PRESENTATIONS OCTOBER 17

AT THE SECTION ON ECONOMICS OF HEALTH INSURANCE

Abalova, S - Investment activity Of Insurance Companies - Trends and Problems

The insurance companies' investment activity is an essential influences on the insurer's financial condition. Whether a company has a profit or a loss depends on the investment strategy chosen.

The government has established "reserve distribution requirements" to protect against unreasonable and risky investment strategies.

The following investment activities are permitted:

• Bank deposits
• Securities and other participation rights, including government securities.
• Real estate operations.
• Currency value

There are also some restrained investment activities such as:

• Intellectual property
• Some securities, such as, bills of lading, checks, privatization securities, etc.
• Credit extensions
• Signing of sale contracts by objects
• Trading, intermediary banking and industrial activity

There are some restrictions for "one-medium investments" and the minimum number of investment media. This number depends on the level of reserves.

The main investment activity of Russian insurers are bank deposits. The ratio of bank deposits for compulsory medical insurance in 1995 was about 50% of investment volume and this was a decrease from prior years.

Difficulty in the banking business in 1995-1996 caused considerable losses of invested assets by many insurers. These losses have put many insurers either in bankruptcy or serious financial trouble.

Securities, and particularly government securities can be significant alternatives to banks as investment mediums. According to existing legislation the insurance companies cannot act as investment institutions, they are not permitted to participate directly in the operation of the securities markets. The insurance companies have to use financial intermediary institutions, such as banks or investment companies. The problems of these financial intermediaries, their liquidity and financial position, can increase the risk of investment by the insurance company.

The problem of the intermediary can be by solved restricting insurance companies activity in the securities markets. Insurance companies can be considered specialized investment institutions for the specific character of insurance company activity, such as raising capital and the holding of premiums collected prior to distribution.

The most effective operation would be in the short term obligations in the federal variable coupon bond market. This type of security is the most liquid and reliable in the Russian finance markets.

The limitation of the number (minimum and maximum -?) of investments under the Russian Insurance Supervision Department, makes observances of the balance in investments difficult. These difficulties are due to the absence of appropriate investment instruments, such as federal bonds with variable coupons.

There are also difficulties resulting from the level of information available regarding an investment, the profit making capacity of an investment, the efficiency of the securities markets in executing the sale and transfer of securities.

Investments in currency values are limited by legislation. Insurance companies are prohibited from benefiting from currency exchange rate fluctuation either within Russia or in the international market.

Technical and legislative limitations restrict access of regional insurance companies to national and international stock markets. This limits the insurance company to local securities for investments, but the problem is that these securities are often neither profitable nor liquid.

These problems often lead Russian insurance companies to invest in real estate, but there is a 4% limit (?). These investments are in flats, offices, garages, etc.

Insurance companies are limited in their investments by legislation and because there are limited quality investment products. Providing insurance companies with the independence to participate in financial markets would lead to: a) more effective investment of capital, b) increase profits of insurance companies and c) thus increase the confidence of the insured in the insurance companies, and the entire insurance system.

S.V. Postnikova, Department of Insurance, KSAEL, Liability Insurance in The Medical Insurance System

During the past couple of years a large amount of insurance companies, including medical insurance companies appeared in our country. According to Russian Federal service supervision for insurance activity, there are 1,044 companies licensed to conduct medical insurance as of January 1, 1996.

The participation of insurance companies in the health care system is predicated on increasing the effectiveness of public medical services. Thus there are theoretical and practical problems that need to be solved.

The first problem is providing resources to the public health system and the rational use of those resources. Funds from state budgets are essential, as are funds from enterprises (assume this means employers), organizations and the personal income of patients. Funds can be generated from medical services and from the production of medical products and preparations. Funds beyond the regular budget can assist in the transition to modern medical technology needed to produce effective medical outcomes.

In the opinion of the presenter, the most urgent issue is assuring the rights of the insured to receive "full value medical care". Protecting the insured form low quality medical care is not resolved legislatively. Currently all disputes go to the administrative of the responsible medical institution.

Insurance companies have the responsibility to control quality and the appropriate level of medical care and to defend the interest of the insured. In the opinion of the presenter, one method to fulfil this responsibility is through professional liability insurance.

Professional liability insurance provides a method to protect the insured and to defend the medical staff from suits by patients. Professional liability insurance is not widely used in Russia.

Medical liability can be classified as:

• Responsibility of the physician or a group of physicians;
• Responsibility of the health care institution;
• Responsibility of a firm that produces medical equipment

To fulfil the medical insurance companies' responsibility to the insured of controlling quality and to institute professional liability insurance, it is necessary to establish criteria defining quality.

The paper discussed methods of evaluation.

Sateeva, S.G., Senior Teacher, Insurance Department, Khabarovsk State Academy of Economics and Law, Insurance of Professional Liability

According to the law of the Russian Federation concerning medical insurance and health protection of the population, the individual and medical organizations enjoy the right to bring a judicial action against medical organizations and medical workers for the financial compensation of losses caused by their actions.

It can be supposed that increasing of common legal competence of the population and their desire to realize their rights will lead to the rise of the quality of medical services.

Every unfavorable action or inaction of medical personnel followed by financial or moral (?) loss requires objective judicial and medical valuation. Thus, establishing legal and medical criteria for unfavorable treatment is important. Several factors need to be considered, including the state of the health of the patient, timely seeking of health care services, etc.

There is a great demand for competent and independent experts for the investigation of personal liability of medical personnel and organizations. The independent expert function in Khabarovsk can be performed by the Khabarovsk Regional Fund for Obligatory Medical Insurance, which has the right to identify the facts and volume of losses of the insured.

The following is a summary of some issues in medical professional liability:

1. Action is based on the inappropriate use of professional knowledge and skills by a competent professional.
2. Adverse outcomes may result from the patient not following up in a timely manner with the physician, refusing hospitalization when it is appropriate, concealing necessary information to make a proper diagnosis, etc.

The legislation of most European countries protects the interest of the plaintiff in medical negligence by establishing obligatory insurance for the professional liability of medical personnel. It can be assumed that medical personnel that practice under medical insurance in Russia should be protected by professional liability insurance.

N. Pudovkina, Financial Problems of Public Health System Reform and the Development of Medical Insurance at the Regional Level. The Far East Regional Center of the Federal Fund of Obligatory Medical Insurance (OMI)

The law of the Russian Federation, "About the Citizens' Medical Insurance in the Russian Federation" (adopted 1991) determined new ways of solving the problems connected with the financing of the public health system. The law made it necessary to identify an order for forming branch funds, to identify new sources of financing, and to create a model of medical insurance at the regional level.

In practice the law's implementation at the territorial level revealed that optimal models of resource allocation are not currently accepted. This acts as a break on implementing the reform of the public health system, adopting of economic methods of management, and often leads to the reduction of the necessary funding of medical institutions. The key reason for this is the lack of financial resources, in the main at two sources:

1. Insurance fees
2. Payment for the unemployed

The problem is that the payment for the unemployed is fixed by the budget and do not necessarily correspond to the volume of medical services guaranteed by the laws of the Russian Federation. The budgets are approved by the legislative branch once per year and not reviewed during the year. During 1994-95 the increase in salaries was not followed by corresponding increases or indexation of payment for the unemployed.

In the same time period, the insurance fees of the employers increased automatically because of the increase in salaries. The Fund of OMI and its branches are in the most difficult financial situation having signed a contract with the medical institutions, but not having received payment for the unemployed form the administration of the cities and regions on time or for payment in full, and the payment in full would be insufficient. There is a system of dating the budgets by the Fund of OMI and its branches under N41 of 23.01.92 of the Russian Federation. This solves the problem only on paper, but does not solve the problem in fact, since the payment of the subsidies is not planned by the krai budget or local budgets. The Fund of OMI is constrained by contract by and law to pay the larger sum by redistributing insurance fees from the employers.

The Russian Federation resolution 1018 of 11.10.03 established a commission to the Minister of Finance, Minister of Health and to the Federal Fund of OMI to work out the method of calculating payment for the unemployed, but the task is not completed. The centralization of payment for the unemployed at the level of the Federation does not solve the problem of the local Fund of OMI, since medical prophylactic institutions are financed by the city and region budgets and they work on contract with the local Fund of OMI.

The lack of financial resources simply stimulates an increase in the need for medical services to the unemployed that in turn simply brings down the quality and access to services. If these problems are not solved, they may stop the process of progressive reforms to the public health care system.

Further reorganization of the public health system requires significant analysis of the financial basis of such reorganization. The composition and structure of the resources necessary to support branch institutions must also be determined.

The introduction of voluntary professional liability insurance would permit the identification of the need for this kind of insurance, identify the extent of liability, evaluate the possible need for obligatory professional liability insurance, etc.

Levankina, V.C., Senior Teacher, Insurance Department, Khabarovsk State Academy of Economics and Law, New Approaches and Problems of Organization of Public Health Financing Under Conditions of Medical Insurance

Presently the activity of medical institutions is effectively in one of two categories: a) budgetary and b) non-budgetary.

Till 1993 the non-budgetary activity was the responsibility of medical institutions themselves and included such items of medical service as: paid services, negotiated orders of organization and enterprise, participation in non-medical projects. In 1993 a new independent trend of medical activity began to develop - the Regional Program of Compulsory Medical Insurance. By agreement with the insurance company the medical institutions undertake to provide medical care and disease prevention services in accordance with the Program of Compulsory Medical Insurance.

Income for Compulsory Medical Insurance comes from non-budgetary sources and is placed in segregated accounts. This presentation further discussed problems of account discipline and the need to follow accounting instructions. There was also a discussion of uses of accounting data for: a) current economic analysis, b) assessment of financial volume and other issues. (This compiler of the meeting was not able to follow the translated version sufficiently to understand these issues.)

The paper goes on to discuss distinctions of payment for expenses under retrospective payment and prepayment methodologies. Also, the distinctions between compulsory and voluntary insurance are discussed. (Again the compiler was not clear on the accounting and analytical significance of these distinctions.)

The paper concluded by stating the need for better classification of expenses by expense category and the expense bearer (assumed, this means payer). The need for classification of variable, fixed and overhead expense in the new system to properly analyze expense for planning and other purposes.

Vorobjov, E.P., President of Khabarovsk Inspection of Insurance Supervision of Russian Federation, Main Tendencies of the Development of Medical Insurance in Terms of Reforming of Health Services in Russia Federation

Founded in November 1994, Khabarovsk Inspection of Insurance Supervision of Russian Federal Department carries out its control function for Khabarovsk Krai, Amursk, Magadan, Chita, Chukotka. Among 53 insurance organizations in the region, 16 offer voluntary medical insurance and 10 offer obligatory medical insurance.

These insurance companies are mostly small to medium sized companies with authorized capital of 200 million roubles and "own" (?) assets of 400 million roubles.

Six have authorized capital of one billion roubles or more. As a result of this undercapitalization, insurance and reinsurance of large property and investment risk becomes a significant problem.

Forty-three (43) companies ended last year with a benefits (profit?) and 10 with losses. Six companies finished (ceased?) their business in 1995-1996.

Voluntary Medical Insurance:

10 companies - in Khabarovsk

3 companies - in Amursk area

3 companies - in Chita area

Eight of the above companies specialize in medical insurance and eight carry medical and other lines of insurance.

Obligatory Medical Insurance

The bodies of the legislative and executive branches of government form the system of obligatory insurance in different ways in different regions of the Far East of Russia.

Private insurance companies carry out the obligatory insurance function in Chita and Amursk. Both state and private companies carry out the function in Magadan. In Khabarovsk the obligatory medical insurance function is carried out by the branches of the Fund.

I.M. Solomoko, Candidate of Economics Associate Professor and L.I. Tkachuk, Senior Teacher, KSAEL, Problems of Financing the Public Health System in Modern Conditions

Health protection of the Russian population is a complex task. Different state and social structures take an active part in solving this question because people's health depends on many factors like: labor, character and type; living conditions; quality of service's work; education and culture level; and many others. The public health system with medical, sanitary-prophylactic, medical rehabilitation and pharmaceutical services is primarily responsible for the populations health.

The tendency of constant increase of investment in the public health system is typical for developed countries. The typical per cent of gross nation product devoted to health care is 10% to 14%, whereas in Russia it is not more than Three per cent (3%). The real opportunity to make the nation healthier is determined, in the long run, by the level of monetary funds allocated for the development and maintenance of the health care system.

The public health system is a branch of societal organization which limits the activity of the laws of the economic market place to achieve fairness in this social sphere. Depending on what is preferable, the economic effect or social fairness, the public health system is chosen by a nation.

There are three main models to organize and finance the public health system: a) Paid medicine, which works according to economic market relations, b) state (national) medicine, accomplished through a budgetary system of financing, c) social insurance and multi channel system of financing of health care services.

Russia, currently, uses the third model to finance its public health system. This model combines market opportunities and state management with the use of medical insurance (obligatory and voluntary). The state guarantees to satisfy the public's social needs for medical services regardless of the economic effect on medical providers, through medical insurance.

At present, budget allocations and different off-budget means (aim funds, obligatory medical insurance, bank credits) are used as financial sources. Budget allocations and means of the OMI Fund are the most important ones. There is a problem in differentiating what objects are financed at which sources expense. Another problem is establishing the criteria for a sensible use of financial resources by all participants of the obligatory medical insurance system.

The law of the Russian Federation, "About the Public's Medical Insurance in Russia" provides for the general obligatory medical insurance. This is insured by the corresponding base program. Confirmation of the 1996 project is postponed because of uncertainty of medical help financial resources.

The question of the sources of financing for the public health system is very important, since the people's health and the preservation of the nation depends on its solution.

Svistuno, V.A. and Kapitonenko, N.A., Khabarovsk Territorial Obligatory Medical Insurance Fund, System Methods of Organizing Medical Insurance on the Territorial Level

The granting to territories of freedom to choose methods of organizing obligatory medical insurance is one of the features of OMI's input in Russia. According to Federal Fund experts' research of OMI (FFOMI), it has produced four organizational models of OMI's territorial systems. These systems then vary among themselves on issues such as: registration of insureds, base programs and quality requirements, methods of formation and indexation of the tariffs for medical aid, systems of documenting and accounting for mutual payments between the subjects of OMI and others.

In the Khabarovsk Territory OMI Fund methods of system approach for forecasting structure of legal, informative, methodical, personnel and other kinds of provisions of functioning of activities, which are involved in the OMI, have been widely applied. This has allowed work to commence in a short time period to accomplish registration, issue insurance policies, conclude contracts, organize collection of insurance payments, examine the quality of medical services, and mutual payments with medical-prophylactic institutions (MPI) working in the OMI system of the Territory.

It should be noted, that the application of functional cost analysis, when designing systems of insurance payment collection, has shown an advantage of a model of participation of tax inspection bodies to minimum expenses for organizing the work place, specialist training, interaction and supervision of banks and insureds, and creation of an automated information system. All of this is done under the condition of minimizing the period of putting into operation collection of insurance payments.

System methods of organizing the OMI have allowed the introduction of other resource saving technologies, for example, the regressive claims and mutual payments. (The paper discusses other successes, which the compiler could not understand from the English text available.)

The system approach has been used to organize OMI to educate 4-6 year students at the Far East Medical University in insurance, economics, informatics and management. It has also been used to train and retrain the staff of OMI.

Systems research has assisted in determining some strategic direction for improving OMI efficiency, including its integration into regional information systems, such as the Committee of State Statistics, the ministry of Internal Affairs, the bank system, and certainly the Federal Fund OMI.

Order N 36 by Federal fund of OMI dated 26.04.96 establishes a procedure of inter-territorial mutual payments, the model of which can be expressed in the following way:

Territorial Fund of OMI (TOMI) TFOMI j

======== N j ========= directed patients ==================

-------------- N j -------------- sent registers ------------------------------

_______ aN j _________ returned registers __________________

~~~~~~~(1-a)* N j ~~~~~ paid registers ~~~~~~~~~~~~~~~~~~

The territorial distinctions in systems of formatting the base programs, tariffs, categories of MPI, etc. in certain conditions can cause some losses for base territory, which has achieved high quality and low tariffs for the medical care. It is possible to illustrate with the following mathematical model below:

The analysis of this model proves, that base TFOMI will incur the losses in case of reduction of T j rather than T, and also in case of a significant number of returning poor-quality registers. The improvement of quality of medical care denoted by the reduction of penalties on a base territory causes increasing interest to the base territory from other insured territories, that at once influence the losses of TFOMI.

For example, in some territories of the Khabarovsk Krai, where the number of the enterprises have appeared to be regular defaulters of insurance payments, local TFOMI had to notify its own MPI to restrict reception of patients from the enterprise. This has increased the number of patients in MPI in the Khabarovsk Region. The general picture of patient migration in the Far East Region is given in the following table:

Currently the Khabarovsk TFOMI carries out systems research for forecasting of reasons of nonpayment of registers at the inter-territory level in order to develop automated information systems of inter-territorial mutual payments. During research a shortcoming of the current system of coding insurance policies has been identified and it will influence the efficiency of re-registration of the population of Khabarovsk territory in 1997. The absence of the federal system of coding insurance complicates their identification in the register during inter-territorial mutual payments.

The state guarantees medical care to the citizens of the Russia Federation. This requires the public health services to keep medical-prophylactic structures and systems maintained in constant readiness to render care. When medical care becomes a good in the economic system, then it can be provided at three basic levels, except for its social importance:

1. In system OMI on insurance payment for working and non-working populations.
2. In systems of voluntary medical insurance (VMI) on voluntary payment of citizens, group or organizations.
3. Direct payment of medical care by a patient.

The analysis of this model shows that in case of reduction of receipts from one of the levels, then tension is distributed to the other levels. Absence of documents which regulate the activities of independent insurance medical organizations (IIMO) in the sphere of OMI allows them to create insurance funds without payment for medical care provided to those "insured". These independent insurance medical organizations (IIMO) can then return premiums to the "insured" client, since medical care has been paid for by the OMI. The result is that the IIMO and the individual patients, due in significant part to the economic conditions of the population, do not pay a "fair" share and the system is largely funded by the OMI.

Conclusion

1. There is a need to provide adequate financing of services included in the territorial OMI.

2. There is a need to speed the development of federal standards of medical care and to introduce them to the regions.

3. There is a need to organize coordination of general systems, such as:

• - System coding of insurance policies in view of current regional coding systems of the population.
• - Creation and control of common qualifiers of medical means, medical services, diseases, etc.
  

4. There is a need to create regulation of voluntary medical insurance (VMI) to guarantee appropriate contributions to the financial support of the health care system.

Literature

N. Kravchenko, "Four Models: What Is the Best?", Medical Newspaper, 1996, N 74, p. 11.

N.A. Goncharova, Senior Teacher, Department of Insurance, KSAEL, The Place of Reinsurance in the System of Medical Insurance

At present the Russian people who purchase insurance need insurance to protect large and expensive objects, and new items, different from the past, need to be protected by insurance. To protect these "insurable risks" insurance companies need to have considerable capital.

According to Rosstrakhnadzor (Russian Insurance Supervision), about 40% of statutory funds are of 10 to 50 million roubles, 34% 100 million roubles. Only about thirty (30) companies declared (and some paid) statutory funds above one billion roubles. This level of statutory funds does not indicate adequate capitalization of the insurance industry in Russia.

In such a case the insurance companies have to restrict their risk exposure, use co-insurance, or increase their capital. These options are not readily available to Russian insurance companies.

One way to overcome this limitation and remain competitive in the insurance market is to use reinsurance. Reinsurance allows the redistribution of risk over time between the direct insurer and the reinsurer and geographic distribution of risk.

The laws of the Russian Federation "About Insurance" provides for reinsurance to pass risk that exceeds the ability of the primary insurer. According to the conditions of insurance licensure (RF 19.05.94) the maximum risk exposure that may be assumed by the insurer may not exceed 10% of "insurer's own means" (company's capital?).

Direct insurers may use reinsurance to accept risk without obtaining a separate license for reinsurance activity. The Russian insurance industry has professional reinsurance organizations that specialize exclusively in reinsurance. The Insurance Authority licenses reinsurers and requires increased requirements of "authorized capital" (?) above that required for direct insurers. Reinsurance is a relatively new activity in Russia. Their activities besides assuming excess risk for direct insures, include consultation and assistance in establishing insurance.

Since insurance, and particularly reinsurance is a financial operation, it is important that direct insurers choose their reinsurance partners carefully. This is important to the direct insurer's own interest, but also for the direct insurer to protect the insured, individuals who purchase insurance.

It is impossible to have an insurance industry in Russia ("valuable insurance market") without reinsurance. Reinsurance is specialized and limited, not more than 15% of the total volume of the insurance market. According to official statistics, during nine months of 1995 the share of premiums paid over to reinsurance was 4.3% of total premiums and in 1994 it was 4.6%. Part of the reason the level of reinsurance is low is that about 80% of insurance premiums are for insurance that does not use reinsurance, such as short-term repayable insurance to employees of enterprises at the expense of the enterprise and obligatory insurance (especially, obligatory medical insurance and insurance for servicemen). These forms of insurance are attractive to insurers currently. They do not require reinsurance, since they are more forms of financial service or substitution of budgetary financing than real insurance. Even if such forms of insurance (with the exception of obligatory insurance) are being reinsured, it does not have anything to do with the primary idea of reinsurance, distribution of risk.

Reinsurance is not used in the obligatory insurance fund. Another method is used to provide stability for the obligatory medical insurance program. One of the main functions of the Federal Fund of OMI is the creation of conditions for regulating the volume and quality of medical care rendered to citizens of the territories of the Russian Federation.

The idea of distribution of risk is present here also. Territorial Funds of OMI accumulates premiums paid by citizens or paid on behalf of citizens, regulates the resources of cities and regions to carry out the functions of OMI, and accumulates reserves for providing stability of the OMI system. The Federal Fund OMI provides financial means of providing medical services during mass illness or natural disasters or catastrophes. The "bright example" of this is the earth quake on Sakhalin in 1995. In this case the necessary funds to provide services were provided from the OMI and Federal Fund.

The system of voluntary medical insurance (VMI), provides citizens additional services beyond the services of OMI. Since voluntary medical insurance is used to insure against significant medical risks beyond OMI, such as cancer that can require large payments, reinsurance is important. Reinsurance can be used to distribute risk to support the financial stability of the direct insurer and protect the interest of the insured.

Badjukov, W.F., Professor, Insurance department, Khabarovsk State Academy of Economics and Law, Role and Place of Actuaries in the System of Compulsory and Voluntary Medical Insurance

The transition of the Russian economy to a market based system also includes changes for medical insurance. Some factors that cause these changes are:

1. Poor prediction and instability of state and private banking enterprises.
2. The impossibility that the state will be able to fully fund medical insurance.
3. The absence of appropriate legislation to regulate insurance activity.
4. The absence of "truthful and complete sickness statistics".
5. The low purchasing power for the population.
6. Poor methods for calculating medical insurance tariffs (rates), especially for new kinds (of medical procedures or new kinds of insurance products?).
7. Inadequate number of qualified and professional actuaries who can provide financial and mathematical methods to provide information to conduct rational insurance activity.

Khabarovsk has a particular problem with the last two factors, since the two primary centers for preparing actuaries are Moscow and St. Petersburg.

Preparation of actuaries started only three years ago in Russia. Currently there are mathematicians who practice as actuaries for insurance companies and as independent businesses. Professional mathematicians who intend to continue to practice as actuaries formed a group in Khabarovsk three years ago. They have done much work during this period. The Insurance Department of the Khabarovsk State Academy of economics and Law has created an Actuarial Center that has contacts with the Actuarial Institute in Moscow University, the Actuarial Institute in Oxford, and Chartering Insurance Institute in London. Attention is paid to the teaching of actuarial science in life insurance and "risky kinds of medical insurance". Many post-graduate students of Khabarovsk State Academy specialize in questions of the mathematical basis for compulsory and voluntary insurance.

Scientific and methodological actuarial literature is being translated and research is being conducted. (The paper describes specific research in areas such as "continued percentage theory and its application", etc. that are not clear to the compiler from the English translation available. The presenter has used his research to write an article for publication in the Actuarial Institute [Oxford].)

In Khabarovsk and the Khabarovsk Territory scientific and practical work is being carried out with insurance companies and organizations. Scientific and practical conferences and seminars are being held to popularize actuarial knowledge. A contract exists to establish tariff rates for medical insurance. Nevertheless, it must be said that the leaders of Far East Russia's insurance companies do not realize the role of actuaries in the insurance business. No Far East insurance company has a specially appointed actuary, though this is a widespread international practice. In the United Kingdom an insurance company cannot be registered without the appointment of an actuary. However, the cooperation process of actuarial science and the insurance business has begun and prospects for the future are good.

Literature

1. Badjukov, V.F. and Laptejkina, L.V., "Tariff Rate Making in Accumulating Kinds of Insurance Balancing Percentage", Thesis of the Second Congress for Applied and Industrial Mathematics in Siberia. The Mathematics Institue of Russian Scientific Academy (Novosibrsk 1996, p. 145).
2. Badjukov, V.F. and Iskandarov, N.K., "Tariff Rate Making for Some Risky Accumulated Kinds of Insurance", Thesis of the Second Congress for Applied and Industrial Mathematics in Siberia. The Mathematics Institute of Russian Scientific Academy (Novoibrisk 1996, pp. 145-146).
3. Kagalovskaja, E.T. and Vasiljeva, N.E., "Insurance with Premium Refund", Insurance Security, 1994, pp. 39-43.

Gvarliany, T.E., Insurance department, Khabarovsk state Academy of Economics and Law, Necessity of Insurance and Modern Problems of Its Development

The main conditions for the appearance of insurance are expressed in the organization of trade when owners of needed protection from the loss of their ships and the goods the ships carried and later the loss of life was also insured. Each year natural phenomenons cause the death of hundreds of thousands of people and significant material loss. In the USA losses from natural disasters caused losses equal to 1-2% of national income during the last 10 years. The fear of loss from natural phenomenon necessitates establishing insurance to control the risk of such loss. The main idea is to distribute the risk among those that have comparable exposure to risk of loss.

Insurance risk has certain statistical probability that can be measured. An insured can control for exposure to risk by means of insurance, combined with abolition, control and prevention of loss and self insurance.

The development of an insurance market in Russia began more than six years ago with the creation of alternative insurance companies in the strong state system. Currently, there are 3,000 working insurance companies in Russia and more than 1,000 are licensed in the field of voluntary medical insurance. In 1995, Russian insurance companies "mobilized and distributed" about 22 billion roubles.

Currently, the need of the Russian economy and population for quality insurance is not being satisfied. A significant opportunity exists for a Russian insurance market. The situation in the Russian insurance market is illustrated by proportion of "insurance-premium-volume and gross-product-value" which is characterized as follows: 1.5% 1991, 0.6% 1992, 0.7% 1993, 1.2% 1994 and in 1995 it was less than 1.5%. (The compiler is not familiar with the meaning of the term in quote's nor the meaning of the measures.)

There is an urgent need to increase the minimum volume of authorized capital for creating an insurance company. (The compiler is not familiar with these measures or the definition of the terms used.) According to the Russian Insurance Supervision Department the "aggregate capital" of all Russian insurance companies made up 1,046.8 million roubles on the first of 1995. The "average volume of authorized capital" made up 470.0 million roubles.

The opportunity for participation by foreign capital in creating insurance companies has not developed. Foreign legal entities are permitted to participate in establishing insurance companies provided the foreign ownership is not more than 49%. The problems of the Russian economy and apprehension about the political stability of Russia have inhibited foreign investment in Russia, including the insurance sector.

On the first of January 1995, foreign capital of insurance companies made up 72.7 million US dollars. The share of ownership of an individual insurance company goes from 0.05% to the maximum of 49%. As a rule the "non-insurance" (?) capital takes part in establishing insurance enterprises in Russia.

The lack of legislation and methods for providing insurance are a serious problem. The main document of insurance in Russia is the "Insurance Law of the Russian Federation" confirmed on November 27, 1992. Some provisions of the law are obsolete and some principles have not been realized. There are also unfinished items in the legislation, a lack of liability insurance law and imperfections in the compulsory medical insurance. Many problems must be solved by the insurers themselves.

There is also a shortage of well-qualified insurance specialists. Currently such specialists are being trained at the Institute of Insurance at Moscow Financial Academy, the Insurance Department of the Research Financial Institute (Moscow), and the Khabarovsk State Academy of Economics and Law.

There are other factors restraining development of an insurance market: a) lack of insurance statistics, b) lack of coordination of insurers activity, c) unnecessary regulation of some insurance operations, d) imperfection of the tax system, e) lack of financial resources, f) absence of "special" experience, etc.