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Long-term savings need to be stimulated in Kazakhstan

The insurance payment guarantee system in Kazakhstan is built on the same principles as the deposit and pension savings guarantee system. Implicitly, in case of insurer’s bankruptcy, its obligations to an individual will be fulfilled at the expense of the Insurance Payment Guarantee Fund (IPGF) formed from contributions from insurers.
Long-term savings need to be stimulated in Kazakhstan

Today, the insurance payment guarantee system provides for implementation of guarantee payments in the event of forced liquidation of insurance organization on all types of compulsory insurance contracts (excluding imputed insurance), retirement annuity, savings educational insurance (SESS) and contracts of compulsory insurance of an employee against accidents in the performance of their official duties.

“All types of insurance are currently guaranteed, which can be equated to social benefits, that is, payments that provide reimbursement of expenses associated with loss or damage to property, death or disability of citizens, and pension provision. We believe the current list of guaranteed types of insurance is sufficient to guarantee insurance payments,” says Yelena Taytugoleva, Deputy Chairman of the Board of Nomad Life.

The legislation provides for standards that on average range from 0.5-2% of the amount of insurance premiums received for products guaranteed by the IPGF. The company pays contributions to IPGF in accordance with the requirements of current legislation.

Some background

According to the National Bank statistics, before the deposit guarantee system creation in 1999, the portfolio of deposits in domestic banks has been only $320 million but now this figure exceeds $30 billion.

The products of life insurance companies have only recently been included in the IPGF's obligations. According to the Standard & Poor's report, the annual expenses of Kazakhstanis on life insurance are gradually increasing ($42 in 2022 versus $29 in 2020).

“Endowment products are an alternative to banking products combining the features of savings investments and traditional insurance. The product’s main advantage is that from the moment the first insurance premium is paid, the client receives not only financial but also insurance coverage. Thus, the client simultaneously accumulates funds and is under insurance coverage. On the premise that bank deposits are guaranteed, it is rational to provide a similar level of guarantees for endowment life insurance products, in addition to those mentioned earlier, which are currently guaranteed by the fund,” says Ashimkhanova Alua, Managing Director of LIC Eurasia.

It is worth noting that in the event of insurance organization’s forced liquidation, insurance payment guarantee fund ensures the fulfillment of obligations assumed by insurer under insurance agreement in full, while the guarantee of Kazakhstan Deposit Guarantee Fund covers only up to 10 million tenge. “Inclusion of insurance type in the guarantee list increases the level of public confidence in this type of insurance. Due to increase of trust, there is a gradual growth in the number of clients who enter into insurance contracts. As a result, this gives the insurance industry’s development in the long term,” explains Yelena Taytugoleva.

The colleagues’ idea is also supported by the board chairman of LIC Kommesk-Omir Oleg Khanin, though with some reservations: “We believe endowment types of insurance can be added to the IPGF guarantee, but this may not be done in full, since it is fair to leave responsibility on insurance companies without relying on IPGF resources, as insurers carry out a thorough assessment of losses and must provide fair and timely payments to customers. This responsibility forces insurance companies to work professionally and legally protecting the interests of clients. In general, insurance companies' liability for claims is an integral part of their roles and responsibilities. It ensures not only the protection of clients’ interests but maintains confidence in the financial market as a whole.”

The new initiative of insurers is connected with a long-standing desire to increase the popularity of classic endowment insurance, which is developing slowly in our country. Few Kazakhstanis have endowment life insurance policies. “Such an innovation will increase public confidence in this form of insurance and create conditions for healthy competition between LICs and banks, which will have a positive impact on quality of services provided in this area, - says Zhanar Zhubaniyazova, Chairman of the Board of LIC Halyk-Life. – Besides, in order to encourage the population to place their pension savings under investment management and ensure their security in the event of termination of investment manager’s activities, it is necessary to enhance the IPGF guarantees for the return of pension savings placed under investment management.”

The Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market is not concerned about insurers’ stability. They are trying to stimulate long-term investments by Kazakhstanis, while they are not in a hurry to assign too many obligations to the fund, but are ready to discuss initiatives with the market. “The fund currently guarantees certain types of voluntary savings insurance, for example, life insurance provided in accordance with the Law “On the State Educational Savings System” and retirement annuity insurance. The Agency supports the further expansion of the classes to be guaranteed by the Fund, while, first of all, the guarantee should cover socially significant classes of insurance, which helps maintain social stability and trust in insurance in general,” the regulator’s press service noted.

Photos are from open sources.

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