Uncertainty, risk and trust in the Russian credit card and insurance markets.

摘要

Credit card and insurance markets have to overcome uncertainty about the future behavior of their customers or about losses their customers will incur in the future. In Russia, these markets are faced with additional uncertainty as a result of post-communist transition. How do Russian banks and insurance companies deal with uncertainty? Specifically, how do banks decide whom they are going to issue credit cards and on what conditions? Also, how do insurance companies set their premiums, and whom do they deny coverage all together? Drawing on Frank Knight's theory of risk and uncertainty, I suggest that uncertainty can be transformed into calculable risk only when there are institutions that gather, verify and codify information in the form suitable for probability calculations.; The data for the project comes from interviews with representatives of Moscow-based banks and insurance companies, analysis of industry periodicals and business history literature. I draw three comparisons: first, of the Russian credit card and insurance markets, second, of the Russian and American credit card markets in their formative periods—the 1990s for the former and the late 1950s and 1960s for the latter, and third, of the Russian and American credit card markets in their present form.; Unlike the US, Russia lacks institutions necessary to turn uncertainty into risk. Nevertheless, Russian banks can resort to trust and embed credit card granting in social networks, connecting applicants to their own employees, or anchoring applicants in their own networks, unrelated to the bank, to make them more accountable. As a result, the Russian credit card market remains embedded and small. Lending through networks cannot produce necessary volume, which, in turn, restricts profits.; Russian insurance companies are also not able to calculate risk, but neither can they rely on trust. They determine premiums based on what other companies and foreign reinsurers charge, as well as on guess work. As a consequence, the Russian insurance market is very unstable. A mixture of ignorance about the real cost of risk, avarice and poorly contained price competition is forcing many companies to operate below reasonable premium levels, and making them unable to meet their obligations.