TBY talks to the chairpersons of two leading insurance firms on the level of development in the sector and the effects of the global financial crisis.
How would you evaluate the level of development in the local insurance sector?
TU Although it has been 20 years since independence, the insurance market remains in its initial stages of development, especially in comparison with the banks, which have developed greatly over the same period. The premium income to GDP ratio is still small, at around 1%. In Russia the same metric is 3%, for Eastern European countries it is 5%-7%, while in Western European countries it comes in at around 10%.
ZK The insurance sector has only been appropriately legislated for 10-15 years. During these 10-15 years we have seen positive development. Despite the crisis and the decline in the banking sector, the insurance sector grew healthily, especially from 2004 to 2008. In 2010 we experienced 60% growth in non-life, and 10% growth in life insurance. The trigger for the insurance market was of course the government’s introduction of compulsory insurance coverage for corporations. This was a real driver in the development of the industry here. Among the new regulations was compulsory employee coverage insurance, so that if something happens at work your employer will be covered. There is also compulsory driver liability insurance. However, the insurance sector is still in its initial stages of development, but it’s promising, and the legislation has been prompt and much better than in other CIS countries. Our regulatory agencies and financial authorities did well to make the law clear, and now they’re gathering knowledge from foreign experiences with the aim of amending the legislation further. As an industry, we’re all learning together and trying to help each other move forward. I personally believe the market will develop quite soon, much faster than the banking sector or any other sector in the economy.
How did the global financial crisis affect the insurance sector?
TU In 2008-2009 two or three serious players in the compulsory insurance industry went under because it turned out that many of the policies they issued were false. The money just went into the pockets of private agents, and the companies went bankrupt as a result. This had a very negative impact on the industry as a whole. After that, the FSA stepped in with new, tighter regulations. First off, agency fees were restricted to 10%. Before that there were no limits. Secondly, since 2009, we have had a central data system in which each company has to enter information on all issued policies and insurance claims. Thirdly, in 2010, it was decided that policies should be issued from the system. On top of that, from January 1, 2011 we have had to issue one standardized blank form, printed by the National Bank. Finally, the police can also check the authenticity of policies from the central data system. The next stage is to add all the information on voluntary insurance into the same system over the next two or three years.
ZK When Allianz comes into a country it focuses on basic insurance. In this way Allianz established distribution channels, and introduced corporate governance principals. We looked very seriously at our branch network, and the quality of our employees. Cost and human resources were the two main factors that made it work for us. The trick is to find the optimal model in which clients’ needs are satisfied, while our shareholders remain confident that they made a good investment. At Allianz the operations in various countries are benchmarked so that the successful are contrasted with the less successful, thereby allowing us to identify good investments. So far, I believe we’re meeting the expectations of our shareholders. We undertook a huge task in restructuring our entire business process, halting retail development as the demand for individual products waned.
What is your outlook for the future of the sector?
TU There is massive potential here. The corporate sector is still not fully covered, and middle-size corporate entities are not covered. We have a population of around 16 million, and yet very few individuals are insured in any category. So, if we can create this demand in the next couple of years, the insurance industry could generate huge premiums. Thanks to tougher regulations, the trust the public has in the insurance industry should also increase. Our company’s target is to be in the top five within the next 10 years. We also expect to see more international players in Kazakhstan in the upcoming years.
ZK It’s a market full of potential. It’s not just the inherent economic potential that’s strong; the established regulatory and legal platform is also in superb shape. The government is investing heavily in industrial development, which is the essential market for insurance companies. Of course, investors are waiting to see if the new rules and regulations will stay unchanged in the long term. When it comes to partnerships with other companies, we think it would be great for the market. There are now a lot of smaller insurance companies that are potential targets for foreign investors. Allianz is also growing, and if we grow further we might consider acquiring other smaller successful companies in the market.
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