A projected rise in home ownership and increasing demand for private health coverage are among the forces expected to drive growth in Papua New Guinea’s insurance sector. However, competitive pressures and global risks may also hamper the industry throughout 2015-16. Though the number of registered insurers is small, the market relatively limited and take-up rates for most forms of non-compulsory insurance low, competition is thriving and the sector is profitable, with low loss ratios despite a recent uptick in fire claims. As of 2014, there were 14 licensed underwriters in the PNG insurance market, many with links to overseas companies. Underwriters anticipate expansion in key policy classes due to rising vehicle sales, construction work as a result of government infrastructure investments and other business from state-owned enterprises. This comes despite growth slowing in 2014 from double-digit figures in the five years to 2013. In life and superannuation, government efforts to promote indigenous small and medium-sized enterprises should also support expanding employee benefits and retirement savings products.

Health Potential

One segment that is earmarked for growth is the medical insurance category. Demand for private health insurance is rising due to higher income levels among the local population and an expanded expatriate community attracted by the growing hydrocarbons industry.

Capital Insurance’s managing director, Philip Tolley, told OBG that there is an increasing momentum in the health component of the market. “There is a growing interest in medical coverage within the industry and several companies are expanding within the segment,” he said.

PAG CEO Paul Affleck agreed the segment will play an increasingly important role in its business. “Health products accounted for as much as 25% of the company’s activities in 2014, and it is by far the fastest-growing segment within the group,” he told OBG.

This trend mirrors the larger growth patterns of health care insurance within the Asian market as a whole, which is being driven by continued economic growth and increased demand among an expanding middle class. Health insurance across the wider Asia region is expanding on the back of employer-funded medical plans or private medical insurance (PMI), which remain the pre-eminent employee benefit that had a marked impact on employee engagement and talent management metrics, according to Aon Insurance’s “2015 Asia Market Review”. This has put many private employers in a difficult position of coming under increasing pressure to provide greater scope and value of PMI coverage for employees while facing a continued escalation of medical inflation.


Another boost to the sector could come from the property market, with an increasing rate of home ownership bringing with it higher demand for coverage. Though many analysts expect the PNG real estate market to remain flat in 2015, home ownership rates are forecast to rise, especially later in the year when a number of affordable housing developments will be rolled out. Although not yet widely prevalent, PNG’s unique geologic and geopolitical environments also provide an opportunity for the growth of niche products. Situated along the Pacific Rim’s Ring of Fire, the same geologic forces which have provided an abundance of valuable mineral resources including gold, copper, nickel and silver also harbour a much more dangerous potential of volcanic eruptions and related earthquakes and tsunamis. The importance of hedging against these disasters has been driven home in recent years with the recent earthquakes and tsunamis affecting Indonesia, Thailand and Japan. As a region, eight of the top 10 countries in the world with the highest annual natural catastrophe losses as a percentage of GDP are located in Asia. In addition, rising GDP increases commercial insurance exposures and the need for protection against conventional business risks as well as property damage, catastrophe and business interruption. Taking this into account, catastrophe insurance, although notoriously difficult to quantify, could fill a key demand in the country.

Cultural Barriers

Penetration rates remain low in regional terms despite new entrants and product launches in 2014-15. The Bank of PNG, which acts as the regulator for the life insurance component of the industry, estimates that 2-5% of the nation’s businesses and population have some form of coverage, the lowest rate in the Pacific region and making PNG one of the world’s least insured countries.

One reason behind this trend is cultural, INSPAC’s CEO, Ian Balfour, told OBG, adding that the local population rely mainly on family members for support rather than the financial sector. In a recent interview with local media, Raka Taviri, general manager of Life Insurance Corporation (PNG), echoed this sentiment. “Insurance is a normal concept for us in this country… [but] people shy away from filling forms; they don’t want to commit themselves,” Taviri said.

Some in the industry are calling on the government to do more to support the adoption of insurance. Johnson Tia, the founder and director of the Pacific Assurance Group (PAG), said in January 2015 that nationally owned businesses often ceased operations due to disasters, fires or tribal fights.

“The government really needs to be involved and appreciate that insurance is the backbone to economic development,” he said.

Intertwined with these cultural barriers, political and economic risk in general play a significant role in the country’s insurance sector as well. Global credit ratings agency AM Best placed PNG at the highest level of risk (five) in its five-tiered country risk rating system, which takes into account political, economic and financial system risk. The country’s economic and political risk were rated as high (tier four), while financial system risk was rated at the highest level of very high (five). Other countries within the region to merit a high-risk ranking of five include Vietnam, Bhutan, Uzbekistan and Pakistan.

The country was also placed on Aon’s 2015 Terrorism and Political Violence Risk Map as one of six Asian countries to be subjected to all three measured risk perils of terrorism and sabotage; riots, strikes, civil commotion and malicious damage; and insurrection, revolution, rebellion, mutiny, coup d’état, war and civil war. Although PNG retained its status as a medium-risk level country overall, it did fare better than other regional neighbours including Indonesia, the Philippines, Thailand and Myanmar, which all garnered high-risk ratings.

Global Demand

The sector may suffer from wider economic trends as well. In an AM Best risk report on PNG published in 2014, the insurance ratings agency said the sector, along with the rest of the PNG economy, could be affected by financial volatility and external global price and demand shocks due to its strong dependence on commodity exports. With international gas prices declining in 2014 and into 2015, the pace of the economy is expected to slow, which could cool appetite for insurance.

The report showed that premiums in the insurance sector rose by 30% from 2012 to 2013, with the non-life sector dominating with premiums written worth an estimated $166m in 2013 compared to $8m in the life sector. Another setback for domestic insurers is that some of the large industries operating in PNG have their risks insured offshore. While the mining and hydrocarbons sectors have expanded rapidly in recent years, the full impact of this growth has not flowed on to the insurance industry, with PNG’s international partners having their risk coverage underwritten in their own countries or spread over a number of markets.

PNG’s insurance market will also need to account for a number of other factors occurring throughout the region which will likely have a ripple effect on the domestic sector. While slowly accelerating growth in the US and Europe should benefit the industry to an extent, PNG’s economy remains much more enmeshed within the Asia-Pacific region – most of all China as a major importer of PNG’s raw materials. With this in mind, that country’s decelerating growth in 2015 may negatively affect PNG’s economy and the insurance industry.

In spite of these challenges, insurers in PNG will still benefit from comparative advantages in relation to more established markets in the West. While the robust double-digit economic growth initially projected for PNG in 2015 looks unlikely to materialise, the country’s GDP expansion along with the Asia-Pacific region as a whole is still well above the growth forecast for the US and EU markets.

Consequently, the region’s continuing appeal to foreign insurers seeking growth opportunities remains strong. And in fact, PNG’s elevated catastrophe risk, sustained economic growth and low insurance penetration all combine to create significant opportunity for commercial expansion.