A stable banking system is the basis of the general security of the state. One of the levers to maintain such stability is the introduction of compulsory bank insurance. This system traditionally provides for work in two directions: general insurance and insurance of bank risks directly.
Bank insurance in Russia
The general concept refers to insurance against emergencies of buildings in which banks are located, the property of banks, automotive vehicles owned by financial institutions, civil liability of property owners in case of loss to third parties. This type also includes social insurance of employees (medical, pension, accident insurance, etc.).
The concept of bank insurance is quite extensive. If you look at this includes the protection of banking values, computer technology, electronic equipment. This also refers to computer fraud. Specialists should also consider the risks associated with the use of plastic cards and loans, including insurance of the bank products themselves and their provision.
Thus, the concept of bank insurance includes the whole range of types of insurance in the field of interaction between banking and insurance institutions.
Reasons for cooperation of banks with insurance companies
The need to attract insurance companies in the banking sector is due to several reasons:
- the possibility of reducing reserve funds of banks to ensure risks;
- the ability to formulate an objective pricing policy of banks;
- reducing the level of expenses of financial institutions associated with the implementation of internal control;
- reduction of reputational risks of the banks themselves.
Attracting insurance companies to the banking sector is logical as long as the cost of services of insurance companies does not exceed the economic benefit of their work. In addition, unscrupulous firms may create additional risks for the bank.
Russian legislation and banking insurance system
The legal foundations of bank insurance in Russia were laid with the adoption of the Civil Code of the Russian Federation. The main regulatory act governing insurance and bank insurance in particular in the Russian Federation is the Civil Code. The second legislative act in this area is the 1992 Law "On Insurance", which defines concepts, puts forward requirements for participants in transactions, and forms the legal framework for insurance and its supervision.
The laws governing the relationship in health and pension insurance are important. A special place in this series is occupied by the laws of 2003 and 2004, which regulate issues of purely bank insurance: on insurance of deposits of individuals and on payments by the Bank of Russia to individuals whose deposits were held in bankrupt banks.
Thus, we can say that the legal framework of bank insurance in the Russian Federation is based on a sufficient regulatory framework governing the legal relationship of the insured and the insurer. So it turns out to build a civilized partnership between financial institutions and insurance companies in Russia.
Features of bank insurance in Russia
In the Russian Federation, the formation of the banking sector took place in the 90s of the last century, which led to the emergence of some features in the cooperation of banks and insurance companies. The root cause of such cooperation was the need to work with problem loans issued by financial institutions. During this period, banks began to insure the loans themselves, shifting responsibility for the return of problem loans, whose share in the total loan portfolio amounted to about seventy percent, to insurance companies.
Features of bank insurance in Russia do not cancel the most important provisions on the protection of the most profitable banking sector - lending. Today, banking risk insurance in Russia is associated with mortgage lending, which is due to the interest of banks as beneficiaries. Indeed, in the event that the client does not cope with its debt obligations, the financial institution receives the full amount of the loan. This also applies to those cases when a borrower dies in life insurance, and the insurance company pays a debt to the bank at one time. In addition, the financial institution receives a commission on the number of contracts concluded with the insurance company by the bank's customers.
A separate most important is deposit insurance. After all, every investor wants to be sure that his money will be returned. Prospects for the development of bank insurance should lie in the development plane of deposit transactions. This aspect of the financial system directly affects social stability. This approach of guaranteed return on investment regardless of force majeure circumstances contributes to a greater involvement of the population’s finances in the economy, which provides for its further development.
For Russia, this type of insurance is the most productive way of developing the banking, insurance systems and the economy as a whole. The creation of the Deposit Guarantee Fund for individuals and its functioning is a big step towards restoring public confidence.
Depositor risk insurance in case of bankruptcy of a financial institution is a service that is popular in Europe. This area is developing in Russia. After all, not only banks that trust their money with clients, but also people who invest their savings in a financial institution, are at risk. Insurance in this direction has its own characteristics. The bank can protect itself from financial claims in the event that for a number of reasons it will not be possible to return the money on the deposit. People, in turn, may not worry that their savings will be lost.
The circle of customers of banks will be much larger if the financial institution insures the concluded deposit agreements in case of bankruptcy. Unfortunately, today not all banks are members of the Individual Deposit Insurance Fund . In addition, not all customers are aware that such an organization exists. Financial illiteracy is a huge problem for many people who work with banks.
One of the most actively developing areas is insurance of plastic card issuers. The main risks in this area are forgery, fraudulent changes, loss, theft.
Bank insurance against the so-called computer offenses is no less in demand, which involves the protection of computer systems, electronic data and their media. Bank insurance is subject to valuables that financial institutions accept for storage: cash, securities, securities, metals, art values and more.
Insurance of professional liability of bank employees has also become widespread, which makes it possible to compensate customers for losses incurred as a result of the actions of economists of a particular financial institution. Most often, contracts are concluded with respect to cashiers and tellers. An insured event may be a human factor, which manifests itself in damage to the client due to arithmetic errors in calculating the exchange rate, interest payments, bank commissions, damage to property, etc.
The types of bank insurance are diverse and depend on the volume of activity of a financial institution. A company with professional insurance partners enjoys great credit confidence.
What is Bankers Blanket Bond?
The founder country of the introduction of banking risk insurance and the development of its basic standards are the United States of America. The first bank risk insurance policy was drawn up there back in 1911. World banking insurance practices have contributed to the emergence of comprehensive banking risk insurance.
Banking insurance abroad is carried out under a comprehensive banking risk insurance system called Bankers Blanket Bond. What does it mean by itself? Comprehensive insurance of bank risks combines the types of bank insurance described above into a single policy. The most developed countries in the world also adhere to the canons introduced by the American Association of Guarantors for Banks of the United States of America. The fact that launched the development of comprehensive insurance was an insurance policy issued in the comprehensive insurance system of America before World War I, which ensured bank capital against losses. At present, in the USA alone, at least two thousand comprehensive bank insurance policies are issued each year.
Bankers Blanket Bond for Russia
Despite the worldwide recognition of comprehensive insurance of bank risks of BBB in Russia, unfortunately, it is far from being fully used and has great potential for development. In favor of this type of insurance is the fact that the use of such a system will allow the banking sector of the Russian Federation to comply with international standards. This, in turn, will attract additional investment from abroad.
However, there is bank insurance in Russia, which does not apply to the BBB package. This is the protection of property, delicate and contractual liability. This order is due to the need for a more detailed settlement of many issues and allows for effective risk control.
In addition, insurance is provided for the loyalty of bank employees, that is, protection of a financial institution from losses that its specialist may intentionally or unintentionally cause. Despite the relevance of this insurance product, a one hundred percent exclusion of the human factor is a priori impossible. Writing in documents all the possibilities of human intervention in the work of a banking institution seems rather difficult. This type of insurance obliges you to pass an audit by a banking institution, which will allow you to more closely track the possibility of incurring losses.
One of the components of comprehensive BBB insurance is property insurance of banks: interior, movable property, art, money, securities.
The BBB also provides insurance against losses incurred by banks in carrying out transactions with forged documents. Such operations are divided into two types: fraud with checks and documents equivalent to them; securities fraud (operations with counterfeit notes).
Requirements for insurance counterparties under the BBB
Based on the foregoing, it should be understood that the BBB policy is a combined type of insurance of financial, judicial and property risks of banks. Thus, the legal field of the Russian Federation regulates that this type of insurance puts forward certain requirements for a credit institution licensed to provide banking services. It is necessary:
- in the insurance contract, indicate all branches to which this type of insurance applies;
- take into account that this agreement will not be extended to banking organizations that are partially owned by the insured;
- take into account that the right to claim payment in the event of an insured event is reserved exclusively to the insured.
In turn, the insurer must have a license for insurance of property of legal entities and individuals, as well as financial and business risks.
Description of bank risks in the preparation of the BBB insurance policy
The main and additional risks are divided. The main risks traditionally include theft, damage to property and the interior of the bank as a result of vandalism or intentional damage by third parties. This also includes shipping damage.
Additional consider risks associated with the identification of a fake third party documents of the insured. An exception to the payment of compensation under a comprehensive insurance policy are problems associated with damage to computer equipment, computer programs, computer data. In this regard, the banks of Russia are practicing the acquisition of an additional policy designed to cover the insured's losses from electronic crimes. Such an action is justified. The policy covers almost all losses caused to electronic systems and their data. Cases of the insured incurring losses from fires, terrorist acts are not covered by the insurance.
The duration of the BBB insurance contract ranges from an average of one year to five years.
Problems of banking risk insurance
In connection with the economic crisis, some features of the domestic banking insurance. Problems can be solved. The first thing the crisis changes affected is the price of insurance policies. As for financial risks, the cost of concluding a transaction has increased significantly. At the same time, it is possible to insure movable and immovable property very cheaply.
Traditionally, the crisis positively affected the reduction in the volume of this market, but at the same time allowed it to recover. Insurance companies conduct insufficiently flexible policies regarding the need to develop individual policies that must take into account certain nuances of each policyholder.
The development of bank insurance in Russia is possible when studying and eliminating the above problems.
Choosing an insurer for banks
The organization of bank insurance involves a careful selection of insurers for this type of activity.
The main criteria for choosing a reliable partner for banks is their stable solvency, the presence of an extensive regional network, affordable pricing policy, the ability to form flexible contractual conditions, and positive experience in problem-free conflict resolution. A time-tested company is perfect for cooperation. Only in this case the bank insurance system will be adjusted correctly.