Igor Marfin  

Insurer’s Friendship with Bank: Ukraine’s Experience of Credit vs Accreditation

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It goes without saying that regardless of the geographical location the interests of lending institutions and insurance companies are bound to meet.  The above mentioned is naturally true for Ukraine. Banks, investment banks, credit unions worldwide always stipulate in their agreements with a borrower that the mortgage be insured properly.  Banks in Ukraine, however, went to greater lengths in this matter.  The listing of accredited insurance companies has become commonplace.  The underlying principle of this phenomenon comes down to limiting the choice of insurers for the borrowers upon the bank’s discretion.  It has both positive and negative effects which will be uncovered next.

The positive effect is important for Ukraine, banking system of which is currently suffering from ongoing crisis , as it should benefit from the situation when there is a chance for every bank  to set certain criteria for insurance company it trusts to do business with.  To evaluate the solvency of the insurance companies bank usually looks closely at their financial statements with the subsequent consideration of the real value of their assets as many insurers have significant bulk of junk securities and assets located in the ATO area which makes the latter actually lose liquidity.

However there is a negative side to this matter as well. In Ukraine banks do not often have the best client’s interest at heart.  Instead, the possibility to gain more profit comes first.

Banking in Ukraine witnesses the positive concept of insurance companies’ accreditation being abused in two different ways. 

First one is when banks in Ukraine with significant presence in different regions face their top and even lower managers trying to bias their clients to work with a particular insurance company from the list of the accredited ones without giving them any opportunity to make their own choice. The best solution to this matter is to use insurance broker’s services to negotiate the policy both with bank and the insurer as the broker has the full and current list of accreditation. In Ukraine bank sometimes can have a so called captive insurance company within its structure so that all the borrowers are directed there to get their policies. That is the second way to do it.

The actual nature of the arrangements between banks, even Ukraine’s systemic ones, remains confidential, but there has been evidence that in Ukraine bank requires that the insurance company place the substantial deposit with it and/or even pay some share of its insurance premiums in order to obtain and maintain accreditation and clients coming from the bank. Ukraine unfortunately does not have effective instruments to diminish such cases completely yet. What is more when it comes to the issue of the insurers’ accreditation in a bank Ukraine finds itself one few countries with the similar problem. However the situation is likely to improve at least in terms of the insurance companies which appear on the list of accreditation. It is worth mentioning that some measures are being taken in Ukraine to protect bank from choosing the wrong insurer. State Commission for Regulation of Financial Services Markets in Ukraine ruled that as of December 31, 2015 all the insurers are bound to have reduced the share of stocks in their assets from 30 % to 10 %, and the share of real estate from 30 % to 15 %.  Besides, the objects of their investments will have to be rated higher than BBB at a national scale. And last, but not the least - in Ukraine both bank and insurance company tend to value co-operation with the insurance broker protecting their client’s interest before them both. 


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