Interview: Raho Samuel
How will changes to the Insurance Act affect the operating environment in the insurance sector?
RAHO SAMUEL: The Office of the Insurance Commissioner has engaged with the relevant stakeholders to review the Insurance Act. This underlines the strong cooperation between the regulatory office and the general insurance industry. We have identified the amendments needed to improve the act and benefit the insurance sector as a whole. We looked at the insurance regulatory framework in several neighbouring countries, such as Australia and Fiji, to find a model that works for Papua New Guinea. Many improvements were already being implemented, but codifying them will give us more teeth for enforcement. One of the most significant changes grants the commissioner’s office the power to enforce prudential standards in the industry. This will contribute to good corporate governance because insurance companies will have to make sure they are operating appropriately. Among other things, this will ensure that they are transparent and act according to the stipulations of the law.
Another improvement is the transition from rulesbased supervision to risk-based capital supervision. Previously, if an insurance firm wanted to renew their licence, they were allowed to do so if they complied with all the rules. We moved away from this model with support from the Australian government. We also want to increase the capital requirements for new entrants.
What impact does the relatively high number of insurers have on revenue in the sector?
SAMUEL: At the moment we have 13 licensed insurers.
I am not sure if that is a high number when compared to neighbouring countries’ insurance markets. However, we believe the sector is competitive. Some PNG licensed companies are active throughout the Pacific. Competitiveness will be strengthened by the review of the Insurance Act, as discussed previously. That said, we do not license firms without careful due diligence. Companies have to provide a business plan and are only given a licence if we believe they will add value or innovation to the insurance sector. It is not just about meeting the capital requirements. For example, we accepted the market entrance of an insurance company providing health insurance to public sector employees. There was no other company doing so before.
Nevertheless, some industry players argue that the market is still too congested. They often highlight the example of Pacific Assurance Group, which used Section 60 of the Insurance Act 1995 to apply for voluntary liquidation, as they could not raise the required capital. The revision will enhance the Office of the Insurance Commissioner’s ability to enforce regulations.
Which key factors are shaping the performance of the general insurance segment?
SAMUEL: About PGK100m-150m ($30.3m-45.5m) of business in the general insurance segment goes to offshore firms annually. This figure is too high, in light of developments in the resource sectors, especially energy. However, there is still a lot of ground for domestic players to make up in expanding the insurance knowledge of top executives, giving more powers to underwriting managers and investing extra capital. The only way to stem the outflow of money to offshore insurers is to improve domestic underwriting requirements and the capital base. This would make domestic insurers more competitive relative to their foreign rivals. At the moment Section 37 of the act controls what is placed on offshore firms. The law states that if a local insurer can provide the same cover but it is 17.5% more expensive than the price quoted by foreign insurers, the cover can be placed offshore. Sound management and underwriting practices can make the difference in this.
General insurance firms in PNG are also looking for new markets to penetrate. Mobile phone technology could constitute the best avenue for this, with many African markets offering good examples to follow.
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