Marina SHIPOVALOVA: The main contribution to the market growth, of course, was made by personal insurance, which is largely "supported" by continuous growth of bank lending, specifics of the pension system of Kazakhstan and introduction of compulsory health insurance. Besides, in 2019 new insurance classes were introduced (compulsory travel insurance, professional liability insurance, space objects insurance), which already have a real premium increase.
Several non-life classes, that had been stagnating recently (for example, insurance of other financial losses, cargo insurance, insurance of bank loans and some types of voluntary third-party liability insurance), got a positive impetus and demonstrated growth. Traditional leaders in terms of GWP, voluntary property insurance and MTPL, grew by almost a quarter of 2018 year's volume. However, specific factors, that could explain such a trend, are not yet obvious.
In case of Motor Hull, GWP of which increased by 31%, we can confidently say that the increase was mainly due to growing bank lending for car sales, where car insurance is the key requirement for loan securing.
Online policy sales have become one of the positive factors that have not yet reached tangible results, but have built a good foundation for market development. Now companies are obliged to sell all types of compulsory insurance products only online. Due to this, insurers really improved their internet resources and started to invest more into innovative technologies that provide the best experience for interaction between insurance companies and their clients. It can be said that 2019 marked the beginning of the Kazakh market's transition to online and this provides the market with new perspectives and opportunities.
XPRIMM: How would you assess the contribution of life insurance to the market results? Would you name life insurance a market driver in terms of GWP and profit?
M.S.: For sure, life insurance can be named a growth driver of the Kazakh insurance market, since life sector has provided more than half of the market portfolio growth in terms of GWP amount. Pension annuities increased by 132% (by KZT 37.1 billion) and reached KZT 65.3 billion; as of January 1, 2020, the share of this class in the market portfolio already reached 12.8%, voluntary life insurance GWP, in which universal life insurance is prevailing, increased by 41% (by KZT 22.2 billion) and amounted to KZT 76.9 billion with a market share of 15%. Voluntary accidents insurance increased by 57% and reached KZT 23.6 billion.
In short, personal insurance is rising. The main factors, driving this trend, are competitive conditions of the life market for pension annuities, attractive conditions for universal life insurance products, especially for products in foreign currency, as well as accidents insurance as an additional option for universal life products. Transfer of compulsory accidents insurance of employees as an exceptional insurance type to life insurance companies allowed life insurers increase their GWP even without involving agent networks of non-life companies.
Life sector has good perspectives and is attractive for investors, which is confirmed by the fact that in 2019 two more life insurers entered this market, while at the same time two non-life companies left.
In addition to that life insurance is the GWP growth driver, it is clearly a driver of profit growth, off-setting losses of non-life sector. In 2019 total market's profit increased very slightly, only by 0.6%. Life companies helped the market stay within the 2018 profit level, since they almost doubled their earnings, while non-life companies reduced their profit by a quarter y-o-y.
According to the National Bank, the market's profit in 2019 amounted to KZT 78.4 billion, which is 0.6% less y-o-y. In the profit structure, 26.2% was provided by life companies, at that they actually increased their profit last year from KZT 13.3 billion to KZT 26.3 billion, i.e. almost doubled. At the same time, non-life companies reduced their net profit from KZT 65.5 billion in 2018 to KZT 52.2 billion in 2019 or by 25.5%.
XPRIMM: MTPL, as the most popular insurance type, grew by 26% in 2019. However, it has a high loss ratio and its concentration is increasing. In your opinion, what measures may be useful in solving the main problems of this class?
M.S.: Increasing concentration of MTPL market can be explained by the fact that highly capitalized insurers entered the "fight" for MTPL shares, and these companies can pay big indemnities to intermediaries (agents), who "transfer" clients from other companies with low indemnities to the portfolios of companies, which pay indemnities of up to 40% or more.
The real share of paid claims in GWP at the end of 2019 reached an average of 39% on the market and it increased by 3% y-o-y, but at the same time, insurers note "frontier' loss ratio, which is "pressing" profit of this class. Moreover, it should be mentioned that insurers, having significant shares of MTPL GWP, are not leading in terms of paid claims, while medium-sized companies have the highest levels of paid claims.
Since, as it has already been said, GWP leadership is supported exclusively by intermediaries as a sales channel, risk selection is out of the question here, so market leaders first take "bad risks". Surprisingly moderate paid claims coefficients of the market leaders, taking into consideration the described factors, may indicate optimization of paid claims.
In 2019 average paid claim amount increased by 7.6%, from KZT 368 thousand to KZT 396 thousand, which is a bit higher than the inflation rate, thus there is no significant increase of paid claims.
Motor insurers also emphasize growing insurance fraud level, which, according to some estimation, reached up to 20% of total paid claims. But that estimation has no actual confirmation due to absence of a central record system for confirmed cases of fraud and reinsurers make such estimation mostly based on their "feelings".
Lately, insurers have been actively discussing an increase of insurance tariffs with the regulator to solve the problem of high loss ratio, but the regulator keeps options open in this direction. Apparently, this is to say that MTPL market has its own internal resources, namely: optimization of relations with insurance intermediaries in order to reduce amount of indemnities, struggle against insurance fraud and creation of a more transparent process of insurance payments.
In this regard, the regulator announced in 2020 transition to online MTPL claim settlement, that will make the process more transparent in terms of calculation of compensation amounts, reduction of insurance fraud cases, as well as control over timeliness and completeness of insurance reserves. Also, transition to online mode will reduce time of claim settlement and ongoing expenses of insurers for the process organization. Perhaps, these measures will be enough to reverse the negative trends on MTPL market.
XPRIMM: What most pressing problems and weak points of the insurance market would you name first? How much, in your opinion, the regulator can help to increase low insurance coverage of the population and low awareness, as well as improve development of new products and technologies in insurance?
M.S.: In fact, the low insurance coverage of the population is not the regulator's task. Today in Kazakhstan we have a lot of compulsory insurance classes, many of which are not developing and, of course, can't become points of business growth. Therefore, increasing number of compulsory classes won't give the market any positive dynamics. The biggest problem for the market is that insurers do not want to invest in market's development, create new products and promote products on the market, but they are waiting for incentive measures from the government, although, at the worldwide level, market development is the task of business in the first place.
Kazakh insurers are quite comfortable with the current market condition, since it is stable and predictable, so relying only on the regulator as the main driver of the market development is just an excuse for their complacency in the actual situation.
As of now, the government has provided a rather comfortable taxation regime, it is constantly adjusting legislation to introduce new technologies and develop new insurance products, but the insurance market's development, first of all, is the task of business participants, as well as in part of informing potential insurers about insurance products.
XPRIMM: What are your expectations for 2020? Which market perspectives and points of growth would you note as priority?
M.S.: First of all, the insurance sector needs a market benchmark for future in the form of a program of the insurance market development for the coming decade. To date, the market does not have its own development program, coordinated with the regulator and government, and this makes it difficult to determine priorities for focusing on specific tasks.
In the mid-term, introduction of online insurance and technologies will remain the driver, since it will support the market development. Also, online claim settlement will create new opportunities for the insurance sector in terms of optimization and acceleration of the procedures, and, as a result, reduction of insurance products' costs as well as expansion of the product portfolio.
Perspective introduction of proportional supervision will enable development of specialized and niche insurers, as well as affect expansion of the insurance product line. And stimulation of the risk pooling system will allow development of self-regulatory technologies and creation of high-quality national capacity for development of new insurance products.
All those issues were included into regulator's tasks for the insurance market development and the work has already begun, so 2020 will be a year of real changes on the Kazakh insurance market.