Printer Friendly

Insuring a brighter future: the emerging system of Russian insurance law.

I. Introduction

When the Soviet Union disbanded in 1991,(1) Russia and the other former Soviet republics replaced a seventy-year-old political structure with an organization of several autonomous nations loosely joined in the Confederation of Independent States (CIS).(2) In addition to changing the maps, the breakup also signified vast economic and legal changes within each republic. No longer did the central government own and control all the factors of production.(3) The dismantling of the controlled market and state monopoly system demanded new concepts of legal theory to deal with private property rights, commercial contracts between independently owned businesses, and other incidents of a free market economy.(4) While change has come in many areas, the Soviet system left behind a legacy that still impacts political, economic, and legal reform in today's Russia.(5)

An example of a developing segment of the Russian economy which has undergone a radical transformation -- and still continues to evolve -- is the insurance industry. The dissolution of the Soviet Union left the insurance industry intact but severely underdeveloped.(6) Lenin's New Economic Order, introduced in 1921, ultimately established a market exclusively occupied by two state run companies which operated as a branch of the Ministry of Finance.(7) When the legislative-mandated monopoly of the insurance market ended in 1988, the number of privately owned insurance companies quickly rose into the hundreds.(8) This growth created an instant need for regulation in all areas of insurance law -- particularly financial stability and consumer protection.(9) While the sophistication and detail of the legal system governing insurance has not developed as rapidly as areas such as banking,(10) the current legal framework has come a long way in establishing general guidelines for regulation.(11)

Despite these accomplishments, more detailed legislation is necessary. The responsibility of enforcing current insurance laws and developing new ones is largely in the hands of administrative agencies which operate essentially unchecked by other branches of the government.(12) This system has led to an ambiguous and somewhat arbitrary set of rules in such areas as licensing procedures, reserve requirements, and restrictions on methods of operation.(13)

Such problems can undoubtedly retard a country's ability to compete in the world market and attract foreign investment. As the world economy becomes increasingly global, waking giants such as Russia and the other former Soviet states will be forced to accelerate their technological and financial stature or find themselves labeled as developing nations. While economic indications of Russia's economic health are at best mixed,(14) Russia's metamorphosis -- from a controlled market economy dominated by state planners to an economy utilizing free enterprise concepts and less government interference -- thus far has led to greater privatization.(15) Continued privatization, as well as economic stability, will demand that Russia's legal, political, and cultural attitudes towards entrepreneurial endeavors mature further. Gearing a nation towards economic, rather than military, competition with Western nations requires new attitudes and the implementation of services virtually unknown and unused under Communist rule.(16)

Given the current state of the insurance industry, the introduction of additional legislation will be crucial to Russia's economic development. However, before discussing these needs, the present legal scheme should be examined and its strengths and weaknesses analyzed. To accomplish these objectives, this study of Russian insurance law will be divided into several parts. Part II provides a historical outlook on the events which have shaped the insurance market in Russia both before and after 1991. Part III will survey the existing legal system, focusing on laws currently in force as well as proposed legislation. Finally, Part IV will analyze the current problems in the system and posit possible solutions which may enable the Russian insurance industry to reach a level of strength and compete in the global marketplace.

II. Background

After declaring independence, Russia, by far the largest of the former Soviet republics,(17) found itself ill-prepared for the global marketplace.(18) In 1992, with much of the country's property and industry still under government ownership,(19) the task of privatization continued unabated.(20) Privatization extended to virtually all aspects of the economy, including the agricultural, industrial, and services sectors.(21) Before long the methods of production were owned and controlled by private citizens on a scale not seen in Russia since the beginning of the century.(22)

However, seven decades of communist rule had left Russia's legal system poorly adapted for the changes which it quickly encountered.(23) The Soviet legal system, largely adopted by the newly formed Russian government,(24) was seriously underdeveloped in the areas of contract, property, and tort law.(25) Laws addressing intellectual property and natural resources, virtually unnecessary before the instigation of private property, had to be enacted to fill legal voids in these and other areas of the legal system.(26)

Regulations affecting the insurance industry were sparse.(27) This was due to the fact that what regulation initially existed was based on the Soviet model and was unsuited to the private insurance market.(28) Under the Soviet regime, all businesses were state-owned and therefore most insurance was purchased by the state.(29) Two state insurers were available to those Russians who did desire insurance.(30) Ingostrakch, operating similar to a Western insurance company,(31) wrote policies covering international business transactions for government-owned businesses.(32) Russians wanting insurance coverage for their person or private possessions were forced to deal with the highly bureaucratic Gosstrakch.(33) Among the limited choices of coverage offered, car insurance was the most popular type of policy.(34) From the non-disclosure of coverage provided by the policies to resistance in the payment of valid claims,(35) the red tape associated with Gosstrakch created skeptical attitudes towards insurance among Russians.(36) Matters became even worse when unregulated, private insurers erupted onto the scene after the dissolution of the Soviet Union.(37)

The financial and social reforms Mikhail Gorbachev implemented in the 1980s dismantled the government stranglehold over many areas of Russian life.(38) The reforms of perestroika changed the face of Russia nearly as drastically as the Bolshevik Revolution had seventy years before. With the growth of the private sector and increased amounts of privately owned property, the need for insurance was readily apparent.(39) Decentralization of the insurance industry alleviated some of the increased demand -- but also created new pressures on the legal system. In 1988 and 1989, when the first privately owned insurance companies formed and began operating,(40) no laws regulating the operations or licensing of insurance companies existed.(41) These newly formed entities, specializing largely in property and casualty coverages as well as life and health insurance(42) suffered from gross undercapitalization.(43) Therefore, concerns regarding the financial stability of these companies quickly became a serious issue. Despite these concerns, the government reacted slowly in instituting reforms to foster both the health and continued expansion of the industry.(44)

The first series of reforms, initially drafted to be part of a Soviet law, were adopted by the Russian government in 1991.(45) This legislation mandated that all insurance companies seeking licensure maintain a minimum capital balance of two million rubles.(46) Although purportedly enacted to increase the financial stability of these new enterprises, some critics complained that this arbitrary figure was chosen in an effort to reduce the competition against Gosstrakh offshoots, who were given this sum as startup capital when privatization began.(47) This requirement was so rarely enforced that by the end of 1991, a majority of the insurance companies operating in Russia did not meet this initial capital requirement.(48)

Reforms were created or promised while the country's insurance market continued to swell with new insurance companies. Meanwhile insurance experts in both the private sector and the government wrestled with the issue of how the insurance industry should be run.(49) Suggested legal models for the growing field ranged from United States.(50) to Western European systems.(51) The final version of Russia's first major Law on Insurance, not adopted until the end of 1992, combined a mix of these ideologies with distinct Russian elements.(52) While many changes have been made to this law, for the most part it still provides the framework for the legal system governing insurance regulation in Russia today.

III. Russian Insurance Law Today

The Russian insurance industry is vastly different today than it was just eight years ago. Instead of two companies providing limited forms of insurance for a country of nearly 150 million people,(53) thousands of insurers exist providing a much wider range of services.(54) The influx of foreign capital coupled with the privatization of most property and businesses has increased demand for insurance services.(55) In response, the Russian government has initiated several measures of legislation governing foreign ownership,(56) methods of operation,(57) and consumer protection.(58) Because the new Russian government largely inherited the Soviet legal system,(59) which contained no laws adequate for a private insurance market,(60) many areas still have little or no regulation.(61) Furthermore, the existing legislation addressing the subject is often vague and left for government agencies to interpret and administer.(62) This combination of lack of specific laws and the enormous breadth of legislation has led to a murky system of regulations wrought with ambiguities and inconsistencies.

A. The Law of the Russian Federation on Insurance of 1992

As mentioned above, the basis for the current legal system is contained in the Law of the Russian Federation on Insurance of 1992.(63) Given the state of the industry at the time of enactment on November 27, 1992,(64) this law signified the creation of order in the previously chaotic system of laws and regulations.(65) Before its enactment, no other insurance law in Russia's history had approached the sophistication and breadth of this legislation.(66) The law as it stands today, however, even after numerous amendments, should be considered only a general framework in need of revision.

The legislation stipulates that most details concerning the implementation of day-to-day policy decisions, such as licensing guidelines and setting reserve requirements, are left to the state insurance regulatory agency, Gosstrakhnadzor.(67) This agency, whose name loosely translates to State Insurance Supervisor of the Russian Federation,(68) was created by the Law on State Supervision of Insurance in the Russian Federation in February of 1992.(69) Prior to the Law on Insurance of 1992, the predecessor to Gosstrakhnadzor worked under few guidelines or restrictions.(70) As a result, the possibility existed that the agency's decisions could be considered arbitrary and inconsistent by critics and observers. Today, while its regulatory duties have become more defined, Gosstrakhnadzor still exercises discretion in many areas of insurance law where specific legislation is absent.(71)

Despite its need for fine tuning, the 1992 Law on Insurance and its subsequent amendments have made enormous progress towards the completion of a detailed system of insurance law in Russia. The drafters organized the law into five chapters, each addressing a specific topic concerning insurance.(72) The thirty-six articles contained in the law define terms such as insurant,(73) underwriters,(74) and insurable risk,(75) as well as mandate required provisions in all insurance contracts76 and outline the general obligations of each party to the insurance contract.(77) For the purposes of this comment, the 1992 law will also be discussed in five sections but broken down in a slightly different order: 1) The Scope of the Law; 2) Obligations and Rights of the Parties to the Contract; 3) Terms of the Insurance Contract; 4) Assurance of Stability; and 5) Public Regulation.

1. The Scope of the Law

Insurance is defined in the 1992 Law on Insurance as "represent[ing the] relations pertaining to the protection of the property interests of individuals and legal persons given the happening of certain events (contingencies insured against) from monetary funds formed from insurance contributions (insurance premiums) which they pay."(78) From this broad concept of insurance the law outlines permissible forms of insurance, insurable interests, types and limits on insurable risks, and organizations of insurance entities.

a. Permissible Forms of Insurance

Article 3 declares that insurance may take two forms: voluntary or compulsory.(79) Mandatory insurance, as the name implies, is legally compulsory whereas voluntary insurance is taken out at the discretion of the insurant.(80) A significant difference between mandatory and voluntary insurance policies lies in the ability to negotiate not only the terms of the policy, but also the premiums charged.(81) With compulsory insurance, this freedom is supplanted by the controlling regulations of Gosstrakhnadzor, which require the inclusion of certain terms.(82) On the other hand, voluntary contracts for property and liability insurance allow the insurant and the underwriter discretion as to general terms and procedures provided that they do not violate any other legal requirements.(83) However, due to the absence of specific guidelines denoting the types of insurance policies which are mandatory and which are voluntary, the provision leaves the specific types, terms, and procedures of compulsory insurance to future legislation.(84)

b. Insurable Interests

Understanding these two types of insurance policies, an examination of the permissible subjects of insurance is now appropriate. Article 4 of the Russian Insurance Law of 1992 addresses this topic by outlining three broad areas of insurance: life, property, and liability.(85) Life insurance under this provision includes the insuring of one's life, health, and pension.(86) While life insurance policies were offered in the Russian insurance market before the end of the state monopoly in this area,(87) health and pension insurance are relative newcomers.(88) While not specified in the statute, life insurance -- as distinguished from health or pension insurance -- is generally voluntary, whereas health insurance can take either form.(89) Therefore, the terms of voluntary life and health insurance policies can vary from contract to contract whereas the requirements for compulsory health insurance policies are mandated by the Russian Health Insurance Law.(90)

c. Limits on Insurance Coverage

The purpose of insurance is to cover possible future expenses by assigning the risk of loss to an insurer in exchange for consideration.(91) Article 9 of the Law on Insurance follows this definition by referring to insurable risks as events whose contingency of occurrence is the subject of insurance.(92) The provision states that the occurrence of the contingency gives rise to the insurer's obligation to disperse the contractually established proceeds to either the actual insured, a named beneficiary, or a third party.(93) While the statute does not attempt to define the boundaries of legally acceptable contingencies, Article 10 suggests the existence of limits on the amount of insurance coverage obtainable on a certain subject.(94) The law provides that "the amount [of purchased coverage] may not exceed ... [the property's] actual value at the time the contract is concluded."(95) Furthermore, "[t]he parties may not dispute the insured value of property determined in the insurance contract except in instances where the insurance underwriter proves that he has been deliberately misled by the insurant."(96) This language simplifies the process of making claims on completely destroyed property because the insurer is liable for the face value of the policy unless it can prove fraud on the part of the insurant.

Where property is partially damaged, under-insured, or over-insured through multiple policies, Section 3 provides supplementary guidelines.(97) Specifically, the law states that insurance compensation for damaged property "may not exceed the extent of the direct damage to the insured property of the insurant or a third party ... unless the insurance contract specifies the disbursement of insurance compensation in a particular amount."(98) The latter clause apparently envisions exceptions to the direct damage limitation such as covering indirect damages or instituting a collateral source rule.(99) Additionally, Section 3 contains a proportionate reduction clause allowing an insurer to reduce payments for actual damage to property when the insured value of the property is less than the actual value.(100) In such cases an insurer is only obligated to pay for the total amount of damage multiplied by the ratio of the insured value to the actual value.(101) For example, if property is worth R100,000 and insured up to R75,000, an insurer must pay only seventy-five percent of the actual damage to such property. In a similar vein, insurants owning properties insured by multiple policies whose total sum of the coverage exceeds the actual value of the property are prohibited from profiting from the occurrence of a contingency by collecting multiple times on the same loss.(102) Instead, Section 3 allows each insurer to determine their percentage of the total coverage of all policies and pay only that portion of any loss.(103) Under this provision, where a property worth R100,000 is fully insured by three separate insurers (for losses up to R100,000), each must pay only one-third of the covered loss.

The rules regarding insurance disbursements for life insurance policies are quite different. The language of Article 10, Section 4, dictates that "[t]he insurance benefit [agreed upon in the contract] is paid to the insurant or third party regardless of the amounts due him in terms of other insurance contracts."(104) This apparently allows unlimited recovery for life insurance benefits contingent on the death of the insured. Because of the earlier inclusion of health insurance under the "life" category,(105) the law appears to envision multiple recovery for medical expenses in the case of health insurance. The Russian Health Insurance Law states, however, that the purpose of health insurance is to insure the "risk related to expenses for medical care,"(106) and, given that voluntary health insurance exists to provide merely supplemental insurance, it seems unlikely that either the general Insurance Law or the Health Insurance would allow an insurant to benefit financially from taking out multiple health insurance policies.(107) Therefore, the more likely interpretation of this would apply the unlimited recovery rule to actual life insurance policies.

d. Insurance Organizations

Another important feature of the 1992 Law on Insurance is the recognition of several types of organizations through which insurance coverage may be offered.

(i) Mutual Insurance Companies

The first of these institutions, mutual insurance companies, is discussed in Article 7.(108) This provision envisions collections of insurants who combine their resources for the funding of a pool to cover the costs associated with the occurrence of certain contingencies.(109) The article does not establish the requirements for the formation of these organizations, but rather states that they must conform with Mutual Insurance Company Regulations as set forth by the Supreme Soviet of the Russian Federation.(110)

(ii) Co-insurance

Another form of coverage allowable under the Law on Insurance is co-insurance.(111) Under a contract for co-insurance, one subject -- such as a multimillion dollar office building -- is insured by several underwriters under the terms of a single insurance contract.(112) Once again, no specific guidelines are set forth for the creation of these agreements except that the contract should detail the rights and obligations of each insurer.(113)

(iii) Reinsurance

The final form of insurance coverage recognized by the Law on Insurance, reinsurance, differs in type of coverage rather than organizational structure.(114) By statutory definition, reinsurance is "by one insurance underwriter (reinsurant) on terms of risk ... with another insurance underwriter (reinsurer)."(115) Policies for reinsurance differ from life, property, and liability insurance in that the general rules of insurance apply to reinsurance differently than other types of policies. For example, the Supreme Soviet decree coinciding with the enactment of the Law on Insurance provides that reinsurers must maintain fifteen million rubles of paid-in capital to sustain a valid license, whereas direct insurers need only two million rubles.(116) These differences may indicate legislative recognition of Russian insurers' inexperience in the realm of reinsurance.(117) However, as reinsurers in Russia are still rare,(118) legislative treatment of reinsurers does not greatly affect the insurance industry as a whole. (119)

2. Obligations and Rights of the Parties to the Contract

Article 1 defines the scope of the law as "regulat[ing] relations in the sphere of insurance between insurance organizations and citizens, enterprises, establishments and organizations and relations of insurance organizations between themselves."(120) From this language it appears most actions by an insurance company are subject to regulation under this law. Insurance relations arise out of contractual devices by which "persons seek assurance and peace of mind regarding future events."(121) The extent of contractual privileges and obligations granted to both insurers and insurants varies depending on the type and form of policy used.(122) However, the legal provisions addressing the complex interrelationships between the insurer and the insurant which develop resulting from the creation of a single insurance contract may still be adequately examined using a general model.(123)

a. Insurants

Insurants are described as "[l]egal persons and legally capable individuals who have concluded with insurance underwriters insurance contracts or who are insured by virtue of the law."(124) Article 5 of the 1992 Law on Insurance empowers insurants with certain rights.(125) Insurants are free to bargain for the terms of an insurance contract with an underwriter.(126) The statute also grants insurants the ability to assign the benefits of property insurance policies when transferring title to the subject property.(127) The procedure for affecting this power is contingent on the manner in which the property is transferred. For deceased insurants passing title to qualified property through inheritance, the transfer of the policy rights and duties is automatic.(128) However, in cases where the subject property is disposed of by sale or any other manner, these rights and duties pass to the new owner only with the consent of the insurer.(129) Savvy insurants armed with the power to negotiate the terms of the contract may require the right to request an independent appraisal or additional rights not specifically mentioned in the Russian Law on Insurance.(130) Clearly, no list of rights could ever exhaust all the possibilities.

Along with these rights come corresponding duties. Article 18 sets forth a brief list of these duties with the explanation that an "insurance contract may provide ... for other requirements of the insurant" not mentioned in the statute.(131) As one might expect, the primary duty of an insurant is to pay premiums to the insurer.(132) Equally important, however, is the insurant's duty to "adopt the necessary measures for the purpose of averting and reducing damage to the insured property."(133) This clause charges the insurant to abide by principles of risk avoidance and mitigation.(134) The Law provides an incentive to perform this duty by requiring the insurer to provide consideration for "the insurant's implementation of measures which have reduced the risk."(135) Additionally, an insurer may also be required to "compensate [the insurant for] expenditure[s] incurred ... averting or reducing damage to the insured property."(136) A final requirement imposed upon insurants is the duty "to notify the insurance underwriter of the happening of the contingency insured against within the time-frame established by the insurance contract."(137) This provision allows an insurer to investigate the cause of the loss, determine the existence of fraud or subrogation rights, and restore the insured to their pre-loss condition quickly before the damage worsens or needed evidence disappears.

b. Insurers

Counterbalancing the legal privileges and obligations of insurants are the rights and duties of the insurers. Insurance underwriters are defined as "[l]egal persons ... formed for the practice of insurance activity."(138) In order to engage in insurance related activities, Article 6 requires all such institutions obtain a license from the state.(139) Although no guidelines appear in the actual statute indicating what an insurance license applicant must show, Article 30 charges the Gosstrakhnadzor with the duty of issuing the licenses.(140)

Once an insurance company is licensed and has made an actual contract for insurance, Article 17 places certain duties upon an insurer for policy purposes and the protection of the consumer.(141) An insurer must compensate an insured for taking action to reduce the chance of the contingency, which is the subject of the insurance contract, from occurring.(142) Similarly, if a contract so provides, an insurer must reimburse the insurant who incurs expenses while reducing the severity or the occurrence of an impending loss -- up to the point where the expense incurred equals the amount of damage avoided.(143) These duties make sense from a public policy standpoint because they require the insurance company to operate in a fair manner consistent with their purpose of collecting funds in proportion to the risk which has been transferred. When an insurant expends time or money to reduce these risks, the interests of fairness require that consideration be given for an offset of the risk to the insurer.

Another statutory requirement of Russian insurers is to pay, their claims "within the timeframe established by the contract or by law."(144) This clause, backed by a penalty equal to one percent of the total claim payment for each day late,(145) is a refreshing change from prior industry practices where claims were routinely paid late if at all.(146) To guarantee fair and accurate payments, insurers have the authority to investigate, or commission an investigation of the occurrence to determine the cause and circumstances of the loss.(147) Article 20 commands "[e]nterprises, establishments, and organizations ... to communicate to the insurance underwriters at their request details connected with the contingency insured against."(148) Insurers are further encouraged to "solicit details ... from the law the enforcement authorities, banks, medical institutions," and other parties with knowledge of the events being investigated.(149)

At the end of an investigation, if the facts do not support the payment of a claim, the insurer must notify the insurant in writing of their intent to deny the claim and its justification for doing so.(150) Examples of legally justifiable denials include: the occurrence was not the contingency insured against;(151) the insurant's deliberate creation of the events formed the basis for the claim;(152) the participation of the insurant in a premeditated crime directly resulted in the otherwise insurable loss;(153) the insurant committed fraud upon the insurer concerning the object of the policy;(154) and the insurant received full compensation from a party responsible for causing the damage.(155) Insurants have the statutory right to appeal denials of insurance claims to a court of law or to arbitration.(156) Some Russian insurers have attempted, successfully in some cases, to dodge the serious repercussions of this provision by granting only verbal denials so that the potential proof against them in court is rendered weak.(157) However, as will be discussed below, improper denials by an insurer or other actions which constitute a violation of insurance rules may result in suspension or revocation of an insurer's license if prosecuted by Gosstrakhnadzor.(158)

c. Brokers & Agents

The final participants in the insurance arena are brokers and agents, who are often responsible for bringing the insurer and insurant together.(159) Article 8 of the Insurance Law establishes the roles of these two intermediaries based on the nature of their relationship with the insurer.(160) An "agent" is defined as an intermediary who acts on behalf of and under the authority of the insurer.(161) A broker operates according to instructions of an insurer or insurant, but practices brokering on her own behalf.(162) While the law does not impose any further regulations on agents, brokers are required to register with Gosstrakhnadzor at least ten days prior to acting in an insurance broker capacity.(163) Perhaps the reason for the assessment of this additional requirement upon brokers lies in the Law's attempt to ensure that brokers operate as legal entities separate and distinct from their clients.(164)

3. Terms of the Insurance Contract

The 1992 Law on Insurance establishes codified safeguards which allow the state to protect unwary and unsophisticated consumers from unscrupulous insurers.(165) Even though too much state involvement may hinder the development of a healthy insurance market,(166) the provisions contained in this section of the law appear to balance these concerns by creating minimum standards while leaving a basis for future specific regulation.

An insurance contract is defined in Article 15 as an agreement between an insurant and an insurer in which the insurance underwriter agrees to assume a risk on behalf of the insurant in exchange for the payment of insurance contributions.(167) Depending on the type of insurance contract, the parties may bargain for the amount and nature of the risks to be assumed by the insurer.(168)

a. Establishing the Policy

The Russian Insurance Law establishes guidelines for concluding an insurance contract.(169) The insurant must present an application for insurance to the insurer and, if accepted, coverage begins with the payment of the first premium.(170) As proof of the transaction, the insurance underwriter typically gives the insurant a receipt, referred to as a policy or certificate.(171) Article 16 addresses the form of these receipts recommending that they contain the names and addresses of the insurant and insurer, the amount of the policy, the object(s) of coverage, the premium amount, the due dates of the installment payments, the duration of the policy, and other terms indicating additional provisions or exceptions to generally accepted rules of insurance.(172) Soft rules such as this, which provide guidance rather than establishing rules of conduct, are most likely designed not only to foster goals of consumer protection, but to also aid fledgling, inexperienced domestic insurers in their eventual pursuit to become competitive in the international market.(173)

b. Terminating the Policy

The obligations of each party under the insurance contract can be extinguished through either termination or nullification of the insurance contract.(174) Article 23 provides at least seven examples of how a policy may terminate.(175) The list includes simple reasons such as expiration of the term or failure of the insurant to pay the premiums, as well as less intuitive examples such as liquidation of the insurer or liquidation of the insurant when the insurant is a legal person.(176) When a policy ends early because of these or other reasons as provided by legislation,(177) the circumstances surrounding the termination create an obligation on the insurer to return all or part of the unearned premiums.(178) The insurer must return the entire premium paid to the insurant in instances when: 1) the insurant requests termination of the policy because of the insurer's violation of insurance rules; or 2) when the insurer requests early termination for reasons other than the insurant's violation of insurance rules.(179) However, when the insurant's violation of insurance rules forms the basis for a request by the insurer to terminate early, or where the insurant requests for reasons other than those mentioned above,(180) the insurer is allowed to retain the earned premium but must return all unearned premiums paid by the insurant.(181) These provisions clearly favor the insurant who cannot be penalized for early termination, but may receive a windfall of refunded premium payments in certain situations.

c. Nullity

Nullity refers to a situation in which the insurance contract is deemed invalid from the time of inception.(182) Article 24 provides that an insurance contract may be deemed null and void by legislation;(183) by a court or arbitration panel;(184) by a finding that the contract was concluded subsequent to the occurrence of the contingency insured against;(185) or if the property insured was subject to confiscation pursuant to a court order.(186) Although the effect of nullifying an insurance contract is not addressed in Article 24, it appears from the language of the section concerning termination that similar rules would apply.(187) By this logic, if the reason for the nullity were primarily the fault of the insurant (such as fraud), the insurer would most likely be able to retain the expenses incurred while processing the policy on the assumption of its validity.(188) However, if the cause of nullity was by operation of law or due to the insurer, the full amount of premiums paid would be returned to the insurant because, by definition, no amount of the premium would have been earned.(189)

4. Assurance of Stability

The rules discussed thus far have accomplished the much needed goals of creating an operational framework for the use of the insurance contract by Russia's businesses and private citizens.(190) Before the 1992 law became effective, these rules were haphazardly applied through a series of unrecorded rules which often led to confusion and inconsistent applications.(191) Perhaps in recognition of this enforcement problem, the framers of the 1992 law included provisions concerning the regulation of the insurance entities.(192) This portion of the law focuses less on the regulation of contracts and parties and more on actual government controls over the companies in an attempt to maintain a certain level of viability and accountability among the industry participants.(193)

Chapter 3 of the Law on Insurance, encompassing Articles 25 through 29, addresses the issued of financial stability within the insurance industry.(194) The provisions in this chapter discuss four areas: 1) minimum reserve requirements; 2) mandatory paid-in capital amounts; 3) reinsurance; and 4) regulation of accounting procedures.(195) Given that many of the problems with the Russian insurance market resulted from deficient controls in these areas, the success of a Russian statutory scheme hinged on the inclusion of these controls.(196) While many problems associated with these areas still exist in the Russian insurance market, this can likely be attributed to growing pains and inexperience among both the regulators and the participants, rather than a lack of actual regulation.(197)

a. Reserves

Following the statute's trend of establishing a framework ripe for regulation through administrative agencies, Article 26 calls for the creation of insurance reserves in a amount set forth by future legislation.(198) The only guidance provided in the law as to the proper amount of such reserves is that they should be sufficient "for impending insurance disbursements."(199) However, the law does not require these reserves to be kept in low interest checking accounts awaiting disbursement.(200) Rather, Section 3 of Article 26 allows the insurer limited latitude in choosing investment options including loaning funds to life insurance policy holders up to the amount of their policy coverage limits.(201) However, Article 27 admonishes insurers to keep in mind the goals of "diversification, repayability, profitability, and liquidity," when investing their reserves.(202) The inclusion of these guidelines in the statute is probably intended as risk management advice to Russian managers less experienced in this area -- rather than legal requirements for licensing.

b. Paid-in Capital

Maintaining adequate capital balances has been a critical problem for the Russian insurance industry.(203) Companies who overextend their risks relative to their assets may find themselves insolvent, thus leaving their policyholders and debtors out of luck and money.(204) With this hazard in mind, Section 1 of Article 27 requires that minimum ratios between paid-in capital and the value of insured risks be established by Gosstrakhnadzor.(205) While the agency has followed these instructions, the issued of paid-in capital continues to be a source of problems for regulators.(206)

c. Reinsurance

A third regulation implementing stability measures requires insurers who have assumed more risk than their assets allow to purchase a contract for reinsurance.(207) The ramifications of this provision appear to be two-fold. First, this mandate appears to protect consumers from the consequences of poor risk management decisions by asserting a positive duty upon insurers to act in a fiscally responsible manner when conducting their operations. Again, this command was possibly included because the drafters recognized the magnitude of inexperience among many Russian insurance executives. Second, the reinsurance requirement may also have been included for the purposes of subtly boosting the Russian reinsurance market. However, as will be discussed infra, if this was an intended side effect of this clause, the results have been disappointing.(208)

d. Accounting Requirements

Contrary to the three preceding rules, which create prescriptive rules on how an insurer must conduct their finances, the accounting requirement contained in Article 28 calls for the creation of a system for auditing insurers.(209) The provision serves the important function of setting forth uniform accounting procedures to assess both the financial stability and the tax liability of Russian insurers.(210) The law leaves the details of policy implementation to Gosstraknadzor, which is to consult with the Ministry of Finance and the Russian Federation for Statistics during the process.(211) However, Gosstrakhnadzor has not yet endeavored to create such standards for auditing.(212)

5. Public Supervision

The preceding sections discussed the rules established by the 1992 Law on Insurance for participating in the Russian insurance market.(213) By thorough governmental enforcement of the discussed requirements perhaps the current problems among insurers of undercapitalization and bankruptcy can be curbed eventually. The Law on Insurance granted Gosstrakhnadzor and other divisions of the government the powers discussed in this section to oversee and compel compliance with these rules as a means of ensuring the accomplishment of the legislation's objectives.(214)

Article 30 announces three intentions for the laws on public supervision: compliance with legislation, development of the industry, and protection of all parties involved.(215) The provisions contained therein establish the proposed mechanism for realizing these goals.(216) They include the delegating of responsibility for day-to-day regulatory requirements, calling for a licensing system to enhance the quality of Russian insurers, and maintaining ideals of fair competition free from monopolies and other forms of anticompetitive behavior.(217)

a. Regulating Insurer Conduct

The law appoints Gosstrakhnadzor, the regulatory body responsible for much of the fine tuning of the industry, as a key element in enforcing the regulatory scheme.(218) Gosstrakhnadzor's primary duties allow it to: 1) devise guidelines for the issuance of licenses to insurers; 2) create and maintain a registry of insurance companies in Russia; 3) supervise compliance with solvency requirements including the establishment of reserve requirements, paid-in capital, income, and the use of appropriate accounting procedures; and finally 4) enforce current and propose new legislation to enhance the efficiency and stability of the Russian insurance market.(219)

To accomplish these objectives, the statute empowers the insurance regulator with four important enforcement rights.(220) First, Gosstrakhnadzor may require information regarding an insurer's financial fitness.(221) The latitude given to the agency exercising this power allows it to obtain reports detailing the activities and solvency of the insurer from the insurer itself as well as other sources such as banks and private citizens.(222) Gosstrakhnadzor is also granted the broad right to examine an insurer's compliance with general insurance regulations.(223) This power may easily be the most intrusive from the insurance industry's standpoint because of the apparent absence of limits to protect insurers from the agency's exercise of this right.

However, Article 33 does provide some comfort to nervous insurers by guaranteeing Gosstrakhnadzor's confidentiality of trade secrets.(224) Still, this does not prevent the agency from actually discovering information such as the rates and terms under which insurers offer coverage -- information which would be considered absolutely confidential by most Western standards.(225) In the event a violation of the insurance rules is discovered, Gosstrakhnadzor may suspend or qualify the offending insurer's license until such violations have been eliminated.(226) Should an insurer become a repeat offender or commit the more egregious violation of practicing insurance without a license, the agency is empowered to file suit in an arbitration tribunal to effectuate the liquidation of the insurer's assets.(227) This "death penalty" power appears to provide Gosstrakhnadzor with more than adequate ammunition to assure Russian insurers will comply with the rules.

b. Issuing Licensing

Another example of the extent of control which the Law on Insurance vests in Gosstrakhnadzor over the Russian insurance market is the power to grant insurance licenses.(228) Without these instruments, an insurer is forbidden to sell or service insurance.(229) The statute requires insurers to submit their license applications to Gosstrakhnadzor along with information about the applicant including the amount of paid-in capital, the officers of the group, and the "economic substantiation of the insurance activity."(230) Once these requirements are met, the agency must approve or reject the applicant within sixty days after receiving the application.(231) Besides the requirement set forth in former Chairman R. I. Khasbulatov's(232) Decree attached to the Law on Insurance commanding applicants to have at least two million rubles of paid-on capital for license approval,(233) the Law does not set forth any other specific guidelines for the application process.(234) Therefore, it appears that Gosstrackhanadzor may decide the fate of an applicant based upon its own prudence as long as the primary elements are satisfied.(235)

An accepted application, whether for voluntary or compulsory types of insurance,(236) will yield the treasured license indicating the forms of insurance activity in which the applicant may engage, upon payment of the license fee to the state.(237) Should the application be denied, however, Gasstrakhnadzor must notify the applicant in writing explaining the reason for the rejection.(238) While this appears to place a certain level of accountability on the agency, some critics complain that the lack of legislatively established procedures has given the agency the ability to make licensing decisions by arbitrary guidelines.(239)

A special situation arises when the applicant for insurance (or reinsurance) is a foreign entity.(240) While foreign applicants may still receive licenses provided they conform to standards required of domestic applicants such as proof of minimum paid-in capital, a milder version of the traditional Soviet prohibition of direct foreign participation in the economy still exists in the insurance market.(241) The decree of the Supreme Soviet which enacted the Law on Insurance, restricts foreign ownership of insurance companies licensed in Russia to no more than forty-nine percent.(242) The stated purpose of this restraint on the flow of capital stems from the belief that, at least for now, the fragile an inexperienced Russian insurers need protection from entered competition.(243) While protectionists argue the solidity of this belief,(244) this provision certainly clashes with other statutory goals, such as the elimination of anti-competitive behavior.

c. Anti-Competition Regulation

Article 31 of the Law on Insurance permits government regulation to abolish monopolies and other forms of anti-competitive behavior in the insurance market .(245) The statute empowers the State Committee of the Russian Federation for Antimonopoly Policy and Support of New Economic Structures to implement policies in the pursuit of this goal.(246) While the market in 1992 already allowed privately owned companies to compete with the larger state-run companies, the main challenge facing this agency is the maintenance of continued growth in the industry despite the market domination by the larger companies.(247)

These provisions grant government agencies such as Gosstrakhnadzor significant power to enforce the state policies governing the Russian insurance market.(248) Some Russian insurers argue, however, that the government exercises too much control, in a manner which is harmful to the industry.(2490 Pointing to the agency's "death penalty" power, critics suggest the government grants too much power to one agency whose employees have little education or experience in the insurance industry.(250) While less government interference may be a general objective in many areas of the new Russian economy, in the complex field of insurance lack of regulation can be quite dangerous both private citizens and business.(251) In fact, many foreign insurers may be surprised by the lack of regulation.(252) Overall, however, the Law on Insurance aided Russian insurers and insurants alike by creating a framework for government control over the growing industry while leaving the creation of more specific operating rules for future legislation and administrative agency decisions.

B. Current State of the Russian Insurance Market

Perhaps unbeknownst to the drafters, the 1992 Law on Insurance in Russia created an insurance system poised for explosive growth.(253) Even before its enactment, the number of insurance companies born in the wake of demonopolization was in the hundreds.(254) This expansion, due primarily to tax regulation(255) and dreams of extreme wealth,(256) came during a time when real premium volumes dropped dramatically in Russia.(257) The most recent figures estimate that the number of insurance entities operating in Russia today is about 2,500.(258) Despite this growth, Russia's insurance inspection agency reports that the larger state-owned insurance firms still vastly dominate the market.(259) This result is due in part to smaller insurers' youth and inexperience.(260) In fact, by the end of 1994 only half of the Russian insurers had been operating for more than one year, and a mere five percent for over two years.(261) The problem of inexperience, unfortunately, is unlikely to dissipate because the supply of trained and qualified insurance experts is very limited.(262)

These problems of undercapitalization and inexperience may nonetheless be resolved by current legislation requiring any foreign involvement in the insurance field to take the form of joint ventures.(263) Using Western insurers, smaller Russian companies could learn from their minority partners until they gain enough expertise in the industry to survive on their own. Despite these benefits and the legality of such organizations, there are currently less than eighty such joint ventures in existence.(264)

As a result of these and other circumstances, the default rate among Russian insurers is high.(265) Although the 1992 Law on Insurance provided a framework for the regulation of these newly formed enterprises, it lacked the specificity to tackle many problems. Therefore, as celebrated as the new law may have been, the required fine-tuning of the rules proved a tremendous undertaking to both the legislature and responsible government agencies. Consequently, both the Duma and Gosstrackhnadzor have answered this deficiency with amendments,(266) additional regulations, and proposed changes. The most significant of these changes affect five main areas: 1) compulsory versus voluntary insurance, 2) the reinsurance market, 3) regulations affecting brokers, 4) prudential and financial requirements for insurers, and 5) licensing guidelines.

1. Compulsory Versus Voluntary Insurance

While the 1992 Law on Insurance differentiated between compulsory and voluntary insurance, it failed to set forth guidelines indicating the classifications of the varying types of policies.(267) Despite attempts to change the rules in this area,(268) currently the major types of compulsory insurance include health insurance, passenger accident insurance (for ail and air transportation), and varying coverage for certain state employees.(269) Besides defining the two forms, the statute offers little guidance regarding the consequence of this delineation.(270)

However, changes contained in proposed amendments which recently passed through the Duma should be important to Russian insurers.(271) The amendments contain a provision requiring commercial property insurance policies be sold initially through Russian-registered insurers.(272) However, these changes must be approved by both the Federation Council (the upper legislative house) and Boris Yeltsin before they become final.(273) Therefore, while many Russian insurers welcome additional mandatory insurance laws and required domestic sourcing of such state-sponsored insurance policies, the benefits may be long in coming.

2. Reinsurance

Only a handful of reinsurance companies exist in Russia.(274) Even those which do serve the market, such as Russkoie Perestrakhovotchnioe Obchestvo and Nakhodka Re, cannot fulfill the demands of Russian insurers.(275) Therefore, due to the limited domestic options many insurers take their reinsurance needs to foreign reinsurers or their domestic direct insurers.(276) In response to this problem, Yuri Bugaev, Russian supervisor of insurance, proposed a decree which would establish a Russian National Reinsurance Company.(277) Details surrounding the proposal suggest that the state would own at least fifty-one percent of such an institution(278) and would probably also supervise the reinsurance market in Russia.(279) Additionally, the new system would create a mandatory reinsurance program into which insurers would be required to pay ten percent of their premium income from most lines of insurance.(280) Due to tremendous controversy surrounding this issue,(281) the proposals implementation has been postponed.(282) Therefore, at this time, reinsurance needs will have to be satisfied through either the existing Russian reinsurers, foreign reinsurers, or direct insurers in Russia.

3. Brokers

An estimated eighty percent of all insurance policies sold in Russia are sold through intermediaries.(283) Yet domestic brokers secure only a small percent of this business.(284) This result stems from two factors: 1) Russian brokers do not have an adequate client base to attract the attention of many Russian insurers; and 2) foreign brokers are pricing the Russians out of business.(285) To address these problems, twelve Moscow brokerages have organized the Guild of Insurance Brokers.(286) According to the Guild's president Alexander Krapivsky, the group's main goal are to sponsor legislation regulating brokerage activities and lower the taxes assessed on domestic brokers.(287) Currently, foreign insurance brokers enjoy a significant advantage over their Russian counterparts who are virtually taxed out of competition.(288)

In February 1995, shortly after the Guild formed,(289) Gosstrackhnadzor issued a temporary provision requiring the registration of all insurance brokers,(290) forbidding the selling of insurance contracts to foreign insurers, and prohibiting brokers from acting as a representative for an insurant or insurer.(291) While these reforms hinder foreign brokers' ability to compete as effectively as in the past,(292) the measures are welcomed by the Guild. According to Krapivsky, a proposal for more permanent regulations has been drafted, but will not be presented to the Duma until after the fate of the most recent amendments to the Law on Insurance has been decided.(293)

4. Prudential and Financial Requirements

One problem which has consistently plagued the privatized Russian insurance market is the default rate of smaller insurance.(294) This situation is hardly surprising because for more than four years following privatization there were virtually nor regulations governing these newly formed enterprises.(295)) Additionally, the insurance executives' low level of expertise in running insurance companies has led to poor investment decisions which have contributed to the insurance market's problems.(296) Once again, the 1992 Law on Insurance left the control over these issues largely to Gosstrakhnadzor which has implemented several reform measures in the area of minimum capital requirements.(297) These changes aim to address the concerns that the Russian market is filled with underfunded insurers who fold with the occurrence of one large claim.(298)

Much of the explosive growth seen in the Russian insurance market during the past decade can be attributed to low initial capital requirements.(299) When the 1992 law was passed, the minimum capital needed to start an insurance boutique -- two million rubles -- was equal to U.S. $4,056.(300) Perhaps this low requirements was designed as a temporary provision to allow growth in the insurance sector. However, according to a Russian Insurance Inspection report issued in 1993, the average capital for a Russian insurer was still only between thirteen and seventeen million rubles.(301) Considering the hyper-inflation that afflicted Russia during this period, these sums clearly do not meet the intended solvency requirements.(302)

To correct this deficiency Gosstrakhnadzor issued a list of suggested changes in the regulatory scheme as part of their proposed changes to the 1992 Law.(303) Among these new provisions included a call to raise capital requirements to two hundred million rubles.(304)) Yet this proposal was soon revised -- perhaps due to a fear continuing inflationary problems.(305) The amended proposal suggested that capital requirements be tied to a foreign hard currency sum, such as 1 million U.S. dollars. (306) Countering the Gosstrakhnadzor proposed amendments, insurers sponsored a version which would establish capital requirements at different levels depending upon the type of insurance activity conducted.(307)

In July 1995, the Duma passed a compromise between the two proposals.(308) The effect of the 1995 draft amendment, however, contravened the intent of the Russian insurers who initially suggested a multi-level capital requirement system.(309) The amendment set minimum paid in capital requirements for specialist insurers at ECU 500,000, life insurers at ECU 350,000, and non-life insurers at ECU 250,000.(310) The language of the proposed amendment, however, force insurers to split their life and non-life insurance operations into separate entities.(311) While the affected companies would have been allowed a grace period to comply with this law each newly separated enterprise would have been required to meet the capital requirements independently.(312) The end result thus obligated companies not only to break up their business but also to pay more than the Gosstrakhnadzor's original proposal envisioned.(313)

Fortunately for the smaller Russian insurers, who would have been incapable of meeting these higher standards,(314) the 1995 amendments were vetoed on two separate occasions by Boris Yeltsin.(315) New amendments, passed by the Duma in October 1996, appear to alleviate the problems experienced by the earlier amendments by eliminating the requirements for insurers to split their life and non-life divisions.(316) The amendments also tie capital requirements to minimum wage requirements for insurer.(317) Thus, with the major objections to the 1995 amendments addressed, the current version of the amendments is more likely to be adopted.

The government has also attempted to institute revised regulations regarding reserve requirements which likewise affect the insurers' stability. Differing from paid-in capital, reserve requirements are calculated on a percentage of firm's assets and liabilities and kept separate from the insurer's other investments.(318) The 1992 Law on Insurance charged Gosstrakhnadzor to establish guidelines for setting reserve requirements to "ensure the discharge of assumed insurance obligations."(319) Although no regulations has yet established a minimum required reserve amount,(320) Russian insurers tend to keep approximately fifty percent to seventy percent of premiums collected in reserve funds.(321) The state agency has, however, proposed legislation governing the use of these funds.(322) In addition to the amendments discussed above, Gosstrakhnadzor issued regulations requiring insurers to keep reserves sufficient to cover present claim obligations, plus at least three percent of the total amount of reserves in bank deposit accounts.(323) The new regulations also require that eighty percent of all reserves be invested inside Russia and it sets maximum percentage on investments in share of private joint stock companies and loans to life insurance policyholders.(324) These measures are commendable, as they demonstrate a positive step towards strengthening the country's investment climate by requiring insurers to invest in the rebuilding of Russia. Furthermore, by mandating the quantities of certain types of holdings, the state guarantees a certain level of diversification in Russian insurers' portfolios.

These proposals may be affronts to free market forces in the Russian insurance market, but such guidelines will most likely assist those insurers with limited experience in risk management.(325) Reaction to many of these regulations has been mixed. Most experts agree that stricter solvency requirements will make it more difficult for smaller insurance companies to survive.(326) This may be the type purging needed for the Russian insurance industry to gain strength through a new beginning.

5. Licensing Guidelines

By far the strongest incentive for Russian insurers to comply with the insurance laws lies in Gosstrakhnadzor's power to revoke a firm's license for infractions of the rules.(327) In 1995 the agency showed it would use this power by revoking the licenses of three insurers and suspending seven more in the span of one month.(328) Svetlana Nikitina, head of the St. Petersburg Gosstrakhnadzor office, noted that these "death penalties" resulted from serious violations such as the refusal to pay valid claims.(329) The agency reported that 215 companies inspected in 1994 were not insurance companies at all.(330) Furthermore, 444 of the inspected insurance companies had unhealthy balance sheets and only 378 were solvent on paper.(331) Overall, Gosstrakhnadzor had discovered over two thousand breaches resulting in 284 applications for suspensions of licenses and revocations of 140 licenses.(332)

Despite these crackdowns, Gosstrakhnadzor is still the subject of criticism in the area of licensing.(333) The complaint from insurers is twofold. First, insurers accuse the agency of failing to establish adequate licensing procedures.(334) This has led to the charge that Gosstrakhnadzor employs arbitrary rules in reviewing license applications.(335) The agency responds to this charge by claiming that many insurers currently do not have enough capital to meet their liabilities now that the previously relaxed guidelines are being replaced by stricter requirements.(336)

The second charge against Gosstrakhnadzor stems from delays in its processing of license applications.(337) The current legislation requires the agency to respond to all applications within sixty days.(338) Insures argue, however, that the process takes much longer due to the agency's incompetence.(339) However, proposed changes to the Law on Insurance may aid Gosstrakhnadzor in its duty to comply with the time constraints imposed by the law. Suggested changes, originally included in the ill-fated 1995 amendments, increased the time frame in which the agency must respond to applications from sixty days to six months.(340) Insures complained that this period was too long because applicants must deposit half of the required paid-in capital into a non-interest bearing account while their fate is being decided.(341) The Russian Duma rejected the insurers' proposal to extend the period to four months and two weeks, however, and Gosstrakhnadzor's version passed the house in 1995.(342) However, because this amendment was voted by Yeltsin in August of 1996,(343) the status of these revision remains to be decided.

IV. Changes Needed for a Growing Market

Even considering the warming of relations between the West and the former Soviet bloc, it hardly seemed plausible ten years ago that the transformation of Russia could be so dramatic. Change has pervaded virtually the entire country -- culturally, economically, geographically, and politically.(344) Through this uncertain portion of Russian history, the insurance industry has managed to grow at a tremendous rate.(345) Despite the tremendous improvements which have been made over the past nine years, the transformation of the Russian insurance market into a strong segment of the economy is far from complete.(346) The needed improvements range from the concrete to the abstract. Specific problem areas include hyper-inflation; a lack of consumer interest and confidence in the insurance market; insufficient infrastructure and expertise; deficiencies in the legal scheme; a restrictive taxation system; and policy which hinders foreign participation in the market.(347) While some of these predicaments result from social and economic conditions which cannot be cured directly through legislation, certain government programs may still be implemented which improve the situation in the insurance industry.

A. "Inflation-Profits" Insurance Policies

Triple digit inflation dilutes the value of insurance policies, which in turn reduces the demand for property and life insurance policies.(348) The hyperinflation stems largely from monetary and fiscal polices beyond the powers of Gosstraknadzor.(349) While today the inflation rate is considerably lower than it was just a year before,(350) it still poses a problem for the insurance industry. The insurance regulatory body cannot eliminate the cause of inflation. Nevertheless, there are at least two courses of action which may reduce the detrimental effect that inflation produces on the insurance market.

The first such policy calls for lifting the restriction against policies dealing exclusively in hard currencies.(351) This requirements reduces the willingness of business to insure their property through Russian companies because of convertibility problems with the ruble.(352) For example, an American business operating in Moscow would not likely insure its computers -- which cannot be repurchased with rubles -- through a Russian insurer under the current currency limitation. By removing this prohibitions, both foreign and domestic companies would not have to search abroad to insure such risks, thereby increasing demand for domestic insurance services.

A second manner for Russian insurers to "inflation-proof" their policies is to include provisions which account for inflation when making claim payments.(353) The current rule governing these disbursements restricts insurers from concluding insurance contracts with policy limit amounts above the value of the property at the time the contract is concluded.(354) This results in lower demand for property insurance policies because the inevitable increase in the ruble-value of property makes long term policies essentially worthless in a short period of time. Clauses allowing for property values to be adjusted to take into account the effect of inflation may not actually be barred, however, as the language of the article discusses, "actual value" and not number of rubles.(355) A carefully worded endorsement on such policies may pass statutory muster by calling for payments in rubles based upon the current value of the rubles contracted for as adjusted for inflation.(356) Notwithstanding this argument, no legal challenge appears in the record to effectuate such a result. In order to resolve this issue Gosstrakhnadzor should propose a decree or issue a statement of position regarding the apparent restrictions contained in Article 10.

B. Consumer Confidence

Perhaps more problematic for policymakers is the low level of consumer confidence in the insurance industry and resulting lack of demand for insurance. A likely contributor to this problem is the poor reputation insurance companies earned when the insurance industry was run by the state.(357) Mush of the problem can also be attributed to the low standards of living among many Russians, who are probably more interested in putting food on their tables than insuring their cars.(358) Even those Russian individuals and enterprises that can afford insurance often do not purchase it because they are generally not mindful of the need for insurance.(359) An illustration of this problem is the account of a Russian business which suffered a DM 300,000 loss due to a fire: the company was not insured.(360)

Unfortunately, quick fix solutions through legislation or regulations will not likely cure this problem. To ensure sustained advances in this area, Gosstrakhnadzor and other government entities should enforce existing policies protecting consumers from dishonest dealings, eliminate defunct insurers, and develop a legal system better designed to deal with insurance issues.(361) The state may also want to institute a policy requiring insurers to submit insurance contract forms for government approval and prohibiting the use of non-approved contracts. These types of reforms may reduce consumer fears of being trapped by seemingly innocuous clauses which allow insurers to swindle policyholders. Finally, adequate laws in the areas of contract and tort law would assist insurers and insurants in understanding their rights and duties under an insurance contract.(362) While such action may not directly boost consumer confidence in the insurance industry, the small amount of faith generated by this type of government supervision may yield great rewards in the long run.

C. Infrastructure and Experience

A well-developed insurance market contains more than just insurers and insurants. There must be brokers and agents to sell the contracts, underwriters and actuaries to determine the proper price of the policy, and adequate procedures for evaluating and appraising covered losses.(363) Herein lies another shortcoming of the Russian system.(364) Due to the recent privatization of the industry the Russian insurance industry lacks not only the organizations to accompany a mature system but also has a scarcity of experienced personnel qualified to operate such structures.(365) Training is desperately needed in the areas of risk management and loss adjusting.(366) Even the actuarial field, which is amply supplied with expert mathematicians,(367) suffers from an insufficient amount of available statistics on which to base predictions of loss ratios.(368) The Russian Union of Appraisers was established four years ago but due to the absence of policy provisions requiring independent evaluations of losses its services generally remain unused.(369)

Proper government intervention can speed the improvement of this area. For example, to boost the experience level of insurers training programs combined with a continuing education requirement could be used to enhance the knowledge of insurance executives in the areas of risk management: an area which has been the downfall of many insurance companies.(370) Similarly, while existing public statistics kept by the government may be limited,(371) their general release would provide a much needed basis for actuarial work. While experience cannot be legislatively formulated, limited government intervention can reduce the number of pitfalls inexperienced Russian insurers may be subject to.

D. Taxes

The system of taxation, in relation to the Russian insurance market, has been the source of much condemnation.(372) Many of the complaints are directed at the government policy of not allowing businesses or individuals to deduct the amount paid for premiums on commercial property from their taxable income.(373) While certain public policy exceptions exist for firms in the energy sector(374) and foreign firms purchasing fire insurance,(375) critics argue more reform is needed to provide more widespread deductibility.(376)

Despite the intense lobbying by domestic and international groups,(377) in the end recent amendment proposals have remained silent on the topic.(378) For now the question of how much longer the insurance market will be stifled by the government taxation policy remains unanswered. Maybe the importance of this issue will surface during future consideration by the Federation Council or President Yeltsin. Until then this repressive policy will continue to hinder the growth of the Russian insurance industry.

E. Foreign Participation

The role played by foreign parties in the Russian insurance market typifies many of the traditional Soviet leanings towards protectionism.(379) The Soviet government and state underwriting of all insurance policies negated the need for Western-style insurance.(380) The privatiZation of the Russian economy allows Western companies to enter a virtually untapped market -- provided they are willing to deal with inordinate amounts of bureaucracy and red tape.(381) The insurance industry allows this open door policy to a point.(382) Currently, a foreign firm may enter the insurance market provided it does so with a Russian partner who owns at least fifty-one percent of the business.(383) Some innovative companies have circumvented this restriction by using a Russian company to directly insure risks but requiring the "front" company to reinsure most or all of its risks with the foreign firm.(384) Other companies have resisted entering the Russian market in this manner because of the lack of control they would have over the quality of service provided by their affiliate.(385) Therefore, the push by Western companies to further open the Russian market continues. Resisting these efforts are the Russian insurers who claim that until the domestic insurance market can establish itself as a strong segment of the economy, the government should continue its protectionist measures.(386) Currently the restriction of foreign ownership to forty-nine percent still retains support from government officials who do not appear willing to change their position.(387)

As inviting as the underdeveloped Russian insurance market may appear, foreign firms have been slow to enter into foreign-Russian joint ventures.(388) This hesitancy to collaborate with Russian insurers appears to be based on several concerns by the foreign companies. First, currency restrictions coupled with the already high risk of an investment in a newly formed country create fears of financial loss.(389) Second, the lack of a well developed legal system or infrastructure(390) in Russia may make insurers think twice before investing the large amounts of capital necessary for operations. Still, these apprehensions did not stop the American International Group from entering into the Russian insurance market with partners Garant-Invest and Stolichy Saving Bank in 1994.(391)

Russia may be reconsidering its position on this issue in its efforts to enter to the World Trade Organization (WTO).(392) Thus, there is a distinct chance that the days of these partnerships may be numbered. The result of foreign companies bringing their knowledge and attracting investment in the infrastructure would clearly benefit the industry. On the other hand, removing all restrictions would expose Russian insurers to a level of competition not experience for over seventy years.(393) If Russia makes such a concession for WTO entry, Russian insurers would not be without recourse. Should foreign competition proved too injurious to the domestic market, domestic insurers could ask the government to impose measures to protect the industry from extinction.(394) Therefore, the complete opening of the Russian insurance market at this stage to foreign competition would not spell the end of Russian insurance companies. Rather, the stiffer competition would likely force smaller insurers to join forces to become stronger and more efficient -- something which the industry needs anyway.

V. Conclusion

Two groups can be credited with the condition of the Russian insurance market today: the insurers and the regulators. While critics differ as to whether the growth represents an improvement or regression, no one can dispute that change has been accomplished. The transformation of the industry from a two company monopoly system to a growing economic sector ripening with experience has been slow but impressive considering the starting point. Russian insurers have not only had to deal with oppressive regulations and massive economic crises, but also the burdensome task of introducing and selling insurance services to an unwilling population.(395)

Similarly, the members of the Russian government have come far in creating a legal framework for insurance regulations out of a virtually complete vacuum.(396) The establishment of broad guidelines allowing Gosstrakhnadzor and its fellow agencies to mold specific rules may be praised for its simplicity or maligned for its impotence. But for those who judge the present situation harshly, remember that a perfect system cannot develop overnight. A glimpse of future legislation shows that gaps are going filled in the lesser developed areas of insurance laws. Through careful drafting of legislation, trial and error, and the borrowing of effective aspects from other regulatory schemes, Russia may soon correct many of the problems arising out of the current lack of specificity in the legal system.

With its legal deficiencies, cultural attitudes, and inadequate infrastructure Russia will not place high among the leading insurance environments within the next few years.(397) The continued expansion of its markets combined with good faith efforts to improve the domestic market through legislation and responsible conduct may certainly allow insurance services to gain strength enough to compete in a global scale.(398) However, impatience, especially by insurance executives looking for a quick and easy fortune, can hinder the market's improvement. Perhaps the best course of action for all concerned is to work together towards the common goal of creating a viable, competitive industry to serve the insurance needs of Russian citizens and businesses. (1.) While Estonia, Latvia, and Lithuania seceded from the union before the formal dissolution, the withdrawal of the Russian Soviet Federative Socialist Republic (RSFSR), Belorussia, and the Ukraine prompted the withdrawal of the nine other remaining states by the end of 1991, officially dissolving the Union of Soviet Socialist Republics. See Agreement Establishing the Commonwealth of Independent States, Dec. 8, 1991, 31 I.L.M. 143, 143 [hereinafter CIS Agreement]; see also W.E. Butler & M.E. Gashi-Butler, Legal Aspects of Doing Business In Russia [sections] 1.1.2, at 2. (1994).

(2.) See CIS Agreement, supra note 1, art. 1, at 143; see also The World Almanac 842 (1997). By the end of 1991, CIS members included Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. See Protocol to the Agreement Establishing the Commonwealth of Independent States, Dec. 21, 1991, 31 I.L.M. 147, 147. The Georgia Republic joined in 1993, increasing the total number of states to 12. See Steven Erlanger, Yeltsin Suspends the Communist Party and Other Foes, N.Y. Times, Oct. 9, 1993, [sections] 1, at 3; see also Butler & Gashi-Butler, supra note 1, [sections] 1.1.3, at 2 (noting that all of the former Soviet republics except the three Baltic states joined the CIS).

(3.) Legislation enacted in 1990 privatized ownership of traditionally state-owned property. See Masha Hamilton, Supreme Soviet Moves to Allow Private Farms, L.A. Times, Feb. 21, 1990, at A1. Similarly, under the policy of khozraschyot (self-accounting or self-financing), the risk of loss was no longer born by the government treasury. See Soviet Insurance Market Open to New Business, Euromoney Int'l Fin. L., Nov. 3, 1990, at 36, available in LEXIS, World Library, Allwld File (describing the efforts of the khozraschyot policy). In 1991, the USSR Supreme Soviet adopted laws privatizing state-owned enterprises, allowing private savings accounts and the privatization of the residential apartment industry. See Joseph R. Blasi Et Al., Kremlin Capitalism: The Privatization Of The Russian Economy 22 (1997).

(4.) See, e.g., Butler & Gashi-Butler, supra note 1, [sections] 1.2, at 3.

(5.) Because the new laws consist of individual laws rather than full-scale codes, the new enactments only partially supersede old law. Cf. id. [sections] 1.3, at 5 (observing that the loss of traditional coherence that existed in pre-existing Russian codes has spurred the movement to amalgamate legislative efforts into "full-scale market-oriented codes").

(6.) Before the Bolshevik Revolution in 1917, Russian insurance companies operated similar to their Western counterparts. See John J. Hampton & Valery Vyatkin, Doing Business in Russia, Bus. Ins., Sept. 19, 1994, at 45. Even after, Lenin's rise to power, insurance continued to exist, unlike in communist China where the instigation of communism eliminated insurance from 1949 to 1978. See id. However, the Russian insurance industry did not remain unchanged after the revolution, but rather, like other financial services, was nationalized. See id.

(7.) See William G. Frenkel, Commercial Law of Russia: A Legal Treatise pt. V.A, at 35 (1995); see also Hugh Fraser, Russians Run for Cover, Int'l Mgmt., Feb. 1992, at 44, available in LEXIS, World Library, Allwld File (discussing the history of Gosstrakh, the state insurance company); Soviet Insurance Market Open to New Business, supra note 3 (reporting that both of the state run insurers were under the control of the Ministry of Finance).

(8.) See Fraser, supra note 7 (estimating the number of newly formed insurers as of 1992 to be around 250).

(9.) See Frenkel, supra note 7, pt. V.A, at 36.

(10.) See id. at 37.

(11.) See id. at 38.

(12.) See id. at 43 (noting that such agencies' freedom to interfere in the business operations of those it regulates flows from the broad and ambiguous language employed in Russian legislation).

(13.) See id. at 36, 43.

(14.) Economic indications gathered from the World Bank, International Monetary Fund, and others show that from 1991 to 1995 the economy declined as a whole. See Blasi Et. Al., supra note 3, at 190.

(15.) See id. at 189.

(16.) See generally Lester Thurow, Head To Head: The Coming Economic Battle Among Japan, Europe, And America 11-25, 85-113 (1993) (analyzing Russia's attempt to shift from simply a military superpower to both an economic and military superpower, and noting that "[n]egative attitudes toward entrepreneurs are already visible in the formerly communist world").

(17.) See World Almanac, supra note 2, at 811.

(18.) Under the controlled market system, companies who suffered losses were compensated by the government. See Frenkel, supra note 7, pt. V.A, at 34. Under the policy of khozraschyot, which released these enterprises from government control and protection, Russian business managers, inexperienced with risk management or goals of profit making, were thrust into the marketplace to face new enemies such as competition and financial independence. See id.

(19.) One source placed the figure at 86%. See Interview by Pavel Bunich, Official Kremlin Int'l News Broad., Feb. 21, 1992, available in LEXIS, World Library, Allwld File.

(20.) See Press Conference on Privatization of the Economic Structures, Official Kremlin Int'l News Broad., Sept. 16, 1992, available in LEXIS, World Library, Allwld File (reporting the progress of privatization programs to date and the plans to continue those achievements).

(21.) See id. (reporting on the execution of plans privatizing firms both in the manufacturing and services sector).

(22.) Cf. David Remnick, Ownership Law Passes Key Test in Moscow, Wash. Post, Mar. 7, 1990, at A1 (remarking how the privatization bill breaks with the system of government ownership which dominated since Lenin's New Economic Program of the 1920s).

(23.) Cf. Butler & Gashi-Butler, supra note 1, [sections] 1.2, at 3 (discussing the impressive speed with which legislation has been adopted to accommodate Russia's economic reform).

(24.) See id. [sections] 1.3, at 5.

(25.) Cf. Hampton & Vyatkin, supra note 6 (describing the need for developments in the Russian legal system pertaining to several areas of the law).

(26.) 26. Cf. Butler & Gashi-Butler, supra note 1, [sections] 1.2, at 3 (noting that legislation in these areas has been adopted).

(27.) See Frenkel, supra note 7, pt. V.A, at 36.

(28.) See id. at 35.

(29.) Some government businesses were actually legally prohibited from purchasing insurance. See Soviet Insurance Market Open to New Business, supra note 3.

(30.) See Frenkel, supra note 7, pt. V.A, at 36; Rachel Canning, Insurance Market Poised for Expansion, Cent. Eur., Oct. 1994, at 58, 58.

(31.) See Hampton & Vyatkin, supra note 6.

(32.) See Frenkel, supra note 7, pt. V.A, at 36.

(33.) See id. at 35; Hampton & Vyatkin, supra note 6.

(34.) See Canning, supra note 30, at 58. Health insurance and pension plans were unheard of in Soviet Russia. See id. The reason for this is simple: health care was provided free of charge to all citizens. See id.

(35.) See Hampton & Vyatkin, supra note 6 (describing the "massive, secret bureaucracy" which resisted making claim payments under the terms of its policies). In 1989, the volume of insurance sold in the U.S.S.R., the third most populous nation, ranked no better than sixth in the world with less than three percent of the total world premium income. See id.

(36.) See id. Some Russians jest that the name of the domestic insurer, Gosstrakh, may have been derived from the Russian word strakch which means fear or terror. See id.

(37.) See Frenkel, supra note 7, pt. V.A, at 36. Consumer fraud and bankruptcy were common after the insurance market was opened to private insurers. See id.

(38.) The policies of glasnost ("openness") and perestroika ("restructuring") were reform policies instituted by Gorbachev. See, e.g., Blasi Et Al., supra note 3, at 17.

(39.) See Soviet Insurance Market Open to New Business, supra note 3.

(40.) See 1,500 Licensed and Unlicensed Insurers Now in the Market, Int'l Ins. Monitor, May/June 1994, at 32-33 [hereinafter 1,500 Licensed). Among the first privately owned insurance companies to develop were "ASKO" and "ROSSI" which are now the two most powerful private insurers in the Russian market. See id.

(41.) See Frenkel, supra note 7, pt. V.A, at 36 (observing that no Soviet law existed to regulate insurance operations before the explosion of private company activity in 1988).

(42.) See id.

(43.) See id.

(44.) See id. at 37. The "government's unwillingness to provide competition for the powerful state-owned insurers" may have caused delay in the government's effort. Id.

(45.) See id.

(46.) See T. Khudyakova, The Insurance Battlefield, Izvestia, Aug. 9, 1991, at 2, translated in Current Dig. Soviet Press, Sept. 11, 1991, at 24, available in LEXIS, World Library, Allwld file. At the time of Mr. Khudyakova's article, the ruble/dollar exchange rate was approximately 0.6R to $1 U.S. See Soviet Union, Int'l Rep., Sept. 1991, available in LEXIS, World Library, Allwld file.

(47.) See Khudyakova, supra note 46, at 24. One commentator remarked

It is very easy to determine the source of this figure -- one just has to look at the information on the clandestine privatization of the former province administrations of Russia's Chief Administration for State Insurance. The republic administration allots each of them precisely this amount as initial capital for nascent ... joint stock companies, for which district inspectorates play the role of founders. Id.

(48.) See id.

(49.) See id. (reporting efforts by private and state insurers, who have consistently held a level of animosity towards each other, to develop legislation to regulate the Russian insurance industry); see also Frenkel, supra note 7, pt. V.A, at 37 (describing the debate among government officials regarding the ideal legal framework for the Russian insurance industry).

(50.) See generally Delaware Insurance Commissioner Issues Statement, PR Newswire, Dec. 17, 1991, available in LEXIS, World Library, Allwld File (explaining the significance of several protocols between Russian insurance officials and Delaware officials agreeing to exchange information concerning the Delaware insurance regulatory system).

(51.) See Frenkel, supra note 7, pt. V.A, at 37; 1,500 Licensed, supra note 40, at 33 (reporting that Russian officials considered a German model of law).

(52.) See Law of the Russian Federation on Insurance, Ross. Gazeta, Jan. 12, 1993, at 4 [hereinafter Russian Insurance Law of 19921, translated in Law No. 4016-1 of the Russian Federation on Insurance of 11/92 (Office of General Counsel, U.S. Dept. Comm., trans., 1993); see also Frenkel, supra note 7, pt. V.A, at 44 (noticing unique elements present in the Russian insurance law, along with Western influences).

(53.) See The World Almanac, supra note 2, at 811.

(54.) See International Research Services Special Report, Ins. Res. Ltr., Oct. 13, 1995, available in LEXIS, World Library, Allwld File.

(55.) See Canning, supra note 30, at 58 (commenting that the emergence of the private sector has created new needs in the insurance sector); see also Frenkel, supra note 7, pt. V.A, at 34 (describing the growing foreign investment and financial independence of state businesses as reasons for the increased demand for insurance).

(56.) See Decree of the Supreme Soviet of the Russian Federation: On Enactment of the Law of the Russian Federation `On Insurance,' [Section] 5, Ross Gazeta, Jan. 12, 1993, at 5 [hereinafter Decree Enacting Russian Law on Insurance], translated in Law No. 4016-1 of the Russian Federation on Insurance of 11/92 (Office of General Counsel, U.S. Dept. Comm., trans., 1993); Russian Insurance Law of 1992, supra note 52, art. 6; see also Frenkel, supra note 7, pt. V.A, at 38 (remarking that the law's address of foreign insurers' underwriting of Russian risks is a distinctive feature of the legislation).

(57.) See Russian Insurance Law of 1992, supra note 52, arts. 25-29 (establishing the financial qualifications and record requirements of Russian insurers).

(58.) See id. art. 17 (describing protections afforded to insurants by the statute).

(59.) See Butler & Gashi-Butler, supra note 1, [Section] 1.2.1, at 4.

(60.) See Frenkel, supra note 7, pt. V.A, at 36. The current regulatory regime is generally considered insufficient for foreign insurers to adequately prepare for market entry. See id. at 43.

(61.) See, e.g., Canning, supra note 30, at 58 (stating that the 1992 law only provides a framework, which fails to regulate brokerage activity or provide procedures for meeting auditing standards).

(62.) See Frenkel, supra note 7, pt. V.A, at 43.

(63.) See id. at 38.

(64.) See Decree Enacting Russian Law on Insurance, supra note 56.

(65.) Cf. Frenkel, supra note 7, pt. V.A, at 36 (noting that by 1992, some insurers were "wreaking havoc" on developing industries due to insufficient regulation).

(66.) See id. at 38. The Russian regulatory regime is also more sophisticated than similar regimes created by the other former Soviet republics. See id. at 43.

(67.) See Russian Insurance Law of 1992, supra note 52, art. 30(2)-(3) (charging the state agency with specific duties and powers to implement insurance regulations); Frenkel, supra note 7, pt. V.A, at 38.

(68.) See Maria Kielmas, New Insurance Law is First Ever to Cover the Russian Market, Bus. Ins., Feb. 1, 1993, at 23 (defining Gosstrakhnazdor as the State Insurance Supervisor of the Russian Federation).

(69.) See Frenkel, supra note 7, pt. V.A, at 42.

(70.) The regulatory regime prior to the enactment "lacked a fundamental legislative enactment and applied a variety of unpublished and inconsistent regulations." Id. at 38.

(71.) See id. at 42.

(72.) See Russian Insurance Law of 1992, supra note 52, ch. I-V. Chapter One sets forth general provisions. See id. ch. I. Chapter Two discusses the workings of the insurance contract and the relationships it creates. See id. ch. II. Chapter Three outlines provisions for the assurance of the financial stability of the insurance companies. See id. ch. III. Chapter Four creates the mechanism for regulation of the insurance industry. See id. ch. IV. Chapter Five, entitled "Final Provisions," contains three articles discussing a foreign person's right to purchase insurance, dispute resolution, and the role of international treaties. See id. ch. V.

(73.) See id. art. 5(1).

(74.) See id. art. 6.

(75.) See id. art. 9.

(76.) See, e.g., id. art. 16(3).

(77.) See id. arts. 17-18.

(78.) Id. art. 2.

(79.) See id. art. 3(1).

(80.) See id. art. 3(2)-(3).

(81.) See Frenkel, supra note 7, pt. V.A, at 39; see also Kielmas, supra note 68 (stating that insurers have freedom to set their rates for non-compulsory property and liability insurance policies but must receive approval for their rates on life insurance and pension coverage).

(82.) See Kielmas, supra note 68.

(83.) See Russian Insurance Law of 1992, supra note 52, art. 15; see also Frenkel, supra note 7, pt. V.A, at 39 (noting that terms and conditions may be established by contract at the insurer's sole discretion as long as they do not contradict mandatory provisions of the law).

(84.) See Frenkel, supra note 7, pt. V.A, at 39. Although enacted before the 1992 Law of Insurance, the Russian Health Insurance Law of June 1992 provides an excellent example of this type of legislation. See Health Insurance for Citizens in the RSFSR, Vrach, June 1992, at 4 [hereinafter Russian Health Insurance Law], translated in Russian Health Insurance Law of 6/92 (Office of General Counsel, U.S. Dept. Comm. trans., 1993). Mandatory health insurance under the law is "universal for the people of RSFSR" whereas voluntary health insurance appears to be merely for policies providing supplemental coverage above the mandatory insurance coverage. See id. art. 1.

(85.) See id. art. 4.

(86.) See id.

(87.) See Soviet Insurance Market Open to New Business, supra note 3.

(88.) See Canning, supra note 30, at 58.

(89.) See International Research Services Special Report, supra note 54, (reporting health insurance as one of the forms of insurance which are currently mandatory); see also Russian Health Insurance Law, supra note 84, art. 1 (establishing a system of voluntary and mandatory health insurance).

(90.) See Russian Health Insurance Law, supra note 84, art. 1 (providing that mandatory health insurance is "implemented in accordance with programs of mandatory health insurance, which guarantee the scope and conditions of rendering medical care and providing drugs for citizens"); Frenkel, supra note 7, pt. V.A, at 39 (stating that life insurance coverage amounts may be negotiated between the insurer and the insured).

(91.) See 1 Eric Mills Holmes & Mark S. Rhodes, Appleman on Insurance 2D [section] 1.3. at 16 (1996).

(92.) See Russian Insurance Law of 1992, supra note 52, art. 9(1).

(93.) See id. art. 9(2).

(94.) See id. art. 10.

(95.) Id. art. 10(2).

(96.) Id.

(97.) See id. art. 10(3).

(98.) Id.

(99.) Such damages may include indirect expenses associated with the loss of property such as loss of use or enjoyment of property, exemplary or punitive damages, or pain and suffering in the case of automobile accidents. However, as property insurance in Article Four includes enjoyment of property, and liability insurance provides for damages the insurant causes to another's person or property, these may be already implicitly provided for by the language of the statute. See id. art. 4. The collateral source rule, on the other hand, embraces the notion that a tortfeasor may not benefit by reducing payable damages to the tortfeasee should the latter receive other insurance benefits. See Page Keeton et al., Cases and Materials on Tort and Accident Law 489-97 (1989) (defining and providing examples of its application).

(100.) See Russian Insurance Law of 1992, supra note 52, art. 10(3).

(101.) See id.

(102.) See id.

(103.) See id.

(104.) Id. art. 10(.4).

(105.) See id. art. 4.

(106.) Russian Health Insurance Law, supra note 84, art. 3.

(107.) Although the actual language of both the general Insurance Law and the Health Insurance Law do not specifically prohibit such recoveries, the nature of health insurance is such that the insurance company receives premiums from the insured, the insured receives health care from the medical provider and the medical provider receives compensation for services rendered from the insurance company. See 1 HOLMES & RHODES, supra note 91, [Sections] 1.26, at 134-35. Therefore, as each of these three parties gives and receives consideration for their promises and the consideration due, insurance coverage cannot be increased through the purchase of excessive policies. (108.) See Russian Insurance Law of 1992, supra note 52, art. 7.

(109.) See id.

(110.) See id.

(111.) See id. art. 12.

(112.) See id.

(113.) See id.

(114.) See id. art. 13.

(115.) Id. art. 13(l).

(116.) See Decree Enacting Russian Law on Insurance, supra note 56, [Sections] 2.

(117.) See Insurance Overview, MKT. REP., Mar. 22, 1995, available in LEXIS, World Library, Allwld File (stating that the Russian reinsurance industry is "in its infancy").

(118.) See id. (reporting that in 1994 Russia had only 30 registered reinsurance companies and only 18 of those were operational).

(119.) See 1,500 Licensed, supra note 40, at 34 (pointing to the fact that only a few reinsurance societies exist in Russia and that they are not prominent in the Russian insurance market).

(120.) Russian Insurance Law of 1992, supra note 52, art. 1(1).

(121.) 1 HOLMES & RHODES, supra note 91, [Sections] 1.3, at 17. Insurance has been defined as a risk sharing arrangement for transferring and distributing the risk of fortuitous loss or harm. See id. [Sections] 1.3, at 16.

(122.) See Russian Insurance Law of 1992, supra note 52, arts. 17(2), 18(2) (providing for other obligations on the insurer and insurant when agreed upon in the contract).

(123.) Of course, because the Russian Law on Insurance grants the parties freedom to chose their terms, one must look at the actual contract for insurance in order to determine the specific rights and duties of each party. See id.

(124.) Id. art. 5(1).

(125.) See id. art. 5(2)-(3).

(126.) See id. art. 15. However, these terms "must conform to the general terms of the validity of a transaction specified by civil legislation of the Russian Federation." Id.

(127.) See id. art. 19(1).

(128.) See id.

(129.) See id. The law recognizes that the requirement for insurer consent may be abrogated by law or the insurance contract itself. See id.

(130.) See id. art. 17(2) (allowing the insurer to agree to additional obligations in the insurance contract).

(131.) Id. art. 18(2).

(132.) Id. art. 18(1)(a). The article refers to premiums as "insurance contributions." See id. "Insurance contributions" are defined in Article 11 as "[t]he fee for insurance, which the insurant is required to pay to the insurance underwriter in accordance with the insurance contract or the law." Id. art. 11(1).

(133.) Id. art. 18(1)(c).

(134.) See id.

(135.) Id. art. 17(1)(b).

(136.) Id. art. 17(1)(d). This requirement must be stated in the insurance contract and compensation for the expenditure is not required if it exceeds the amount of the damage. See id.

(137.) Id. art. 18(1)(c).

(138.) Id. art. 6(l).

(139.) See id.

(140.) See id. art. 30(3)(a).

(141.) See id. art. 17.

(142.) See id. art. 17(1)(b).

(143.) See id. art. 17(1)(d).

(144.) Id. art. 17(1)(c).

(145.) See id.

(146.) See Hampton & Vyatkin, supra note 6 (describing the disbursement of insurance proceeds under state insurers).

(147.) See Russian Insurance Law of 1992, supra note 52, art. 20(l).

(148.) Id. art. 20(2).

(149.) Id. art. 20(l).

(150.) See id. art. 21(3).

(151.) See id. art. 21(2). The language of the provision specifically allows an insurer to deny a claim if the specific terms of the contract allow it, provided that the terms of the contract on which the denial is based do not violate specific legislation. See id.

(152.) See id. art. 21(1)(a).

(153.) See id. art. 21(1)(b).

(154.) See id. art. 21(1)(c).

(155.) See id. art. 21(1)(d).

(156.) See id. art, 21(4); see also id. art. 35 (declaring that insurance diputes will be resolved by the law of the jurisdiction of the forum).

(157.) See More Licenses Withdrawn, E. Eur. Ins. Rep., Mar. 1995, available in LEXIS, World Library, Allwld File.

(158.) See Russian Insurance Law of 1992, supra note 52, art. 30(4)(c); see also More Licenses Withdrawn, supra note 157 (detailing Rosstrakhnadzor's ["Ross" is the prefix for Russia, "Goss" for state] withdrawal of licenses to three insurance companies and suspension of licenses for another seven).

(159.) See Russian Insurance Law of 1992, supra note 52, art. 8(l).

(160.) See id. art. 8(1)-(3); see also FRENKEL, supra note 7, pt. V.A, at 41 (noting that the Law permits intermediary. insurance activities for the first time in post-Soviet Russia).

(161.) See Russian Insurance Law of 1992, supra note 52, art. 8(2).

(162.) See id. art. 8(3). This is apparently an attempt by the law to deal with potential agency problems.

(163.) See id.

(164.) The nature of the language in Sections 2-3 of Article 8 implies a master/servant relationship between insurers and agents; whereas brokers are effectively treated like independent contractors. See id. art. 8.

(165.) See generally id. arts. 15-24 (establishing the necessary and voluntary components of an insurance contract and the obligations of the contracting parties upon conclusion of a contract).

(166.) See Hampton & Vyatkin, supra note 6.

(167.) See Russian Insurance Law of 1992, supra note 52, art. 15.

(168.) See id.

(169.) See id. art. 16.

(170.) See id. art. 16(1)-(2).

(171.) See id. art. 16(3) (setting out the components of an insurance receipt).

(172.) See id. art. 16(3)(a)-(k).

(173.) Assistance such as this is much needed where the average experience level of 95% of Russian insurers in 1994 was less than two years. See Insurance Overview, supra note 117. Undeveloped legislation, however, may hinder domestic insurers' efforts. See id.

(174.) See Russian Insurance Law of 1992, supra note 52, arts. 23-24.

(175.) See id. art. 23(1)(a)-(g).

(176.) See id. art. 23(1)(a)-(e) (giving examples of instance when an insurance policy may terminate); see also id. art. 19(4) (providing an exception to Article 23(1)(d) when dealing with the liquidation of legal persons).

(177.) See id. art. 23(1)(g) (allowing additional legislation to control the terminability of insurance contracts); see also id. art. 23(2) (allowing early termination of the contract at the request of the insurant or the insurer in accordance with the terms of the contract).

(178.) See id. art. 23(3).

(179.) See id.

(180.) The request for early termination must be made more than 30 days before the "contemplated date of termination" unless the contract provides otherwise. See id.

(181.) See id.

(182.) See id. art. 24(1).

(183.) See id.

(184.) See id. art. 24(3).

(185.) See id. art. 24(2)(a).

(186.) See id. art. 24(2)(b).

(187.) See id. art. 23(1)(f) (stating within the provision on termination that courts may deem insurance contracts "null and void").

(188.) See id. art. 23(3).

(189.) See id. If the policy was deemed null, no assignment of the insurant's risk to the insurer would be permitted. Any consideration given to the insurer by the insurant would be unearned and therefore must be refunded.

(190.) See Frenkel, supra note 7, pt. V.A., at 38.

(191.) See id.

(192.) See Russian Insurance Law of 1992, supra note 52, chs. III-IV (setting out the regulatory provisions to maintain the financial stability of insurance companies and other areas of public supervision).

(193.) See id.

(194.) See id. arts. 27(2), 28.

(195.) See id. Article 25 states: "The basis of the financial stability of the insurance underwriters are the availability to them of paid-up charter capital and insurance reserves and also a reinsurance system." Id. art. 25. Articles 28 and 29 discuss the reporting of business transactions and annual profits. See id. arts. 28-29.

(196.) See Frenkel, supra note 7, pt. V.A, at 34.

(197.) See id. at 43 (stating that many government regulators have little experience in the supervision of a privatized insurance market); see also Canning, supra note 30, at 59 (reporting that many insurers that many insurers also lack experience); Hampton & Vyatkin, supra note 6 (describing the need for training for members of the insurance industry).

(198.) See Russian Insurance Law of 1992, supra note 52, art. 26(1).

(199.) Id.

(200.) See id. art. 26.

(201.) See id. art. 26(3).

(202.) Id. art. 27(3).

(203.) See Canning, supra note 30, at 59.

(204.) Cf. id. (noting that most Russian insurers are undercapitalized).

(205.) See Russian Insurance Law of 1992, supra note 52, art. 27(1).

(206.) See infra text accompanying notes 300-14 & 348-56.

(207.) See Russian Insurance Law of 1992, supra note 52, art. 27(2).

(208.) See infra text accompanying notes 274-82.

(209.) See Russian Insurance Law of 1992, supra note 52, art. 28(1).

(210.) While financial stability is the subject of this section of the discussion, the taxation issue is discussed in more detail in the text accompanying notes 365-71 infra. Tax assessment is also the likely reason for the delineation between life insurance transactions and property and liability insurance transactions. See Russian Insurance Law of 1992, supra note 52, art. 28(1)-(2).

(211.) See Russian Insurance Law of 1992, supra note 52, art. 28(1).

(212.) See Canning, supra note 30, at 58-59 (noting that while interim auditing guidelines were provided by a presidential decree, actual legislation addressing this issue does not exist).

(213.) The first four topics defined the scope of "insurance" in Russia, the parties to the contract and how their rights and obligations intertwine, the form and basic mechanics of the insurance contract itself, and the government provisions set up to provide stability and growth to the emerging market.

(214.) See Russian Insurance Law of 1992, supra note 52, ch. IV (establishing the boundaries of the state's supervisory authority).

(215.) See id. art. 30(1).

(216.) See id. art. 30(3)-(4).

(217.) See id. art. 30(3).

(218.) See id. art. 30(2).

(219.) See id. art. 30(3) (giving these examples as principle functions of Gosstrakhnadzor); see also Kielmas, supra note 68 (listing Gosstrakhnadzor's primary functions).

(220.) See Russian Insurance Law of 1992, supra note 52, art. 30(4).

(221.) See id. art. 30(4)(a).

(222.) See id.

(223.) See id. art. 30(4)(b).

(224.) See id. art. 33.

(225.) See Khudyakova, supra note 46, at 24.

(226.) See Russian Insurance Law of 1992, supra note 42, art. 30(4)(c).

(227.) See id. art. 30(4)(d).

(228.) See id. art. 32.

(229.) See id. art. 30(4)(d) (allowing Gosstrakhnadzor to liquidate any insurer operating without a license); see also Decree Enacting the Russian Law on Insurance, supra note 56, [sections[ 3 (requiring insurers without licenses at the enactment of the Law to obtain a license before January 1, 1994, but allowing insurers who were operating with licenses before the law was published until January 1, 1995 to obtain the license).

(230.) Russian Insurance Law of 1992, supra note 52, art. 32(1)(a).

(231.) See id. art. 32(3).

(232.) Ruslan Khasbulatov was Chairman of the Supreme Soviet of the Russian Federation at the time the Law was passed. See Blasi et al., supra note 3, at xvii.

(233.) See Decree Enacting the Russian Law on Insurance, supra note 56, [sections] 2. For reinsurance applications the amount is 15 million rubles.

(234.) See Russian Insurance Law of 1992, supra note 52, art. 32.

(235.) See id.

(236.) See id. art. 32(2).

(237.) See Decree Enacting the Russian Law on Insurance, supra note 56, [section] 4. Note that the license fee is waived for those insurers who obtained a license before the 1992 law. See id.

(238.) See Russian Insurance Law of 1992, supra note 52, art. 32(4).

(239.) See e.g., 1,500 Licensed, supra note 40, 15 33-34.

(240.) See Russian Insurance Law of 1992, supra note 52. art. 6(1); see also Decree Enacting the Russian Law of Insurance, supra note 56, [section] 5 (limiting foreign ownership of Russian insurance companies to 49 percent of the charter capital).

(241.) See Decree Enacting the Russian Law on Insurance, supra note 56, [section] 5; see also Frenkel, supra note 7, pt. V.A. at 37, 38, 41 (explaining how the traditional Soviet bars to foreign insurance companies have been altered in the new free market environment).

(242.) See Decree Enacting Russian Law on Insurance, supra note 56, [section] 5.

(243.) See id.

(244.) See, e.g., Geoff Winestock, U.S. Insurer Goes by Book, Moscow Times, Apr. 28, 1994, available in LEXIS, World Library, Allwld File (reporting Russian directors feel that Russians must create their own market before allowing foreign companies to take part).

(245.) See Russian Insurance Law of 1992, supra note 52, art. 31.

(246.) See id.

(247.) See Soviet Insurance market Open to New Business, supra note 3 (stating that in 1990 the state insurers comprised an overwhelming share of the market); Insurance Still Exotic in Russia -- Insurance Sector Review, Novecon, Feb. 24, 1994, available in LEXIS, World Library, Allwld File [hereinafter Insurance STill Exotic in Russia] (indicating that independent companies -- the bulk of which are smaller and medium sized firms -- only service 10-15% of Russia's potential insurance market).

(248.) See Kielmas, supra note 68 (describing the agency's functions and powers).

(249.) See 1,500 Licensed, supra note 40, at 33-34.

(250.) See Khudyakova, supra note 46, at 24. In 1991, only 10% of Gosstrackhnadzor's 240,000 employees had education past high school, and none of the employees had insurance specialist training. See id. (251.) See Hampton & Vyatkin, supra note 6 (stating that unregulated insurance can lead to a weak system filled with undercapitalized and poorly managed insurers); see also 1,500 Licensed, supra note 40, at 34 (discussing many insurers' realization that the insurance business is complicated and requires experience).

(252.) See Frenkel, supra note 7, pt. V.A. at 43.

(253.) See Rush to the Market -- Report on Insurance Growth and Potential Long-Term Pitfalls, Lloyds List, Mar. 24, 1992, available in LEXIS, World Library, Allwld File [hereinafter Rush to the Market]. (254.) See Fraser, supra note 7 (estimating in 1992 that around 250 insurers had begun business in the preceding three years). Due to numerous inconsistent reports, it is difficult to formulate an accurate estimate. See Rush to the Market, supra note 253 (noting that no one knows the actual total of new insurance companies, but reporting over 600 by one estimate). Estimates are generally not accurate, even to the nearest hundred, because of dramatic industry growth. See id.; see also Hampton & Vyatkin, supra note 6 (declaring that the discrepancies among the reported number of insurers in Russian, estimated at between 900 and 3,000, exist because some entities only exist on paper). (255.) See Insurance Still Exotic in Russian, supra note 247 (declaring that the law on insurance is "liberal").

(256.) See Rush to the Market, supra note 253.

(257.) See Transition to Market Economy, E. Eur. Ins. Rep., Apr. 1994, available in LEXIS, World Library, Allwld File. Commentators blame the decrease in premiums primarily on declining living standards, decreasing policy values due to hyper-inflation, surviving ambiguity concerning the legal system in the area of ownership, and the abolishing of many compulsory types of insurance. See id.

(258.) See International Research Services Special Report, supra note 54 (reporting 2,688 entities); see also Insurance Overview, supra note 117 (stating that there were 2,500 insurance firms at the end of 1994); The New Order -- Insurance in the Former Soviet Union, Post Mag., Nov. 24, 1994, available in LEXIS, World Library, Allwld File [hereinafter The New Order] (estimating around 3,000 entities at the end of 1993).

(259.) See Insurance Still Exotic in Russia, supra note 247; see also Hampton & Vyatkin, supra note 6 (stating that Gosstrakch is still leading insurer). (260.) See The New Order, supra note 258 (explaining that the state insurers are fragments of the old state insurance body and thus have the advantage).

(261.) See Insurance Overview, supra note 117.

(262.) See The New Order, supra note 258 (describing the experience levels of job applicants at a specific insurer in Russia).

(263.) See Decree Enacting the Russian Law on Insurance, supra note 56, [section] 5 (allowing only 49% foreign ownership).

(264.) See 77 Insurance Companies with Foreign Capital Registered in Russia, Novecon, Mar. 5, 1997, available in LEXIS, World Library, Allwld File.

(265.) See The New Order, supra not 258. Dimitrij Prokopyev, Director General of Kaliningrad-based insurer Lotsman, postulates that reasons for the high default rate among Russian insurers are inexperience and speculative practices. See id.

(266.) See First Reading for Amendments, World Ins. Rep., Nov. 15, 1996, available in LEXIS, World Library, Allwld File (noting the Duma's passage of amendments on October 18, 1996).

(267.) See Russian Insurance Law of 1992, supra note 52, art. 3.

(268.) See. e.g., Hidden Agendas III, E. Eur. Ins. Rep., May 1995, available in LEXIS, World Library, Allwld File (reporting on 1995 draft amendments that would have mandated fire insurance for foreign firms conducting operations in Russia). Despite numerous attempts by the Duma to amend the legal provisions regarding mandatory insurance, Boris Yeltsin has maintained the status quo by vetoing such initiatives on two occasions. See id. (noting Yeltsin's vetos of draft amendments in August of 1995). "The [recent Duma] session also considered, but rejected, draft legislation on motor liability insurance." Id.

(269.) See International Research Services Special Report, supra note 54; see also Hidden Agendas III, supra note 268 (reporting that firefighters receive state-funded mandatory life and disability insurance policies).

(270.) See Russian Insurance Law of 1992, supra note 52, art. 3.

(271.) See Russian Labyrinth, E., Eur. Ins. Rep., Oct., 1996, available in LEXIS, World Library, Allwld File (describing the new provisions' impact).

(272.) See First Remedy for Amendments, supra note 266.

(273.) See 2nd Reading Passed, supra note 271 (describing the procedure for the passing of Russian legislation).

(274.) See Insurance Overview, supra note 117.

(275.) See 1,500 Licensed, supra note 40, at 34; see also Reinsurance Discussed, E., Eur. Ins. Rep., Apr. 1996, available in LEXIS, World Library, Allwld File (noting that note of the Russian reinsurance companies were in the top one hundred insurers by premium volume).

(276.) See Insurance Overview, supra note 117. But see The New Order, supra note 258 (indicating that some Russian insurers use other direct insurers for reinsurance purposes and reciprocate by accepting reinsurance contracts from other direct insurers).

(277.) See Fears over Russian Reinsurer, Reinsurance, Dec. 6 1994, at 6, available in LEXIS, World Library, Allwld File; see also Reinsurance Discussed, E. Eur. Ins. Rep., Apr. 1996, available in LEXIS, World Library, Allwld File (quoting Vladislav Reznik who notes that "[t]here are major lobbies for a national reinsurance company").

(278.) See Insurance Regulation, E. Eur. Ins. Rep., Dec. 1994, available in LEXIS, World Library, Allwld File.

(279.) See Canning, supra note 30, at 59.

(280.) See Fears over Russian Reinsurer, supra note 277. As proposed the national reinsurer system would exempt premiums from credit and health insurance policies. See Opposition to Russian Reinsurer is Growing, Lloyds List, Nov. 15, 1994, available in LEXIS, World Library, Allwld File.

(281.) The proposal would create an organization armed with 150 million rubles in starting capital to undertake this operation. See Fears over Russian Reinsurer, supra note 277. Supporters of the plan claim the entity will stop the flow of money from insurance premiums out of country. See National Reinsurer Opposed, E. Eur. Ins. Rep., Aug. 1994, available in LEXIS, World Library, Allwld File. However, those opposed -- private Russian insurers, most Western insurers, and many government officials -- argue that most outbound premium flow pays for primary insurance on large projects rather than reinsurance. See id.; see also Opposition to Russian Reinsurer is Growing, supra note 280. They fear that a reinsurance institution would be the end of privately owned insurance companies in Russia and would in effect be nothing more than a tax on insurers. See Hidden Agendas III, supra note 268 (quoting Vladimir Krouglyak, president of SAO Ingostrackh, Moscow).

(282.) See Real Politics, E. Eur. Ins. Rep., Apr. 1995, available in LEXIS, World Library, Allwld File; see also Hidden Agendas III, supra note 268 (stating one source's opinion that the Russian National Reinsurance Company project "is dead"); Trevor Petch, Survey of Reinsurance, Fin. Times, Sept. 4, 1995, at 5, available in LEXIS, World Library, Allwld File (reporting that as of September 1995 the proposal was still "buried").

(283.) Elena Kudimova, Russian Brokers Lobby for Insurance Reforms, Bus. Ins., Jan 2, 1995, at 17 [hereinafter Kudimova, Brokers Lobby].

(284.) See id. (noting that in 1995 domestic brokers made up only 10% of this business). There are approximately two hundred operating brokerage houses in Russia. See Intermediary Regulations, E. Eur. Ins. Rep. Feb. 1995, available in LEXIS, World Library, Allwld File.

(285.) See Kudimova, Brokers Lobby, supra note 283.

(286.) See id. (stating that the Guild members are working together to compete against foreign brokers).

(287.) See id.

(288.) See id. (reporting Krapivsky's concerns that if domestic brokers lowered their prices to compete with foreign brokers the taxes would bankrupt them). Russian brokers are currently taxed at the same as trade brokers: a 20% value-added tax, a 3% tax on special premiums, and a 38% income tax. See id. Domestic brokers pay over 6% of their earnings to the government while foreign brokers pay no Russian taxes; they must only pay the taxes assessed by their home country. See Elena Kudimova, Russian Regs Limit the Role of Brokers, Bus. Ins., Mar. 20, 1995, at 63-64 [hereinafter Kudimova, Russian Regs].

(289.) See Kudimova, Brokers Lobby, supra note 283.

(290.) See Intermediary Regulations, supra note 284.

(291.) See id.; Kudimova, Russian Regs, supra note 288.

(292.) See Kudimova, Russian Regs, supra note 288.

(293.) See id. at 64.

(294.) While hard statistics concerning this issue are unavailable, observers of the Russian insurance market have frequently addressed this topic. See, e.g., The new Order, supra note 258 (stating the default rate is high); What Goes on in the "Jantar" Free Enterprise Zone?, Ins. Res. Ltr., Oct. 11, 1994 available in LEXIS, World Library, Allwld File (noting the number of insolvent insurers).

(295.) See Kielmas, supra note 68 (reporting discussions regarding the need for regulation which resulted in the 1992 law); see also Rush to the Market, supra note 253 (commenting on the absence of insurance legislation in March of 1992). However, shortly before the passage of the 1992 Russian Insurance Law, Rosstrakhnadzor instituted regulations regarding licensing conditions, reserve requirements, taxation of insurance companies, and other regulations affecting various aspects of insurance operations. See Insurance -- Still Troublesome, Reuters, Mar. 18, 1996, available in LEXIS, World Library, Allwld File (listing the important laws and regulations affecting the insurance industry as of March 1996).

(296.) See Canning, supra note 30, 59.

(297.) See id.

(298.) See id. (stating that out of two thousand insurers in Russia, only about 12 have sufficient capital to insure Western or local business); see also Rush to the Market, supra note 253 (reporting unsubstantiated claims that one large claim had brought down smaller companies).

(299.) See, e.g., Elena Kudimova, Russian Insurance Market Shows Little Progress, Bus. Ins., May 15, 1995, [hereinafter Kudimova, Little Progress]; The New Order, supra note 258 (equating start-up capital to the cost of Lada car).

(300.) See Decree Enacting Russian Law on Insurance, supra note 56, [sections] 2 (requiring at least two million rubles of capitalization); see also Kielmas, supra note 68 (providing the conversion ratio between rubles to dollars).

(301.) See Insurance Still Exotic in Russia, supra note 247; see also Kudimova, Little Progress, supra note 299 (reporting that most domestic insurers are operating with less than $9740 in capital).

(302.) See Siegmar Krueger, Insurance in the New Russia, Risk Mgmt., Dec. 1993, at 68 (reporting the inflation rate for 1992 was 2600%, and estimated inflation rate for 1993 was between 600-800%). The value of 13 million rubles discounted by 800% inflation would actually be less than 2 million rubles at the end of one year. Therefore, many insurers were operating at standards less than those dictated by the original regulations.

(303.) See 1,500 Licensed, supra note 40, at 33.

(304.) See id. With the average amount of capital for a Russian insurer being no more than 20 million rubles, this would clearly prohibit many insurers from continuing their operations or force them to merge in order to meet these stricter requirements. See Insurance Still Exotic in Russia, supra note 247.

(305.) See Insurance Regulations, supra note 278.

(306.) See id.

(307.) See Details of Draft Amendments, supra note 272. This proposal would have set capital requirements at ECU 300,000 for non-life insurers, ECU 800,000 for life insurers, and ECU 950,000 for reinsurers. See id.

(308.) See 2nd Reading Passed, supra note 271 (noting the insurance industry's partial success)

(309.) See Details of Draft Amendments, supra note 272 (noting the insurers' motivation for the tripartite model).

(310.) See 2nd Reading Passed, supra note 271.

(311.) See id.

(312.) See id.

(313.) For the Gosstraknadzor's original proposal, see supra note 304 and accompanying text.

(314.) See Russia and Ukraine Move Against Underfunded Insurers, Lloyds Ins. Int'l, Apr. 17, 1995, available in LEXIS, World Library, Allnws File (explaining that the new capital requirements may likely put many smaller companies out of business).

(315.) See First Reading for Amendments, supra note 266.

(316.) See id.

(317.) See Russian Labyrinth, supra note 271. Current minimum wages for non-life insurers are set at 1.9 billion Rubles (U.S. $348,000). See id. For insurers this figure is 2.7 billion Rubles (U.S. $495,000). See id.

(318.) See Russian Insurance Law of 1992, supra note 52, art. 27(1).

(319.) Id. art. 26(1).

(320.) See Insurance Still Exotic in Russia, supra note 247. The guidelines set by Gosstrakhnadzor, however, require reserves for unearned property premiums, reported property claims, personal lines insurance, and other specific policy types. See Kielmas, supra note 68.

(321.) See Insurance Still Exotic in Russia, supra note 247.

(322.) See Real Politics, supra note 282.

(323.) See id.

(324.) See id. Loans to life insurance policyholders would not be allowed to exceed 40% of reserves. See id. Investments in joint stock companies would not allowed to surpass 10% of reserves. See id.

(325.) See Hampton & Vyatkin, supra note 6 (describing the absence of risk management skills).

(326.) See Canning, supra note 30, at 58 (remarking that the legislation will more than likely bankrupt many smaller insurance companies): Russia and Ukraine Move Against Underfunded Insurers, supra note 314.

(327.) See, e.g., More Licenses Withdrawn, supra note 157.

(328.) See id. The companies on the license revocation list included Blagodeyanie Fond, Dana, and Mir. See is. Companies which received suspensions included Aval, Liga, Slavia-Valdaj, Slavyanka, Rospotrebrezerv, and Imko. See id.

(329.) See id.

(330.) See id.

(331.) See id. Among the 378 insurers with healthy balance sheets, many had balance sheets that were described as "unblievable." See id.

(332.) See id.

(333.) See 1,5000 Licensed, supra note 40, at 33-34.

(334.) See id. at 34.

(335.) See id.

(336.) See id.

(337.) See id.

(338.) See Russian Insurance Law of 1992, supra note 52, art. 32(3).

(339.) See 1,500 Licensed, supra note 40, at 34.

(340.) See Details of Draft Amendments supra note 272.

(341.) See id.

(342.) See id.

(343.) See First Reading for Amendments, supra note 266.

(344.) See generally Thurow, supra note 16, 12-14 (analyzing the fall of the "Russian bear" and the significant changes this event has spurred).

(345.) See Frenkel, supra note 7, pt. V.A., at 44.

(346.) See id.

(347.) See Krueger, supra note 302, at 68.

(348.) See id. The inflation rate for 1992 was 2600%, while inflation for 1993 was between 600-800%, See id.

(349.) See Blasi Et Al., supra note 3, at 28, 123 (discussing the economic environment of post-Soviet Russia).

(350.) See Stephanie Baker-Said, IMF Pledges Support Despite Risks, Moscow Times, Apr. 3, 1997, available in LEXIS, World Library, Allwld File (noting the reduction of the inflation rate to 26% in 1996 and government efforts to reduce the figure to 12% in 1997 and into single digits in 1998).

(351.) See Hampton & Vyatkin, supra note 6. This concept differs from policies which value property in hard currency terms but play the lost in rubles based upon the conversion rate between the hard currency and the ruble on the date of the loss. See, e.g., What Goes on in the "Jantar" Free Enterprise Zone?, supra note 294. At least one insurer. Veda-Jawj, appears to offer this type of insurance for its business in the "Jantar" free Enterprises Zone, See id.

(352.) See Hampton & Vyatkin, supra note 6.

(353.) See id. (suggesting a system with weekly or monthly adjusted premiums along with a policy limit similarly adjusted).

(354.) See Russian Insurance Law, supra note 52, at 10(2).

(355.) See id.

(356.) If such a provision were legal, a building insured for R100,000 January 1 1996 would be payable in the equivalent value on January 1, 1996. Therefore, a decrease in ruble value of one hundred percent would be offset by an increase in the claim disbursement of one hundred percent.

(357.) See Hampton & Vyatkin, supra note 6. Illustrations of common experiences include Gosstrakh's policies of not disclosing insurance terms to insurants and resisting their obligations to pay valid claims. See id.

(358.) See Rush to the Market Economy, supra note 253 (postulating that one reason that Russians are not insurance minded stems from their lack of "spare cash for insurance"); Transition to Market Economy, E. Eur. Ins. Rep., Apr. 1994, available in LEXIS, World Library, Allwld File (identifying low living standards as a contributing factor to the low demand).

(359.) See, e.g., Krueger, supra note 302, at 68 (noting that more than 90% of Russian businesses do not carry property insurance).

(360.) See id.

(361.) See id. (noting particular problems with the current system).

(362.) See Hampton & Vyatkin, supra note 6.

(363.) See, e.g., id. (remarking that technical knowledge is needed in Russia with respect to specialized tasks in the insurance industry).

(364.) See id.

(365.) See id.

(366.) See, e.g., 1,500 Licensed, supra note 40, at 34; see also The New Order supra note 258 (observing that competition was keen for experienced personnel in the author's attempt to start a Russian insurance company).

(367.) See 1,500 Licensed, supra note 40, at 34.

(368.) See id.

(369.) See id.

(370.) See, e.g., The New Order, supra note 258.

(371.) See id.

(372.) See, e.g., Sochi-Neniye, E. Eur. Ins. Rep., Oct. 1994, available in LEXIS, World Library, Allnws File; see also Changes Urged in Former Soviet Union Insurance Laws, Reuters, Apr. 5, 1995, available in LEXIS, World Library, Allwld File [hereinafter Changes Urged] (describing a proposed amendment to the tax code which would make insurance premiums deductible for all production and service industries). However, complaints about taxes are limited to their effects on insurance. For a sample of the commentary on the Russian tax scheme, see Irina Yasina, Taxpayers Buy Right to Gripe, Moscow Times, Apr. 15, 1997, available in LEXIS, World Library, Allwld File.

(373.) See Sochi-Neniye, supra note 372.

(374.) See Changes Urged, supra note 372.

(375.) See Hidden Agendas III, supra note 268.

(376.) See Real Politics, supra note 282; see also Changes Urged, supra note 372 (reporting that the International Chamber of Commerce's Insurance Commission has said the tax deductibility of insurance premiums "is essential to the future success of privatized Russian industry").

(377.) See Changes Urged, supra note 372.

(378.) See Details of Draft Amendments, supra note 272.

(379.) See, e.g., Winestock, supra note 244 (reporting a Russian director's position that Russians must create their own market before allowing foreign companies to take part).

(380.) See Frenkel, supra note 7, pt. V.A, at 34.

(381.) See Hampton & Vyatkin, supra note 6 (describing headaches occasionally associated with Russian bureaucracy).

(382.) Cf. Winestock, supra note 244 (noting Russians' feeling that the vagueness of the law restricting foreign ownership permits foreign firms to take an active part in the Russian insurance market).

(383.) see 77 Insurance Companies, supra note 264 (noting the 49% limitation on foreign investment in Russian insurance companies is still in place).

(384.) See Winestock, supra note 244; see also 77 Insurance Companies, supra note 264 ("[A] backward regulatory and legal framework makes it possible to disregard the existing legislation . . . [by allowing] foreign companies [to operate] through intermediate legal entities or dummy firms").

(385.) See id.

(386.) See id.

(387.) See Details of Draft Amendments, supra note 272 (stating that the position of the Maksim Gorkiy conference, attended by representatives from the government and the insurance industry, was favorable to the retention of the 49% restriction).

(388.) Compare Hampton & Vyatkin, supra note 6 (estimating the number to be around 20 in 1994), and Winestock, supra note 244 (reporting that information given by Gosstrakhnadzor head Yuri Bugayev indicates that approximately 25 foreign joint ventures existed in 1994), with 77 Insurance Companies, supra note 264 (noting the existence of 77 joint ventures -- 16 of which involve American companies).

(389.) See Insurance Overview, supra note 117.

(390.) See Hampton & Vyatkin, supra note 6.

(391.) See Insurance Overview, supra note 117; see also Winestock, supra note 244 (reporting the initiation of the joint venture).

(392.) See Insurance Overview, supra note 117 (indicating Russia's interest in entering GATT). The WTO acts as the new manifestation of the General Agreement on Tariffs and Trade. See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Apr. 15,1994, Legal Instruments -- Results of the Uruguay Round vol. 1 (1994), 33 I.L.M. 1125 (1994). However, some commentators argue that Russia has a long road ahead of it before it is eligible to enter the WTO. See Russia Long Way from Meeting Minimum WTO Entry Standards, AFP-Extel News Ltd., Apr. 15, 1997, available in LEXIS, World Library, Allwld File.

(393.) See Frenkel, supra note 7, pt. V.A, at 34.

(394.) See General Agreement on Trade and Services, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, Legal Instruments -- Results of the Uruguay Round vol. 31; art. 10(2), 33 I.L.M. 1167, 1175 (1994).

(395.) See Kreuger, supra note 302, at 68 (describing the apathy towards insurance within the business sector of Russia); Rush to the Market, supra note 253 (reporting that most Russian citizens do not feel they need or can afford insurance).

(396.) See, e.g., 1,500 Licensed, supra note 40, at 33 (stating that the Soviet legal system adopted by Russia did not include an extensive legal framework with respect to insurance).

(397.) see Frenkel, supra note 7, pr. V.A, at 43-44 (suggesting that the Russian insurance industry will warrant reevaluation within a few years).

(398.) See id.
COPYRIGHT 1997 Houston Journal of International Law
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Thompson, Christopher A.
Publication:Houston Journal of International Law
Date:Mar 22, 1997
Previous Article:Military might versus sovereign right: the kidnapping of Dr. Humberto Alvarez-Machain and the resulting fallout.
Next Article:The European controversy over genetic-engineering patents.

Related Articles
Post-1996 Viatical settlements under Section 101 of the Internal Revenue Code.
Strategies for defeating the material misrepresentation defense in insurance actions: a plaintiff's perspective.
The Supreme Court of Canada protects the little guy.

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters