- Yerzhan Yerkenovich, they call you a crisis manager in the market because all the insurance companies headed by you, such as JSC LIC State Annuity Company, Alliance-Life (JSC LIC Standard Life), Astana Finance (JSC LIC Nomad-Life), Asia Life (JSC LIC Freedom Finance Life) and others have been successful. As you have noted earlier in the interview with our publication, your "main task has always been to design processes and give the company a powerful impulse for its successful development on the market." So what were the main tasks in order to establish these processes? And have these approaches changed? After all, times are changing...
-Thank you very much, yes, indeed, different steps need to be taken at different times. In the post-Soviet period until the end of the 90s, there was practically no life insurance on the financial market of Kazakhstan. Real demand grew when the law on employer responsibility for life and health of its employees was introduced, and a new annuity class came to life insurance, under the terms of which payments to injured employees from accidents were made through life insurance companies.
At that time, there was only one company on the market, BTA Life, but in the absence of annuity insurance license and lack of experience in selling this product, it became necessary to create a life insurance company that would fulfill obligations of the new law.
When we entered the market with SAC, we had one of the strongest teams at that time. We had to develop the market in this direction, popularize annuities, and act as pioneers. As a result, this direction has been successfully developing, and today annuity insurance makes up the largest share in each company's portfolio, including deferred and voluntary annuities.
With the market development, new perspectives and products borrowed from international experience have emerged.
I cannot say that I was a crisis manager, because there were no crisis situations as such (laughs).
First it was difficult to start a business from scratch with the new law. Having gained experience, it became more of a challenge for growth. The next step was the opening of the second company, Alliance Life Insurance. The objective was to reduce costs, optimize the company's investment activity and search for growth points, which was realized. We improved the quality of the investment portfolio, increased motivation and began to sell competitive products, and later, by the way, they became one of the leaders in selling annuity life insurance products - retirement annuity.
To me, the third stage of growth in life insurance was Astana Finance, the current Nomad Life, these were economically difficult 2008-2009 years. The company just received a license to operate. The National Bank, at that time, introduced a three-year period for raising capital, our task was not just to develop sales, but to maintain a rigid framework and continue to develop in new conditions. We managed to do it, even with defaults in the parent company, when the credibility of the brand was completely undermined. And under these circumstances, we launched a new life insurance product into the broad masses. The company withstood and was subsequently sold to a new shareholder, so it became known as Nomad Life. I strongly believe, that if the company had no potential, it would not have bought.
The plotted vector of the company in the new direction, and the products developed by us, are relevant in Nomad Life today. For shareholders, this path became promising in the company development, their goal was to preserve and improve it. Naturally, the new shareholder strengthened the capitalization with his accents but keeping high-quality developments.
- What do you think is your strong point? For example, besides strategic thinking finding new correct directions for the company development… Why do you should lead the company? And do you always accept the challenge?
- First, it is necessary to understand who the shareholder is, it is important that he also has a clear business vision and how it should develop. If you know it, it is always easier to work together.
It is also conceivable that they will be engaged in business trying to control something, but it is right! Lack of supervision creates irresponsibility and some kind of anarchy. I was lucky in this regard, every place I worked, the shareholders always understood the business in one way or another, and most importantly they knew what they wanted. And in general, there was an understanding of business and confidence that under my management the company would work and develop properly. Such a credit of trust must be justified.
We have an excellent contact with shareholders of JSC Standard Life Company, we regularly communicate, share our thoughts, discuss and propose innovations when face difficulties, pitfalls requiring improvement, a special attention; we are open for dialogue. And, to our joy, they respond and help us solve the necessary issues, both in sales and asset management; there is full support and understanding on the whole front of our work. It is important to know how to convince and make available and strong arguments that a business has a future.
Kazakhstani practice as well as world experience, proves that insurance is the most sustainable financial business. Throughout its history in Kazakhstan, the insurers had no reason or need to draw public money for the business support.
I believe, the payment guarantee fund is a very efficient infrastructure institute that allows customers to be confident for their policies, for their future payments. Insurance companies have bought 100% of the fund’s shares from the state, so the market itself provides additional guarantees to its customers at its own expense. There have been cases of insurance companies’ defaults on the insurance market, but at the expense of the Fund all the clients of failed companies either received new policies or cash payments. We cannot deny that insurance business has its own risks, but we earn at the expense of these risks. Besides, we have our own guarantee system and it has shown its effectiveness. However, the attitude towards us is generally negative, banks are trusted more, despite the fact that, in general, the insurance business develops and often has greater stability.
- So, first of all, do you believe in life insurance?
- Yes, faith in our business stability! In some areas the growth is reduced, in other areas we grow faster than the financial market, but the average growth is 15% -20%. The government support and opening of new opportunities mean a lot to us, they will give a positive image. In world experience, this has led to a steady business expansion and economical enrichment. “An insurance policy is an integral part of a confident life”, all citizens of economically developed countries realize that. The need for benefits that are lobbied by insurance companies in the Kazakhstan market are justified by the customer-oriented business, and are aimed at educating the citizens of the Republic of Kazakhstan in independence in taking care of their future and the future of their children. A person who is responsible for himself and his future should be able to pay less taxes, as he makes a contribution for many years ahead on his own. Taxes are social benefits, and if a customer takes care of himself, why should he pay the same as the rest? He must have certain benefits.
- Was your belief in the insurance business coming to you gradually, or did you initially have it?
- Insurance is a technological business, I really like that it has scientific approaches, probability theory, and mathematics. I graduated from the Physical and Mathematical Faculty, and then the Mechanic, studied the related sciences. So, you can say that insurance is my hobby, which brings me income. I think it is important for a person when his knowledge is in demand. Work in the Life company has always been interesting for me; a limited number of insurance classes makes it necessary to constantly invent, create what has not yet been on the market, calculate and promote them in a new way, and look for new sales channels.
For example, launching a product, we are testing it, and it starts to work, the next stage is work for service improvement, then refinement in terms of upgrading or supplementing some insurance coverage, that is continuous improvement work. Each product gives us some know-how. In general, the insurance business is very flexible, especially Life insurance.
- Do you agree that the demand for life insurance products depends not so much on financial literacy, but on whether people benefit from it or not?
- I agree, but life insurance develops under certain economic conditions, such us: low inflation, a developed stock market and, of course, the income level, when people can put at least 25% -30% of their income on savings. If one of the factors is absent, the market is weak. In our country, these three components cannot be aligned at the same point at the same time. If one is going up, another is going down. For example, some time ago oil cost $150 per barrel, there were high incomes, but inflation reached 18%. A combination of all three factors, “long” financial instruments with a real profitability adequate to our inflation rate will bring life insurance to a huge breakthrough.
- Yerzhan Yerkenovich, if we go back to discussing the development of companies, we see, you pay great attention to the staff training. What should modern life insurance specialists learn? Sales and underwriting efficiency, or service? Or something else?
- All business components are important. But the most crucial thing is, of course, service. Now we have a strong regulation, and it is difficult to compete in a different way than the service. Therefore, you need to compete with speed, quality of service, and a warm relationship with clients.
- Have you made any new standards, the innovations in this area in your company?
- It is important for us that each of our employees understands the business in general, for this we conduct training and joint meetings, within the framework of which we expand the horizons of all company employees. The vision of business by managers only within the scope of their responsibilities will not carry brightening development prospects. That is why we are trying to grow not just specialists in our field, but an integral team that is committed to common goals, business growth and development. It is necessary to understand, how the company earns, how it affects the client, and how his wishes will affect the common cause.
- As far as I know, you work very closely, constantly meet, exchange opinions, and even allow disputes with your employees...
- Yes, sometimes there are even very active and heated discussions. I always suggest my subordinates to work out a solution to this or that problem by participating in the discussions. However, in case of deadlock, I have to make decisions, as I see them. But in general, of course, we share our opinions, if I see that the options proposed to me infringe upon someone’s interests or may be the subject of controversy in other situations, are not balanced, then I have to make strong decisions myself. When people come to me with a problem, then there may already be solutions in my head, and if the proposal matches mine, this of course pleases, otherwise we begin an active joint search for an acceptable solution.
- What mistakes, according to your observations, do often make managers, including young ones, and what is the main advice you can give them from your professional and life experience?
- The main mistake is that sometimes people are out of their element, not what is actually required of them. For example, a seller can only sell, his brain is pointed at it, but managing a company is not only selling, it is a balance of interests, an understanding of all business aspects - sales, risks, customers, shareholders, agents ... There must be a balance. The problem is: there is a personnel shortage in insurance. Insurance is a completely different business, even inside the insurance industry, the regulation is completely different, there are cardinal differences. There are a lot of narrow focused specialists in insurance, for example: underwriter, adjustor, actuary, surveyor and others.
In Standard Life, I strive to ensure that different specialists have a common view on the entire business, so that, for example, an underwriter can try seller’s shoes so that they can understand each other, otherwise they will simply have conflicts because of completely different goals.
I repeat, it is necessary to find a balance between the interests of customers, shareholders, agents, sellers, underwriters and others, build a system that would suit everyone. The balance should be in everything.
What to wish the young generation? Education, education, and education. When you come to insurance, you think that you know everything, but every day brings new challenges, you learn something new, every day sets new tasks, so you need to learn every day.
- What stage of your life journey in terms of experience and new knowledge was the most interesting?
It is like the first love, it always seems like the hardest thing, but it was more interesting the first time. Everything was new; there was no one to ask for advice. At that time, among life insurance companies was only BTA Life with one product which was a voluntary one. We made all calculations, tested and optimized them as we had been taught, and embedded them in the working mechanism. Therefore, the SAC experience for me was the most significant.
- You not only worked in private companies, but also held high positions and could participate and influence the development of the entire insurance market. Don’t you miss those times being on the Power Olympus?
- It is all about willing to evolve. Being in these companies, we have the opportunity to do this. It is clear, that for the last five years there has not been emphasis on the market development. We all need to think about it now. For example, our entire insurance market earns about a billion dollars in premiums; it is not a significant amount. With the level of our capital, a billion is the ratio of premiums to capital as one to one.
We were imposed upon fear that with entry into the WTO, foreign competitors will come to the market and conquer all customers. These fears are unjustified: we have a very little financial leverage. For example, our capital is 500 billion, and premiums are 350 billion tenge. The ratio is less than one to one. This means that shareholders invest, for instance, 1 tenge and receive less than 1 tenge of premiums from customers. In order to attract foreign investors to our market, we need to earn a trillion tenge of premiums, when the result of investments in 1 tenge would bring at least 3 tenge of premiums. Economically, they have already calculated everything, and it is not lucrative for them to enter our market at the moment.
For investors (both foreign and domestic) it is necessary to make our market as attractive as possible, they should not be afraid. It may be concluded, that learned insurance business from books written by Gosstrakh in the former USSR. Perhaps, we have this knowledge in our toolkit as well. I would single out modern sales technologies as a big advantage, IT is useful information for us. This is the step we are to make, to learn. The product calculations do not cause any difficulties, we need technologies, telephone a, QR codes and much more.
At the moment there is no economic efficiency for foreign investors to enter our market, they might say: “With your distances and a population a bit over 18 million, it is more lucrative for us to enter markets in Vietnam, Mongolia, Kyrgyzstan, Ukraine, where the population density is higher, everything is compact, and the costs are minimal.
And our goal is to fight for investments and investors, these are new perspectives, new technologies, new milestones for business development, including new jobs for our citizens. There is no point to be afraid of them; let them come for our progress.
Our goal is to develop the market; there is an understanding of how to do it. It is necessary to revise the state insurance policy as a close attention is currently paid to the banking sector, although we all know there should be a balance between banking, insurance and the Securities Market (SM).
- How, in the long run, strategically, is our life insurance market going to develop over the next 10-20 years?
- In this regard, we are far behind developed countries, even taking our nearest neighbor, Russia. But you need to understand that they have more money and higher income levels. You and I have agreed that this component is important. The regulation in Russia is softer, there are tax concessions for clients of insurance companies. We also need to eliminate arbitration so that we are equal in terms of regulation, as for the income level, it is important to introduce tax concessions for individuals (individuals - Ed.). The companies are ready to offer products with a good income, but they need at least some deregulation, benefits for people, so that our citizens can take care of themselves and make money from insurance. Then they will not have to ask of the state all the time: insurance companies will pay them for treatment, education of children, give money for housing, so that they will not live in conditions dangerous for life. Same as deposit, the insurance benefits are intangible, people get these benefits later. Therefore, it is hard to justify, a government policy on insurance development and promotion is needed.
In the meantime, we work and grow against all odds. We show business efficiency, especially in Life-insurance, which today is a growth driver in the insurance market. The regulator sees a certain progress and has understanding of the current situation, and we will sell contemporary products, like in the West and develop as financial insurance organizations when the insurance and financial instruments are in one package. By coming to life insurance, a person will receive both insurance and financial instruments with the possibility of choosing “short” or “long” tools. It will be possible to select single instruments or a complex product, so there is no need to go to different organizations (a bank or broker) separately. He will be able to save for his retirement, the child’s wedding and his education, and have financial protection for all purposes.
We want Standard Life to become a family company. When a child is born we accompany him from birth to his very old age, and then we go through life with his children and grandchildren, from one generation to another, saving and increasing their wealth, the wealth of our country!
- And one last question Yerzhan Yerkenovich: if there was such an opportunity, what trade would you learn? Maybe you have a hobby or hidden talent that we are not aware of?
- I learned to play the guitar once, then I gave it up, as my mindset was very material. I probably would like to try myself as an actor, speaker. But I am a teacher by vocation. I have been conducting Actuarial courses and other subjects since 2005, transferring knowledge; there are students and graduates.
- And is the place you are in now just a part of the way? What would you do next?
- Next is the way of my becoming a shareholder. I had set myself this goal a long time ago. It is unlikely I will become a principal shareholder, but possibly one of the largest. Everything is yet to come. This goal is followed by a new one. We will work our way gradually.