Marina SHIPOVALOVA, General Director, InterConsult Info

16 May 2024 — Marina MAGNAVAL
Marina SHIPOVALOVA, General Director, InterConsult Info

XPRIMM: What key trends and events in 2023 in the development of the insurance market would you highlight? How did the overall market development differ from the previous year?

Marina SHIPOVALOVA: The main trend in 2023 was digitalization and the transfer of insurers’ business online. The process has been gaining momentum over the past few years, and Kazakhstani insurers are already ahead of many foreign companies in digitalization of insurance products. If the pandemic gave impetus to the transition of sales of insurance products online, now, through the efforts of the regulator and the market, all insurance processes from sale of policies to claim settlement are being digitized.

From the beginning of 2023, insurance companies are required to transfer information on all insurance, reinsurance contracts and insurance events to a unified insurance database UID for data collection and analysis, although previously this requirement applied to only mandatory insurance.

In addition to purchasing insurance online, insurers are now required to provide full functionality on their websites for online claim settlement. Moreover, when submitting applications for insurance payments now policyholders do not have to present paper documents that are available in electronic form in the databases and information systems of government bodies, to which insurers have access. Simplification of the process of providing original documents, required for insurance payments, is another innovation of the past year.

It is natural that the transition of the insurance business online has raised concerns about the growth of insurance fraud. In this case, the regulator protected the interests of the insurance market by introducing a ban on unfair behavior when concluding insurance contracts, during the period of insurance protection and settlement of insured events. If signs of dishonest behavior of a policyholder are detected, the insurer has the right to suspend insurance payments for a period of up to 30 calendar days.

Considering the growing role of insurance in managing business risks and the recent introduction of the concept of “imputed insurance”, the regulator adopted a legal act that established the minimum mandatory conditions that must be in imputed insurance contracts: an object of insurance, an insured amount, insured risks, exclusions etc. This change made it possible to streamline insurance terms in the public and quasi-public sectors, where an insurance contract is considered as security for the fulfillment of obligations under procurement contracts.

Continuing the topic of imputed insurance as a risk management tool in various areas, I would like to note the introduction of imputed health insurance last year for foreigners working in Kazakhstan. A standard contract was approved with a minimum list of medical services that a migrant worker can count on in case of illness. This insurance is mandatory for employment of foreigners in Kazakhstan; without it, a foreigner does not have the right to officially get a job in our country.

Big changes have taken place in the field of motor insurance; in particular, Kazakhstanis now cannot insure cars that are registered in another country. Before the introduction of this ban, when issuing a policy to the owner of a car registered abroad, insurers used an increased coefficient when calculating the tariff, such as for foreigners temporarily entering Kazakhstan. This initiative became an incentive for Kazakhstanis to carry out registration of foreign cars in Kazakhstan, but it affected MTPL premiums as they decreased slightly, but still decreased.

At the same time, there was a significant increase in sales in property insurance and Motor Hull, which was associated with activity in the banking sector, as banks provide loans to Kazakhstanis for the purchase of cars and real estate, and loans must be insured. According to the First Credit Bureau, car lending volumes increased by 57% since January 1, 2023, to KZT 2.38 trillion, the number of borrowers increased by 27% to 416,000. But such growth always raises concerns because it will continue until bank insurance for collateral runs out. Such periods of “rise and fall” have already been observed in the Kazakh Motor Hull market about 10 years ago.

If retail bancassurance, supported by the lending activity of banks, is temporary, then cargo insurance, which saw a two-fold increase at the end of the year, is supported by the logistics potential of Kazakhstan in the conditions of exclusion of the Russian Federation from the logistic chains between China and Europe. Realization of this potential creates new opportunities for Kazakhstani insurers.

In the past year, it is also necessary to note a change in the field of insurance intermediation, in particular, insurance agents - legal entities are now required to work with one company for non-life insurance and life insurance, which narrows the powers of insurance agents in relation to cooperation with insurance companies. The function of training and certification of insurance agents was transferred to the Association of Financiers of Kazakhstan (AFK), which led to transparency of the agent certification process. Agents are tested through a special electronic platform organized by AFK, thereby it reduces the risk of unqualified agents entering the market.

XPRIMM: Which insurance segments demonstrated the best dynamics in 2023? What were the main growth drivers of premiums and paid claims during the year?

M.S.: GWP in 2023 increased by 29.6% and amounted to KZT 1,000,346 million, of which KZT 896,757 million were premiums under direct insurance contracts. The share of life insurance in the total portfolio amounted to 37.8%, vs 37.5% a year earlier.

The major stakes in total GWP belong to voluntary property insurance - 44.9%, compulsory insurance - 19.4%, voluntary personal insurance - 35.7%.

Life insurance in 2023 amounted to KZT 378,100 million, which is 30.8% more y-o-y. In non-life insurance companies generated KZT 622,246 million, which is 28.9% more than in 2022.

The main growth drivers are several classes of insurance:

  • insurance of employees against accidents +29.3%
  • motor insurance +87.9%
  • cargo insurance +68.7%
  • health insurance +24.5%
  • property insurance +25.3%

Total paid claims under direct insurance contracts in 2023 amounted to KZT 274,212 million, which is 43.7% more y-o-y. Of the total amount voluntary property insurance accounted for 41%, voluntary personal insurance - 30.5% and compulsory insurance - 28.5%.

The average payout ratio on the market was about 30.6%.

XPRIMM: Did insurers experience difficulties in 2023? Were there any regulatory innovations that affected the operation of the insurance market?

M.S.: In 2023, tough global reinsurance market conditions continued to put pressure on reinsurance premiums and availability of reinsurance coverage for Kazakhstani insurers. Withdrawal of international ratings from Russian insurers in 2022 and imposed sanction restrictions on some Russian insurers, who were traditional partners for the Kazakh insurance market, disrupted the established channels for transferring risks to reinsurance in the Russian Federation and only thanks to the regulator and temporary reduction of requirements for the rating of reinsurers from EAEU countries we managed to partially maintain such flows. In 2023, the Kazakh insurance regulator for the EAEU countries decided to recognize the ratings of the national rating agency ACRA, which somewhat reduced tensions.

But nevertheless, the flows of outward reinsurance abroad, considering cumulative growth of reinsurance by 32.4% in 2023, in favor of non-residents increased by only 21.9%, while reinsurance in favor of residents (within Kazakhstan) increased by 85.9%. That is, Kazakhstani insurers began to retain more risks within the country.

XPRIMM: How would you comment on the results for profit, expenses, reserves, and assets in 2023?

M.S.: As of January 1, 2024, the assets of insurance organizations amounted to KZT 2,495,041 million, having increased by 20.7% in 2023. In the structure of assets, the largest share is made up of securities - 70.2%, an increase from the beginning of the year was 14.4%. Deposits placed in second-tier banks account for 4.5% of total assets (+50.4%). Reinsurance assets account for 3.6% (+35.1%).

Total liabilities of insurance organizations as of January 1, 2024, amounted to KZT 1,590,992 million, an increase from the beginning of 2023 was 23.2%. In the structure of liabilities, the largest share (85.3%) is occupied by insurance reserves, which increased by 23.5%.

The actual solvency margin of insurance organizations reached KZT 625,003 million (at the beginning of 2023 – KZT 540,221 million), that is, an increase since the beginning of 2023 was 15.7%. The adequacy standard for the actual solvency margin of the insurance sector decreased slightly to 4.8 (at the beginning of 2023 – 5.19).

The net profit of the insurance sector as of January 1, 2024, amounted to KZT 182,891 million, which is 33% more y-o-y, and the market average profitability indicators were: ROA - 8.0%, ROE – 21.8%.

XPRIMM: Would you briefly describe the insurance industry's goals and plans for 2024?

M.S.: In 2024, the Kazakh insurance market will continue to focus on digitalization, development of financial technologies and innovations and, according to the regulator, the market is expected to change in three directions at once: insurtech, regtech and subtech.

Insurtech is technologies that will make it possible to provide online services, marketplaces, and applications for interaction of insurance organizations with consumers of digital services. Marketplaces, applications, and online services should allow optimization of financial time resources in the provision of insurance services both for the insurance organizations and for consumers.

An example of the beginning of insurtech implementation is the simplified procedure for claim settlement, or the European Accident Statement, which has already been launched in Kazakhstan since January 1, 2024. The European Accident Statement can be used in the event of an accident when an insurance payment does not exceed 100 MCI (minimum calculation index). From January 1, 2024, insurers must provide an online service for settling payments not only within the framework of the European Accident Statement, but in general for all MTPL losses.

The second direction based on the strategic documents is regtech. These technologies enable collection and processing of large volumes of data required for analysis, insurance evaluation and actuarial calculations which are key in insurance.

Regtech provides for a principle of the so-called flexible tariff for MTPL as the main type of insurance. For fair pricing, in which companies would not go into the red and consumers would not pay more than necessary, a targeted level of loss will be set. The advantage of this system is that people in low-loss regions will pay less for insurance.

Subtech is the third direction, and it is more intended for the regulator and concerns the analysis of risks of insurance organizations for building supervisory digital tools. Such regulatory tools will also be digitized and data-driven rather than driven by judgement.