- The new law has quite a large number of amendments and additions, how much will it affect market participants?
- The law came into force on July 15 this year, thus, most of the Law provisions will already be in force this year. Some norms will be effective as of January 1, 2019, others will start working later.
In fact, it was a very large bill, which included an important block of questions. Amendments and additions were made to three codes of the Republic of Kazakhstan: a general and special part of a civil code, administrative and tax. The adopted bill touched upon all professional participants of the insurance market. Earlier, small changes were made to insurance laws, but such a global modification has not been considered for many years.
Initially, when the bill was only presented in the parliament, it included 2 codes and 18 laws, which were supposed to amend. At the exit, when it had already been finally signed by the President, there were 3 codes and 29 laws.
- And if to be more specific, what has changed in the insurance market?
- Firstly, the powers of the insurance ombudsman have expanded as of July 15. If earlier, for 10 years the insurance ombudsman has been specializing only in the law on civil liability of vehicle owners, where disputes between insurance organizations and injured or insurers and insured were considered. Now both powers and procedures have changed. In the fundamental Law "On Insurance Activity", which regulates the activity of professional participants in the insurance market, a clause has been added that deals with the insurance ombudsman, its status, and principles of activity. Now the powers of activity of insurance ombudsman apply to all types and classes of insurance in Kazakhstan. Thus, any individual or legal entity related to small business has the opportunity to apply to insurance ombudsman for insurance contract disputes as an alternative to resolving a dispute in court.
- Didn’t the law change the ombudsman's services payment issues?
- The activity of the insurance ombudsman is carried out on a gratuitous basis, that is, there is no need to pay any duties or fees for dispute consideration, and we try to consider the issues in a rather short time. Now 2 months are given for consideration, but we are trying to do it much faster. In addition, in order to simplify the procedure for submitting an application to the insurance ombudsman, for the clients of insurance organizations that are located in other regions of Kazakhstan, the law stipulates that the beneficiary can file applications through the insurance organization. Why? Because insurance organizations have branches and representative offices in all regions, so the disputes begin there. After reviewing the client's application the insurance company is obliged to send documents to the ombudsman within 3 working days. Currently, I cannot consider disputes between medium and large businesses, since they have the resources to resolve disputes through the courts. That is why I consider disputes of more vulnerable categories, namely as mentioned earlier - individuals and small businesses.
- And how is the ombudsman activity funded?
- Funding of insurance ombudsman institute is made as it’s always been: the budget of the insurance ombudsman office is approved together with insurance companies once a year. The budget includes the expenses for the current year, after that it is allocated among insurance organizations. These amounts are confidential therefore are not disclosed. The ombudsman reports to the council of representatives, but only in terms of finances, and not on the cases under consideration.
- Do all insurance companies have to make contributions?
- Previously, it was only those companies that had a license under the legal liability of vehicle operators. According to the adopted law, now all insurance organizations, including life insurance companies, should become members of the council of representatives, and they will also bear the expenses of running the office of the insurance ombudsman.
- And can these changes contribute to further expansion of the Ombudsman's activities, and is there any need in this at all?
- It is worth starting with the fact that the number of appeals since the time I came to this post three years ago has increased significantly. If in 2015 there were 230 applications, by the present moment this year there are already more than 505 appeals. 5 employees are working in the office. We are coping so far, but it is getting harder every year. With new companies’ arrival (now the procedures for the life insurance companies’ entry are being implemented), it seems that it will be necessary to attract another specialist, because the specifics of disputes between life insurance companies and general insurance companies are different. That is why there is a need in a good specialist.
- It is clear about the main changes in your activity. Now I would also like to know more about the other market participants affected by the changes. What about actuarians?
- Yes, the changes also touched the actuary activity. The law defines the procedure for licensing the actuary activity, it also provides for their membership in a self-regulatory organization, and the concept of an "independent actuary" has been introduced. This institution has also been developing long enough. It got a start in 2001, when Canadian and American actuaries came to Kazakhstan with lectures, local actuaries did not exist. Prior to this, from 1993 to 1996, the tariffs were calculated by the companies themselves, that is, the tariff costs could be calculated by any employee who was more or less good in math, of course, in accordance with the methodology that was used at that time. But in 2001 the first courses were organized in order for actuaries to get licenses. Then it became mandatory for the insurance company to have an acting actuary. Now every company with actuary must be checked by an independent actuary. Besides, as SROs they must determine the rules by which actuaries will work, as the SRO is responsible for the activities of its members. According to the National Bank, 57 actuaries work in Kazakhstan as of June 1, 2018.
- Changes in the tourism insurance...
- It has conceptually changed. It used to be insurance of travel agents and tour operators liability. Now it is a question of insurance of tourists. The tourist insures against certain risks listed in the law. Previously, it was very difficult to determine the responsibility of a tour operator or a travel agent. Besides, several years ago there were bankruptcies of tour operators, a lot of conflicts arose; and against this background insurance companies suffered huge losses. The insurance companies themselves were not insured against fraudulent actions of some participants of the tourist market. After that, for about two years there were attempts to resolve the issue of protection of tourists in a civilized manner. As a result, tour operators established an association with the fund that ensured the return of tourists to Kazakhstan in the event of an unforeseen situation. And insurance companies protect tourists from fraudulent risks. Now the risks associated with the trip of the tourist are insured by the insurer, fraudulent actions are actually excluded. The main issue is that now the tour operator is obliged to include this insurance in the tour package, i.e. it should not provide its service without an insurance policy.
- It was also discussed last year that the tariffs on legal liability of vehicle operators would be revised.
- The rates have not been revised. But it should be noted that liability limits have been raised in the compulsory insurance laws. There is a liability limit on compulsory types of insurance, i.e. the maximum liability limit of the insurance company is bound to the monthly calculation index. It is growing each year correcting both the size of payments and premiums in monetary terms. If, for example, before July 15 in the Law of legal liability of vehicle operators the limit of liability for causing damage to life and health entailing death was 1000 MCI, equal to 2 million 405 thousand tenge, the liability limit in the contracts signed after July 15 already amounted to 2000 MCI, or 4 million 810 thousand tenge.
-There have been many talks about electronic policies in the market for a long time. What aspects should be considered here?
- As of January next year, there will be an opportunity not to buy compulsory insurance in paper form. By visiting the insurance company website and filling in the necessary documents we receive confirmation in electronic form that we have been insured, and this information is placed in the Unified Insurance Database (UIDB) and from there is integrated into the Ministry of Internal Affairs database. It won’t be necessary to provide the administrative police employees with the insurance policy, as this information will be promptly reflected on the police tablets. But I would like to remind that the car operation without the compulsory insurance contract on civil liability is prohibited.
As for the UIDB, it is now formed only of compulsory types of insurance. In the future, all data on all types of insurance will be recorded in the UIDB, and insurance companies will have to pass all information on compulsory and voluntary types of insurance in this database. This is done in order, first, to form an insurance history, and secondly, for actuaries who need to make calculations also on some historical data. Terms for that are specified by law. By 2022, insurance organizations must transfer contracts on information provision and insurance report obtaining.
The advantage of the electronic policy is that there is no need to go to the insurance company office or the agent; it is enough to visit an internet resource with a fairly simple interface to fill in the data. And the insurance company should consider and provide information about insurance, i.e. issue an invoice to a client. Payment will become a confirmation that the contract is concluded. Also, the consumer who enters into the contract is to receive a contract note. The mechanism of protection of consumers from fraudulent actions has been developed. The security of internet resource was one of the main issues. It has been discussed who would monitor and supervise it, and how to avoid clone sites’ creation. Several years ago there were situations when a person was looking for an insurance company, visited a very similar site that turned out to be a clone.
This issue will be worked through until 2019, but it is still unknown how it will ultimately look. It is assumed that the purchase of an insurance policy will be cheaper, and insurance organizations will be able to provide a discount to those who buy an insurance policy via the Internet.
- Will this innovation lead to staffing reductions?
- This may lead to staff reduction in insurance companies, because the process will be automatic. It is likely that employees will be reoriented to customer service, for example, maintenance or payment. The staff can increase in IT departments. In this case, an additional access to the insurance company opens up, where human resources are not required.
- Back to reduction topic, how do the adopted changes transform the agency market? Legislative restrictions were imposed on the participation of agents in competitions and tenders.
- For example, if there is a competition, and this is a state or quasi-state structure that purchases insurance services through a tender, now the law prohibits agency fees, which eliminates the corruption component. In my opinion, this is a great step in improving the financial condition of the entire insurance market, since a lot of resources are spent on agency fees. For compulsory types, 15% are officially permitted, but earlier this figure was much higher. Now these funds will be sent to the insurance companies, to develop and improve their financial position.
- And how much will the market shrink?
- They say several billions that remain in insurance companies if the agency market is removed, or at least reduced to a reasonable and normal size. The law also has an amendment that prohibits agents from working for several insurance companies, which used to be allowed earlier. Now the agent can work for one insurance company only. In addition, the market will be more transparent, as it will be specified how much exactly is included in the agency fee.
In some countries, the agency market is well developed, but their activities are licensed, the agents get training. In Western countries, this is nearly a family business, passed from father to son. But life insurance is very well developed there. A long-term insurance, i.e. a person enters into a contract for 20-30 years and pays a fairly large premium.
- Question on the legal liability of vehicle operators. The amendment brought in this type of insurance prolongs the contract validity for a year after the first insurance event. How is it going to work?
- It used to be as follows: an accident took place, damage was caused, then the mechanism for collecting documents started, legal actions were taken, the court decision or sentence was made, the collection of documents began again, the damage assessment was made. Then the documents were to come to the insurance company and it to make a payout of insurance. But before this period, it was often hard to determine a party in default. At that time, neither party was covered, i.e. along with this accident a few more could take place. The insurance company also was receiving documents on them. However, according to the Law, valid until July 15, the insurance contract was in force until the first insurance event, and payment was made only on it. In the current version, the norm on the agreement termination in case of first insurance event is excluded, and only when the insurance payment is made, the insurance organization is obliged to inform the insurer and the UIDB about the termination of the insurance contract. That means that during the entire period, from collecting documents for filing with the insurance company to the insurance payment date the insurance contract is valid. And it is in the interests of the insurance company to make an insurance payment as soon as possible, because if the customer gets into another accident during the period from the first accident, each time the insurer is to pay the liability amount. And the vehicle operator is obliged to conclude a compulsory insurance contract for a new period.
- If to look at the current situation in the insurance market in general, is there a tendency of reducing it?
- There is definitely a trend of it, and we observe it. Kazkommertsbank and Halyk bank are merging now, so the market is really being consolidated. On the other hand, this is due to the tightening of prudential standards for execution, with the capitalization of companies, not every shareholder is ready to capitalize the organization.
Validity of licenses of some insurance companies has been suspended. This is due to inspection of insurance companies conducted by the National Bank. Non-compliance with requirements has been revealed, and the regulator suspends the licenses until the companies eliminate the comments given by the authorized body. As soon as they are removed, the license will start to operate again.
As I have already mentioned, there is a predisposition to reduction of companies, and it is being clearly monitored. But bankruptcy, initiated by the authorized body, is not expected in any company now. As to the fact that the company ceases its activities, being liquidated or merged, it is still the shareholders' decision.
Photo: Oleg SPIVAK
- The new law has quite a large number of amendments and additions, how much will it affect market participants?
- The law came into force on July 15 this year, thus, most of the Law provisions will already be in force this year. Some norms will be effective as of January 1, 2019, others will start working later.
In fact, it was a very large bill, which included an important block of questions. Amendments and additions were made to three codes of the Republic of Kazakhstan: a general and special part of a civil code, administrative and tax. The adopted bill touched upon all professional participants of the insurance market. Earlier, small changes were made to insurance laws, but such a global modification has not been considered for many years.
Initially, when the bill was only presented in the parliament, it included 2 codes and 18 laws, which were supposed to amend. At the exit, when it had already been finally signed by the President, there were 3 codes and 29 laws.
- And if to be more specific, what has changed in the insurance market?
- Firstly, the powers of the insurance ombudsman have expanded as of July 15. If earlier, for 10 years the insurance ombudsman has been specializing only in the law on civil liability of vehicle owners, where disputes between insurance organizations and injured or insurers and insured were considered. Now both powers and procedures have changed. In the fundamental Law "On Insurance Activity", which regulates the activity of professional participants in the insurance market, a clause has been added that deals with the insurance ombudsman, its status, and principles of activity. Now the powers of activity of insurance ombudsman apply to all types and classes of insurance in Kazakhstan. Thus, any individual or legal entity related to small business has the opportunity to apply to insurance ombudsman for insurance contract disputes as an alternative to resolving a dispute in court.
- Didn’t the law change the ombudsman's services payment issues?
- The activity of the insurance ombudsman is carried out on a gratuitous basis, that is, there is no need to pay any duties or fees for dispute consideration, and we try to consider the issues in a rather short time. Now 2 months are given for consideration, but we are trying to do it much faster. In addition, in order to simplify the procedure for submitting an application to the insurance ombudsman, for the clients of insurance organizations that are located in other regions of Kazakhstan, the law stipulates that the beneficiary can file applications through the insurance organization. Why? Because insurance organizations have branches and representative offices in all regions, so the disputes begin there. After reviewing the client's application the insurance company is obliged to send documents to the ombudsman within 3 working days. Currently, I cannot consider disputes between medium and large businesses, since they have the resources to resolve disputes through the courts. That is why I consider disputes of more vulnerable categories, namely as mentioned earlier - individuals and small businesses.
- And how is the ombudsman activity funded?
- Funding of insurance ombudsman institute is made as it’s always been: the budget of the insurance ombudsman office is approved together with insurance companies once a year. The budget includes the expenses for the current year, after that it is allocated among insurance organizations. These amounts are confidential therefore are not disclosed. The ombudsman reports to the council of representatives, but only in terms of finances, and not on the cases under consideration.
- Do all insurance companies have to make contributions?
- Previously, it was only those companies that had a license under the legal liability of vehicle operators. According to the adopted law, now all insurance organizations, including life insurance companies, should become members of the council of representatives, and they will also bear the expenses of running the office of the insurance ombudsman.
- And can these changes contribute to further expansion of the Ombudsman's activities, and is there any need in this at all?
- It is worth starting with the fact that the number of appeals since the time I came to this post three years ago has increased significantly. If in 2015 there were 230 applications, by the present moment this year there are already more than 505 appeals. 5 employees are working in the office. We are coping so far, but it is getting harder every year. With new companies’ arrival (now the procedures for the life insurance companies’ entry are being implemented), it seems that it will be necessary to attract another specialist, because the specifics of disputes between life insurance companies and general insurance companies are different. That is why there is a need in a good specialist.
- It is clear about the main changes in your activity. Now I would also like to know more about the other market participants affected by the changes. What about actuarians?
- Yes, the changes also touched the actuary activity. The law defines the procedure for licensing the actuary activity, it also provides for their membership in a self-regulatory organization, and the concept of an "independent actuary" has been introduced. This institution has also been developing long enough. It got a start in 2001, when Canadian and American actuaries came to Kazakhstan with lectures, local actuaries did not exist. Prior to this, from 1993 to 1996, the tariffs were calculated by the companies themselves, that is, the tariff costs could be calculated by any employee who was more or less good in math, of course, in accordance with the methodology that was used at that time. But in 2001 the first courses were organized in order for actuaries to get licenses. Then it became mandatory for the insurance company to have an acting actuary. Now every company with actuary must be checked by an independent actuary. Besides, as SROs they must determine the rules by which actuaries will work, as the SRO is responsible for the activities of its members. According to the National Bank, 57 actuaries work in Kazakhstan as of June 1, 2018.
- Changes in the tourism insurance...
- It has conceptually changed. It used to be insurance of travel agents and tour operators liability. Now it is a question of insurance of tourists. The tourist insures against certain risks listed in the law. Previously, it was very difficult to determine the responsibility of a tour operator or a travel agent. Besides, several years ago there were bankruptcies of tour operators, a lot of conflicts arose; and against this background insurance companies suffered huge losses. The insurance companies themselves were not insured against fraudulent actions of some participants of the tourist market. After that, for about two years there were attempts to resolve the issue of protection of tourists in a civilized manner. As a result, tour operators established an association with the fund that ensured the return of tourists to Kazakhstan in the event of an unforeseen situation. And insurance companies protect tourists from fraudulent risks. Now the risks associated with the trip of the tourist are insured by the insurer, fraudulent actions are actually excluded. The main issue is that now the tour operator is obliged to include this insurance in the tour package, i.e. it should not provide its service without an insurance policy.
- It was also discussed last year that the tariffs on legal liability of vehicle operators would be revised.
- The rates have not been revised. But it should be noted that liability limits have been raised in the compulsory insurance laws. There is a liability limit on compulsory types of insurance, i.e. the maximum liability limit of the insurance company is bound to the monthly calculation index. It is growing each year correcting both the size of payments and premiums in monetary terms. If, for example, before July 15 in the Law of legal liability of vehicle operators the limit of liability for causing damage to life and health entailing death was 1000 MCI, equal to 2 million 405 thousand tenge, the liability limit in the contracts signed after July 15 already amounted to 2000 MCI, or 4 million 810 thousand tenge.
-There have been many talks about electronic policies in the market for a long time. What aspects should be considered here?
- As of January next year, there will be an opportunity not to buy compulsory insurance in paper form. By visiting the insurance company website and filling in the necessary documents we receive confirmation in electronic form that we have been insured, and this information is placed in the Unified Insurance Database (UIDB) and from there is integrated into the Ministry of Internal Affairs database. It won’t be necessary to provide the administrative police employees with the insurance policy, as this information will be promptly reflected on the police tablets. But I would like to remind that the car operation without the compulsory insurance contract on civil liability is prohibited.
As for the UIDB, it is now formed only of compulsory types of insurance. In the future, all data on all types of insurance will be recorded in the UIDB, and insurance companies will have to pass all information on compulsory and voluntary types of insurance in this database. This is done in order, first, to form an insurance history, and secondly, for actuaries who need to make calculations also on some historical data. Terms for that are specified by law. By 2022, insurance organizations must transfer contracts on information provision and insurance report obtaining.
The advantage of the electronic policy is that there is no need to go to the insurance company office or the agent; it is enough to visit an internet resource with a fairly simple interface to fill in the data. And the insurance company should consider and provide information about insurance, i.e. issue an invoice to a client. Payment will become a confirmation that the contract is concluded. Also, the consumer who enters into the contract is to receive a contract note. The mechanism of protection of consumers from fraudulent actions has been developed. The security of internet resource was one of the main issues. It has been discussed who would monitor and supervise it, and how to avoid clone sites’ creation. Several years ago there were situations when a person was looking for an insurance company, visited a very similar site that turned out to be a clone.
This issue will be worked through until 2019, but it is still unknown how it will ultimately look. It is assumed that the purchase of an insurance policy will be cheaper, and insurance organizations will be able to provide a discount to those who buy an insurance policy via the Internet.
- Will this innovation lead to staffing reductions?
- This may lead to staff reduction in insurance companies, because the process will be automatic. It is likely that employees will be reoriented to customer service, for example, maintenance or payment. The staff can increase in IT departments. In this case, an additional access to the insurance company opens up, where human resources are not required.
- Back to reduction topic, how do the adopted changes transform the agency market? Legislative restrictions were imposed on the participation of agents in competitions and tenders.
- For example, if there is a competition, and this is a state or quasi-state structure that purchases insurance services through a tender, now the law prohibits agency fees, which eliminates the corruption component. In my opinion, this is a great step in improving the financial condition of the entire insurance market, since a lot of resources are spent on agency fees. For compulsory types, 15% are officially permitted, but earlier this figure was much higher. Now these funds will be sent to the insurance companies, to develop and improve their financial position.
- And how much will the market shrink?
- They say several billions that remain in insurance companies if the agency market is removed, or at least reduced to a reasonable and normal size. The law also has an amendment that prohibits agents from working for several insurance companies, which used to be allowed earlier. Now the agent can work for one insurance company only. In addition, the market will be more transparent, as it will be specified how much exactly is included in the agency fee.
In some countries, the agency market is well developed, but their activities are licensed, the agents get training. In Western countries, this is nearly a family business, passed from father to son. But life insurance is very well developed there. A long-term insurance, i.e. a person enters into a contract for 20-30 years and pays a fairly large premium.
- Question on the legal liability of vehicle operators. The amendment brought in this type of insurance prolongs the contract validity for a year after the first insurance event. How is it going to work?
- It used to be as follows: an accident took place, damage was caused, then the mechanism for collecting documents started, legal actions were taken, the court decision or sentence was made, the collection of documents began again, the damage assessment was made. Then the documents were to come to the insurance company and it to make a payout of insurance. But before this period, it was often hard to determine a party in default. At that time, neither party was covered, i.e. along with this accident a few more could take place. The insurance company also was receiving documents on them. However, according to the Law, valid until July 15, the insurance contract was in force until the first insurance event, and payment was made only on it. In the current version, the norm on the agreement termination in case of first insurance event is excluded, and only when the insurance payment is made, the insurance organization is obliged to inform the insurer and the UIDB about the termination of the insurance contract. That means that during the entire period, from collecting documents for filing with the insurance company to the insurance payment date the insurance contract is valid. And it is in the interests of the insurance company to make an insurance payment as soon as possible, because if the customer gets into another accident during the period from the first accident, each time the insurer is to pay the liability amount. And the vehicle operator is obliged to conclude a compulsory insurance contract for a new period.
- If to look at the current situation in the insurance market in general, is there a tendency of reducing it?
- There is definitely a trend of it, and we observe it. Kazkommertsbank and Halyk bank are merging now, so the market is really being consolidated. On the other hand, this is due to the tightening of prudential standards for execution, with the capitalization of companies, not every shareholder is ready to capitalize the organization.
Validity of licenses of some insurance companies has been suspended. This is due to inspection of insurance companies conducted by the National Bank. Non-compliance with requirements has been revealed, and the regulator suspends the licenses until the companies eliminate the comments given by the authorized body. As soon as they are removed, the license will start to operate again.
As I have already mentioned, there is a predisposition to reduction of companies, and it is being clearly monitored. But bankruptcy, initiated by the authorized body, is not expected in any company now. As to the fact that the company ceases its activities, being liquidated or merged, it is still the shareholders' decision.
Photo: Oleg SPIVAK
