Papua New Guinea: Insurance growth at risk

While a wave of major resource-related projects in Papua New Guinea (PNG) presents significant growth opportunities for private insurers, concern is rising that industry players could be put off entering the market unless the government takes steps to ensure the public insurance segment is better regulated and supervised.

In a move that instilled confidence in the sector but also brought criticism from the national regulator, state-owned Motor Vehicles Insurance (MVIL) announced plans last August to invest heavily in a number of new capital ventures.

Local reports said acting chief executive officer, Joe Wemin, told the National that the service industries had grown in response to the economic boom fuelled by Exxonmobil’s liquefied natural gas (LNG) development. “MVIL’s target is to increase the present net value of the company by 20-30% and venture into capital investments,” he said. “It will minimise investment in high-risk areas and increase it in low risks with high returns.”

PNG Industry reported in the same month that MVIL, reportedly worth PGK516m ($247m), had extended its compulsory, third-party insurance business into the Solomon Islands, Fiji and Timor Leste.

In an August 2012 report, the PNG Insurance Commission (PNGIC) said the controversial investment plans, which were endorsed by MVIL’s board pending approval from the state-owned Independent Public Business Corporation, were “not considered standard for a manager of a CTP (compulsory third party) scheme”.

“Direct investments such as the controversial PGK100m ($47.7m) investment in Australia is an example of such investments,” the commission added. The PNGIC was referring to revelations made in April 2012 that from the PGK100m “invested” by MVIL with Australian firm Woodlawn Capital in July 2009, only some PGK9m ($4.3m) had been recovered.

There are around 14 general insurers and five licensed life insurance companies operating in PNG, including QBE Insurance, which dates back to 1886 when it was set up under its original name of North Queensland Insurance Company.

PNG’s private insurance industry is worth around PGK800m-900m ($382.2m-430.1m) in total gross written premiums. While small by international standards, business is expected to expand on the back of projects such as the PNG LNG development, which is spearheading an influx of expatriate workers. Rising income levels at home are also expected to push up domestic demand, creating a need for new products.

However, the introduction of new products presents a number of challenges for insurers, prompted by the island’s size and diversity and complicated further by a lack of general education about financial products. “The [insurance] industry really covers only about 15% of the overall economy,” Wayne Dorgan, chairman of PNGIC, told OBG.

Despite the hurdles it faces, the industry has made headway in generating new business tailored for the domestic market. Last year Pacific MMI and Nationwide Microbank launched a micro-insurance product designed to appeal to workers in the sizable informal economy. “We expect to see rising demand for micro-insurance products in the coming years,” Tony Westaway, managing director of Nationwide Microbank, told OBG.

Observers suggest that the development of the private insurance sector will put state insurance under pressure to improve. Both the Bank of PNG (BPNG) and the Insurance Commission have emphasised the importance of transparency in the use of funds to ensure accountability. The BPNG also highlighted the need for greater coordination between it and the Insurance Commissioner’s Office. Those observations echo comments made in an IMF report from July 2011 that “important steps (were) still needed to strengthen the regulation and supervision of the ... insurance sector”.

The current cover offered by state-run insurance plans has also come in for criticism, with associations representing the public services calling on the government to ensure state-run policies provide better protection for workers.

In October, the president of the PNG Nurses Association, Eimi Kaptigau, pointed out that nurses patrolling rural areas of the country were not covered under current policies. “Our lives are not insured by the government and when some of our colleagues die or are involved in accidents and end up in hospital, we do not have life insurance that can cover us, and that really disappoints us,” she said.

Kaptigau was talking at the launch of an Improved Medical and Life Insurance Policy for nurses. Under the scheme, health workers have been offered extensive cover from the Life Insurance Corporation (PNG), a subsidiary of the National Teachers Insurance. She said that from the 8000-plus nurses working throughout the country, only 350 had registered with the Life Insurance Corporation (PNG) to date.

Observers have voiced concern that rising demand for improved state policies could hinder growth in the sector. However, most agree that government action aimed at better regulating the public insurance segment and ensuring private investors are not discouraged from participating is the key to sectoral expansion.