So, when asked about the National Bank’s opinion on possibility of including life insurance companies in the SEA system, the more so, as representatives of Kazakhstani LICs believe that this product more reflects the work of life insurance companies, rather than banks, the answer was as follows:
- Currently, the State Educational Accumulative System (SEAS) is functioning in Kazakhstan that helps any citizen of Kazakhstan to accumulate funds for education in Kazakhstan and abroad. This program is implemented through second-tier bank (STB) deposits.
However, the existing mechanism of SEAS is also acceptable for LICs. The main advantage of attracting LICs to this program is the availability of insurance coverage. This means that in case of adverse life events, such as death or disability of the parent (breadwinner), the child, upon reaching the established age, receives the necessary amount of money for education anyway.
Besides, the accumulation for children’s education is a long-term process which is one of LIC business specifics. Thus, insurance companies have significant experience in making insurance payments under long-term accumulative life insurance contracts.
In this regard, the National Bank of the Republic of Kazakhstan is planning to initiate a proposal for participation of LICs in the SEAS along with STBs.
Also, in reply to the question about plans for the insurance market development including the Kazakhstani life insurance market in the next 2-3 years, the press service of the National Bank said that “the policy of the regulator on the life insurance market development for the coming years will be aimed at the following:
- Improving the current situation in the life insurance market;
- Ensuring its dynamic growth and competitive development;
- Increasing the attractiveness and competitiveness of insurance products.
- “Life insurance is one of the most strategic strategies in the economies of developed countries and supported by the state (including taxes), - the National Bank of Kazakhstan replies, - as it is a socially-oriented constant source of significant investment resources that contribute to successful economic growth”.
In June 2019, the National Bank held a meeting with the heads of insurance organizations. During the meeting, among other things, the existing problematic issues of the life insurance market and the proposals of life insurance companies (LICs) were discussed.
The key issues of life insurance market requiring consideration:
- Revision of the prudential standard calculation according to the life insurance market specifics;
- Expansion of the list of financial instruments allowed for investment by insurance organizations;
- Improvement of legislation on insurance products with participation of the insured in investments (unit-linked) and joint pension annuities;
- Tax legislation improvement by lightening taxation on life insurance products.
Currently, the National Bank is studying these issues and considering options for resolving them by improving legislation, taking into account LICs’ proposals.
- How is the insurance market situation assessed by LICs in particular?
- The life insurance industry is showing positive growth dynamics. Over the past 5 years, the assets of LICs have grown 3 times and, according to the results of the year 2018, they have reached the mark of more than 330 billion tenge.
The volume of premiums in the life insurance industry collected in 2018 amounted to 89 billion tenge, which is 35% more than in 2017. The share of premiums collected in the life insurance industry in total insurance premiums over the past 15 years has grown from 1.5% to 23%. Traditionally, in developed countries, the share of collected premiums in this industry reaches 60%.
The sum of premiums on life insurance products per capita as of 2018 amounted to 6,936 tenge increasing by 20% compared to the same index number as of 2017 of 5,777 tenge.
- What results does the National Bank expect from LICs?
- LICs must be solvent and financially sound, which is important for the timely fulfillment of obligations before all entities at the expense of own and attracted funds. The financial stability of LICs is achieved mainly due to:
- Use of economically feasible insurance rates;
- Formation of adequate insurance reserves sufficient to fulfill short-term and long-term obligations under insurance contracts;
- Effective investment of own funds;
- Compliance with prudential standards and limits established by law.
P.S. We would like to add that earlier in an interview with our portal Oksana Radchenko, the Board Chairman of JSC Halyk-Life, expressed her opinion that life insurance companies could well become a member of the SEAS, state educational accumulative system. She also said that JSC Halyk-Life, together with JSC LIC Nomad Life initiated negotiations with the National Bank on the possible involvement of life insurance companies in the SEA system (https://lifeinsurance.kz/ekspert/ oksana-radchenko-kompanii-po-strahovaniyiyu-zhizni-vpolne-mogli-by-stat-uchastnikom-gons)..
Also, the President of the Financial Center Askar Ibraimov (https://lifeinsurance.kz/produkt/askar-ibraimov-esli-strahovye-kompanii-predlozhat-interesnyy-produkt-dlya-grazhdan-my-my-gotovy-podderzhat-eto) expressed his opinion in an interview with our publication).
Photos are from open sources.