Interview : Keith Land
How would you characterise the level of regulation over Papua New Guinea’s insurance sector?
KEITH LAND: The sector has two regulators: the Bank of PNG regulates life insurance, while the Insurance Commissioner oversees the general insurance side. They are both strong in their own markets. The concept of a super-regulator has been floated for some time with the view it would result in more consistency across the market. However, there are very few insurers that are licensed for both life and non-life business. PNG has one of the world’s lowest financial entry levels for new insurance firms. This can mean some companies that meet financial challenges are more likely to fail. Moreover, only a handful of insurers are checked on a regular basis. It is important for the public to know if an insurance company is financially strong.
How would you assess the performance of the general and life segments, and how does PNG compare to other markets in the region?
LAND: The insurance sector is very competitive. There are 12 general insurers and three life insurers, with Bank South Pacific (BSP) recently entering as a new life insurer in February 2018. Most types of coverage are available, with all players focusing on their particular strengths within the market.
While PNG is competitive, the same can be said of other markets in the region. Fiji has about 10 insurers, but their population is only 10% of PNG’s. Solomon Islands, which is even smaller, has three insurers. There are a good number of insurers across the Pacific, with a relatively high number of smaller insurers in PNG, due to the low financial entry requirements. This, coupled with general economic challenges, means we expect a period of consolidation: over the 2020-23 period we may see smaller general insurers disappearing, while the life segment could see extra activity with the entrance of BSP. Whether this will result in regulatory changes or new products being released remains to be seen.
A big challenge for insurance – and for other sectors in PNG – is the shortage of foreign currency. Reinsurers need to be paid in hard currency, meaning insurers have difficulty meeting their financial obligations. Such problems are seen in the health segment. For example, medical evacuation clients need to make upfront offshore payments – sometimes upwards of $100,000 – and then wait for reimbursement, which many cannot afford.
We do not expect to see much change on the foreign exchange front in 2018. Any significant change would come on the back of upcoming energy and mining projects expected in 2019-20.
What is the outlook for insurance penetration, and what can be done to improve it?
LAND: The main challenge is making insurance more attractive to remote populations. Awareness is growing quickly in metropolitan areas but less so in rural regions. Micro-insurance is important for increasing the range of the broader sector, but it is not that easy. Remote populations require consumer-designed products, and therefore more research and development. Grants from the UN’s Pacific Financial Inclusion Programme partially cover this. Furthermore, a sense of security when taking out coverage is necessary, which is expected to encourage further penetration.
The sector as a whole is likely to remain fairly static in reaching new customers. The general side may see a small increase in activity and premiums over the course of 2018. Growth in the micro-life market has been strong, with close to 500,000 people taking out policies. However, higher penetration in the wider market is unlikely in the near term, as this can only occur with more education to encourage new insurance buyers. Employer-sponsored schemes are key.
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