Service penetration is understood as the ratio of total sales to capacity of the market segment. It is the share of insurance premiums in GDP in the insurance industry. Insurance penetration in Kazakhstan is still very low, which is proved by macroeconomic indicators of the industry. Thus, as of December 1, 2021, the share of insurance sector assets in GDP amounted to 2.29% (for the life insurance industry - 0.97%); the share of insurance premiums in GDP - 0.88% (for the life insurance industry - 0.37%); ratio of insurance premium per capita - 35,638 tenge (for the life insurance industry - 14,915 tenge).
“Thus, the problem of underinsurance is evident, when people, for various reasons, either do not use the insurance tool at all, or limit themselves to purchasing only mandatory policies to reduce their risks. Although, with the help of life insurance, a person is able to solve both financial and social problems,” comments Gulzhan Dzhaksymbetova, the Board Chairman of LIC Centras Kommesk Life.
In general, life insurance covers almost the entire employed population of Kazakhstan. Every employer is obliged to insure his employee against accidents at the legislative level. “As for voluntary life insurance, about 1.5 million people have life insurance policies (including retirement annuities), which is no more than 16% of the entire working-age population. It is important to bear in mind that most of these 1.5 million are clients of the borrower's life and working ability insurance programs, who have concluded insurance contracts as part of package loan offers by STBs, i. e. this is imputed insurance and it is not entirely correct to take it into account. In fact, the penetration rate of voluntary life insurance is very low. The share of the life insurance industry in the GDP of the Republic of Kazakhstan is a little more than 0.5%,” says Kairat Chegebayev, the Board Chairman of LIC Nomad Life.
The level of penetration of life insurance in the country today, taking from the beginning of the life insurance market development back in the end of the 90s, is impressive, but still insufficient compared to developed countries. According to data by rating agencies, the share of gross insurance premium in Kazakhstan's GDP was about 0.2% in 2021, while in advanced European countries this figure was up to 13%. “There are several reasons for that, the main being people's distrust in insurance products (life insurance contracts are often concluded for a long-term period), low income level of the population and uncertainty about financial stability in the future, high inflation, insufficient development of the securities market and, accordingly, limited investment opportunities for the main insurance products of endowment life insurance, financial illiteracy, limited range of financial services and poor awareness of life insurance programs, etc.”, says Vitaly Lyubimov, the Managing Director of LIC Halyk-Life.
Nevertheless, life insurance is developing, one of the most important indicators of that is the volume of collected insurance premiums. LIC Freedom Finance Life conducted a sociological survey among Kazakhstanis aged 30 to 65 years last year. It turned out that 37% of the respondents who concluded life insurance contracts were people aged 35 to 45 years, 33% were over 50, and 20% were people under the age of 35. Kazakhstanis aged 45 to 50 were least of all interested in insurance. Among those surveyed, 73% of respondents prefer endowment life insurance (ULI). 27% choose risky products: insurance against COVID-19, critical illness (cancer and cardiovascular diseases), travel insurance and accident insurance. “In the course of the survey, we have learnt that most often Kazakhstanis conclude endowment life insurance agreements with a minimum premium of up to $1,000. That was a respond of 83% of surveyed. 10% of respondents were interested in the programs with a deposit of up to $10,000, and 7% preferred the programs with a deposit from $20,000 to $50,000”, said Azamat Yerdessov, the Freedom Finance Life executive.
Market potential
According to foreign experts, the share of Kazakhstan in the total world extent of insurance is less than 1%, so the potential for penetration is very high. “The potential is high; it will move gradually though. The life insurance market will receive its further development now. Let’s say that the life insurance tax benefits that came into effect in 2021 would help the market grow further. The expected entry into the market of such new products as subsidization of endowment insurance for the life insurance product in favor of child education, the so-called SEAS, will also give its impetus,” Vitaly Lyubimov shares his expectations.
Penetration of life insurance largely depends on people’s real incomes. Besides, life insurance is a long-term type, because the policy is concluded for a period of 3 to 20 years, so the trust issue in the industry will always be relevant. “Insurers need to work in this direction improving their reputation, service, products and responding quickly to changes in the economic situation characterized by levels of supply and demand, - explains Gulzhan Dzhaksymbetova. - In general, the expert forecast for the insurance sector is positive. We are observing the industry growth and gain of key indicators in the past few years. As people’s income grows, the share of expenses on life insurance products will increase, which will ultimately lead to increase in insurance premiums and their share in GDP.”
Also, the penetration level of life insurance services is affected by the availability of government programs and industry support.
“The level of penetration depends on level of financial literacy, financial discipline, and, which is probably very important, stability of the legislative framework. As you know, the life insurance contracts, endowment life insurance in particular, are long-term concluded for a period of 2 to 15 years and are focused on the formation of savings in the medium and long-term perspective, usually to finance large purchases, for example, child education,” notes Kairat Chegebayev.
Photos are from open sources.
