Kazakhstan’s insurers are in full stiff-upper-lip mode, choosing to laugh in the face of numerous economic headwinds including falling oil prices and currency depreciation. The reason for their positivity? The age-old maxim that the only way is up.
Kazakhstan had 34 insurance companies as of late-2014, including six that are licensed to conduct life insurance—the regulator, the National Bank of Kazakhstan, forbids composite insurance. The life sector is woefully undeveloped in Kazakhstan, some analysts blaming the inherited Soviet attitude shunning private enterprise and the ideal that the state take care of its citizens. That said, the outlook for the sector is superb. According to a report from Timetric’s Insurance Intelligence Center (IIC), the life insurance sector is set to more than double in size from KZT56.6 billion in 2013 to KZT132.7 billion in 2018. To put that in perspective, BMI Research forecasts overall insurance premiums to grow at a swift 22.2% a year on average (in local currency terms) through to 2020, eventually arriving at a value of KZT229 billion. That means the non-life sector will enjoy slower growth, at 9.3% YoY between 2016 and 2020, reaching a value of KZT350.7 billion, according to BMI.
When arriving at these figures, analysts are taking into account Kazakhstan’s sterling demographics, including rising life expectancy (up from 67 in 2008 to 69.9 in 2013), as well as increasing urbanization (up from 57.9% in 2008 to 59.5% in 2013). And in terms of what lines will make the sector tick, Life Insurance International believes pension and endowment products will lead the charge.
The sector isn’t without risk, however. Low oil prices, slowdown in major trading partners Russia and China, and the resultant currency devaluation following the unpegging of the tenge from the dollar in August 2015 have combined to put pressure on insurers, raising the cost of outward reinsurance and resulting in claims inflation. S&P also notes that a decline in individual expenditure in the property/casualty (P/C) area is a result of devaluation, with spending standing at about $50 per capita at end-3Q2015. The greatest impact has been felt by motor insurers, which represent around one-third of the P/C market. “Local currency devaluation will speed up losses in motor insurance,” echoed Yergali Begimbetov, Chairman of the Board of Amanat Insurance, who also stated to TBY in an interview that he expects, “the coming year to be more difficult than 2015,” partly owing to competition in the market in terms of mandatory motor third party liability (MTPL) insurance.
On top of devaluation-related challenges, there also exist risks inherent to Kazakhstan, which S&P recently outlined in a report on the industry. According to the agency, Kazakhstan’s insurers are exposed to risks associated with the banking sector, which suffers from a weak funding profile. Kazakhstani banks and insurers alike also suffer from a weak payment culture. S&P indicates, though, that the risk borne by insurers is on par with countries including Italy, Slovenia, and Poland, with its established regulatory framework putting it a step ahead of its fellow CIS members.
In terms of players, the market remains unpenetrated by foreign firms, owing to strict regulations on ownership. This setup has worked to protect the domestic industry yet hamper expansion as the sector is denied the wisdom and capital of international big fish. In terms of who rules the roost, Kaspi Insurance is accepted as top dog in the market, holding just over 13% of premiums as of 2013, with other big players including Eurasia Insurance Company, Halyk-Kazakhinstrakh, and Generali Life. According to Life Insurance International, the leading 10 insurance players in the market account for almost 70% of total gross written premiums.
And with local companies come local opinions, with Zhanar Kaliyeva, Chairman of the Board at Kompetenz, giving TBY a window into how insurers are dealing with the current downturn. “[The crisis] is affecting overall market activity and the budgets of the corporate companies,” he began, continuing that, “they usually start cutting costs in insurance and social packages for employees first.” Looking for a silver lining, however, Kaliyeva was eager to point out that, “On the other hand, every time a crisis starts, people become more aware of their own lives. They start thinking about what to do to protect their lives or the people who depend on them. In these times, the statistics show that, even in a crisis, insurance grows.” Kaliyeva also weighed in on the practical price war raging between insurers as competition ramps up, suggesting that increasing levels of professionalism could bring about better sectoral cooperation, especially when it comes to programs to raise awareness of insurance. “This is a good challenge for such a professional, market-driven company like our own. The era of large, slow, and dysfunctional companies is gone,” he concluded.
In terms of regulation and governance, Kazakhstan is certainly not driving blind. The National Bank, which acts as the insurance sector regulator, recently got together with the Association of Insurers of Kazakhstan and the Kazakhstan Financiers Association to develop an insurance market roadmap. The roadmap outlines measures for the development of the industry, the establishment of infrastructure, and the expansion of healthy competition. The introduction of electronic insurance policies also features in the plan, and could “help to decrease operating costs and save the clients’ time,” said Damir Khaibullin, Chairman of the Board of Standard Insurance Company, in conversation with TBY. Khaibullin also speaks highly of the regulatory body; “we discuss all problems and development strategies with them and that they are therefore aware of the problems in our market. We hold open forums with them, attended by other insurance companies, where we regularly discuss all the issues.”
Moving forward the life insurance sector is set to play a larger role in growth, although there is still a long way to go to encourage individuals, on a mass scale, to fork out for premiums, especially at a time of dire economic uncertainty. Tenge stabilization will go a long way to bringing clarity to the sector, yet for the time being insurers will be hard at work flogging their wares at competitive prices and hoping that no new surprises are around the corner.