According to official statistics, all key figures of the life insurance market have shown growth in the 1st HY of the year. For instance, LIC assets increased by 11.9% to 1.03 trillion tenge and amounted to 43.6% of the total assets of the entire insurance market. “The main driver of sector growth is voluntary insurance, including life insurance. The volume of insurance premiums over 5 years has built up by more than 2.5 times and amounted to 577.8 billion tenge ($1.3 billion). The number of insurance agreements has almost doubled and reached 9.3 million contracts, of which 86% are individual contracts,” Maria Khadzhieva, Deputy Chairman of the Board of the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan (ARDFM), cited statistics.
The interest in LIC products was supported by the extension of guarantees by the Insurance Payments Guarantee Fund (IPGF) on them this year. It should be noted that the fund guarantees insurance payments upon liquidation of insurance organization for all types of compulsory insurance, life insurance within the framework of the state educational savings system (SESS), retirement annuity payments and annuity insurance payments. “The Fund is the only organization in the Republic of Kazakhstan that guarantees insurance payments to policyholders in the event of forced liquidation of insurance organization today. The guarantees are provided both for the general insurance and life insurance industry, noted the ARDFM Deputy Chairman.
By concluding an educational endowment life insurance agreement within the SESS framework, parents will be able to save for their children’s education, receiving, in addition to return on investment accrued by the insurance organization, a state premium in the amount of 5% to 7% per annum. Insurance product is more lucrative than banking product for several reasons. Firstly, the rate of return is guaranteed for the entire term of the insurance contract, in contrast to the deposit (from 8% to 10%). Secondly, the guarantee of the Insurance Payments Guarantee Fund covers the full accumulated amount, while the guarantee of the Kazakhstan Deposit Insurance Fund only covers the amount of up to 20 million tenge. Thirdly, in the event of a parent's disability or death, the full cost of education is paid regardless of the accumulated amount.
“We want to develop the SESS product. Over the 10 years of the program’s existence, banks have collected about 30 billion tenge. Life insurance companies have been operating since February, and currently we have concluded 277 contracts and collected approximately 60 million premiums. The fund’s support and its guarantees are a great help for the popularization of products. SESS is a complex product, and the more we and the fund talk about state guarantees, the easier it will be for the market to sell it. We see great market potential and would like to be able to sell SESS online,” noted Azamat Yerdessov, Chairman of the Board of LIC Freedom Finance Life.
Financial experts believe that under certain conditions, insurers can improve the product even now. It is the improvement of the system that can become a new growth driver for the life insurance market. “We propose to consider the idea of merging two projects: “National Fund for Children” and SESS. The administration and accounting of the “National Fund for Children” is currently entrusted (in different sources) to the UAPF or Otbasy Bank. Life insurance companies can actively participate in the product sales. For example, the transfer of accrued funds from the National Fund to the LIC will motivate parents to invest in their children’s education (it will be a joint participation of the state and parents in savings for education). In addition, such a project will reduce the state’s social payments for education and insurance coverage,” Yerlan Kambetbayev, Chairman of the Board of LIC Nomad Life, shared the idea.
Let us remind that during the annual message to the people of Kazakhstan, President Kassym-Jomart Tokayev instructed to introduce a unified voluntary savings system “Keleshek”, which would cover children from the age of five. This program should provide for starting educational capital from the state, an annual payment of a state premium, and investment return.
Another point of possible changes in the market is retirement annuities (RA). According to the FIAK review, this figure increased by 44.9% in the 1st HY 2023, while the volume of payments on retirement annuity insurance decreased by 62.5%, or 2.3 billion tenge. The financial association believes that the rise in retirement annuity premiums can be linked to last year's legislative amendments allowing spouses to pool pension savings to provide lifetime benefits for both of them.
“The Kazakhstani pension system is currently represented by three levels of protection of pensioners: basic, mandatory, which consists of contributions to the pension fund and additional pension contributions. We propose to consider an offer where citizens would have the opportunity to transfer 10% of their income not to the UAPF but to life insurance companies. The implementation of this proposal will improve the level of social protection of people. More active participation of LICs in this project will allow bring new solutions and new products to the pension system. At the mandatory level, the payments from the UAPF are made for a limited time and are exhausted upon reaching the age of 78. The payments from life insurance companies, however, are made for life,” emphasized Yerlan Kambetbayev.
For the first seven months, life insurers have entered into RA contracts for 81 billion tenge. “Improving the system will make it possible to create new annuity products both in tenge and linked to currency. Providing guarantees by IPGF similar to retirement annuity, will serve as a growth driver for new annuity products,” summed up the Chairman of the Board of LIC Nomad Life.
Photos are from open sources.