Market Trends of Papua New Guinea Life & Annuity Insurance Industry
This section covers the major market trends shaping the Papua New Guinea Life & Annuity Insurance Market according to our research experts:
Favorable Regulatory Reforms is Boosting the Market
The regulator of life insurance is the Bank of Papua New Guinea (Central Bank) which administers the Life Insurance Act 2000 and issues licenses to life insurance companies and brokers. In terms of Policyholder protection - Life insurance policyholders also have the benefit of the statutory fund relating to the life insurance business. The fund gives priority to the interest of the policyholders and has restrictions on its liabilities and expenditure. There is no restriction on what activities an insurer may outsource and no requirement for regulatory approval for outsourcing. However formal agreements with agents are required and may be monitored by the Insurance Commissioner. Responsibility for the outsourced service remains with the insurer.
The sector is open and welcomes foreign investment, and there are no specific foreign investment restrictions in place. However, certain steps must be taken for companies wishing to operate locally. They must be incorporated in the country (though some foreign insurers are grandfathered to operate as branches) and all insurance-related entities require authorisation to operate. This includes not only the insurance companies but also insurance agents, brokers and loss adjusters.
When an investor buys more than 15% of a life insurer, the investor must have the approval of the central bank as a shareholder controller. Standard fit-and-proper requirements are also in the relevant laws and must be met. However, the sector is not closed, and basic capital requirements are relatively low. The minimum capital for general insurers is PGK2million (USD 683,000), while it is PGK 4 million (USD 1.4 million) for life insurers.
An increase in Gross Domestic Product is driving the market
With a low penetration rate of below 2%, Papua New Guinea's insurance sector has significant growth potential. The economy is expected to benefit from a range of new extractive projects and this, coupled with growing awareness about the benefits of insurance coverage, is set to increase demand. However, some notable challenges will need to be addressed to ensure the long-term expansion of the industry.
While efforts have been undertaken to modernise the sector in recent years, the legislation governing the industry is not fully aligned with international best practices, and uncertainty remains regarding the division of responsibilities between different regulatory authorities. Despite a host of challenges, efforts to expand coverage across PNG to lower-income households are being made, with micro-insurance a key driver of penetration. While the majority of households lack sufficient income and financial literacy to take advantage of insurance coverage, the promise of a maturing economy bodes well for the sector over the long term.
As with financial services more broadly, the sector's performance has fluctuated in line with economic cycles. According to the first volume of the 2019 national budget, financial services and insurance sector activity is set to expand by 2.6% in 2019 compared to negative real growth of 2.3% in 2017. Driven by demand from new extractive projects, financial and insurance activity is expected to contribute around PGK 1.48 billion (USD 449 million) to real GDP in 2019 compared to PGK 1.44 billion (USD 437 million) in 2018.
