Person of the Club

Head of “Ukrainian Insurance House” Insurance Company

“To be successful, you need to utilize an innovative assessment and management system.I choose to use the

Balanced Scorecard”.

Mikhail Berlin,

Chairman of the Board, “Ukrainian Insurance House" Insurance Company

Graduated from DonetskStateUniversity; major in Economic Cybernetics (1981).Currently – candidate for a degree of PhD in Economics in DonetskStateUniversity, thesis in “Modeling of business processes in Insurance Company”.

Career – 1981­­–1989– deputy head of Production Automation and Standardization Department at “Druzhkovskiy ordena Lenina 50th Anniversaryof Soviet Ukraine Machine Factory”; 1989 – head of System Development Department;

head of Training Center in Soviet-American joint company “Dialog”, 1991 – Director of Broker’s Office “Skif 88 Production Company”; 1992 – deputy director, innovations director in insurance company “ASKO – Donbass Severnyi”; 1998 – lead manager in industrial investment company “Ukrprom”, 2000 – head of the Restructuring Department in "Investments and Consulting" company; 2001–2002– Chairman of the Board in CJSC “Fort East” Insurance company, 2002–2004 – Chairman of the Board in “Donetchina” Insurance Company; since April 2004 – Chairman of the Board in CJSC “Ukrainian Insurance House”.Since 2001 – Senior Professor (part-time) in DonetskStateUniversity, Insurance Law Course.

Family Status: married, has a son.Hobbies: tennis, swimming.

“In the course of my life I have often started businesses and took part in commercial activities.Creation of any company is a very responsible and complicated task.It is much easer to join a well-established business than to start one.However, a building will last for a long time if it has a solid foundation.Foundation of an insurance company is created for 1-2 years. This term includes time necessary to build a team, establish a corporate culture, set up a flow of documents, and organize business processes.I can hardly understand those people who decide to start an insurance business after a positive answer to as little as two questions:‘Can I treat costs of insurance of my company’s assets as gross expenditures?’ and ‘Do I have one million euros needed to set a statutory fund of an insurance company?’Issues related to staff recruitment, regulations of business processes, etc., are often raised only after an insurance company has been registered, and after those issues have become problems for the new organization”.

“You have experience in building companies from scratch. Based on this experience, what do you think is the best way to start an insurance business?”

“I do not mind taking a risk, but I believe that the process of initiating an insurance business should be approached with great care. You should find your own strategic way and define your own target segment of the insurance market. It is also necessary to monitor the HR market, take a closer look at the problems that exist in the insurance business, and consider how good your own investment capabilities are.This attitude has been formed in the course of my life and with the help of many people I have met.You know, they say, both enemies and friends are great teachers".

“How did it happen that you came into the insurance business? What kind of activity did you switch from?”

“It was by chance.After graduating from the university I worked as a deputy head of Production Automation and Standardization Department at Druzhkovskyi Machine Factory.Then I worked as a computer hardware and software distributor in Donetsk; after that I headed the training center at Soviet-American company “Dialog”.Then I met people who created ASKA insurance company, and they inspired my enthusiasm about the insurance business.In 1992 we created “ASKO – Donbass Severnyi” insurance company.In that company, I was responsible for the investment activities.I could grasp a better understanding of the insurance business theory after funding “FortEast” insurance company and becoming a lecturer in DonetskStateUniversity, teaching Insurance Law course.At that time I could also manage to find time for arbitration management related position.And it was in insurance company “Donetchina” where I concentrated on insurance business only.During a year of work in that company I could build a strong team, totally devoted to their jobs.Together with the members of the team we began to deploy our strategy of branch network development. We started with a branch office in Lugansk.According to the results of year 2003, our company was rated 34th in the “Insurance payments” category.At a later time nearly all of my team decided to continue their careers in SJSC “Ukrainian Insurance House”, creating the backbone of the HR framework in Lugansk and Donetsk offices, and in the Head Office in Kyiv.

“Was it you who established the Ukrainian Insurance House?”

“No.The company was started in September 2003, and acquired by its shareholders in April 2004 after a thorough monitoring of financial and other parameters of all insurance companies that were having their shares sold at that period of time".

“What are your relations with the company's shareholders like?”

“Problems in relations between a top manager and the shareholders are often caused by the lack of clear mission and strategy at a company: i.e. approaches to organization’s performance assessment not approved, final outcome of the top manager’s work not defined, and so on.Usually, shareholders can only come up with an expected amount of insurance payments at year-end, and plan to take a desired line in the ratings chart.As for our shareholders, they treated the company development strategy I offered with all due regard.Plus, we are lucky to have such a professional and talented financial expert in our company, who treats his responsibilities not formally – as it often happens with others – but acts as a real leader of one of the key administration bodies.We meet at least three times a week to discuss new ideas any of us may have, and to talk about the company’s achievements”.

“Could you tell us in more detail about the mission and the performance assessment methods at the insurance company?"

“In defining our mission, let me refer to the well-known company management consulting specialist, David Meister. He believes that any company that offers services (including insurance services) – irrespectively of size, field, and country, has the following mission:

• offer services of highest possible quality;

• provide career advancement and professional satisfaction opportunities to the company employees;

• achieve financial success and growth.

The need to define new approaches to company’s performance assessment was due to the fact that the existing approaches, that were based primarily on the financial results, were severely outdated.My business experience suggests that a successful establishment of an active and technology-relied competitive company is impossible using the control and analysis of financial results alone.A different assessment and management system is needed.After analyzing several innovative systems, I chose to use the Balanced Scorecard system”.

“What's remarkable about this company performance assessment system?”

“Balanced Scorecard assessment is conducted based on four balanced parameters:finances (with the financial results assessments being a priority); relationships with clients; internal business processes; training and skills improvement courses for the personnel.

This approach is interesting since it lets you clearly describe the strategy of the company:how investments made into training, IT, innovative products and services help to dramatically increase the company's financial success.This approach allows to state the strategy accurately, make sure all of the workers understand it, harmonize the goals and tasks of a subdivision and those of every worker with the company’s strategy, coordinate strategic goals with the long-term objectives and yearly budgets, periodically and systematically review accomplished strategic goals, and change the strategy promptly if needed.This is a new interesting tool.That is why we decided to make it a basis for our company’s management system”.

“How did you begin implementing this system within your company?”

“After setting the basic financial measurements with the shareholders, we had to answer three questions:who are our clients, and what do we want them to think of us; what business processes we want to achieve perfection at; and what are the ways to sustain our ability to change and improve ourselves”.As a result, a strategic development plan was created, where all of these issues were thoroughly addressed.We made a decision to position our insurance company as a retail-oriented one, i.e. intended for the individual customers”.

“Isn’t it a very tough market to deal with?”

“It is, but it still has to be dealt with, because today this market has the highest potential.In this situation, the most important thing is finding and keeping your customers.There many ways to do this.One of them is the CRM technology that we are currently mastering.

Of course, a company aimed at the retail insurance market must be network-based.SSo we started to develop our branch and agents networks.Today, there are six successfully established branch offices based in the cities ofChernihiv, Kharkiv, Lugansk, Donetsk, Dnipropetrovsk, and Vinnitsa.We are planning to have branch offices in all key regional cities of Ukraine by the end of 2005”.

“Many insurance companies are closing their branch offices. They say that such offices are unmanageable, often unprofitable and too costly to maintain.Do you think you could face such problems?”

“The manageability problem is addressed by us and our partner – “ComSat Technology” firm. The firm helps us build a corporate network for information interchange between remote branches and company’s subdivisions.In fact, we will eventually be able to work within one common online database.This will provide for the efficient back-office operations after the front-office functions will have been delegated to a branch, thus freeing the back-office from the functions not typical for a retailer.As a result, our company's branches function not as small insurance companies, but only as sales units.Virtually all of our branches are loss-free”.

“This is the fourth insurance company you are working in.What mistakes that you made in the past would you like to avoid now?”

“I want to avoid getting fooled by wrong impressions people make on me.I think that my primary goal is to build an effective team. I want everyone in the team to understand his or her task, be motivated, and work with the best efficiency possible.We conduct a thorough testing at the hiring stage, invest our costs in training, arrange for traineeships abroad, and try to establish an effective motivation system".

“What are the company’s results for this year?”

“During this year we have collected 4.7 million hryvnias of insurance payments, and paid 125 thousand hryvnias as insurance compensations”.

“Perspective-wise, how do you see your company in, say, five years from now?"

“We are currently in the initial stage of the development of the company management framework.All business processes (such as working with the market, finding and keeping a client) must be well-established and formalized. These processes must be seamless.Then the company will definitely continue to advance.In other words, we want to make a manageable and profitable company.