Conditions of Formation of the Insurance Markets of Post-Soviet Countries

The initial stage of formation of the national insurance market was in the complicated conditions of formation of Kazakhstan as an independent state. Formation of the insurance services market in Kazakhstan started in 1992, after the adoption and enactment of the Law of the Republic of Kazakhstan “About insurance”, since 1994 the system of state regulation and supervision of insurance activities began to function.
As of January 1, 2000, 70 insurance organizations, including 3 state-owned and 8 with partial foreign capital, had licenses to carry out insurance activities in Kazakhstan. There were no subsidiaries of foreign insurance organizations and specialized reinsurance organizations at that time. More than 300 branches and representative offices of Kazakhstan insurance organizations were operating in the republic.
General indicators of the national insurance market in 1999 had positive growth tendencies. The total volume of insurance payments (insurance premiums) collected by insurance organizations in 1999 amounted to about 5,825 million tenge, including 1,338 million tenge for compulsory insurance and 37 million tenge for life insurance (for reference: one US dollar in 1999 exceeded 119.5 tenge).
The growth of the aggregate annual volume of insurance premiums in 1999 compared with the same volume in 1998 amounted to 40% (25% in 1998). The volume of insurance premiums on voluntary types of insurance grew 1.7 times, including property insurance – 1.9 times. The volume of insurance payments, made by insurance organizations of Kazakhstan in 1999 on occurred insured events, amounted to less than one fifth of the insurance premiums collected by them. At the same time, about half of the insurance payments made in 1999 amounted to payments on compulsory types of insurance.
Following the results of 1999, the volume of collected insurance premiums per capita amounted to about 380 tenge, including life insurance – less than 3 tenge. The ratio of insurance premiums to gross domestic product amounted to about 0.3 percent, including the volume of insurance premiums on life insurance contracts – 0.002 percent.
Thus, despite the large number of existing insurance organizations and growth of general indicators, the insurance market in Kazakhstan at the initial stage of its development did not play a significant role in the economy of the country and in the life of the population.
At that time the quality of provided insurance services remained low, and their list of many insurance organizations was limited mainly to compulsory types of insurance, implying the possibility of attracting clients with minimal efforts and costs. Financial capacity of insurance companies of Kazakhstan to cover large losses was insignificant, which caused the need to increase capitalization of insurance organizations and their consolidation.
More than 46 percent of the total volume of insurance premiums collected by insurers of Kazakhstan in 1999 was transferred to foreign reinsurers for reinsurance.
At that time life insurance in Kazakhstan was in its infancy – as of October 1, 2000 only one life insurance company with insignificant volumes of operations was functioning in Kazakhstan.
As of the beginning of 2000, 45 insurance organizations or about 64 percent of their total number were registered in Almaty. In this regard, it was urgent to solve the issues on expansion of the regional network of branches of insurance organizations and development of insurance intermediaries’ activity, as well as on using the possibilities of already available information and technical means for realization of insurance services through banks and their branches, postal-savings network and Internet. The role of professional insurance intermediaries in the insurance market of the country is not visible. By the beginning of 2000 there were only 3 insurance broker companies in Kazakhstan, statistics on the number of employed insurance agents and efficiency of their activity was not collected.
A significant part of operating insurance organizations did not have the necessary number of qualified specialists. The issues of creation of modern system of insurance specialists training with active participation of public associations of professional participants of insurance market and introduction of actuaries institute (specialists in the field of economic-mathematical calculation of insurance liabilities), determination of corresponding requirements to authorized auditors and other specialists were actual (Decree of the President of the Republic of Kazakhstan, 2000).
Being a post-Soviet country, Uzbekistan for more than three decades has been pursuing a consistent policy aimed at building a full-fledged market economy and a democratic society.
At the moment of gaining independence, Uzbekistan was one of the most backward republics of the Soviet Union with low economic potential and population living standards. In 1990, the Uzbek Soviet Socialist Republic (SSR) in terms of gross social product per capita occupied 12th place among the republics that were part of the USSR, the national income production in the country per capita was half as low as the average Soviet level (Karimov, 2012).
As a result of measures taken under the leadership of the First President of Uzbekistan Islam Karimov, at the initial stage of independent development, conditions were created for stable economic growth; in terms of macroeconomic policy based on the modern industrial production accelerated growth a moderately tight monetary policy ensured inflation not exceeding 7-9 percent, high economic growth rates, a balanced state budget executed with a surplus since 2005, and a low level of external and internal country debt, as well as a positive trade balance and balance of payments (Bank of Russia, 2010).
Since 2017, by the initiative of President Sh. M. Mirziyoyev, large-scale transformations have been carried out in Uzbekistan in the economic, structural, social and political spheres.
In accordance with the Strategy objectives, large-scale reforms of the national economy have been carried out in the country aimed at further improving population living standards and intensifying their participation in the country transformation, including:

• foreign exchange market liberalization introduced in September 2017. Uzbekistan has completely switched to free conversion of the national currency,
• cooperation with the World Bank, the International Monetary Fund, the European Bank for Reconstruction and Development, the Asian and Islamic Development Banks as well as the Asian Infrastructure Investment Bank is successfully developing;
• in recent years, high-tech investments have been more actively attracted from countries such as China, the USA, Russia, Germany, Japan, Turkey, France, and etc.
• measures to liberalize foreign trade activities;
• tax policy improvement aimed at increasing the tax administration efficiency and consistent substantial tax burden reduction;
• significantly reducing barriers to business activity, creating favorable business environment and increasing the investment attractiveness of the country.

Over the past six years since the beginning of a new reforms stage, fundamental changes have already occurred in Uzbekistan economy:

–    the annual growth rate of real GDP per capita increased from 2.7% to 3.5%, and for each employed person – from 2.7% to 4.1%;

–    the volume of GDP (in billion Soums) increased from 317,476.4 to 888,341.7;

–    GDP growth rate increased from 4.4% to 5.7%

–    GDP per capita increased from 9,802.1 to 24,919.7 thousand Soums;

–    budget revenues increased from 24.1% of GDP in 2017 up to 32.3% in 2022;

–    the country’s gold and foreign exchange reserves increased from 28.1 billion US Dollars in 2017 to 35.8 billion US dollars in 2022.

In 2017-2022, the banking system assets increased by 3.3 times, the total services volume in the economy in 2022 amounted to 357 trillion Soums and increased by 2 times compared to 2017. The number of active enterprises during this time increased to almost 600 thousand (Abaturov, 2023, pp.16-23).

Due to the ongoing industrialization policy, the share of value added in the manufacturing industry increased in GDP from 15.5% to 20.5%, and per capita – from 1,354.2 thousand Soums up to 4,770.9 thousand Soums. The automobile industry developed dynamically. The share of this sector in the country’s GDP increased from 0.6% in 2017 to 1.1% in 2020, and the volume of automobile production increased by 2.3 times (United Nations, 2021).

Nowadays, issues in the insurance market development are caused by a number of both objective and subjective reasons.

Objective ones include: insufficient financial capability of the population and enterprises for more active involvement in the insurance sector, insufficient development of the legal framework; undermined public confidence in insurance organizations.

However, there are a number of subjective factors originating from ineffective activities of the insurance companies themselves which are:

–    lack of qualified specialists in management and marketing and insurance business in general;

–    due to the above reasons – low level of customer service;

–    low awareness of clients about the companies’ activities, low insurance culture of the overwhelming majority of the population, etc.

Undoubtedly, the insurance development in Uzbekistan in the conditions of initial capital accumulation could not but affect the state of this sector. The domestic insurance market is still far away from the classical canons, is slowly developing, especially in terms of insurance for individuals.

In general, the individual markets dynamics, financial and professional progress of individual companies and their groups in domestic markets, positive historical factors allow us to make fairly optimistic forecasts regarding the prospects for the development of both the insurance and reinsurance markets of the post-Soviet space, especially if all the advantages of the geographical, technical and professional heritage of the former unified state are taken into account and used.

Trends in Insurance Activities State Regulation During the Transition of Post-Soviet Countries to a Market Economy

Financial systems and their most important element, insurance systems, have also developed differently in countries with transition economies. In our opinion, the authorities of the Russian Federation and Kazakhstan made the right decision to transfer the insurance market regulation functions to the Central Banks and create a single mega-regulator, which ensured sustainable dynamics and synergy in the development and growth of the banking and insurance systems of these countries.
State regulation of the economy in market conditions, in general, is a system of standard measures of a legislative, executive and control nature carried out by the authorized government agencies and public organizations for the purpose of stabilization and adaptation of existing socio-economic system to changing conditions.
The above economy regulation, including the insurance system, is a scientifically based social system’s self-defense from the self-destructive tendencies inherent in the market economy mechanism within the framework of a systematic approach. In economic life, it is necessary to observe certain rules so that the bulk of various actions of economic entities does not lead to economic chaos, but has turned into a set of economic processes ensuring economic development and growth in the population well-being.
The state regulatory function of insurance activities can take various forms: the introduction of legislative acts regulating insurance, the adoption in the interests of society and certain citizens’ categories of compulsory insurance, carrying out special tax policy, establishing various benefit types for insurance companies to stimulate activity, as well as organization of a special legal mechanism providing control over the functioning of insurance companies and organizations.
The activities of the insurer are fundamentally different from the activities of other economic entities, since it is aimed to ensure continuity of the process of providing services and compensating losses caused by various unforeseen circumstances and accidents. Each insurance risk has its own individual dimension. Its value depends on a number of factors (the probability degree of an insured event, the intensity of the harmful effects of the destructive nature forces, the value of the property accepted for insurance, and so on). Risk occurrence, expressed in loss, in some cases takes on catastrophic nature – heavy losses of material resources and numerous casualties. This relates to the surge of the risk magnitude and scale in the era of scientific–technical revolution, increasing economic relations complexity, growing volumes of insurance premiums and investments of temporarily free resources of the insurance fund. The importance of a functioning insurer under these conditions significantly increases.
The high degree of responsibility of the insurer for the social consequences of its activities requires the organization of state insurance supervision. In general form, this supervision is expressed in the study of financial position of the insurer and its solvency under accepted contractual obligations to the insureds. The lack of resources by the insurer to pay for liabilities accepted undermines confidence not only in a specific insurer, but also in the idea of insurance in general. In the public consciousness, distrust to the insurance idea takes form of the population’s claims to state institutions. That is why the state cannot stand aside from insurance activities, linking the interests of insurers, the population and economy as a whole. The main issue of state insurance supervision is to determine the amount of reserves guaranteeing the solvency of the insurer.
The insurance market, as part of the financial and credit sector, is the object of state regulation and control in order to ensure its stable functioning, taking into account the insurance importance in the process of social reproduction.
The regulatory role of the state insurance supervision body should provide for the performance of mainly three functions, through which reliable protection of insureds is provided:

1. Registration of insurance organizations, which all insurers must pass. During registration, the insurer’s professional suitability and financial situation are assessed. Western practice usually requires a letter of recommendation from a well-known person in the financial and credit sector. Without being officially registered, the insurer cannot function. The registration certificate is issued by the State Insurance Supervision Authority by issuing the appropriate permit or license.
2. Ensuring transparency. Each professional engaged in insurance activities is obliged to publish a report containing full accurate and precise information on its financial position. The principle of transparency is accomplished by issuing appropriate legal acts on insurance activities (public reporting).In order to avoid competition restrictions, the state insurance supervisory authority must check how reliable the information provided is. Information openness about insurer’s financial situation helps to maintain competition.

3. Maintaining law and order in the industry. The state insurance supervisory authority is vested with broad powers to inspect operational and financial activities of insurers and may begin investigation into law violations and take administrative measures against insurance organizations and submit the case to the court.

In the modern economy of Uzbekistan, insurance is moving forward to strategic positions due to the active government policy where the insurance market is considered by government authorities as one of the main components of the country’s market infrastructure. The crucial direction of the insurance market reforming in transition economy was its gradual liberalization simultaneously with strengthening the foundations of regulation and supervision of insurance activities. As the experience of countries with transition economies shows, liberalization carried out without accompanying regulatory standards and supervisory measures contribute to a situation of chaos in the market.
The history of the insurance supervision in the Russian Federation began with the organization of State Insurance Supervision (Gosstrakhnadzor) (Decree of the President of the Russian Federation “On State Insurance Supervision of the Russian Federation” №133 dated by February 10, 1992).
In accordance with the Decree of the President of the Russian Federation “On the Structure of Federal Executive Bodies” №1177 dated by August 14, 1996 Russian Insurance Supervision (Rosstrakhnadzor) was liquidated, and its functions were transferred to the Ministry of Finance of Russia. In accordance with Decree of the President of the Russian Federation “On the System and Structure of Federal Executive Authorities” №314 dated by March 9, 2004 the Federal Insurance Supervision Service (hereinafter referred to as – FISS) was organized. The functions of control and supervision in the insurance activities field were transferred to the FISS while legal regulation and state policy development in the insurance activities field remained under the jurisdiction of the Russian Ministry of Finance.
By Decree of the President of the Russian Federation “On Measures to Improve State Regulation in the Financial Market of the Russian Federation” №270 dated by March 4, 2011 FISS merged with the Federal Financial Markets Service, to which the functions of control and supervision in the insurance activities field were transferred. On September 1, 2013, the Bank of Russia took the functions of the abolished Federal Financial Markets Service making it financial mega-regulator.
In 1994, in accordance with Decree of the President of the Republic of Kazakhstan “On Organizational and Legal Measures for the Formation and Development of the Insurance Market” №1658 dated by April 16, 1994, the Insurance Supervision Department was created within the Ministry of Finance of the Republic of Kazakhstan.
A new stage in the insurance system formation was the Decree of the President of the Republic of Kazakhstan “On Further Measures on Optimization of Government Bodies” №3986 dated by June 30, 1998, according to which the functions and powers of the Insurance Supervision Department were transferred to the National Bank of the Republic of Kazakhstan, which undertook a number of measures related to the creation of a more civilized insurance market. One of the most important measures was to increase the minimum authorized capital for insurance companies to 100 million tenge, which led to reducing the number of insurance organizations, increasing financial stability and solvency of insurance organizations through the reduction of small insurers.
In 2003, in accordance with Decree of the President of the Republic of Kazakhstan “On Further Improvement of the State Regulation System” №1270 dated by December 31, 2003, the main functions of regulation and supervision of banking, insurance, pension and investment funds were transferred to the Agency for Regulation and Supervision of the Financial Market and Financial Organizations of the Republic of Kazakhstan (hereinafter referred to as the Agency).
In 2011, in accordance with Decree of the President of the Republic of Kazakhstan “On Further Improvement of the State Regulation System of the Financial Market of the Republic of Kazakhstan” №25 dated April by 12, 2011, the Agency was abolished with the transfer of functions and powers back to the National Bank of the Republic of Kazakhstan. Since January 1, 2020, a new state body of Kazakhstan has been operating – the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan, which is the legal successor of the rights and obligations of the National Bank of the Republic of Kazakhstan in accordance with the transferred functions and powers.
A similar body also exists in Kyrgyzstan. The State Financial Supervision Agency has been operating since 2005 reporting to the Government of the Kyrgyz Republic and is in charge of the insurance market, securities market, non-state pension funds and other non-banking financial institutions. The banking sector is regulated by the country’s National Bank.
Thus, both in the Russian Federation and in the Republic of Kazakhstan – leaders among post-Soviet countries in terms of insurance penetration and density, the evolution of regulation and supervision of insurance activities was completed by the establishment of a financial mega-regulator – organization for regulation and supervision of all financial sector participants as well as financial market infrastructure organizations within a single government body.
One of the peculiarities of the insurance market development of Uzbekistan is the presence of a significant period without special government regulation and supervision. This period continued from the moment of independence until July 1998 and, unfortunately, did not lead to the formation of a full-fledged insurance market in the republic.
It should be noted here that during this period, the insurance market beginnings were formed, but did not receive proper development due to a number of objective and subjective reasons. The main objective reason was that a significant part of the insurance companies operating at that time did not have insurance experience, positions in these companies in most cases were occupied by personnel who came from other industries and learnt insurance along the way. This was also typical for the top management of insurance companies.
Obviously, this led to the fact that they could not offer the market high-quality and necessary insurance services and tried either to reshape the insurance services previously offered by the State Insurance System (Gosstrakh) to the changed conditions, or to adapt, to the best of their knowledge and capabilities, Western insurance products to the conditions of the republic.
In addition, the newly created insurance companies, lacking sufficient capital, could not secure confidence in their reliability among potential policyholders. All this together led to the fact that, despite the very significant potential opportunities in the Uzbek insurance market, the gross premiums written in the republic was less than 0.1% of GDP, while in industrialized countries this figure is at level of 8-12%.
The lack of standards for the solvency and financial stability of insurance companies led to the fact that insurance companies were not interested in increasing their own funds; most of the insurance premium received by non-state insurance companies was taken out. This may be confirmed by that the total authorized capital of insurance companies for the period from 1991 to 1997 increased only 1.2 times.
Regulation and supervision of insurance activities at the initial reforming stage in Uzbekistan was actually carried out by the Control and Audit Department of the Main Office of State Insurance (Gosstrakh) of the Ministry of Finance of the Republic of Uzbekistan. After introduction in 1993 of the Act of the Republic of Uzbekistan “On Insurance”, state regulation of the insurance organizations activities in the country was to be carried out by the State Insurance Supervision (Uzgosstrakhnadzor). However, for a number of years such a body was not organized and in July 1998, by the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 286 dated by July 8, 1998, the functions of state insurance supervision were assigned to the Ministry of Finance of the Republic of Uzbekistan. By the same Resolution, State Insurance Supervision Inspection (hereinafter referred to as Gosstrakhnadzor) under the Ministry of Finance was organized to implement these functions.
Gosstrakhnadzor was a special authorized state body exercising control and supervision over the insurance organizations activities on the territory of the Republic of Uzbekistan in order to ensure the protection of the rights and legitimate interests of all participants in insurance relations.
This body in its activities was guided by the Constitution and laws of the Republic of Uzbekistan, resolutions of the Oliy Majlis (Parliament) of the Republic of Uzbekistan, decrees and orders of the President of the Republic of Uzbekistan, resolutions and orders of the Cabinet of Ministers, decisions of the Ministry of Finance of the Republic of Uzbekistan.

The main tasks of Gosstrakhnadzor were:

• establishing mandatory solvency standards and the procedure for their assessment, methods for calculating the maximum exposure of the insurer for individual risks and the total amount of liabilities, order and deadlines for providing information on the insurers solvency;
• monitoring compliance by the insurance market professional participants with legislation on insurance activities, ensuring established solvency standards and other requirements to their financial stability;
• insurance activities licensing of insurers and insurance brokers;
• establishing the order for maintaining records and reporting on the formation and placement of insurance reserves by insurers;
• establishing mandatory qualification requirements for the heads of the executive body and the chief accountant of the insurer;
• establishing the form, procedure and deadlines for submitting financial statements by insurers;
• establishing the order and conditions for the formation and placement of insurance reserves by insurers;
• establishing the order and conditions for insurers’ financing measures to prevent the insurance case occurrence;
• checking compliance by insurance market professional participants with legislation on insurance activities, ensuring established solvency standards and other requirements to their financial stability and submitting binding orders to them to eliminate identified violations;
• suspending, in the order prescribed by the law, licenses of insurers and insurance brokers in full or in relation to certain insurance types (classes), as well as cancelling them;
• publication within six months upon completion of each financial year of annual reports on regulatory activities and insurance activities supervision, as well as statistic data on the insurance market activities during the financial year;
• development of legislative projects on insurance activity and submitting them to the management of the Ministry of Finance of the Republic of Uzbekistan for consideration;
• protecting the interests of insureds during the insurance organization liquidation;
• considering proposals and requests from citizens on issues within its competence;
• exercising other powers in accordance with the law.
• Gosstrakhnadzor had the right to:
• receive from the insurers statutory reporting on insurance activities and information on their financial condition, as well as information from enterprises, institutions, organizations, banks, citizens necessary to perform the functions assigned to it;
• carry out inspections of the activities of insurers in order to monitor their insurance legislation compliance, organizing for this purpose, if necessary, commissions and working groups;
• receive free of charge from the state executive authorities information and statistical reporting necessary to perform assigned tasks.

One of the first documents developed by Gosstrakhnadzor was the State Program for the Insurance Market Development of the Republic Uzbekistan. Also, the main result of the activities of the State Insurance Supervision Inspection was the adoption of the Act of the Republic of Uzbekistan “On Insurance Activities” and a number of laws on compulsory insurance. In addition, Gosstrakhnadzor developed and approved in due course a number of normative and methodological documents to regulate insurance activities on the territory of the republic – in fact, a regulatory framework for insurance activities was formed, and at the same time, scheduled inspections of the insurance organizations activities of the republic were carried out.

In order to further reform and ensure the dynamic development of the national insurance market, introduce new popular insurance service types, increase consumer confidence in the insurance market, the Insurance Market Development Agency was established by Decree of the President of the Republic of Uzbekistan №4412 dated by August 2, 2019 on the basis of the State Insurance Supervision Authority under the Ministry of Finance (hereinafter referred to as the Agency).

The main objectives of the Agency were determined:

• ensuring openness and transparency of the functioning of the insurance market and the activities of its professional participants, including by the systematic publication of statistical and financial indicators in the insurance activities field;
• ensuring the protection of the rights of insurance services consumers and other participants in insurance relations, assisting in increasing public confidence in the insurance market and developing insurance culture in society;
• assisting in organizing training, retraining and advanced training of insurance market specialists, including abroad, as well as involving experts and specialists of international level;
• establishing mandatory standards and requirements on the insurers solvency, the formation and use of insurance reserves, as well as developing recommendations for organizing effective insurance activities;
• controlling compliance by the insurance market professional participants with legislation in the field of insurance activities, as well as established standards and requirements for ensuring their financial stability;
• licensing of insurance activities of insurers (reinsurers) and insurance brokers, certification of the actuary’s activities;
• forming and maintaining an integrated information system for accounting and reporting, remote supervision and operational online monitoring of the insurance market state and activities of its professional participants;
• assisting in developing traditionally popular and introducing new insurance services types to meet the growing needs of the population and business entities, strengthening insurance protection in the field of agricultural activities;

organizing cooperation with similar structures of foreign countries, international financial institutions and other foreign organizations in the field of insurance activities.

The above Resolution established that the Agency is an authorized state body for the insurance market regulation and development.

The main result of the Agency’s activities was the adoption of the Act of the Republic of Uzbekistan “On Compulsory Carrier’s Civil Liability Insurance” and the new edition of the Act of the Republic of Uzbekistan “On Insurance Activities”. Other significant changes were not included in the regulatory framework of insurance activities in the Republic of Uzbekistan.

In order to form in the conditions of “New Uzbekistan” a compact system of public administration meeting modern requirements, increasing the responsibility of government bodies leaders by simplifying the issues consideration and decision-making processes, focusing their activities on performance, as well as ensuring the implementation of the “New Uzbekistan” administrative reforms program by Decree of the President of the Republic of Uzbekistan №269 dated by December 21, 2022, the activities of the Insurance Market Development Agency under the Ministry of Finance were discontinued and its insurance activities regulatory and supervisory functions were transferred to the Ministry of Economy and Finance of the Republic of Uzbekistan.

By the next stage, in order to further develop the capital market, improve its infrastructure, stimulate the attraction of investors to the capital market, simplify the procedure for the foreign investors participation in the local stock market and protecting the investors rights, by Decree of the President of the Republic of Uzbekistan Decree of the President №291 dated by September 2, 2023, the functions of the Ministry of Economy and Finance for monitoring the activities of insurance organizations were transferred to the National Agency of Perspective Projects of the Republic of Uzbekistan. At the same time, the National Agency for Perspective Projects was defined as the authorized body for carrying out regulation, licensing, permitting procedures in the field of insurance activities.

At present, the policy of insurance activities regulation pursued by the Government of the country provides for necessary conditions for the insurance market dynamic development, ensures a high level of creative processes in its development. These measures are the key factors in the formation of a modern, full-fledged and competitive insurance market. We believe that the evolution of government regulation and supervision of insurance activities in Uzbekistan has not yet been completed and its logical continuation will be the transfer of the functions of authorized body for the insurance field supervision to the Central Bank of the Republic of Uzbekistan and the establishment on its basis of a financial mega-regulator.

Legal Bases of Insurance Activity During the Transition to a Market Economy

The most important element of the insurance legal regulation is the presence of appropriate legislative framework regulating the relationship between the parties in insurance and establishing the basic principles of insurance activities in the republic. To date, Uzbekistan has created quite workable legislation system to regulate insurance activities, which includes general legislation, special insurance legislation and a set of by-laws and departmental regulatory documents. The presence of such a system of insurance law was the basis for the development and improvement of the insurance market of the republic.

The insurance business demonopolization during the Soviet period of development of Uzbekistan was started by the Act “On Cooperation” adopted by the USSR Supreme Soviet on May 26, 1988, which allowed cooperatives to insure their property and property interests in state insurance bodies, as well as establish cooperative insurance institutions, determine conditions, procedure and insurance types.

The most significant trigger for the establishment of non-state insurance organizations was the approved on June 19, 1990 by the USSR Council of Ministers “Regulations on Joint Stock Companies and Limited Liability Companies” and the Resolution of the USSR Council of Ministers “On Measures to Demonopolize the National Economy”, adopted on August 16, 1990. These regulations allowed state, joint-stock, mutual and cooperative societies to engage in insurance activities and compete with each other. Demonopolization also occurred in the State Insurance system, primarily it was in the form of granting insurance organizations of the USSR republics the right to introduce regional property and personal insurance types, which were not uniform throughout the country.

The legal framework regulating insurance activities in the Russian Federation has historically developed as a three-stage system of legal regulation.

1. General civil legislation:

Civil Code of the Russian Federation (Chapter 48 “Insurance”), as well as the Act “On the Organization of Insurance Business in the Russian Federation” №4015-1 dated by November 27, 1992.

Part 2 of the Civil Code of the Russian Federation contains a special Chapter 48 “Insurance”, which defines the insurance forms and types, the procedure for compulsory insurance and responsibility for its non-implementation, characteristics of property and personal insurance agreements, their types are given, the basic requirements for insurance organizations are presented, the general principles of mutual insurance and reinsurance are defined and etc.

2. Special insurance legislation:

Federal Law “On compulsory state insurance of life and health of military personnel, citizens called up for military service, private and commanding personnel of internal affairs bodies of the Russian Federation, the state fire service, authorities for control of the narcotic drugs and psychotropic substances circulation, employees of institutions and bodies of the penitentiary system” №52-Federal Law (FL) dated by March 28, 1998;
Federal Law “On compulsory vehicle owners’ civil liability insurance” №40-FL dated by April 25, 2002;
Federal Law “On compulsory insurance of dangerous object owner’s civil liability for causing harm as a result of accident at a dangerous facility” №225-FL dated by July 27, 2010;
Federal Law “On compulsory health insurance in the Russian Federation” №326-FL dated by November 29, 2010;

3. Other legislation containing individual insurance rules:

Federal Law “On mortgage (real estate pledge)” №102-FL dated by July 16, 1998;
Code of Merchant Shipping of the Russian Federation №81-FL dated by April 30, 1999;
Air Code of the Russian Federation №81-FL dated by April 30, 1999;
Urban Development Code of the Russian Federation №190-FL dated by December 29, 2004, and etc.

4. By-laws:

Decrees of the Government of the Russian Federation and orders of the Ministry of Finance of the Russian Federation on certain aspects of insurance activities.
The main regulatory legal acts establishing requirements for the insurance market and the insurance market participants in Kazakhstan, are the Civil Code of the Republic of Kazakhstan (Special Part, Chapter 40) and the Act of the Republic of Kazakhstan “On Insurance Activities”.
In accordance with the Civil Code of the Republic of Kazakhstan, relations between the insurer and the insured, as well as their relations with the insured person and beneficiaries that arise in the process of signing and executing an insurance agreement are regulated.
The Act of the Republic of Kazakhstan “On Insurance Activities” defines the main provisions for carrying out insurance as a business activity, peculiarities of the establishment, licensing, regulation, closure of activities of insurance (reinsurance) organizations, insurance brokers, conditions of activity in the insurance market of other individuals and legal entities, tasks of the insurance market state regulation and principles for ensuring insurance activities supervision.

Also, the Republic of Kazakhstan has adopted legal acts regulating the following compulsory insurance types:

• motor liability;
• carriers’ civil liability to passengers;
• private notaries’ civil liability;
• tour operators and travel agents’ civil liability;
• civil liability of owners of facilities which activities involve the risk of causing harm to third parties;
• audit organizations’ civil liability;
• compulsory insurance in crop production;
• compulsory environmental insurance;
• compulsory employee accident insurance during the performance of his labor (official) duties.

Within the framework of legislative acts regulating insurance activities, there are regulations governing the issues of licensing insurance (reinsurance) activities, obtaining the status of a major participant, transferring insurance portfolio, presenting financial statements, storing documents, investing assets of insurance organizations, applying early response measures, reorganization, liquidation of insurance organizations and other issues.
Since 1991, after the collapse of the USSR, Uzbekistan began to independently solve all issues of organizing insurance activities. Since gaining independence, our country has formed its own insurance market environment, eliminated the state monopoly and created the basis of the legislative system for insurance activities regulation.
Historically, Uzbekistan, like the entire former Soviet Union, did not have a unified system of insurance legislation. Insurance was carried out on the basis of special legislative acts and by-laws. At the same time, compulsory insurance was regulated by legislative acts, and the organization of insurance business and voluntary insurance was regulated by by-laws – resolutions of the Council of Ministers of the USSR and Uzbekistan. Insurance practice was defined by the Insurance Rules and other regulatory documents of the Ministry of Finance of the USSR.

To date, Uzbekistan has created quite efficient legislation system to regulate insurance activities, which includes general legislation, special insurance legislation and a set of by-laws and departmental regulatory documents. The presence of such insurance law system was the basis for the development and improvement of the insurance market of the republic. It is obvious that the current legislative system in order to provide for comprehensive regulation of the developing insurance market of the republic must be constantly improved and systematic work is needed to modernize and develop a system of laws regulating various aspects of insurance activities.

At the initial stage of reforming the insurance market of Uzbekistan, as well as in the Russian Federation, the main provisions of insurance activity were regulated by Chapter 52 of the Civil Code of the Republic of Uzbekistan and the Act of the Republic of Uzbekistan “On Insurance”. Act “On Insurance” dated May 6, 1994 was developed at the beginning of the independent period of the Republic’s development, when the foundations of market economy were just being laid, it largely repeated the provisions of the similar law of the Russian Federation.

It should be noted that the Act “On Insurance” did not regulate the relationships of all insurance market participants, did not effectively protect the interests of professional participants and other subjects of the insurance market of the republic, and did not stipulate certain specific insurance activities aspects, in particular the specifics of the organization and liquidation of insurance organizations.

The noted shortfall in the insurance market transformation of the republic from the general process of deepening economic reforms in Uzbekistan, as well as the inconsistency of its legislative framework with international requirements, brought to the development of a new Act draft. Global experience in insurance activities also shows that insurance, which related to all society segments, must be based on a full-fledged legislative framework.

In line with this policy, at the eighth session of the Oliy Majlis of the republic, the first edition of the Act “On Insurance Activities”, developed by the Ministry of Finance of the Republic of Uzbekistan, was adopted in accordance with section 4, appendix №2 to the Decree of the President of the Republic of Uzbekistan “On Measures to Implement Programs for Liberalization and Deepening of Reforms in Political, Economic and Spiritual Spheres of Society, Ensuring the Country Security”.

To develop the first edition of the Act “On Insurance Activities”, the activities of insurance organizations of the republic, the state of the regulatory framework they use and its compliance with international standards were analyzed, as well as the recommendations of the International Association of Insurance Supervisors and current legislative documents on insurance activities state regulation in countries near and far abroad – the USA, England, Switzerland, Russia, Moldova, Kazakhstan, etc.

Fundamental principles of the first edition of the Act “On Insurance Activities” included bringing the national insurance market into line with a market economy requirements, creating conditions for the insurance market development meeting international standards, increasing the national insurers professionalism, regulating relations related to the insurance activities implementation and the functioning of the insurance market system regulation, promoting the protection of the interests of all insurance entities.

The main objective of the first edition of the Act “On Insurance Activities” was to create conditions for further insurance market development of the republic in accordance with international experience and international norms and standards.

I would like to note several important features of the first edition of the Act “On Insurance Activities”. First of all, it should be noted that insurance is divided into two sectors: life insurance and non-life insurance. This division is carried out in accordance with international practice, primarily to protect the interests of policyholders and insured persons. It is obvious that life insurance (cumulative) in insurance company simultaneously carrying out cumulative and risk types of insurance will run an increased risk of non-fulfilling the company’s obligations to the client. The new act “On Insurance Activities” also stipulated that insurance company carrying out insurance activities in the field of life insurance does not have the right to carry out insurance activities in the non-life insurance industry.

In the first edition of the Act “On Insurance Activities”, the definition of insurer was significantly specified, in accordance with which the insurer is recognized as a legal entity accepting in accordance with the insurance agreement the obligation to pay insurance claim (insurance amount).

In accordance with the legislative technology and international experience requirements, the Act clearly stipulates the types of activities permitted for insurers. In addition, the Act includes a part regarding preventive measures and insurance intermediation, taking into account the established insurance practice in the republic and existing precedents in the world practice.

It should be noted that the first edition of the Act “On Insurance Activities” established a rule according to which at least 90% of the insurer’s authorized capital was formed from the funds of the founders (participants). This was done primarily to protect the interests of insureds.

Also, in order to protect the rights of not only insureds, but also insurers, the Act “On Insurance Activities” clearly stipulates the rights of a special authorized state body on insurance activities regulation and supervision (at that time Gosstrakhnadzor – author’s note).

The provisions of this Act that are fundamentally new for domestic insurance practice include the establishment of mandatory qualification requirements for heads of the executive bodies and chief accountant of the insurer. Also, in accordance with the new act and practice of International Association of Insurance Supervisors (IAIS), the regulatory body had to apply sanctions against the insurance company management if its financial stability decreases.

The essential point of this edition of the Act was that after the license suspension the insurer had no right to enter into new insurance agreement, but was obliged to fulfill its obligations under previously concluded agreements. The rights and obligations of professional participants of the insurance market were defined for the first time in the legislative practice of post-Soviet states.

The first edition of the Act “On Insurance Activities” contained 29 articles and, undoubtedly, became one of the intensifying factors for further development and improvement of insurance activities in the republic.

Further insurance market development of the republic determined the need to make changes and additions to the existing law, and a new version of the Act of the Republic of Uzbekistan “On Insurance Activities” №730 dated by November 23, 2021 was developed and introduced, which more fully meets the modern realities of conducting insurance business and regulating the activities of insurance market participants and protecting the rights of consumers of insurance services. It is necessary to note a significant increase in the number of articles of the act from 29 to 72, as well as the presence of chapters specifying individual provisions and practice of insurance activities.

Thus, it should be stated that in post-Soviet countries, to one degree or another, the insurance law foundations have been formed, allowing for the local insurance markets integration into international ones, while further systematic work for insurance legislation development is necessary.

Conclusions of the First Chapter

1. Insurance markets in post-Soviet countries developed according to rather different scenarios. Some republics have taken a course towards Western models of insurance markets – these include, first of all, Kazakhstan, which recently completed a reform to bring regulatory principles closer to EU directives. Others developed by looking at the experiences of their neighbors and taking into account their own conditions. At the same time, despite the close neighborhood, insurance markets are gradually developing in accordance with market principles, although there are general trends – the predominance of voluntary property insurance in the market structure, dependence on the mortgages and other types of loans development.
2. At present, the policy of insurance activities regulation pursued by the Government of the country creates necessary conditions for the insurance market dynamic development, ensures a high level of creative processes in its development. These measures are the key factors in the formation of a modern, full-fledged and a competitive insurance market. We believe that the evolution of government regulation and supervision of insurance activities in Uzbekistan has not yet been completed and its logical continuation will be the transfer of the authorized body functions for the insurance field supervision to the Central Bank of the Republic of Uzbekistan and the establishment on its basis of a financial mega-regulator.
3. In post-Soviet states, to one degree or another, the foundations of insurance law have been formed, allowing for the integration of local insurance markets into international ones, while further systematic work on the development of insurance legislation is necessary. A competitive environment has been created in these countries, and even state-owned structures must compete on equal conditions with private structures. In the financial sector, private organizations show a greater efficiency than state-owned enterprises, and the main thing is that the state gradually disposes of non-strategic assets by privatizing them and transferring them into private hands.