Philip Tolley, Managing Director, Capital Insurance: Interview

Interview: Philip Tolley

How would you assess the likely risks for the insurance industry in Papua New Guinea at present?

PHILIP TOLLEY: The insurance industry in PNG has encountered several challenges in recent years, most notably the major fires in Lae and Mount Hagen, which were caused largely by fluctuations in the power supply and electric faults, and which caused significant losses for the industry. While fire brigades in PNG may arrive quickly at the scene of an accident, they often lack the resources to control fires. As a result, risk has escalated over the years and part of the costs have been passed to the clients, hindering the industry’s growth. Fortunately, PNG is not in the cyclone belt, although this may change as the planet continues to undergo the effects of climate change.

To what extent is the insurance industry benefitting from regional integration?

TOLLEY: Regional expansion is a natural evolution for the insurance sector. Our group is already present in six different countries within the region, absorbing 40% of our activities, and other players are looking at a similar structure for the future. Whereas Australia and New Zealand remain crowded markets, this part of the world still offers many untapped opportunities. That said, PNG has great potential and it remains our primary focus for the time being.

How would you evaluate the prospects of the health insurance segment in PNG?

TOLLEY: Growing foreign investment in PNG has expanded the business opportunities available to health care providers in the private sector. As we have seen in more developed markets, insurance companies can offer a range of private plans to help cover the costs of diagnosis and treatments, with a choice of specialists that are bound to grow as the middle class expands. As disposable incomes rise, people will want to invest more in medical insurance products, providing plenty of business for private health care institutions in the years ahead. From the industry’s perspective, however, the risk involved with health insurance remains high in PNG. One way to resolve this challenge would be for operators to acquire existing hospitals to fully control the product. The most important factor, however, would be to provide high-quality medical facilities to our clients, as too many people continue to die of very common and preventable diseases in PNG. This would benefit us as an insurance company while improving consumers’ lives, so it is a win-win situation for all concerned.

What factors have contributed to the low insurance penetration rates in PNG?

TOLLEY: Penetration continues to be low in PNG compared to the rest of the region, primarily due to a lack of awareness about the benefits of insurance products. Many purchase insurance products when obliged to access credit, but often stop insuring the asset once the financing is over. This may be attributed to the traditional wantok system, whereby the extended family steps in during times of trouble, operating as a sort of informal insurance structure. While this has deep cultural roots in society and may work well for smaller issues, it can become impractical in more serious cases such as car accidents – let alone if your house burns down. The growth of the insurance industry in PNG will compel people to project ahead rather than only planning for the short term.

Furthermore, we can make better use of technology to improve penetration rates in the long run, as insurance can now be purchased on a mobile phone, with payments going out from your prepaid credit on a regular basis. Similarly, insurance premium funding, a loan programme that allows companies to preserve valuable cash flows by spreading the cost of annual insurance premiums over a period of 6-12 months, is already very common worldwide, and is worth $25bn a year in Australia. We therefore have reason to believe that it could over time gain ground in PNG as well.