- Today there are 32 insurance companies working in Kazakhstan, 7 of which specialize in life insurance. The first company in Kazakhstan received an insurance license in 1999; it was JSC BTA Bank’s Life Insurance Subsidiary Company "BTA Life".
Life insurance is divided into two main types, insurance and investment. In the first case, the company accepts insurance risks from customers and in the insured event pays an insurance sum. In the second case, the life insurance company (LIC-Ed.) invests clients' money and multiplies their capital through effective management with the goal to obtain maximum income with minimal risks, both for customers and for their capitalization.
Please note that thanks to investment activities life insurance companies provide 80% of profit, distributing it among its customers.
Life insurance is an investment with the purpose of generating income in a long run, as well as keeping the funds protected from exchange rate fluctuations. These are all attributes of universal life insurance.
There are also annuity products - retirement annuity and annuity per infortinium at work.
Everyone wants to have a decent pension in old age, which is provided by mandatory indexation (5% annually), which is included in the retirement annuity. So every 13-14 years, the size of the payment is doubled.
Also, the pension fund payments can be exhausted in 6-7 years, and payments on retirement annuity are guaranteed for life. Thus, it would be more profitable for those pensioners who plan to live long, to spend their savings on a retirement annuity.
- According to the National Bank’s latest data the top five insurance companies in terms of assets content three life insurance companies; and the share of assets of seven life insurance companies are 27% of the total assets of all insurance companies of the country. What is the reason for this? After all, about five years ago, the LIC’ indicators were several times lower.
- I repeat that a long-term accumulation of funds is a specificity of life insurance companies’ activities. In developed countries, life insurance companies are one of the main investors of institutional projects of the economy, a significant internal source of funds (the share of the investment portfolio of insurers is 42% of GDP in European countries).
Kazakhstan at current income level of the population can have life insurance fees, 8 times higher than the current ones, up to 200 billion Tenge a year.
- Are the life insurance companies able to compete with banks in terms of providing financial needs of the population?
- In terms of long-term fund accumulation with a high degree of safety, LICs have a number of advantages over banks. First of all, they do not use the funds of clients to issue loans to individuals and legal entities; that is they do not put the funds at high credit risk. That is what happened to the banks in Kazakhstan because of their excessive aggressiveness in lending.
- What are the opportunities for the companies to increase the income of their customers?
- First of all, it is competent management of assets and liabilities, analysis and adoption of timely investment decisions, maintenance of necessary balance between high-yielding instruments and reliable government securities, in accordance with customer preferences.
- Usually we want it here and now. Do you think people are ready to invest in long-term tools?
- Investment appetites of population are changing, the financial crisis makes its adjustments, during the high volatility period, safety, and consequently, reliability come to the fore.
- We have analyzed the life insurance companies’ websites; almost all of LIC have a standard insurance portfolio. They are following in accordance with the Law on Industrial Injuries insurance, retirement annuity, term life insurance and the classic product – universal life insurance. Is the trade standing pat? Perhaps, the population can and should be "stirred up" with more "modernized" products?
- Life insurance has standard types, however, there can be created quite an infinite number of the products. For example, a joint retirement annuity (at the moment there is no legislative base for it), when the couple unite their pension savings and receive insurance payments, while at least one of the spouses is alive.
As a new direction, Kazakhstan is considering investment life insurance "Unit-linked", which allows investing in international financial instruments with minimal time or money losses. Today, the regulatory and legislative framework for the correct development of this product is being prepared. This product is the most popular insurance product in the world, accounting for an average of 60% of the collections of the entire life insurance market. The client himself determines in which investment instruments or a combination of them he would like to invest his funds.
The advantages of this type of insurance are in full transparency. The client at the conclusion of the contract is aware of the amount of commissions, the receipt and distribution of investment income, has a permanent full access to the history of changes in his assets’ value.
- In this case, how legally prepared is our market for that? Is there any state support? What measures are being taken to develop the industry?
- The National Bank of the Republic of Kazakhstan has recently been actively working to develop the life insurance industry. The taxation was brought in line with the deposits of second-tier banks (STB - Ed.), the mechanism under which the situation of double taxation often developed, was corrected. On an ongoing basis, the quality of accounting and prudential regulation of the industry is improving, and a mechanism for guaranteeing insurance payments is being developed.
Also in world practice, countries often pursue a policy of subsidizing certain areas. For example, the State Educational Accumulation System, which was launched a few years ago in Kazakhstan through the second-tier banks, was not developed because of a fundamentally wrong approach to the specifics of the business. "Accumulation for education" in the world practice is a classic product of universal life insurance, because it is long-term with regular contributions, with a guarantee of accumulation in the form of covering various risks (life events).
- What guarantees do you give to your clients when they ask about a possible bankruptcy of a life insurance company?
- The level of reliability of LIC in Kazakhstan today is at a very high level. Previously, all bankruptcies/mergers/acquisitions of such companies in the history of the country occurred only as a result of instability of a banking/financial group, which included a life insurance company.
The National Bank of Kazakhstan continuously monitors and regulates life insurance companies on an ongoing basis, each ten days. They must comply with the following prudential standards: the solvency margin adequacy ratio, the adequacy ratio of highly liquid assets, the minimum amount of the charter capital, and the asset diversification standard.
In the world practice, life insurance companies, on a par with pension funds, are the most stable financial institutions. And that is because they conduct well-founded, deliberate activities in the long run. For this reason, they adhere to a conservative approach in analyzing existing risks and making forecasts of their development.
I would also like to note that today we are considering a mechanism for guaranteeing insurance payments through the Insurance Payments Guarantee Fund.