Strong potential in Papua New Guinea’s insurance market

A projected rise in home ownership, along with 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 during the course of the year.

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 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 last year from double-digit figures in the five years to 2013. In life and superannuation, government efforts to promote indigenous SMEs should support expanding employee benefits and retirement savings products.

Cultural barriers

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

One reason behind this trend is cultural factors, Inspac Limited CEO Ian Balfour told OBG, adding that the local population rely on family members for support rather than the financial sector. “The biggest obstacle to the growth of the industry continues to be the Wantok system in PNG, where people rely on their extended family as a safety net in case of trouble instead of transferring the balance sheet liabilities of their risks to professional underwriters,” Balfour said.

In a recent interview with the local media, Raka Taviri, the 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, founder and director of the Pacific Assurance Group (PAG), said in early January that nationally-owned businesses often ceased operations due to disaster, fire or tribal fights. “The government really needs to be involved and appreciate that insurance is the backbone to economic development,” he said.

Growth potential

One segment 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 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 that several companies are expanding within the segment,” he said.

PAG’s CEO Paul Affleck agreed that 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.

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.

Global demand

However, the sector may suffer from wider economic trends.  In an A.M. Best risk report on PNG, published last year, 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 plunging late last year 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 2012-2013, with the non-life sector dominating with premiums written worth an estimated $166m in 2013 compared with $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.