June 28th, 2016

Greedy Insurers and Bloodthirsty Collectors

Picture: ubu.ru

Picture by ubu.ru

Like many other sectors of the economy, Russia’s insurance market is going through bad times: the extent of insurance is declining, and, even according to the most optimistic forecasts, the nominal growth in insurance contributions in 2016 will not exceed 5 percent, which will be easily lost to inflation. This is hardly surprising, given the decline in car sales, decline in loans issued to the population (which results in the fall of revenues from life insurance,) and the general decline in business activity.

Given this context, the issue of lowering insurance compensations is coming on the agenda. In order to do this, insurance companies are resorting to analysis by “their own” experts who undervalue damages; deliberate slowness with insurance payments, especially with regard to health insurance and life insurance on trips abroad; as well as traditional Russian formalism that demands every document to be printed on a letterhead and to bear a seal. Car owners almost always have to argue with their insurance companies about the amount of compensation for the physical damage to their car, and hire an independent expert to evaluate the cost of repair. Such a situation would be unthinkable in a civilized market: for instance, in the US any repair to an insured vehicle damaged in a car accident would be reimbursed to a maximum estimate, and the only thing the insured has to worry about is whether his or her insurance limits cover the medical costs of the injured party. But even with the exaggerated costs of healthcare in the US, insurance payments in most cases are enough to cover all the costs of the injured.

Apart from manipulations with insurance payments, insurers are increasingly resorting to recourse and subrogation–that is, demanding compensation of their expenses from the guilty party. Despite the fact that such demands have basis in the law, most Russians are not ready for such a course of action—they are caught unaware by their debt to the insurance company and refuse to pay it. The insurance company transfers the debt to a collecting agency—and these, in today’s Russia, increasingly resemble highway robbers. The media are full of horrendous stories about provocations, phone threats, moral and physical harm to debtors and their families, and even murders of debtors. Law-enforcement agencies, acting on behalf of the insurers, are opening scores of criminal cases against debtors under the popular Article 159 of the Penal Code (“fraud”), even though the Code has another Article, 177, specifically for dealing with the refusal to pay back debts. That article is rarely used, as it requires the establishment of circumstances that would qualify such action as a crime—namely, the debtor’s ability to pay back the debt. Needless to say, police has no time for such work—it has other tasks placed before it by the Kremlin.

Photo by ural1.ru

Photo by ural1.ru

Finally, on June 21, 2016, the notorious State Duma, which is mostly concerned with combatting the democratic opposition in Russia, adopted, in three readings, a long-awaited bill intended to regulate and civilize the work of collecting agencies. How this law will be followed in practice remains to be seen, but at least there is hope that collectors’ explicit violence toward debtors will become a thing of the past. Much will depend on insurance companies and banks—the main customers of collecting agencies that could at least be interested in improving their image among the population. Unfortunately, in times of economic crisis creditors are only interested in making a quick profit at any price—which is not surprising in today’s Russia.

23 Jun 2016

Putin, Roldugin, Shamalov, Patrushev and the Rest of Homeowners

Apartment building in Moscow / Photo by apb1.ru

Apartment building in Moscow / Photo by apb1.ru

The widely known problems in Russia’s housing and communal services sector are not new. The entire sector is slowly but steadily deteriorating. This is no surprise since the average age of the Russian housing stock exceeds 40 years. Several tragedies happened over the last year. A residential building partially collapsed in Mezhdurechensk; household gas explosions occurred in Omsk, Perm, Yaroslavl and Volgograd; a bridge collapsed in Vladivostok; cars regularly get stuck in potholes as pavement collapses. Well-known Russian blogger Ilya Varlamov has repeatedly supplied evidence of dire housing conditions of ordinary Russians.

The federal authorities do not at all seem concerned about this situation. In 2016, federal allocations for the repair and replacement of utility lines as well as for the upgrading of the housing stock will amount to around 75 billion rubles or about half of the obviously ill-gotten $2 billion belonging to Putin’s close friend violinist Roldugin. There are plans to further cut federal spending on the housing and communal services sector in 2017 to more than half its 2016 amount.

In fact, why should Russia’s budget be spent on housing around 85 percent of which is privately owned? On the other hand, despite the mass privatization of apartments in the 1990s, public spaces and communal services of most apartment buildings such as entrance halls, courtyards, stairs, gas, electrical and plumbing have not been privatized and remain the responsibility of municipalities. The budget situation on the local level is obviously much worse than on the federal one. >> Read more

16 Jun 2016

Putin’s Regime Thumbs its Nose

Russian Prime Minister Dmitri Medvedev during a visit to Crimea. Photo by A. Pupysheva / kafanews.ru

Russian Prime Minister Dmitri Medvedev during a visit to Crimea. Photo by A. Pupysheva / kafanews.com

On May 23, during a visit to Crimea, Russian Prime Minister Dmitri Medvedev made a fool of himself with a cynical and provocative phrase that quickly became one of the most popular hits on Russian Internet. Answering the question from an elderly lady about why pensions are not being raised, Medvedev, without so much as a thought, retorted: “There’s simply no money. If we find the money, we will raise pensions. You hold on here, I wish you all the best, good spirits and good health.” But the money is lacking not only for pensioners: all those who had for years depended on the needle of “Putinomics” are experiencing problems.

Russia’s largest car manufacturer, AvtoVAZ, is once again finding itself in a difficult situation: beginning on June 6, its workers were transferred from a four-day to a three-day week; layoffs of between 5,000 and 8,000 people are expected. According to AvtoVAZ’s report, the company’s debt arrears of more than 45 days after the first quarter of 2016 has reached 25.3 billion rubles—3.8 times greater than during the same period of 2015. The company’s total debt to suppliers and contractors during the same period amounted to 66.5 billion rubles (including arrears of 25.3 billion.) After the first quarter of 2016, the company’s net loss has increased 48 times, reaching 8.6 billion rubles. To cover its losses, AvtoVAZ will ask its French partner, Renault-Nissan, for a loan of 20 billion rubles. If it is unable to pay that loan back, AvtoVAZ will have to pay with its shares and assets. >> Read more

8 Jun 2016

Foreign Trade: An Unlearned Lesson

Picture: rusrand.ru

Picture: rusrand.ru

In 2013, Russia’s external turnover reached its highest level in modern history, amounting to the hefty $864.6 billion. Oil prices that from 2011 to 2014 constantly exceeded $100 per barrel had no small share in this. Thanks to this situation, such notions as budget deficit and state debt have become part of the history (albeit recent) of the 1990s that is being actively rewritten on Putin’s initiative.

Satisfied and content, Russian citizens – not everyone, but certainly the majority – came to believe that their financial stability was secure and demanded that the Kremlin come up with something more entertaining than the long-familiar reality TV shows, such as Dom 2 and Let Them Talk. Having tamed Siberian tigers and flown with Siberian white cranes, Putin responded to popular yearning for something better than TV fencing by treating his loyal people with the Sochi Olympics, and then the annexation of Crimea and the war in Donbass.

However, Russia’s foreign partners did not particularly like such reality shows and responded to them by introducing economic sanctions. Furthermore, the historic cycle of high oil prices came to an end, and in the summer of 2014 oil prices plummeted. That same year, Russia’s external trade decreased by around 7 percent, and in 2015, the country’s foreign trade dropped by 33 percent year-on-year from 2014. Statistical data for the first quarter of 2016 shows that this decrease will continue, since foreign trade is falling by more than 25 percent compared to last year. Consequently, in less than three years, the drop reached 65 percent.

The export and import patterns >> Read more