Papua New Guinea’s insurance sector has considerable potential, not only in terms of growth in the more traditional urban, commercial and industrial markets, but also because the country has so many people who have never had exposure to insurance of any kind. As marketing, distribution and design are improved, take-up by lower-income individuals and those living in remote rural areas could increase significantly. The untapped market is substantial in number – potentially more than 6m people – and has attracted considerable attention.
The average Papua New Guinean faces a wide range of risks, both typical and those country-specific. The cost of funerals and related ceremonial events are especially high and can significantly burden families. While expenses have historically been defrayed by utilising the Wantok system, the traditional pooling of communal resources for mutual care that spans all aspects of society, more people are falling outside that protective network. It is also becoming increasingly difficult for citizens to depend heavily on community and family during times of hardship due to the overall economic situation in PNG. Other risks include those related to health, theft, tribal conflict and the weather – especially drought conditions.
Insurers are actively looking for ways to increase sales to settlements and villages. The Pacific Financial Inclusion Programme (PFIP) and Capital Insurance have conducted a study, funded by a PGK213,000 ($67,500) grant and published in 2016, to see whether demand and capacity exist in these places for coverage of homes and communal assets, such as churches, water pumps, clinics and schools. If natural disasters damage communal assets, everyone in the area can be affected.
According to the report, the low penetration rate outside the cities and at lower income levels is the result of a number of factors. These include minimal financial literacy and the low quality of construction, which can make assets uninsurable. The PFIP also notes that the difficult terrain and the many cultures and languages in some communities add to the challenge, while the lack of good record-keeping outside urban areas makes insurance a particularly difficult proposition in these places.
While the Wantok system is seen to be weakening, it still lowers the perception of risk and can discourage people from seeking formal insurance products. In addition to Wantok, many other traditional forms of support exist in the country and can add to a false sense of security. These include the layby system, in which clinics take small deposits from individuals to accumulate funds for the future treatment of the contributors, as well as the Wok Meri system, in which women pool money for mutual benefit.
While insurance has been present in the country for more than a century, the sector has tended to focus on commercial risks and those related to foreign interests – the average Papua New Guinean has had little exposure to the sector. Any experiences an individual may have had with financial services have often been unsatisfactory, characterised by long lines, poor service and frequent scams. As a result, many people can be hesitant to establish relationships with formal institutions.
Prospects In Question
After examining the market, the PFIP believes that micro-insurance will only work as a business model in urban centres and in areas near cities, as even the lowest-cost insurance products need customers who have salaries or steady incomes from self employment. As approximately 80% of the country lives at the subsistence level, the vast majority of people are unlikely to have the ability to buy insurance any time soon.
According to the PFIP, about 20% of salaried workers in the country currently have insurance, while the maximum potential is probably around 50%. For workers earning hourly wages, the rates are 0% currently and an estimated 10% in the future. For those in neither income category, the numbers are 0% now with no increase expected in the future.
The Life Insurance Corporation has sold funeral insurance in both Port Moresby and other areas of the country, with policies in the former subsidised by the city government. The lump sum payment is PGK5000 ($1585), although the payout is lower for the aged and those with pre-existing conditions. For people living in Port Moresby, half of the PGK60 ($19.02) annual premium is paid by the local government. City Pharmacy has also issued funeral policies to customers enrolled in its loyalty programme. The payouts are as high as PGK20,000 ($6340), with a PGK200 ($63.40) premium. However, according to the PFIP, neither policy took off.
Research has been conducted for the development of crop insurance and similar conclusions were reached. In a 2013 World Bank pre-feasibility study on the subject, it was noted that the country’s agricultural sector is exposed to a wide range of risks, including earthquakes, volcanoes, tsunamis, cyclones, flooding, landslides and droughts. The El Niño climatic phenomenon has been particularly devastating in recent years.
The World Bank notes that the country faces significant challenges in the creation of agricultural insurance products that will work. The organisation says that because much of the target market is dominated by subsistence farmers, policies might be difficult to design and market. The country also has no tradition of agricultural insurance, low awareness of insurance in general, no national framework for the relevant products and no regulation supporting the development of cover. “Insurance is a secondary thought and most people don’t prioritise it. Awareness and understanding is missing in the PNG market,” Stefan Hansen, general manager of local Tower Insurance, told OBG. The lack of data regarding crops and the weather is especially problematic. It makes risk assessment challenging. The country has weather stations, but not a full complement. Information available is not yet comprehensive enough to be useful to the insurance sector.
Both the farmers and the insurers are constrained in what they can do. The former don’t have the cash to pay for policies while the latter lack the capital to fund an entirely new line in an unproven area. Distribution would also be difficult, as no insurer has a sufficiently comprehensive branch network to effectively reach the rural parts of the country.
While it is generally pessimistic about crop and agricultural insurance in the country, the World Bank sees possible opportunities in a number of specific areas. It says that single and named peril policies might work for the oil palm and rubber industries, but that multiple peril and revenue insurance would not. Windstorm, cyclone and volcanic eruption would likely be the most promising risks to cover.
The report adds that Weather Index Insurance could work at the meso level – via financial institutions and suppliers – and the macro level through the government, but not through farmers at the micro level. Cyclone data is fairly comprehensive, going back 50 years, so those storms could potentially be covered. The bank also sees possibilities in the use of remote sensing for developing national drought insurance schemes for food security.
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