Interview: Wayne Dorgan
What would you say is the relevance of microinsurance in Papua New Guinea?
WAYNE DORGAN: Microinsurance is the fastest-growing microfinance product in the world. Here in PNG we used to call it insurance for the grassroots, as it was first implemented with the idea of targeting the bottom end of the market – mainly subsistence farmers – by offering the smallest premium at PKG0.12 ($0.04) per day. At the moment there are 24 general insurance entities in the country, serving only 15% of the economy. So microinsurance is capital for socioeconomic development as it targets the remaining 85% of the population with products that have an immediate impact on their livelihood. For example, PGK5000 ($2032) worth of life coverage can assure a loan for the same amount, which may allow people to set up road-side stores or market their gardens by employing a family member retailing their produce. The next line of credit may go up to PGK10,000 ($4065).
So instead of cross-selling to other services, which is characteristic of commercial banks, microinsurance tries to find solutions to grassroots-specific problems, but its effectiveness depends to a great extent on the implementation of the financial inclusion programme. Hopefully, in years to come these micro-clients will climb the social ladder and turn into small and medium-sized enterprises to the benefit of the local economy and the employment rate.
Which problems are specific to PNG’s market from an insurer’s point of view?
DORGAN: Public relations is the biggest challenge for the industry around the world, as it still suffers from a negative perception. This is not the case in PNG, even though the industry is over 110 years old, as it continues to be dominated by corporate clients, who are always informed consumers. Although the industry in PNG has been fairly readable, there are, of course, unique risks. Regional centres have been built on top of volcanoes or in provinces like Bougainville, where law and order continues to be an issue. These areas characteristically lack high insurance uptake, but this is gradually changing thanks to the growth of the middle class, which is benefitting from the implementation of the PNG liquefied natural gas (LNG) project. This segment is becoming more affluent but often continues to be unaware of insurance products. That is why education is a big component for the growth of the industry, especially within the corporate landscape. Good employees are hard to come by in this country, and products like life and medical insurance play a factor in retaining human capital by limiting turnover and expenses in the long run. Having a mini-hospital onsite for mining projects, for instance, is more cost effective than sending employees to be treated somewhere else.
How has the insurance industry been performing in PNG in recent years?
DORGAN: The local industry could have doubled in size if the two LNG projects had not been granted carte blanch exemptions to place their insurance offshore with captive insurance companies. This practise is effectively a way to finance risk; however, it ignores the domestic capacity to handle these projects. Having a local insurer also means that the company will comply with local legislation. At the moment the market is shrinking from a revenue point of view and brokers are trying to reduce premiums, which does not necessarily mean that they are providing better services to their clients.
As far as I am concerned, insurance should be sold on services provided, not on price. In the long run, there will be more opportunities as new energy projects come on-stream, but mostly small frequency claims, as most of these firms will apply for the same exemptions as the previous LNG project. Ethics and due diligence are coming into place in PNG and this is a positive development, as the insurance industry is at the forefront of the fight against corruption.
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