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Life Insurance Companies Are Preparing for Changes

In 2018, for the first time in many years, an insurance market reform took place in Kazakhstan. Insurers have built policy sales over the Internet, company capitalization has grown, and the life insurance sector has become more attractive to investors and consumers. According to the regulator, as of May 1, 2020, the insurance premiums increased by 13.6% compared to the same period in 2019 and amounted to 176 billion tenge.
Life Insurance Companies Are Preparing for Changes

The Agency for the Financial Market Regulation and Development (AFMRD) announced a new market reform, which under the conditions of coronavirus pandemic would calculate insurers' losses from the state of emergency.

The document has been under discussion at the Financial Institutions’ Association of Kazakhstan (FIAK) for several weeks, working groups have been held, comments and suggestions have been submitted to the regulator. “I hope that the document will be approved by the regulator and market in June, and the work on amendments of existing legislation will begin,” explains FIAK Managing Director Yerlan Burabayev.

Life insurance companies (LICs) readily commented on upcoming changes. This market has been undergoing rapid development for the second year and is waiting for new product such as unit-linked (investment insurance) approval by the regulator. “We positively assess the development of relevant insurance products that would stimulate consumers to take care of their future by increasing their savings and help solve social problems and develop the pension system,” said Azamat Yerdessov, the Board Chairman of Freedom Finance Life.

The new concept also allows LICs to participate in the state educational accumulative system (GONS). “We assume that the product will last from 3 to 20 years. The size and term of saving, however, are chosen by the client. In addition to our interest, the state will accrue up to 5-7% per annum on these deposits,” said Yelena Taytugoleva, the Managing Director of Nomad Life. In Kazakhstan, so far only banks have the right to open educational deposits.

“The policy provides insurance coverage for the parent’s life and health. There is a number of advantages, such as receiving the planned payout at the program end, the opportunity to transfer the savings in favor of the second child, if, for example, the child in whose favor the program has been opened receives a grant,” the source said.

There is a savings account 529 in the United States, under which the funds for children’s education are tax deductible.

The individual contributions made by both the employer and state through the educational accounts widespread in the Netherlands, are received per student employee. “The participation of insurers in GONS is a very important initiative that combines both a social function of state support and opportunity for insurance organizations to carry out activities to popularize life insurance,” says Vitaliy Lyubimov, Managing Director of Halyk-Life.

The concept proposes the introduction of joint annuities implying the participation of not one person but a married couple in the retirement annuity agreement. “If one spouse does not have enough pension savings to purchase annuity at the LIC but the second has a surplus, then a joint annuity will provide lifelong payments to both of them,” the document says.

The introduction of deferred annuities will allow depositors with a sufficient amount to conclude a pension annuity at the UAPF to purchase a lifelong retirement benefit payment with indexing starting from the age of 45 years. However, the retirement annuity payments will be made upon reaching 55 years. “Expanding the age range provides an alternative to choosing to manage their pension savings for such an age category of policyholders, including investment opportunities,” notes Lyubimov.

The concept involves the expansion of the online technology use in the life insurance market. “It digitalizes many business processes both within companies and for the regulator saving the market millions of working hours and simplifying the lives of customers greatly,” states Yerdessov.

Legislative initiatives of financial supervision towards LICs are positively evaluated by international experts. “These offers will stimulate the sector development in the medium term. For example, the introduction of insurance products with an investment component and possible regulator measures to transfer part of pension management functions to LICs,” says Yekaterina Tolstova, the Deputy Director of the Financial Institutions Group at S&P Global Ratings.

The new concept is going to change the market infrastructure dramatically. The Unified Insurance Database (UIDB) currently collects insurance statistics, generates reports, and calculates bonus-malus ratios and insurance premiums. “The UIDB is likely to develop in terms of access to state databases, as this is a very important part of the process of improving the service related to electronic insurance contracts,” Lyubimov believes.

In addition, the new concept is to improve the system of guaranteeing insurance payments. “The Insurance Payment Guarantee Fund role will expand. It is too early to talk about specific changes, but an increase in guaranteed types of insurance creates favorable conditions for public confidence in insurance products,” said Burabayev.

Photos are from open sources.


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