State-owned company executives, as before, prefer to deal with “their” insurers, as well as with those who are willing to dump prices or pay kickbacks.
Insurance services have always been a segment in which the management of many state-owned companies openly pursued business. Attempts to make tenders transparent and the introduction of an electronic public procurement system have done little to improve the situation. The most recent striking example is the tender held by Ukrzaliznytsia in early May. It selected two insurers to provide mandatory personal insurance for passengers against railway accidents in 2016. The winners were Arsenal Insurance and Inter-Polis. Previously, there were more successful companies. In 2015, Brokbusiness (the company is associated with MP Vitaliy Khomutynnik) was also admitted to insuring passengers. (Read more: Vitaliy Khomutynnik: How Ukraine's Richest MP Made His Fortune), which is rumored to own it through Kaskad-Invest, a private equity firm, Dominanta (allegedly backed by former Deputy Prime Minister Sergei Arbuzov), and Raritet (a company close to the family of former Health Minister Raisa Bogatyreva—her husband, Igor Bogatyrev, is listed among its founders). In 2016, only Inter-Polis remained for a second year, despite more lucrative offers participating in the tender.
According to the Unified State Register, 81,1% of Inter-Polis Insurance Company is owned by Inter-Contact LLC, which in turn is owned by the Cypriot Hijob Trading Limited-Stelios Iordamlis. Inter-Contact LLC is associated with former Party of Regions member Oleksandr Yediny, who is married to the daughter of Leonid Zheleznyak, the former Minister of Transport. The company is currently managed by Oleksiy Goncharov, a former aide to Yediny. Inter-Contact LLC also owned the bankrupt InterTransPolis Insurance Company, which once provided insurance services to Ukrzaliznytsia. Arsenal Insurance is owned by a group of individuals: Maksym Tuz, Oleksandr Solop, Sergey and Maryna Avdeyev, and Oleksandr Koziny. Rumor has it that Arsenal manages to win tenders thanks to a more flexible pricing policy than its competitors.
Krayina Insurance Company (its shareholders include Prime Assets Management, a private equity firm owned by President Petro Poroshenko (49,9%), VIK, a private equity firm owned by Ihor Kononenko, the first deputy chairman of the Petro Poroshenko Bloc parliamentary faction, and SOVA, a private equity firm owned by Oleh Gladkovsky, the first deputy secretary of the National Security and Defense Council of Ukraine) is currently winning quite a few tenders. For example, in April, the insurer won a tender for voluntary medical insurance for employees of Lviv's Danylo Halytskyi Airport. The total contract value was UAH 1,37 million. Krayina also received the right to provide medical insurance for employees of Ukroboronservice, a subsidiary of the state-owned company Ukrspetsexport, in 2016-2017.
Regional power companies are also renowned for their consistent insurance preferences. For a long time, they have been insured by Kashtan Insurance Company, whose shareholders are Rostislav Zakharkiv and Nina Motruk.
At the end of March of this year, for example, the insurer entered into an agreement to insure the property of PJSC Lvivoblenergo against fire and other risks for UAH 1 billion. The insurance premium amounted to UAH 35 million, according to the "Bulletin of State Procurement." In February 2015, Kashtan Insurance Company, following another tender, insured another 7580 properties, receiving a payment of over UAH 30 million. In total, since 2008, this insurance company has won tenders worth approximately UAH 174,4 million. Most of these were for Lvivoblenergo, PJSC Ternopiloblenergo, and OJSC Prykarpattyaoblenergo. The company is considered to be close to Kostyantyn Grigorishin (Read more: Konstantin Grigorishin, Distinguished Oligarch of Ukraine and Russia). Its supervisory board is headed by Dmitry Motruk, who was previously deputy chairman of the board of Big Energy Bank, which belonged to the oligarch.
Quite often, the choice of insurer is determined by the low-cost terms that companies are not above offering. Last year's scandal became the talk of the town when it was revealed that Kyiv patrol police vehicles were insured by Ukraina Insurance Company, which by that time was no longer a member of the MTIBU and did not have a license. The Ministry of Internal Affairs concluded the insurance contract without inquiring about the company's financial status. Later, the National Police was forced to enter into additional contracts with Providna and Arsenal Insurance without a tender process, as the amount was lower than that established by the law on public procurement. In April of this year, the National Police Headquarters in Kyiv announced a new tender for civil liability insurance for police vehicles. The winner remains to be seen.
Something is wrong with the tenders
Insurers aren't particularly confident in the Prozorro system. While it has allowed new players to establish themselves, it has also allowed insurance companies with severely low bids to access tenders. "Often, the winner is an insurer who offers, for example, a price of 50 hryvnias, when the stated tender price is 2 hryvnias. Only companies that don't intend to pay for risks can offer such a price, since they simply have no reserves—all revenue is 'eaten up,'" says Oleksandr Ivanenko, First Deputy Chairman of the Board of Inter-Plus Insurance Company. According to him, participating in tenders through Prozorro has become akin to "gambling" for some insurance companies, as they can only make small profits. All significant tenders continue to be won by companies "friendly" to businesses and those close to the government.
According to Roman Malenko, CEO of DIM Insurance, companies with small authorized capital and 10-20 employees often take on billion-dollar risks and obligations to serve a large number of clients as a result of tenders.
How is Ukrzaliznytsia insured?
The volume of insurance premiums for railway passenger insurance fell severalfold in 2015, from UAH 60,3 million to UAH 10,5 million. Nevertheless, the number of people willing to work with the monopolist has not diminished. "This is a very profitable business. Monitoring the actual number of insurance claims on the railway is virtually impossible. Passengers very rarely contact insurance companies for insurance compensation. As a result, the insurance company receives excess profits, which, rumor has it, it shares with the management of the state-owned company—up to 40% of the premiums received," claims an insurance market representative who wished to remain anonymous. This source's words are confirmed by data from the Ministry of Infrastructure: in 2014, passengers were paid insurance compensation totaling only UAH 283,8 (only 29 insurance claims that year). This means that approximately UAH 60 million ended up in the pockets of those involved in the "business." The amount of commission received by carriers was UAH 41 million (68,37%), while insurance companies received UAH 19 million (31,63%).
On the topic: Vitaly Khomutynnik. How Ukraine's richest MP made his fortune.
Konstantin Grigorishin, Distinguished Oligarch of Ukraine and Russia
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