In order to increase public trust in the insurance market, much attention has been recently devoted to improving financial stability and solvency, as well as upgrading risk management system of insurance companies. “A functioning full-fledged infrastructure makes it possible to ensure the policyholders’ rights protection, including dispute settlement and payment guarantee systems. The conditions for new socially-oriented insurance products, including products with subsidies and preferential taxation have been created. There is a legal environment for development of imputed insurance and a pulling system,” Director of the Insurance Market and Actuarial Calculations Department of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM) Assel Amirbayeva told the session participants.
A panel discussion moderator Yerlan Burabayev, Managing Director of the Center for Development of the Stock and Insurance Sector of Financial Institutions’ Association of Kazakhstan, noted the regulator’s flexibility that was often making advances with the market.
“We are constantly working on expanding the range of insurance products. This is especially noticeable in the life insurance industry. We have several new products available at once, I would especially like to note, unit-linked. Unfortunately, only one company works with this product (only Nomad Life works with this product in the Kazakhstani market - Ed. note). Another new product is a joint annuity or marriage annuity. We did so much to introduce it,” emphasized the Director of Insurance Market and Actuarial Calculations Department of ARDFM.
According to the regulator’s representative, the insurance product looks better than a banking product in terms of guarantee. “However, it is necessary to direct market participants’ attention to the quality of provided insurance services. Therefore, we are increasing the focus on behavioral control. The business process analysis of insurance organizations will be carried out,” Assel Amirbayeva assured.
What obstructs the development of life insurance?
According to data published by the Insurance Information Institute, about 54% of US residents are covered by life insurance policies. Most likely, this indicator includes family members of the insured person, but even taking this into account, we can conclude that the popularity of life insurance in the US is an order of magnitude higher than in our country. “We have analyzed the insurance market since its inception. So, if we consider the year 2000 as the starting point of the modern insurance market in Kazakhstan, it turns out that we have not gone far at all. There was a small number of clients and tiny share of insurance premiums to GDP in 2000 (the number of insured was only 79 people), and by 2021, the premiums reached only 0.32% to GDP. However, 2.9 million were insured in our industry,” said Andrey Dzheksembayev, Deputy Chairman of the Board of LIC Halyk-Life.
According to the speaker, the disproportion is explained simply: life insurance is either a mandatory or imputable type of insurance in our country. “If we exclude bank customers, that is, bank insurance, there will be a very small number of people who enter into agreements with us voluntarily. And these are the endowment or investment life insurance contracts,” noted deputy chairman of LIC Halyk-Life.
Deterrents of endowment insurance are as follows:
- Consumer purchasing power decline and a limited level of income;
- Low level of financial literacy;
- Low level of public trust,
- Low level of return.
“Weak economic incentives are also not helping the promotion of endowment life insurance products. Now, when concluding such an agreement, customers can save about 8 thousand tenge per month on income tax. We believe this amount is insignificant. In order to stimulate people, a greater support is needed. Besides, the complexity of products plays against us. The deposit is clear to everyone, but, nevertheless, we would like you to pay attention to the lack of government support,” Andrey Dzheksembayev emphasized.
How can we change the situation?
According to the regulator, these issues can be solved as part of the further digitalization of the industry. The session participants discussed innovative technologies and the possibility of implementing digital solutions in the development of insurance products and services that would meet customer needs.
“Digital transformation of the insurance market is the main trend of the industry. The use of digital technologies will optimize and automate all insurance business processes, which will ultimately increase the coverage, accessibility and quality of insurance services for people and businesses,” concluded Assel Amirbayeva.
The LIC Halyk-Life representative agreed with this assumption: “A lot of products are sold through market places or within financial ecosystems abroad. We all need to deliver on that.”
Insurers also directed the ARDFM representatives’ attention to the rigidity of regulation. “Profitability can be increased by expanding the list of financial instruments which insurers can invest in. We propose to simplify regulation for low-risk instruments. Besides, it is necessary to expand the list of insurance products that would be insured by the Insurance Payments Guarantee Fund. Reliability and high profitability will contribute to the popularization of endowment life insurance,” Andrey Dzheksembayev assured.
Financial literacy can be improved through the younger generation of Kazakhstanis in schools and universities. “I believe the future belongs to endowment life insurance. The need for life insurance among customers is now negative. We talked about low rates and insufficient state support even five years ago. We're treading water! We are sorry for comparison, but when we emerge from the water and offer new products to the market, external shocks come, and we go under again. We need a big breakthrough. It can be a player like Kaspi in the banking sector, or an idea or product that will become an engine for the entire market,” Oleg Khanin, the Board Chairman of IC Kommesk-Omir JSC, expressed his point of view.
Photos are from open sources.