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The ice broke up: The insurance market is waiting for change

LIC «NOMAD LIFE» told us how the rules of the game on the market can change
The ice broke up: The insurance market is waiting for change

Fundamental changes are coming to the insurance market. If all offers of insurers and the Association of Financiers of Kazakhstan (AFK) are accepted, Kazakhstanis, together with life insurance companies (LIC), can participate in the management of premiums for cash-value life insurance. As Kairat Chegebayev, chairman of the board of LIC «NOMAD LIFE», said in an interview with the correspondent of the business information center, a product such as Unit-linked may soon appear. Also, the issue of deduction of contributions by life insurance companies in the Insurance Indemnity Guarantee Fund (IIGF) is discussed on the AFK site.

— Kairat Sadyrbaevich, you participate in working groups on introducing changes in insurance legislation. What initiatives are being discussed?

— The National Bank of the Republic of Kazakhstan is moving forward and in right direction. For example, recent amendments introduced to the Tax Code, according to which the mechanism of taxation on cash-value life insurance was corrected eliminated the risk of double taxation, while the principle was used in analogy with the taxation of deposits of second-tier banks.

The introduction of such a product as cash-value life insurance with the participation of the insured in investments is discussed - Unit-linked. It is the most popular insurance product in the world. In developed countries, Unit-linked on average takes 60% of the collections of the life insurance market. For today, there are several obstacles to the development of the Unit-linked product. Investing in funds is limited to attracting management companies, which greatly increases the cost of the product (initial investment and cost of services). In this regard, we hope that life insurance companies will be given the right to obtain a license to manage the investment portfolio. It is also necessary to review prudential regulations affecting the life insurance industry. These are the issues, which the National Bank of the Republic of Kazakhstan intends to solve.

— How will the clients of the insurers experience these changes?

— The approach to asset management will be changed fundamentally. The premium on the policy will be divided into two parts: the funded and the insurance part. The accumulative component will be indexed according to the investment strategies that the client chooses independently. Separate accounting of assets will be maintained. Insurance premium and accumulated assets will belong to the insured on the right of ownership. This product is completely transparent. The introduction of Unit-linked will give impetus to the development of Kazakhstan's stock market, in the world practice life insurance companies are one of the main sources of «long» and relatively inexpensive means used to finance institutional projects in the economy.

These are significant changes, as they will introduce amendments to the Civil Code and a number of legislative acts that regulate insurance activities and the securities market.

— As far as I know, the guarantee system will also undergo changes?

— Currently, more than 60,000 people receive regular payments from the LIC. These are pensioners, families of workers who died in production, and people with disabilities. Given the social significance of these contracts, as well as the long-term benefits, the bill provides for the inclusion in the system of guaranteeing the obligations of continuity and timeliness of insurance payments. Now, under the IIGF system, only compulsory liability insurance in the «General Insurance» branch is covered.

We support the proposal of the National Bank to include life insurance companies in the system of guarantee. We hope that the updated system of guarantee can become another factor in favor of the progressive development of the life insurance market.

The system of guaranteeing, separate accounting is a conceptual and global change in the direction of strengthening the positions of the LIC. This initiative, with its implementation, will have a positive effect on the participation of the LIC as an institution of accumulation within the framework of the pension reform.

— Now insurers are actively discussing the issue of introducing online insurance ... It is assumed that this format will be launched in 2018 ... Is there any progress in these discussions?

— The market has a clear understanding that there is a need for the development of this format of interaction between insurers and policyholders. The banking market has been carrying out online operations for a long time. We want the clients of the LIC to conclude contracts for a long (lifelong) term, also they could make changes to the contracts online, but for now they have to come to the office every time and spend for this time. Online policies will reduce the cost of the product for the end user and will remove existing barriers between the insurer and the client.

— And what about the industry of reinsurance?

— We do not know whether the issue on the reinsurance institute was included in the final list of issues on the bill, but the deputies repeatedly raised this issue. Therefore, we want to present our vision of the situation on the market. It is vital to adhere to the basic principles of reinsurance activities.

Firstly, there must be an adequate mechanism for transferring risk (the main purpose of reinsurance).

Secondly, an assessment of the reinsurer's consistency and experience in the supposed sphere of risk taking – the availability of a direct insurance license, which reflects the adequacy of the loss reserve estimate - future liabilities should be provided, which in turn is a risk of the entire industry's ability to pay.

Thirdly, the principle of end-to-end redundancy is to be observed - matching the amount of reinsurance assets of the insurer with the size of the reinsurer's obligations under a specific reinsurance contract.

Reinsurance in the class of CEIAA has recently become more and more of a financial nature, which is reflected in the indicators for this class, when the size of the loss ratio without taking into account the share of the reinsurer is several times larger than the loss ratio, taking into account the share of the reinsurer. At the same time, the loss ratios of organizations that have taken risks in reinsurance tend to zero value. These preventive measures will help to solve the problems accumulated in the class of the CEIAA, and also in the long term will allow improving the long-term adequate reservation system in accordance with the existing risks.

By: Anna Vidyanova


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