The mandatory types of insurance are the engine of the Kazakhstani insurance market. They account for most of the insurers’ premiums and payments. One of these classes is the Compulsory insurance of an employee against accidents in the performance of their labor (service) duties, in short CAI.
CAI system
Conceptually, the CAI system is organized logically in Kazakhstan. The main goal is clear: protect the interests of employees who have suffered at work in the performance of their duties by means of regular insurance payments. Within the system framework today, the functions between the state represented by the relevant ministry and the financial regulator, the insurance market and business entities are clearly distributed.
Enterprises are required by law to insure their employees, but are free to choose their own insurers. State bodies, according to their functions, should determine the rules for the market operation and monitor the fulfillment of obligations by insurers and enterprises so that injured workers receive all due social support, including under insurance programs. Insurance organizations assuming the risks and obligations under the contract, provide employees with the necessary level of protection within the CAI framework reducing the costs of the state budget.
“Over the past 17 years since its launch, the system has been updated several times, thanks to insurance organizations that directly working in the field, have identified the risks of the system, discussed them with the state and participated as experts in its modernization. The ideas and suggestions on system improvement are constantly arising in the process, which is typical for a program that freely develops in a competitive environment. For example, there are ideas of transferring the payment liabilities to those suffering from occupational diseases, which naturally contributes to the release of part of the insurance reserves and, as a result, to the reduction of CAI tariffs, from the market to the State Social Insurance Fund,” explains Alemzhan Akazhanov, Managing Director of LIC Standard Life.
The participation of life insurance companies in the CAI system is conditioned by the availability of the necessary insurance experience and the corresponding infrastructure, professionals with relevant qualifications - underwriters, benefit specialists, customer service, auditors, who ensure the highly efficient system operation. The requirements to insurance reserves on this product are quite conservative, and are assessed by professional actuaries with relevant licenses and experience, and are regulated by the state.
“The regulator set prudential standards mandatory for insurance companies to comply with and aimed at preventing negative changes in the system. The CAI system is also a member of the state system for guaranteeing insurance payments, which provides additional protection to policyholders. In our opinion, the existing CAI system has proved its viability and does not need radical reforms,” Nazym Bekbolatova, the Chairman of the Board of LIC KM Life, emphasizes.
CAI payments
The terms of payments, as well as the payment amounts, depend on the specific case, type of incident. The period of payments is established based on the medical examination results and can be extended at the next examination. As a rule, the victim undergoes examination once a year or every two years. If the commission comes to the conclusion that the victim has lost his ability to work forever, then a lifetime payment period is established.
“Thus, the term and size of payments are calculated individually depending on the degree of disability, the degree of employer's fault and the average income of the injured employee. Insurers are not involved in determining the factors affecting the calculation of the amount and period of payments, and are to fulfill obligations. The CAI system maximally protects the interests of affected workers in this regard,” Alemzhan Akazhanov clarifies.
This system is fully regulated by domestic legislation, it is better understood by lawyers, but we will give a few examples.
Example 1
An employee who died as a result of an insured accident at work had a salary of 300,000 tenge. He left behind two dependents: a wife and a minor child. The insurance benefit for each dependent will be 100,000 tenge until the child reaches the age of majority (18 years) and will continue until the age of 23, if the child enters a higher educational institution.
Example 2
An employee with a salary of 400,000 tenge that lost his professional ability to work by 50%, where the employer’s fault is 100%. The insurance benefit will be paid until the injured employee reaches retirement age, in the amount of 130 thousand tenge (400,000*50%, minus social payments).
“Insurance benefits to compensate for additional expenses caused by damage to health are made within seven working days from the date the employee or the person who incurred these expenses submits documents confirming these expenses. Total insurance benefits to compensate for additional expenses caused by damage to health are made by the insurer according to the corresponding initially established degree of loss of occupational capacity within the above amounts,” they explained in Nomad Life.
Also, the size of payments annually increases by the level of the projected inflation rate in the country, that is, the insurance company carries out the so-called indexation of payments. For example, the amount of indexation included in the company's calculations is now 9%. Thus, the money received by dependents retains its value over such a long period.
Proposals by the Ministry of Labor
The officials propose to solve the problem of injuries in the workplace in several ways:
First
Transition to the model of a single operator, represented by the State Social Insurance Fund (SSIF). It is proposed to move from employer liability to social insurance. This will allow large enterprises to save on insurance payments.
Second
The method proposes to transform State Annuity Company (SAC) into a single operator with an extensive network of insurance agents. However, several years ago, the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market forced insurers to give up the intermediaries in this class of insurance.
Third
The proposal involves entrusting the LIC with carrying out preventive programs to reduce occupational deaths and injuries. It is unknown how insurers will be able to replace the functions of the Ministry of Labor.
Why does the state need a new business?
Insurers believe it is necessary to comprehensively analyze the proposals and make the necessary calculations. And do not yet argue that the initiative of the Ministry of Labor will provide insurers with more reliable protection.
“Joint efforts of all interested parties: state bodies, insurance companies, employers and their representatives, are necessary. We believe, these reforms may have a negative impact on the further development of the life insurance market in our country, up to the industry stagnation. The current CAI system has proven to be viable, reasonable and competitive in protecting employees and providing compensation to injured workers. Do not also forget that the life insurance industry itself is also an independent economic sector providing employment for the population and participating in solving other social problems (including pensions, taxes, etc.),” noted Nazym Bekbolatova.
Over the 17 years of its existence, the CAI market has only grown. In 2005, the market volume was only 5 billion tenge, this year a record achievement of market volume indicators of around 60 billion tenge is predicted.
“The creation of a single operator can increase the coverage of all Kazakhstani enterprises with the CAI system. But in this case, the scale of impacts and changes is not commensurate with what will be achieved, given that it is not necessary to abolish the strong emerging CAI market in order to achieve the coverage objective,” warns the managing director of LIC Standard Life.
LICs will incur certain losses in collecting the insurance premiums if a single state operator is established. One way or another, LICs have invested considerable resources to increase insurance coverage for enterprises throughout the country, developed infrastructure, and also actively developed work on the digitalization of this product in recent years. For example, Halyk-Life launched an online service for individual entrepreneurs and legal entities to conclude CAI contracts.
But even such a service does not allow insurers to cover 100% of all enterprises in Kazakhstan with insurance. And this is taking into account the fact that each LIC has a staff of employees and numerous insurance agents who conclude insurance contracts. Therefore, the creation of a single operator will require significant financial and human resources.
The operator will need a high degree of automation of all processes, professional personnel that will work and develop this insurance class further. Besides, if the number of people who get injured in production or in any other job is increasing, the obligations of domestic LICs are also growing,” says Vitaly Lyubimov, Managing Director of Halyk-Life.
In the current realities, the life insurance market focuses on client needs, however, when creating a single state operator, we see obvious risks of possible bureaucratization of the process when making insurance payments. “Free competition among LICs helps ensure a comprehensive and considerate approach to conclusion of the CAI agreement, which includes all the needs of employees and the company arising from life circumstances. Besides, there is a risk that the amount of insurance payments from a single operator, either immediately or gradually, will be less than that of insurers, since, as practice shows, the size of social benefits from the state does not correspond at least to the size of payments to victims provided for by civil law,” emphasizes Vitaly Lyubimov.
In conclusion, I would like to remind that President Tokayev, during his September message, expressed a clear position of state policy regarding the activities of single operators: “The development of a market economy is negatively affected by the activities of single operators ... existing operators should be transferred to a competitive environment or recognized as monopolists and their activities should be regulated under special antimonopoly law.
“In fact, the president's words emphasize the national course taken towards denationalization and liberalization of institutions, as is customary in developed and civilized countries. Given this fact, the question arises as to how the idea of creating a single CAI operator corresponds to the principles of the country's economic policy,” delicately reminds Nazym Bekbolatova, the Board Chairman of LIC KM Life.
Financial experts cannot speak openly about corruption risks (a blot is no blot unless it be hit), but these risks will certainly increase if there is a single operator on the market. Besides, there is an excess of state-owned companies in our country that are crowding out private traders here and there.
Why is the government getting into the private sector? There are two options: the officials “from the best motives” are trying to control everything and everyone, or 60 billion tenge of this market are nagging at someone in spacious offices.
Photos are from open sources.
