts . The main circle of clients of insurers is represented by borrowers, banks, life insurance borrowers, financially prosperous enterprises, including life insurance in the social package,
The main trends in the development of the life insurance market are: accelerated growth in transaction volumes; increased concentration of operations in Moscow; increase in concentration of the volume of operations of insurers included in the TOP-10; accelerating the pace of business development by insurers belonging to financial groups, as well as with the participation of foreign capital.
However, despite the high dynamics, the level of development of life insurance in Russia is still extremely low. Only 6% of the adult population use life insurance services. The share of life insurance in GDP is 0.05%, while in France and Japan – 8%, and in the UK – 13%. On average, in terms of penetration of life insurance, Russia is 20 times behind countries with a comparable level of economic development. The density indicator (average per capita life insurance premium) in Russia barely exceeds $ 8, while in Switzerland, Great Britain, Japan it is at the level of $ 3,500, and even in India it is seven times higher ($ 56). The share of the life insurance market in its total volume is: in the UK – 75% (or $ 350 billion), in France – 70% (or $ 187 billion), and in Russia barely exceeds 5% (or $ 1.2 billion) .).
Despite attempts by Russian and foreign insurers to increase Russian demand for classic medium and long-term savings products, the life insurance market is in its infancy. What are the reasons for this situation? The main limiting factors are as follows.
Firstly, life insurance is long-term in nature, and in conditions of political and economic instability, high inflation, long-term investments are not of interest to the population.
Secondly, because of this, it makes serious demands on the financial condition of insurance organizations, since it is based on the process of capitalization of insurance premiums. In conditions of general instability and the possibility of financial crises, the level of confidence in insurers is very low.
Thirdly, it is designed mainly for the middle layers of the population, with a certain excess of income over expenses. In Russia, a sufficiently broad social base for life insurance has not been formed.
Fourth, the cumulative function of life insurance can be realized only if there is a developed investment market. In Russia, such a market is in the process of formation.
Finally, there are no effective economic levers that encourage employers and the public to conclude contracts.
Thus, for most of the population, endowment life insurance is unavailable and uninteresting due to their low income. For a smaller, solvent, part of the population, the unstable financial situation in the country and high consumer inflation reduce the horizon of financial planning and raise doubts about the financial attractiveness and reliability of long-term savings products, including pension insurance. In addition, the development of voluntary risk and cumulative life insurance is hindered by a low insurance culture, insufficient development of the sales network and marketing technologies of life insurers, and the absence of additional financial incentives in the form of tax preferences. Low-cost risk life insurance (only in case of death) is often replaced by the purchase of accident insurance policies.
As of January 1, 2012, bank deposits of the population reached 11.8 trillion rubles, having increased over the year by 2 trillion rubles, or 21%. Why, with such a huge amount of free funds among the population, is the demand for funded products so low? The answer is obvious: the population prefers accumulation rather than protection and trusts banks more than insurers.
Assessing the attractiveness of endowment life insurance, potential customers compare the rate of return on policies with the return on alternative investment options, primarily bank deposits or investment units of mutual funds, and, unfortunately, make a choice not in favor of insurance. Life insurers guarantee income from funded programs at the level of 2 – 5%, i.e. significantly lower interest rates on deposits and inflation in the country. In practice, the real profitability of insurance policies can be higher due to the payment of bonuses, i.e. additional income, which depends on the results of the insurer’s investment activities in a calendar year. So, for example, in 2011, investment income on ruble policies of Russian Standard Insurance CJSC, as in 2010, amounted to 10.7% per annum (with 4.5% of guaranteed yield). In 2010 the actual return on policies of the ROSNO Life Alliance was at 9.7%, SOGAZ-Life – 9.3%, Rosgosstrakh-Life – 9.25%, Alfa-Insurance – Life – 9%. Below the official inflation rate (8.8% in 2010), Raiffeisen Life had a yield of 8%, ALIKO 7.3% and Ingosstrakh-Life 7%.
This level of profitability contributes to the greater attractiveness of endowment insurance, but we repeat that it is not guaranteed and also not higher than the yield on bank deposits and investments in individual mutual funds and non-state pension funds. Instability of the financial market and tight regulation of their investment by the state, which focuses on low-risk and, accordingly, low-yield instruments, hinder the guarantee of a higher percentage of profitability for Russian insurers.
There is no doubt that the widespread introduction of unit-linked investment insurance, which is so popular abroad, will significantly increase the attractiveness of life insurance in Russia. Despite the fact that in Russian insurance legislation there is no such form as “investment life insurance”, insurers were able to propose interesting mechanisms to overcome legislative restrictions that made it possible to bring as much as possible mixed life insurance programs to investment life insurance policies by consumer properties (the policyholder can choose an investment strategy ; limited dependence of the insured amount on investment income; lack of significant guaranteed investment returns; expectation, but not guarantee, of high additional investment income; mandatory presence of a risk component). In 2011, the Pilot program from Aviva, Alfa Finance from Alfa Insurance-Life, Asset + from ROSNO Life Alliance and Investor from Renaissance Life met the similar criteria. According to the international classification, Alfa Finance, Asset + and Investor programs can be classified as “unit-linked indexed programs with additional guarantees”. The safety of the paid contributions, i.e. The insured amount specified in the contract, which may increase due to additional investment income, but cannot decrease. Pilot Program according to consumer properties to the classic unit-linked, i.e. to programs in which the insured amount is completely dependent on investment income. The increase in premiums of companies – leaders in investment life insurance in Russia (ROSNO Life Alliance and Alfa Insurance Life) amounted to 470 and 400%, respectively.
In 2012, the investment insurance market will be replenished with at least two participants: Rosgosstrakh-Life, which has already launched a pilot project, and Sberbank, which bought Alliance Life from the international Allianz group for the development of accumulative and investment life insurance. The new product is designed for people with a monthly income above the average (from 60 – 90 thousand rubles in the regions) and will be offered through a network of Premier branches. Sberbank estimates that about 10% of Russia’s population will be interested in this service.
For the widespread introduction of long-term investment life insurance, it is necessary to make amendments to the legislation: 1) supplement the list of licensed types of insurance with investment life insurance; 2) establish special requirements for the composition and quality of assets in which funds will be invested; 3) allocate infrastructural bonds in a separate class in the list of assets accepted for covering insurance reserves and own funds of insurers, increase the limit on securities with mortgage coverage; 4) introduce a unified approach to the revaluation of assets and insurance reserves for investment insurance; 5) to change the requirements for the ratings of issuers of purchased securities; for infrastructure bonds, an emission rating will be sufficient; 6) introduce preferential taxation of income on infrastructure bonds (similar to mortgage bonds); 7) allow accounting for infrastructure bonds at amortized cost. Additionally, insurers need to expand and widely advertise various options in contracts that reinforce the element of protection for insured persons.
An important factor in the development of life insurance is the high level of reliability of insurers. A clear advantage of accumulating funds on bank deposits is the existence of a system to guarantee the safety of deposits within 700 thousand rubles. To increase confidence in life insurance, it is advisable to create similar guarantee funds directly controlled by the state.
The third factor is the availability of effective incentive measures on the part of the state. In some EU countries, for this, privileges are used for taxation of income, inheritance, etc. Direct state subsidies are less commonly used.
In the Russian tax legislation, the most preferential regime is established in respect of voluntary pension insurance (DPS) agreements at the expense of individuals: in respect of insurance premiums, social tax deductions for personal income tax are established on them (subparagraph 3, paragraph 1, article 219 of Ch. 23 Tax Code) with an aggregate limit of 120 thousand rubles. The benefit means that the taxpayer is able to reimburse 13% of the expenses spent on traffic police. Insurance payments under DPS agreements are not taxable. However, these tax benefits do not have a significant financial effect due to the low personal income tax rate.
Under funded insurance contracts concluded by the employer in favor of the insured employees, organizations have the opportunity to take insurance premiums into account for labor costs (within 12% of them) when calculating income tax on long-term life insurance and DPS (paragraph 16 of article 255 NK). However, at the same time, the organization must include these payments in the base of compulsory social insurance (OSS) insurance contributions at the rate of 30%. This approach discriminates against life insurers compared to non-state pension funds: in accordance with Law 212-FZ, employer payments under non-state pension agreements are not subject to social insurance contributions. It is the unequal tax regime that, in our opinion, is one of the main reasons for the greater popularity of NPFs: at the end of the third quarter of 2011, funds of pension reserves, recorded on pension accounts of NPFs, reached 670 billion rubles, almost 5% of the population are participants in NPFs. Over the past three years, pension contributions collected by private pension funds under non-state pension schemes have been exceeded by 50–60 times the fees of pension insurers.
Therefore, it should be recognized that there is no effective tax incentive for life insurance in the country. It is urgent to eliminate the differences in insurance premiums for OSS of operations under pension insurance and private pension insurance contracts. It will also be relevant to introduce a social tax deduction on personal income tax in respect of long-term life insurance with a simultaneous increase in the maximum amount of deduction to at least 200 thousand rubles. Great incentives to conclude contracts can also be created by establishing a progressive scale of taxation of personal incomes, as well as including part of the inherited property in the tax base on personal income tax.
Thus, in order to ensure stable accelerated development of life insurance in Russia, it is necessary to implement the above measures of state regulation, together with the active actions of insurers to develop and promote innovative life insurance products. Only in this case the forecast of the Center for Strategic Studies “Rosgosstrakh” will become realistic and by 2050 the penetration of life insurance will increase to 2.9% of GDP, and the capacity of this market will increase to 5.6 trillion rubles. (in 2010 prices).
According to the quarterly monitoring of the insurance market, at the end of 2009, out of 7,100 participants in the study, 1,136 people had life insurance, which is 16% of the total sample. The largest number of respondents, about 1/3 of them, is Rosgosstrakh’s clients.
The second place in terms of the implementation of life insurance proposals was shared by Ingosstrakh and Alfastrakhovanie. 14% of respondents used their services (7% each). The third place went to VSK (5%, respectively) – see fig. No. 1. Thus, 4 leading insurance companies account for just over half of those insured in the life insurance segment.