- Zhanat Bostanovich, how does Kazakhstan's insurance market look like today in terms of figures?
- 32 insurance companies operate in the insurance market, 7 of them have a license for the life insurance services and 25 for the general insurance services.
The total assets of insurance companies for the past 5 years have grown more than twice and as of January 1, 2018 amounted to 927 billion tenge. The volume of collected insurance premiums for 2017 amounted to 370 billion tenge. About half of them accrued to voluntary property insurance and a quarter to voluntary personal insurance and compulsory insurance.
The most actively developing types of insurance are voluntary ones, including legal liability insurance (LLI), vehicle and life insurance. For these types of insurance premiums increased more than twice.
There is an increase in insurance services provision across the population. The volume of insurance premiums under contracts with individuals has increased 2.2 times over the past five years. There are more than 5 million contracts with individuals; 2.9 million of them are LLI contracts for vehicle owners, about 1 million accounts for voluntary life insurance, 404,000 for accident insurance and 183,000 for health insurance.
- The ratio of insurance premiums volume to the size of the economy remains quite moderate. Does this mean that the insurance market still has a lot room for growth?
- Despite the dynamic growth of indicators, the importance of insurance market in the development of the economy of Kazakhstan is still low.
As you know, generally recognized indicators of market development are the share of insurance premiums in the country's gross domestic product (GDP) and the volume of insurance premiums per capita. In Kazakhstan, these figures in 2016 were 0.80% and KZT 20,104, which are the 84th and 73rd places in the world, respectively.
For comparison, the ratio of insurance premiums to GDP in the Russian Federation was 1.36%, in Ukraine 1.41%, in Central and Eastern Europe 1.92%, in developing countries (excluding China) 2.53 %, and in the countries of the Organization for Economic Cooperation and Development (OECD) - 7.60%.
Given these indicators, it can be concluded that the insurance market does not yet meet the needs of the economy, has not become an effective tool for protecting the interests of population and business, but it has a significant unrealized development potential.
There are some constraints for dynamic growth, which are the following:
- insufficient development of voluntary life and health insurance products, property insurance across the population and entrepreneurial insurance against various risks;
2) terms of compulsory types of insurance are not standardized, do not fully satisfy a client's need for insurance protection. A client is not fully informed of the risks covered, does not have a clear understanding from which he is actually protected;
3) continuing distrust of population and business to insurance due to a lack of information and low quality of provided insurance services. The misperception was caused by a previously accumulated negative experience connected with a problem of obtaining insurance compensation;
4) lack of accessibility of insurance services in all regions of the country;
5) insufficient level of capitalization of insurance companies, which limits their financial capacity in accepting insurance risks, in automating activities, in quantitative and qualitative development of products and services;
6) high level of business costs, including those associated with inefficient reinsurance and the payment of significant commission fees to intermediaries;
7) insufficient level of innovations and digital technologies introduction by insurers into their business processes.
In the context of globalization, integration processes within the framework of the EAEU, it is extremely important to establish a financially stable and competitive national insurance industry that meets the interests of the economy, population and business. The entry of the state to the WTO provides us with an access to foreign markets and large foreign companies with an entrance to the national market. In 2020, the insurance sector will become open for branches of foreign companies.
- As it is known, at present, the draft law of the Republic of Kazakhstan "On introducing changes and amendments to some legislative acts of the Republic of Kazakhstan on insurance and insurance activities" is submitted to the Majlis of the Parliament for consideration. What is the reason for the need to develop this bill and what are its key innovations?
- In general, the draft law focuses on coping with four key tasks: ensuring the financial stability of the insurance market, increasing regional accessibility of insurance services, improving the quality and reducing the cost of insurance products, and strengthening the protection of rights of insurance services users.
There is the introduction of insurance policies in electronic form and provision of services by insurance companies through their Internet resources planned. The cost of insurance products for the public and business will be reduced by way of cutting operational costs, ridding of insurance agent services. Insurance companies will be able to launch electronic services (providing a full cycle from the sale of policies to the organization of insurance payments) in both the mandatory type and the voluntary type of insurance.
In the tourist industry, the effectiveness of insurance will increase in the interests of protecting the life and health of Kazakhstani tourists. The bill provides for a shift from the liability insurance of tourist firms to direct insurance of a Kazakhstani tourist. This takes into account the international practice of insurance of OECD countries in the field of outbound tourism.
Also, taking into account international experience, the current legislation will be complemented with the notion of imputed insurance.
In the framework of imputed insurance, specific laws on compulsory types of insurance introduction are not required. Minimum (standard) insurance conditions can be regulated by the legislation and detailed ones by the agreement of parties, taking into account the activity specifics and interests of a client.
In order to strengthen the protection of rights of insurance services consumers, the draft law establishes a set of measures to develop the insurance market infrastructure. As part of the system of insurance payments guarantees, there are mechanisms for protecting citizens, holding socially important insurance classes. With a view to pre-trial settlement of disputes, the scope of activity of the insurance ombudsman has been expanded for all compulsory and voluntary classes of insurance. There are steps taken to ensure the safety and development of the Unified Statistical Database on Insurance (USDI) as a reference base for insurance contracts.
- Does the bill solve the problem of low level of digitalization in the insurance sphere? When will insurance services be available to Kazakhstanis online?
- Within the framework of the state program ‘Digital Kazakhstan’, the active introduction of modern digital technologies in the economy should be implemented. One of the key factors of the country's digital development is a broadband Internet access.
According to the Committee on Statistics of the Republic of Kazakhstan, today 3/4 of the country's population are Internet users. However, unlike developed countries, we have less than 10% of Internet users, purchasing goods and services online.
Obviously, there is a huge potential for growth in the Kazakhstani e-commerce market, which is still only about 1% of the total retail trade in the country. At the same time, in recent years, the market for individual payments via mobile phones and Internet banking has shown a significant growth (2.3 times increase in 2016 comparing to 2015).
The development of online insurance will entail the introduction of IT technologies in all business processes of insurance companies: the conclusion of an e-policy, payment of insurance premiums through payment systems, confirmation of the existence of a valid contract in electronic form, feedback from the client in 24/7/365 mode, access to data and risk assessment.
As part of the full cycle of services, remote "after-sales" customer service will be provided: re-registration (termination) of the insurance contract, notification of the insured event, organization of procedures for determining the amount of damage caused, sending applications and documents for obtaining insurance benefits, control payments through "personal cabinet "of the insured on the site of the insurer.
There will be requirements for the automation and Internet resources of insurance companies, the protection of personal data and ensuring cyber security, the procedure for the exchange of electronic information between all participants in the process.
Online insurance also involves the implementation of remote customer identification. This will require the integration of the USDI with public information systems and databases.
It is planned that after the adoption of the law, the introduction of e-insurance will begin on January 1, 2019. Online insurance will increase the level of digitalization of the insurance industry, its competitiveness, ensure remote access of the population to financial services.
By reducing operating costs and the cost of intermediary services, the cost of electronic policies will be reduced. When buying an electronic policy, insurance companies will be able to provide discounts to policyholders in the amount of up to 10% of the statutory base rate.
In general, according to KPMG’s global report (The Pulse of Fintech: Q2 2017), the active introduction of digital insurance technologies and fintech ecosystems has a great potential for eliminating the current backlog of the insurance market comparing to other sectors of financial services.
- How reliable will the data protection system of policyholders transferred via the Internet be?
- The National Bank develops requirements for software and Internet resources of insurance companies, ensuring the exchange of information between the insurant and the insurer, the conclusion of electronic insurance contracts. These measures are aimed at information security and protection of personal data of customers.
Online insurance will allow reliable remote processing of information about the insurant (insured) in the USDI, the exchange of information between the USDI and state information systems and databases (after their integration), automatic calculation of the insurance premium payable by the insurant, registration of the insurance contract in the USDI with the assignment of a unique number and sending an electronic confirmation to the insurant (for example, to a mobile phone and / or to a "personal cabinet") with a unique number of the policy and other information.
- How would the proposed bill protect the interests of Kazakhstani tourists? Will it affect the cost of tours?
- According to the current legislation, tour operators and travel agents underwrite their liability to tourists. It is assumed that if a tourist suffered through the fault of a tour operator or travel agent, the insurance company will reimburse it. However, this system does not fully protect the tourist for a number of reasons.
For example, now, being abroad, a tourist does not receive the necessary services in the event of an insured event. He will be able to receive insurance compensation only upon return and on the basis of a court decision. This means that, in fact, a tourist is not protected on a trip.
Insurance risks in the legislation are not strictly defined, therefore tourists before going abroad have no idea about when insurance coverage works. Also, there remains a limited amount of insurance coverage to protect the interests of all affected tourists. The limit of responsibility of the tour operator is 10,000 MCI (24 million KZT), whereas, for example, the amount of damage caused to tourists as a result of the bankruptcy of LLP "Gulnar Tour" amounted to over 400 million KZT.
The bill implies the transition to compulsory insurance of the interests of a tourist, travelling abroad. Insurance of the tourist will be carried out by the tour operator in the field of outbound tourism according to a one of the compulsory insurance programs, in relation to the country and the number of days of the trip. The proposed programs of compulsory insurance of a tourist correspond to international products and include the basic social risks associated with causing harm to the life and health of a tourist, such as an accident, emergency / emergency assistance, repatriation. I draw your attention to the fact that a Kazakhstani tourist will act as an insured person in the contract of compulsory insurance of a tourist.
In fact, no tourist who purchases services of Kazakhstani tour operators should remain without insurance. Due to the mass nature, the cost of this insurance will be available (about one US dollar a day) and will be a part of the tour package.
The cost of all insurance will not be the same for all tour operators in the field of outbound tourism. It will directly depend on the number of tourists sent by the tour operator abroad, the duration of the trip, the country of departure and the specific risks faced by the tourist on the trip. The insurer's liability limit for insurance programs fluctuates from 10 thousand to 50 thousand dollars for each tourist. This corresponds to the requirements of countries in which insurance is required when entering these countries.
A Kazakhstani tourist will be able to get help abroad in case ab an insurance event happens, including round-the-clock support of the insurer's affiliate company. Insurance cover will be valid for the entire period of the tourist's stay abroad. The onset of the first insurance event will not mean the termination of the insurance contract.
If desired, the tourist, of course, can get additional protection. For example, this could be a cancellation of a trip abroad, loss of a passport or baggage, a higher limit of insurance coverage. But this will be an independent purchase of a voluntary insurance policy for people traveling abroad.
- What changes are expected in the system of guaranteed insurance payments?
- The system of guaranteed insurance payments has been successfully operating in Kazakhstan since 2003. The ‘Insurance Compensation Guarantee Fund’ JSC is the only non-profit organization to guarantee insurance benefits to policyholders for in the event of a forced liquidation of an insurance organization. The founder of the fund was the National Bank of the Republic of Kazakhstan. Currently, 22 insurance organizations are participants and shareholders of the fund.
The guaranteed types of insurance include categories of compulsory insurance of civil liability of vehicle owners, a carrier to passengers, a tour operator and a travel agent. The current system still includes a limited list of guaranteed types of insurance. There is no distinction between guarantee reserves and own funds of the fund's shareholders, including the situation of investment income accounting.
Taking into account the international practice, the draft infers the introduction of fund guarantees for socially important classes of accumulative insurance, namely, under retirement annuity agreements and annuity contracts for compulsory insurance of an employee against accidents. The Fund will ensure the consistency of annuity payments in case of the insurance company liquidation.
The draft law implicates separate accounting of assets formed at the expense of premiums of insurance companies, participating in the guarantee system, and assets formed from the contributions of shareholders. These and other measures are aimed at strengthening the financial stability of the guarantee system, protecting policyholders, reducing social tensions with the forced liquidation of the insurance company, increasing public confidence in the insurance industry as a whole.
- Tell us about what "imputed insurance" means, which the National Bank proposes to introduce in Kazakhstan? What is its fundamental difference from compulsory insurance?
- Taking into account international practice, the draft law implies the further development of compulsory insurance, introducing of so-called imputed insurance.
The experience of many developed countries demonstrates the tendency of transition from traditional compulsory insurance to its modified form – imputed insurance. For example, in France there are more than 120 types of compulsory insurance, of which only 4 are regulated by the Insurance Code (at the level of a separate legislative act).
With imputed insurance, a requirement related to the existence of an insurance contract and its essential terms are fixed by the legislative act, as a rule. The detailed insurance conditions are determined not by a special law, but by an insurance contract or insurance rules. For example, if compulsory insurance of civil liability of lawyers in accordance with the principle of imputed insurance is introduced, then the Law of the Republic of Kazakhstan "On advocacy" should require a lawyer to conclude an insurance contract, insurance cases and a minimum amount of insurance. Other conditions will be determined by an agreement of the parties.
The introduction of the imputed insurance will allow the parties to set flexible insurance terms that meet the interests of the client, corresponding to the specific activities and risks of the insurant. It will lead to improved quality and accessibility of insurance products.
- Are there plans to stimulate the population to buy insurance products for voluntary life insurance?
- One of the important incentives for the development of universal life insurance products are the tax norms which create a favorable for the population mode of long-term savings formation with simultaneous insurance of their life. The practice of developed countries shows that, first of all, this makes products of long-term life insurance exempt from taxes.
This makes it possible to expand the package of measures for the social protection of citizens through the use of voluntary insurance instruments, to raise the level of savings among the population, and to form an additional source of long-term financing for the economy.
Appropriate standards for stimulating long-term funded insurance are prescribed in the new Tax Code of the Republic of Kazakhstan.
- What changes will the bill introduce into the activity of the insurance ombudsman?
- The Institute of Insurance Ombudsman was introduced in 2008 and showed its effectiveness in the pre-judicial settlement of disputes between participants of the insurance market under contracts of compulsory insurance of civil liability of vehicle owners. Settlement of disputes by the insurance ombudsman for other types (classes) of insurance has been carried out only on agreement of the parties.
The bill outlines the powers of the insurance ombudsman to settle disputes regarding all classes of compulsory and voluntary insurance. The insurance ombudsman will be addressed by individuals and small businesses in the event the number of demanded claims on disputes does not exceed 10,000 MCI. Other legal entities will also have the right to apply to the Ombudsman for disputes under the insurance of civil liability of vehicle owners.
This will allow, as it is common in developed countries, to speed up the process of making insurance payments, usually in pre-trial order without the client’s need to take legal actions.
Interviewed by Mikhail Maximov