From Fear to Confidence: How to Stay Calm During Crisis

The base in the the word “insurance” means “fear” in Ukrainian and “sure” in English.  It well may be that this etymological difference defines the different attitude towards insurance as the whole. In Ukraine people insure to get rid of fear while in the Western Europe or the USA they insure to ensure their confidence in what tomorrow brings.  Nevertheless the profound understanding of the benefits of insurance as an effective means of securing financial welfare is gradually catching on. This is especially evident in the period of economic downfall.  The statistics back up this trend showing that the number of insured events increase during the crisis years.  Below are the grounds for this pattern.

Reason # 1. Lower quality of life entails rise in crime.

Break-ins and bald car thefts have become ordinary occurrences in our society. Even video surveillance or guarded parking does not guarantee the safety of the vehicles. Insurance, on the other hand, does.  Winston Churchill used to say “I do not know a single family which went bankrupt by paying insurance premiums. But I do know some who did by not paying them”.  Malicious mischief insurance becomes the most requested nowadays.

Reason #2. Saving on fire security means, security systems and employees’ pay.

Lately merely to survive has become the principal goal of the majority of Ukrainian businesses. Companies are forced to cut their expenses. Unfortunately some of them go as far as to save even on their safety. Fire-extinguishers are charged by the contractors willing to offer the lowest price. Same works for the private security firms.  Sadly enough very often no money is spent at all for maintaining fire and security alarm systems.

Budget cuts for salaries usually come along with the more responsibilities for each particular employee. Such optimization of expenses isn’t rare among companies in Ukraine. It’s no wonder that it brings about growing pressure as people have to work much harder and longer for the same money. This, of course, is bound to result in lower quality of work which in its turn gives rise to more frequent cases of negligence or even theft.

Reason # 3. Solvency issues drive the Insured to claim even tiny losses.

This means that the benchmark for the losses which companies find appropriate to claim has gone way down. Two factors are the main reasons for it.

First, a couple of years ago, many of the insured companies preferred to put their efforts to business development rather than bothering themselves with putting an insurance claim together. UAH 50,000-100,000 worth of loss wasn’t viewed as the one which deserved much attention as the company was able to earn much more during the period of time necessary to settle the insurance claim.

Nowadays the situation is drastically different. Today in order to earn $ 10,000 one has to spend five times more time than before the crisis. In other words “running five times faster will let you stay where you are”. A lot of industries froze anticipating a miracle. Expenses increased while the proceeds curtailed. That is why even claims amounting to UAH 10,000 are now worth the time spent on their settling.  

Second, the deductible amounts in the majority of insurance policies are equal to their pre-crisis level.  For instance, UAH 50,000 deductible used to be equal to the sum sufficient to repair 6-8 sq.m. of damaged real estate. Today it can cover the restoration of  only 2-3 sq.m. The price for construction materials have jumped up along with the USD exchange rate. Same is applicable to the car repair.

Losses exceeding the deductible amount have become much more frequent. This in some way plays into hands of the insured. While before the crisis it took two rooms to burn out in order for the loss to exceed the deductible amount, now it takes only one wall. This causes insurance companies to impose minimal deductible amounts for each category of insured objects. For example, most probably you won’t find the insurance company willing to sign up for insuring your oil refinery plant with a deductible lower than UAH 100,000.

It’s quite evident that companies insure their principal assets or those which generate revenue in the first place. In the period of economic prosperity businesses have access to the loans offered by financial institutions. If a company loses one shop floor in a fire, it can pledge another one in order to receive funds necessary to restore the damaged one. In the period of economic downfall it’s quite a challenge to raise funds through loans. Even if a company has assets at its disposal credible to serve as a mortgage, the demand for them from financial institutions is quite limited. During the last couple of years banks haven’t been offering long-term loans let alone substantial long-term loans. Such status quo stipulates that insurance becomes the only life saver for a company.

Of course, economic downturns couldn’t but make an impact on insurance market. A lot of insurers have dropped out clearing it from shady players. As to the major players, their positions strengthened. International insurance companies remain the most credible in the market. Considering all of the above, reading the insurance agreement closely before signing it is crucial if you intend on ever seeing your insurance in effect.  Insurance is like a parachute. If you do not have it at the right moment, you might never need it again.