Russia’s insurance sector has been traditionally closed to direct involvement of foreign investors. However its accession to the WTO on 22 August 2012 has brought about substantial changes on the insurance front.
Accession to WTO
In accordance with the Protocol on the Accession of the Russian Federation to the WTO (the Protocol), Russia assumed obligations to improve access to its markets. In relation to the insurance services these obligations cover each of the following modes of supply:
- Cross-border supply (i.e. the possibility for non-resident insurers to supply their services cross-border into the Russian territory)
- Consumption abroad (the freedom for Russian residents to purchase insurance services in the territory of another WTO member)
- Commercial presence (the opportunities for foreign insurers to establish, operate or expand a commercial presence in Russia, such as a branch, agency, or wholly- owned subsidiary)
Russia’s specific sectoral obligations on insurance services as well as carve-outs from its obligations are detailed in Section 7(A) of the Schedule of Specific Commitments on Services annexed to the Protocol (the Schedule). Column 2 of Section 7A of the Schedule relates to Market Access Limitations and expressly lists the types of insurance services in relation to which Russia undertakes NOT to introduce market access limitations. Per the Schedule, Russia has committed to allow cross-border supply and consumption abroad in relation to:
- International marine insurance
- Insurance of carriage by air
- Commercial space launching
- Cross-border transportation of passengers and cargo including liability
In addition there is to be no limitations on foreign insurers insuring risks connected with:
- International transportation of passengers and goods
- International commercial air transportation and liability within the international green card system
As a next step, by August 2016, foreign insurers should have access to insuring domestic commercial air transportation (other than certain types of mandatory insurance) and maritime transportation in Russia. The list of insurance services is exhaustive. Russia has not undertaken any obligations to give foreign companies market access to any other insurance services.
In relation to all other insurance services, Russia is free to impose limitations and regulate cross-border supply of insurance services.
The key legislation governing the insurance sector in Russia is the Law “On the Organisation of Insurance Business” 1992 No. 4015-1 (the Insurance Law).
The Insurance Law governs matters of licensing and regulating insurers in the Russian Federation, specifies types of insurance, parties involved in insurance and so on. It also contains rules (principally restrictions) on the commercial presence of foreign insurers in Russia and the types of activities which foreign-owned registered and licensed Russian insurers may or may not carry on in Russia. Based on the Protocol, Russia may keep these restrictions in place until 2021, at which point foreign insurance companies should be allowed to directly open branches in Russia.
Until 21 January 2014 Article 4(5) of the Insurance law included the following prohibition:
“In the Russian Federation, insurance of interests of juridical and natural persons who are resident in the Russian Federation (except for reinsurance and as otherwise provided for by federal laws) may be carried out only by insurers holding licences obtained in accordance with this Law”.
In effect foreign insurers could not provide direct insurance in Russian unless they had established a presence in Russian and had a licence to do so, and even then were subject to restrictions.
However, with effect from 21 January 2014, the Insurance Law was substantially amended, and the resulting text does not include Article 4(5). The removal of the prohibition has given rise to debate. Some practitioners say the removal of Article 4(5) potentially permits non-admitted insurers to supply insurance services cross-border into Russia. The grounds for this proposition lies in the approach that so long as a matter is not prohibited it is permitted until the Court says otherwise.Nonetheless, this approach overlooks the factit is important to bear in mind that:
- The definition of ‘Insurer’ in the Insurance Law is “insurance organisations and mutual insurance societies established in accordance with laws of the Russian Federation for the purpose of carrying on insurance, reinsurance, and mutual insurance activities and licensed to carry on the relevant type of insuranceactivities in accordance with the procedures set out in this Law”
- Article 4.1(2) of the Insurance Law provides that “insurance organisations, mutual insurance societies and insurance brokers are insurance entities. Activities of insurance entities are subject to licensing
- Article 938(1) of the Russian Civil Code provides that only juridical persons having a license to carry on insurance of the relevant type may enter into contracts of insurance in the capacity as insurer
However, as the Insurance Law does not include any sanctions for infringement of its provisions and it seems that the only recourse for the Russian authorities to prevent non-admitted insurance would be to initiate an investigation under the Administrative Offences Code for acting without a licence, where a licence is mandatory. There is a view that realistically Russian authorities will not be interested in pursuing non-admitted insurers where it may be difficult and costly and with limited (if any) powers to enforce.