Gosnomer.RUS: To Find a Niche and Succeed

The owner of the «Gosnomer.RUS» service Mikhail Katochikov on how to earn in the insurance market and find a more profitable niche

Mikhail Katochikov

Director of Gosnomer.RUS

Tell us about yourself. How long have you been in business, what's your entrepreneurial path?

I started in the field of insurance, then I worked in investment banks, and after graduating I worked in these niches on a permanent basis. I have two degrees: one is economic; the second is financial. The specialties are related: construction enterprise economist and a manager of finances and investment.

I worked in two investment companies, at first in the local Unikom Partner, I was engaged in trading; then moved to BCS Bank (now BCS Premier). Then I was called to work in the Russian Post as the head of the sales department of financial services in the Sverdlovsk region.

Pensions, public utilities, banking and insurance products at the Post Office all went through our department. Tinkoff bank also entered the market through the Russian Post 8 years ago, we had as many of those Tinkoff cards as Mr. Tinkov himself.

Post offices also provided insurance services, especially in remote settlements where insurance companies would have never opened their offices. It is necessary to pay tribute to the postal operators for the number of services they provide within their competences. In addition to the standard tasks of the Russian Post to send letters and parcels, postal operators are engaged in the sale of goods, they issue bank cards and insurance policies, and also accept a huge number of payments.

In 2011, when I worked for the Post, at the same time I opened an insurance agency. As agents, we insured cars and property. By 2014, we opened seven offices in Ekaterinburg.

What was the situation in the insurance market?

Insurance in Russia is not strongly developed, compared to Europe or the United States. All insurance companies began to develop with CMTPL (Compulsory Motor Third Party Liability), as since 2003 it has become the first mass compulsory insurance product in Russia. After that, the companies offered their additional services and increased their customer base.

You could find similarities between insurance agents and junkies: they were addicted to this compulsory car insurance. But up until 2010 the tariff on them almost did not rise (the prices were regulated by the government). Prices for services and spare parts have increased, but they haven't increased for CMTPL, so since 2010 insurance companies have been saving on everything, including the agents’ salaries. The situation in insurance business worsened with each year. The agents’ commission, which was their source of income, was cut. At the best of times, agents received a commission of up to 20% on compulsory types of insurance, then after 2012 the commission was sometimes less than 1%.

The insurance companies saved on everything, the market narrowed. At this point, many agents left the market, while we actively expanded our chain. We were able to survive the peak of the crisis, then returned the commission back, not to 20% as in the best of times, but not bad nevertheless.
How did it happen that the market narrowed, but you started to grow?

We did not have the task to immediately earn on CMTPL itself, but we understood that the market is large, with large potential cash flow, which was our primary interest. When the commission was reduced, the CMTPL policy was sold only with additional services. There caused great dissatisfaction on the part of citizens, the insurance companies were being sued. There were many complaints.

We were not an insurance company, but an agency, and we set our own conditions. This was our way to make money, besides from the related services required to motorists.

Many present their insurance agencies as «insurance brokers», but this is incorrect, as the broker acts on behalf of the client, picks the insurance product at his request and receives a reward from the client. The agent can be a legal entity, have his own staff, act in the interests of the insurance company, and receive a reward from it. There is no difference for the client, as the prices will remain the same.

During this time, we have built up the client base and accumulated a certain amount of sales. After that, insurance companies actively signed contracts with us, the commission rates grew higher.

Since 2015, the situation in the insurance market has become generally better - tariffs were raised, but at the same time, there was a threat of electronic CMTPL policies being implemented. It is just like with airline tickets - a person goes online, makes himself a policy without even leaving the house. In 2015, I realized that insuring business would become electronic, and no agents and chains of sales offices would be needed.

And one more point: previously there was a fine for the absence of CMTPL and traffic policemen removed the license plates. If there was no insurance, it was prohibited to use the car. And somewhere since 2013 they kept the fine, but no longer removed the plates. And since that moment the insurance is no longer mandatory for people. Police officers may stop you once or twice a year, and all you will have to do is to pay a fine worth 800 rubles. Moreover, you only have to pay half a price if you pay within 20 days.

Then came the story with the registration of electronic policies. Insurance companies have had problems with this registration of the policy through the Internet, which most likely was not accidental.

Some people went online to make a policy on their own, someone stopped renewing, because the tariffs have increased. Then again, insurance itself became "not so" mandatory. The cost of insurance for a regular car in the region was about 8 thousand rubles a year. The motorist would rather pay a fine worth 400 rubles without getting any insurance.

Since 2015, offline insurance sales have decreased, many began to issue insurance sitting at home or in their office. Although recently there was an increase in tariffs, and now insurance companies are again interested to issue CMTPL. They give a good commission to agents, because many people themselves register policies online and it becomes more difficult to find those who are not doing it on the Internet. Large insurance companies attract agents with their client base. It is clear to me where this leads — they pay commission once, and take the client base. The next year they can already offer to issue a CMTPL policy to the clients directly. Citizens can extend the policy themselves through the Internet, choosing the insurance company that concluded a contract with them.

Realizing that this niche is becoming unpromising, in 2013, we also started to manufacture license plates.

How did you draw your attention to this niche?

Since 2013, if the car license place is lost or damaged it is not necessary to re-register it in the police department. In this case, the person just makes a new plate on his own. If he puts the car on the register, then until August 2019 the new license plates are issued by the traffic police. And if the license plate is lost, faded, or was stolen, such person goes to the specialized organizations that have permission for this activity, like we do.

Since 2013, it is allowed to manufacture license plates in specialized organizations, and in 2015, we opened the first license plate manufacturing unit in one of the offices of the insurance agency. The motorists who came to us needed the plates, so we decided to see how this case would go. We have about 11 production units in 10 cities at the moment, in total we manufacture about 1500 license plates monthly. We work with individuals and businesses. We have contracts with large companies, motor pools, in example, the «Delimobil» car sharing service, «Delovye Linii» trade company, the «Magnit» supermarket chain, industrial and agricultural enterprises.

What are your sources of customer engagement now?

We use many sources. Company handbooks, partner offices, direct appeals - we try to place offices on the site of advanced insurance agencies, or near the traffic police posts. People walk by, they see that we can make duplicates of their license plates, so they come to us.

We send commercial offers to large companies. They also appeal to us directly, and we try to present ourselves in a good light. They see that our web site is good, that the company has an interesting name, that we have been in business for a long time, and they start trusting us.

Tell us more about the promotion on the Internet?

About 50% now come through the Internet directories, context advertisement. At the end of 2018, we turned to the syncweb.ru hosting company to conduct a technical audit, to increase the download speed of the site, because previously the site used scripts that slow it down, there were technical errors. They also issued SSL-certificates for us, since now we have 11 sub-domains and needed a certificate for each of them. Then we decided to switch to syncweb.ru hosting, so that the site loaded way quicker. They did well, did a great preparatory work, consulted on how everything will be, quickly and without problems transferred the site to their hosting.

Why did you choose syncweb.ru?

This is a good reliable hosting from our hometown, it has large serious clients. Their employees are competent and know their job well. They provided a lot of advice prior to transfer. It all started with technical analysis and SSL-certificates. We took a look, evaluated the quality of services and saw that the company is reliable, so we decided to fully entrust our web site to Syncweb.

What are you plans for further development of the gosnomer.rus? Are you developing a franchise?

Yes, we work with partners. We are actively engaged in the search for franchisees in different cities. At the moment we have already covered 11 cities, which are Krasnodar, Moscow, Nizhny Novgorod, Novosibirsk, Ozersk, Perm, Rostov-on-Don, Samara, Tyumen, St. Petersburg, Chelyabinsk; and we have 2 offices in Ekaterinburg.

Since 2019, the sphere is actively developing, because starting from August the traffic police will stop issuing license plates on car registration. If a person needs new plates after putting the car on the register or he wants to make a duplicate, he will have to look for a specialized company. The traffic police simply assigns a number, issues documents, but it will no longer give you the plate itself.

While there are already many companies in the big cities that provide license plate manufacturing services, there are almost no competition in the regions. It was difficult to earn on duplicates in the little towns because of the small audience, but when the traffic police stops issuing license plates, every motorist will need such a service. The plate issuing units will be opening at the traffic police posts, and we want to capture this market. It is clear that it will not be possible to cover all the cities of our country, but we will try.

Our partners are mostly those people who also worked with car insurance and have offices near to the traffic police posts. Those who used to work with CMTPL additionally can introduce a service of plate manufacturing. And we will provide our equipment and tell them all about the intricacies of this business.

How much does it cost to enter this business?

It takes between 800,000 and 1 million rubles to open one point. Most of the money will be used to buy equipment, rent an office and obtain official permits. On one hand it's all easier with the insurance business: you rent an office next to the traffic police and start working. But the insurance market is shrinking, and the plate manufacture market is growing.

There are several possibilities when it comes to equipment. Partners may buy it on their own. Or, if a person has a good place next to the traffic police, we can install our own equipment and work together in a share.

The payback period of the business depends on the place and is from 6 months to one and a half years. We provide advertising support, teach to use the equipment, advise on paperwork.

What should franchisees do? How many customers a month can you get at the start?

From franchisees we need a good place near the traffic police and a desire to work in this area. We consider all the cities from Sevastopol to Vladivostok. We are now conducting preparatory work by August, when the traffic police will stop issuing new plates, then there will be a surge of orders.

Starting from August, the profits will depend on how many license numbers will the traffic police issue in a particular settlement per month, this amount varies from a place to another. You can compare it with the information on numbers issuing in your city and divide it by the number of plate manufacturing units. For your information: in a small town with a population of 40-50 thousand people, the traffic police issues about 180 numbers a month.

How do you see further development? What areas of business were you also thinking about?
We are working in the field of peer-to-peer insurance. We are developing a system in which we form various mutual assistance programs, and people will be able to receive compensation in the adverse event.

In this service we will keep user registries, monitor the process of mutual assistance. If a participant has an unfavorable event, i.e. medical attention is required, the house was burned down or there is a need to repair the car, he or she receives mutual assistance from other participants within the framework of the program. The small entry fee to use the service is planned; it is required to maintain its performance and to ensure its development.

We have grand plans - we want to bring together thousands and tens of thousands of people to participate in mutual assistance programs, where they will be able to receive potential financial support within the framework of the selected program.

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