What legacy did 2018 leave to 2019?
However, before looking into the future, it is important to understand what foundation has been laid for further life insurance market development the this year.
Thus, according to Kairat Chegebayev, the Chairman of the Board of JSC Nomad Life, in 2018 a lot of events, a number of significant changes in legislation that will advance the market in development extensively, and the entry of quality players in the life insurance market have taken place. Moreover, the second is directly related to the first, he noted.
“To be more specific, as of end of last year, the positive changes in the life insurance taxation began, it became similar to the deposit taxation, which became the biggest step in the life insurance development; the risk of double taxation, arisen earlier, was excluded, - said Kairat Chegebayev . - Another innovation has specifically appeared with respect to cumulative insurance, now the redemption amount under the contract can be paid during the first contract year, which we consider as useful liberalization of cumulative insurance.”
According to Mr. Chegebayev, there have also been changes in the compulsory employee insurance against occupational accidents, which now prohibit LICs to reinsure the risks in compulsory insurance companies; it has already led to clearing the market from the schemes. In addition, the concept of a correction factor (discount - Ed.) was introduced in the compulsory accident insurance.
“Also an important step is the revision of legislation in the field of regulation of Unit linked products - after all, this is the main product for the life-sector in the world,” the expert notes. - Hopefully, the following years will be in the name of Unit linked development in Kazakhstan. The amended legislation implies a separate asset accounting approach for an insurance company and insurers for the Unit linked product in order to correctly reflect assets and liabilities, income and expenses. The principle of transparent pricing is laid down: the client sees all the flows (commissions) and has access to monitoring the value of his assets on an ongoing basis.”
Other changes in the market noted by Kairat Chegebayev are the emergence of an ombudsman in the compulsory accident insurance (CAI), the inclusion of so-called social insurance (retirement annuity and annuity in the CAI) in the guarantee system in the framework of the Insurance Guarantee Fund, the shareholders of which have now become LICs.
By the way, the importance of expanding the functions of the insurance ombudsman was also noted by Azamat Yerdessov, the Chairman of the Board of JSC LIC Freedom Life:
“If earlier ombudsmen have been dealing only with compulsory vehicle insurance of legal liability of car owners, now their powers are expanded to all types of insurance. Of course, it was necessary for the development of the institution of pre-trial settlement of disputes.”
He also added to the list of important innovations in the law that LICs had the opportunity to independently manage the investment portfolio with the participation of the insured in investments.
Another important innovation, in the opinion of Galym Amerkhodzhayev, the Head of LIC SAC, is that now the UAPF investors may use not only compulsory and voluntary pension contributions, but also compulsory professional pension contributions to pay the insurance premium when concluding a pension annuity contract or amendments to the existing one. Let us note that if the amount of pension savings exceeds the amount of the retirement annuity agreement concluded with the insurance company, the difference is paid to the depositor from the UAPF in the form of monthly pension payments, or used by the depositor to make amendments in the existing retirement annuity agreement in terms of increasing the amount of insurance payments, or for the conclusion of another contract. The amendments also provide for the introduction of imputed insurance.
“This allows both us and our customers to provide flexible conditions in insurance contracts,” said Galym Tashmukhanbetovich. “The main advantage of imputed insurance is an individual approach to each client.”
Yerzhan Konurbayev, the Board Chairman of JSC LIC Standard Life, also noted changes in the agent activity in the market innovations, particularly with regard to agency fee payment.
“The positive change for the agents was a partial lifting of restrictions on the amount of remuneration under insurance contracts,” says Y. Konurbayev. – And, of course, a major change for all insurance companies will be the amendments made to legislation on online insurance. Online insurance will strongly affect compulsory insurance in the beginning. The client must have access to his policy as well as to information related to him, including payments and their charges, online policy payment and other necessary data. A pro for all should be the cheapening of this service.”
“There are a lot of changes, and now the market needs to “digest” everything and use it for the benefit of the industry development, to make mass life insurance products among the population, as it happens in most developed countries,” concluded the head of Nomad Life.
New players in the market
According to experts, the life insurance market in the country is becoming stronger due to entry of large and strong players, including the alliance of Halyk Life and Qazqom Life, arrival of new shareholders known for their rich and successful experience in portfolio investments in one of the insurance companies, Eurasia Insurance Company also announced the entry of its new LIC on the market.
“Yes, of course. The stronger the competition in the market, the better the services of insurers will be,” said Galym Amerkhodzhayev, the Board Chairman of State Annuity Company.
“As for the entry of new players into the industry, I would say that the outgoing year gave the industry two large and advanced players: JSC LIC Freedom Finance Life and JSC LIC Standard Life,” says the head of Nomad Life Kairat Chegebayev. - I believe that, having the most advanced capital managers (JSC Freedom Finance) and a strong market insurance player with extensive experience (NSK Insurance Company) these two companies should set the tone for the industry development and bring significant changes in it. The industry is becoming more interesting, there are no similar players; each of them is strong in certain directions, which is very good for all of us. We are also waiting for the life insurance company Eurasia Life to enter the market. It is hard to say which niche they will be focused on, I know Eurasia is distinguished by its quality of actions and will probably be a very interesting player.”
“Concerning the merger of Kazkom and Halyk,” continued Kairat Sadyrbayevich, “There are already three largest at that time companies joined together: BTA Life, Qazkom Life and Halyk Life, each of which was the best at certain stages of its development. Thus, it is a union of three best companies directed by the most experienced leader in the life-sector, Oksana Radchenko, who is respected in the market. The new company is huge, and size in life insurance has always mattered. Therefore, we are looking forward to seeing them to be renewed and strong after the merger.”
“The planned entry of new LICs and the merging of old and more experienced ones will add drive to the present market players, which will provoke an increase in competitive advantages and allow finding new solutions in sales and mobility of companies. As you know, change is the growth of the market and the industry as a whole! Therefore, we consider these changes to be positive for our business,” Yerzhan Konurbayev, the head of Standard Life, shared his vision. – Particularly, the new LIC Eurasia will indeed be a strong competitor, since the shareholder has extensive experience in both insurance and reinsurance activities, the client base of this company has been formed over the years, as well as customer confidence in their activities. The arrival of a new shareholder, Mr. Turlov, a man with extensive experience in asset management in the life insurance industry, generally speaks of the industry perspectives.”
“We believe that the larger the insurance company, the more stable the financial sustainability,” notes Vitaly Lyubimov, the Managing Director of JSC Halyk-Life. – In the context of JSC Halyk-Life and JSC Kazkommerts-Life merger, a large company is capable to improve the pricing, marketing strategy and, of course, it gets the opportunity to use the potential of the best employees who are gathered in the combined company. Regarding the entry of new LICs and the change of shareholders, we believe that everything new usually gives an additional opportunity for insurance market development in general. But everything will depend on the practical implementation of the managerial qualities of new market players.”
Azamat Yerdessov, the head of Freedom Life, believes that new players will bring dynamics to the market. “Even the fact that new names will appear on the market suggests that the life insurance market has great prospects,” he notes. In his opinion, the life insurance market is developing.
“Thus, according to the National Bank, in 2017 the volume of life insurance premiums increased by 20%, and the number of contracts increased by 5%,” the expert states. - By the end of 2018, we expect an increase in premiums by 30%, and the number of contracts growth - by 40%. However, the share of life insurance in Kazakhstan’s GDP is still small, less than 1%, while in developing countries this figure is almost twice as high. This generally speaks of market maturity and people’s willingness to buy life insurance products.”
2019 will be very interesting
What are our insurance experts’ personal expectations in life insurance industry in upcoming year in Kazakhstan?
“Impressions are positive. I would like to mention the growth of the minimum salary by one and a half times, which will significantly increase the collection of bonuses for compulsory accident insurance; the introduction of Unit Linked, it is hard to predict so far, but over the years this will be the main life insurance product; retirement annuities, fees for which grow from year to year; and of course, the classical savings, which thanks to changes in legislation has become interesting for people,” Kairat Chegebayev, the Chairman of the Board of LIC Nomad Life, shares his predictions.
“Also two life insurance companies, Halyk Life and us, had quite constructive negotiations with the National Bank and very much hope that LICs will succeed in joining the SECS, the State Educational Cumulative System, - continues Mr. Chegebayev. - This is a state program supporting people who want to save money for education of their children, make contributions on a permanent, long-term basis, with an annual premium from the state. The system has been operating since 2013 through second-tier banks, however, it is not yet in widespread demand among the population.”
According to him, long-term saving is a classic product of life insurance, which has several advantages over accumulation in banks:
1) The specifics of life insurance is a long-term saving and accumulation of funds through conservative investment, which is not entirely suitable for second-tier banks, since the priority of banks is the current fulfillment of their obligations, i.e. ensuring current liquidity;
2) An additional protection for the parent (breadwinner) in case of adverse events in life, the risks of death, critical illness and disability of people (additional solution of one of the social objectives of the state);
3) According to the world and Kazakhstani practice, LICs are more financially stable and solvent (more conservative prudential requirements) in the long term, which is important in the operation of social mechanisms, such as State Education Cumulative System.
“In 2019, as noted above, the implementation of electronic forms of insurance contracts is expected, as a result of which the process of concluding an insurance contract will become more convenient and cheaper for clients, owing also to the absence of agency fee costs,” notes Vitaly Lyubimov, the Managing Director of LIC Halyk Life. – Accumulative life insurance contracts with investment component (the so-called unit-linked) will enable customers to participate through mutual funds in obtaining additional income under the insurance policy. There also may be changes in compulsory employee insurance against accidents, in particular, for many non-risky enterprises, which include small and medium businesses, insurance rates may be reduced. And, of course, the next year a new life insurance company is expected to start operating. And this, in turn, can make some adjustments to competition between life insurance companies in the market.”
“The year 2019 will be interesting and not easy,” believes Yerzhan Konurbayev, the Head of Standard Life Insurance Company. - Expansion of opportunities for the LICs in terms of providing them with the right to manage asset portfolio will increase sales of investment products under accumulative insurance programs. We expect a significant expansion of opportunities for life insurance companies in retirement asset management in 2019. This will allow the LICs to significantly strengthen their position as the main long-term institutional investors and contribute to increasing customer confidence and expand the client base of life insurance companies”.
In turn, the head of the LIC State Annuity Company Mr. Amerkhodzhayev notes that the insurance market development directly depends on the population welfare growth.
“The President of Kazakhstan Nursultan Nazarbayev, in his Message to people of Kazakhstan as of January 1, 2019, ordered to increase the minimum wage by one and a half times, from 28 thousand tenge to 42 thousand tenge. I believe that the new size of the minimum wage will become not only a catalyst for increasing wages, but an incentive for the country’s economy in general,” he noted.
“I agree with the experts, the next year will be interesting. Much will depend on the insurance market development as a whole, and not its segments,” says Azamat Yerdessov, the Head of Freedom Life. - But the forecasts are the most positive, the market will continue to rise, and life insurance will be one of its growth factors. I would like to expressly indicate that next year the attractiveness of accumulative types of insurance will increase. In 2018, insurance companies and the National Bank did a lot of work: the changes to the insurance legislation were made; new types of insurance were introduced; significant changes occurred in related areas. We see great prospects in the accumulative insurance market, even though there is almost no competition now, but not for long. I am sure the next year things will gradually begin to change for the better.”
What are the results and what do companies plan in the upcoming year?
“Obviously, the most important event for our company in the outgoing year is a successful completion of a voluntary reorganization in the form of merger of JSC Kazkommerts-Life to JSC Halyk-Life and the signing of the transfer act between the companies on November 1, 2018 as a result of which our company has become even more financially stable and reliable in the life insurance market. JSC Halyk-Life is a member of Halyk financial group, which is the most reliable and stable financial group in Kazakhstan. Next year we intend to further improve customer service, as well as offer interesting insurance solutions to our customers,” said Vitaly Lyubimov, the Managing Director of the company.
“Summing up the results, I can confidently say that the year 2018 was very fruitful for us,” said Galym Amerkhodzhayev (SAC). - We have achieved good results in all directions. Thanks to common efforts and a solid team, the assets of JSC LIC State Annuity Company have reached 37 billion tenge, own capital has increased to 5.6 billion tenge and insurance reserves have grown to 31 billion tenge. As of year beginning the insurance payments amounted to over 2 billion tenge, and insurance premiums reached 3.8 billion tenge. High financial performance of the company speaks for its success and sustainability in the market”.
“In 2018, our company formed the main staff of employees with extensive experience in the life insurance market. Partner agreements were signed with major players for the insurance products sale. We have made a long way of adapting and uniting, the way that new players are to make on the market after unification and opening. We have declared ourselves as a company with an obvious desire not only to earn money, but also to competently manage the customers’ assets,” notes Yerzhan Konurbayev (Standard Life). – The goals for the next 3-5 years were defined in 2018. They are based on priority areas for development, including the product line expansion and development of online services.”
“I think it will be fair if I say that the main results for our company are the change in the shareholder’s structure, new brand and strategy,” says Azamat Yerdessov (Freedom Life). - In this regard, we have big plans: the development of a network of financial consultants throughout Kazakhstan and voluntary types of insurance. Considering the rich experience of Freedom Finance and its specialists, we are focusing on universal life insurance. Our global task is to build a voluntary market and do everything for our customers to know that, if something happens, our company will come to the rescue.”
“The industry is growing, and the results of our company are record-breaking, but there is more to come. The life insurance market needs to grow and develop,” says Kairat Chegebayev (Nomad Life). - As for the plans, I briefly voiced them in the previous answers. We need to develop all directions, we are satisfied with the current status, but there is still a lot of work.”